Destination Maternity (DEST) adj.-Comps Fell 5.1% in Q3; Prelim. Sales Miss Expectations

Destination Maternity (Nasdaq: DEST)reported sales for the third quarter of fiscal 2014 ended June 30, 2014.

Net sales for the third quarter of fiscal 2014 decreased 5.5% to $134.0 million from $141.9 million reported for the third quarter of fiscal 2013. Comparable sales data (which includes Internet sales) for the third quarter of fiscal 2014 and 2013 is presented in the table below.

The decrease in total reported sales for the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013 resulted primarily from the decrease in comparable sales and decreased sales related to the Company's continued efforts to close underperforming stores.

Net sales for the first nine months of fiscal 2014 decreased 4.2% to $394.9 million from $412.0 million reported for the first nine months of fiscal 2013. Comparable sales data (which includes Internet sales) for the first nine months of fiscal 2014 and 2013 is presented in the table below.

The decrease in total reported sales for the first nine months of fiscal 2014 compared to the first nine months of fiscal 2013 resulted primarily from the decrease in comparable sales and decreased sales related to the Company's continued efforts to close underperforming stores.

As previously announced on July 2, 2014, the Company has proposed a combination with Mothercare plc ("Mothercare") and is therefore subject to the provisions of the UK Takeover Code (the "Code"). Due to the requirements of the Code applicable to profit estimate disclosures (which include enhanced review procedures by the Company's independent public accountants), the Company is not currently permitted to update its 2014 profit and earnings per share guidance in accordance with its customary quarterly practice. However, as a result of the weakness in sales results reported herein, as well as weakness in gross margin due to higher than planned price promotional and markdown activity, the Company expects that its diluted and adjusted diluted earnings per share for the third fiscal quarter (ended June 30, 2014) and its operating income, adjusted EBITDA and diluted and adjusted diluted earnings per share for the full fiscal year 2014 will be below the guidance ranges provided previously and, as such, the quarterly and full fiscal year guidance provided previously is no longer valid. The Company expects it will issue earnings results for the third quarter and nine month period ended June 30, 2014 by no later than August 11, 2014 (which is the deadline for the filing of the Company's Quarterly Report on Form 10Q).

Ed Krell, Chief Executive Officer of Destination Maternity, noted, "Our total sales of $134.0 million for the third quarter were considerably weaker than planned and were below the low end of our sales guidance range of $138 to $142 million provided in our April 24 press release, primarily due to our reported comparable sales decrease of 5.3%, which was below the low end of our guidance range for a comparable sales change of between a decrease of 1% and an increase of 2% for the quarter. We attribute this sales weakness to (1) a continued difficult overall economic and retail environment, resulting in decreased store traffic for us and many retailers, (2) weaker consumer reception than expected to certain portions of our merchandise assortments, reflecting continued opportunity to enhance our merchandise assortments, (3) the negative sales impact from the current popularity of many looser-fitting fashion trends in the non-maternity women's apparel market, such as maxi dresses, baby doll dresses, active bottoms with elastic waists, other soft knit elastic-waist bottoms and shorts, and oversized peasant-style woven tops, all of which can more readily fit a pregnant woman than typical non-maternity fashions, and could thus be purchased in numerous non-maternity retail stores, and not only in our stores, (4) the later arrival of warmer, Spring-like weather versus last year throughout much of the United States, which shortened the full-price selling season for Spring and Summer merchandise and led to our higher than planned price promotional and markdown activity to manage inventory in the face of lower than planned sales and earlier and deeper price promotional activity among our maternity apparel competitors, and (5) some increased competitive activity in the maternity apparel space compared to last year. We remain focused on driving improvement in our sales performance through initiatives to enhance our merchandise assortments, merchandise presentation, store environment and customer experience."

For the quarter ended June 30, 2014, the Company opened five stores, including four Destination Maternity nameplate stores, and closed eight stores, including one closing related to a Destination Maternity nameplate store opening. For the nine months ended June 30, 2014, the Company opened 16 stores, including six Destination Maternity nameplate stores, and closed 37 stores, including six closings of Destination Maternity nameplate stores and four store closings related to Destination Maternity nameplate store openings. As of June 30, 2014, the Company operates 575 stores, 1,326 leased department locations and 1,901 total retail locations, compared to 606 stores, 1,287 leased department locations and 1,893 total retail locations operated as of June 30, 2013. The growth in the number of leased department locations at June 30, 2014 compared to June 30, 2013 resulted predominantly from the increase in the number of leased departments operated in buybuy BABY® stores. As of June 30, 2014, the Company operates leased departments in 87 buybuy BABY stores, an increase from the 59 leased departments operated in buybuy BABY stores as of September 30, 2013, and the 44 leased departments operated in buybuy BABY stores as of June 30, 2013.

Days Adjustment Calendar Shift

Destination Maternity reports sales on a calendar quarter basis, rather than on a "4-5-4 retail fiscal calendar" where each fiscal week and fiscal quarter starts on a Sunday and ends on a Saturday. Thus, for each calendar quarter, there is a "days adjustment calendar shift" which may help or hurt reported calendar quarter sales and comparable sales due to different days of the week typically contributing more sales than other days of the week. In order to quantify and eliminate the effect on reported comparable sales results of the "days adjustment calendar shift", the Company also presents comparable sales on a calendar-adjusted basis. For the third quarter of fiscal 2014, calendar-adjusted comparable sales were measured for the period Tuesday April 1, 2014 through Monday June 30, 2014 compared to the period Tuesday April 2, 2013 through Monday July 1, 2013. The Company estimates the calendar shift unfavorably impacted its reported comparable sales for the third quarter of fiscal 2014 by approximately 0.2 percentage points. Thus, calendar-adjusted comparable sales for the third quarter of fiscal 2014 decreased 5.1%, compared to the reported comparable sales decrease of 5.3%. For the first nine months of fiscal 2014, calendar-adjusted comparable sales were measured for the period Tuesday October 1, 2013 through Monday June 30, 2014 compared to the period Tuesday October 2, 2012 through Monday July 1, 2013. The Company estimates the calendar shift had negligible impact on its reported comparable sales for the first nine months of fiscal 2014. Thus, both calendar-adjusted comparable sales and reported comparable sales for the first nine months of fiscal 2014 decreased 3.3%. The Company estimates the calendar shift unfavorably impacted its reported comparable sales for the third quarter of fiscal 2013 by approximately 0.4 percentage points. The Company estimates the calendar shift unfavorably impacted its reported comparable sales for the first nine months of fiscal 2013 by approximately 0.9 percentage points, primarily as a result of: (1) having one less Saturday versus the first nine months of fiscal 2012, and (2) having one less day versus the first nine months of fiscal 2012 due to the leap year in 2012.

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