Form 8-K Destination Maternity For: Sep 07
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 7, 2017
DESTINATION MATERNITY CORPORATION
(Exact name of Registrant as specified in Charter)
| Delaware | 0-21196 | 13-3045573 | ||
| (State or Other Jurisdiction of Incorporation or Organization) |
Commission File number |
(I.R.S. Employer Identification Number) |
232 Strawbridge Drive
Moorestown, NJ 08057
(Address of Principal Executive Offices)
(856) 291-9700
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition |
On September 7, 2017, Destination Maternity Corporation (the “Company”) issued a press release and held a broadly accessible conference call to discuss its financial results for the quarter ended July 29, 2017. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. A copy of the script read by management during the conference call is attached hereto as Exhibit 99.2 and is incorporated herein by reference.
The press release contained non-GAAP financial measures within the meaning of the Securities and Exchange Commission’s Regulation G, including: (a) Adjusted EBITDA (operating income (loss) before deduction for the following non-cash charges: (i) depreciation and amortization expense; (ii) loss on impairment of tangible and intangible assets; (iii) loss on disposal of assets; and (iv) stock-based compensation expense), together with the percentage of net sales represented by this measure; (b) Adjusted EBITDA before other charges and change in accounting principle, together with the percentage of net sales represented by this measure; and (c) Adjusted net income (loss) (net income (loss) before certain charges or credits), together with the per share-diluted amount represented by this measure.
The Company believes that each of these non-GAAP financial measures provides useful information about the Company’s results of operations and/or financial position to both investors and management. Each non-GAAP financial measure is provided because management believes it is an important measure of financial performance used in the retail industry to measure operating results, to determine the value of companies within the industry and to define standards for borrowing from institutional lenders. The Company uses each of these non-GAAP financial measures as a measure of the performance of the Company. In addition, certain of the Company’s cash and equity incentive compensation plans are based on the Company’s level of achievement of Adjusted EBITDA before other charges and change in accounting principle.
The Company provides these measures to investors to assist them in performing their analysis of its historical operating results. Each of these non-GAAP financial measures reflects a measure of the Company’s operating results before consideration of certain charges or credits and consequently, none of these measures should be construed as an alternative to net income (loss) or operating income (loss) as an indicator of the Company’s operating performance, as determined in accordance with generally accepted accounting principles. The Company may calculate each of these non-GAAP financial measures differently than other companies.
With respect to the non-GAAP financial measures discussed in the press release, the Company has provided, as an attachment to such press release, a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures.
The disclosure in this Current Report, including in the Exhibits attached hereto, of any financial information shall not constitute an admission that such information is material.
| Item 9.01. | Financial Statements and Exhibits |
The following exhibits are filed or furnished with this Form 8-K:
| Exhibit |
Description | |
| 99.1 | Press Release of the Company issued September 7, 2017. | |
| 99.2 | Script for September 7, 2017 Earnings Release Conference Call. | |
-2-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized.
| Date: September 8, 2017 | DESTINATION MATERNITY CORPORATION | |||||
| By: | /s/ David Stern | |||||
| David Stern | ||||||
| Executive Vice President & Chief Financial Officer | ||||||
-3-
Exhibit Index
| Exhibit |
Description | |
| 99.1 | Press Release of the Company issued September 7, 2017. | |
| 99.2 | Script for September 7, 2017 Earnings Release Conference Call. | |
-4-
Exhibit 99.1
DESTINATION MATERNITY REPORTS SECOND QUARTER AND FIRST SIX MONTHS FISCAL 2017 RESULTS
• E-commerce sales rise 30.2% from prior year second quarter
• Second quarter gross margin improves 150 basis points
Moorestown, NJ, September 7, 2017 – Destination Maternity Corporation (NASDAQ: DEST), the world’s leading maternity apparel retailer, today announced financial results for the second quarter and first six months of fiscal 2017 ended July 29, 2017 compared to the second quarter and first six months of fiscal 2016 ended July 30, 2016.
Second Quarter Fiscal 2017 Financial Results
| • | Net sales were $98.3 million compared with $106.5 million for the comparable prior year quarter. The decrease was driven by the closure of underperforming stores, a decline in comparable sales, and exit of the Kohl’s® relationship, which was included in prior year results. |
| • | Comparable sales decreased 3.4%, compared to a 2.7% decrease for the second quarter of fiscal 2016. Comparable sales for the second quarter of fiscal 2017 included a 30.2% increase in e-commerce sales. |
| • | Gross margin was 53.0%, up 150 basis points over the comparable prior year quarter gross margin of 51.5%. |
| • | SG&A for the second quarter of fiscal 2017 decreased 6.7% to $52.8 million, compared to $56.6 million for the second quarter of fiscal 2016. As a percentage of net sales, SG&A increased to 53.7% for the second quarter of fiscal 2017 compared to 53.1% for the second quarter of fiscal 2016. |
| • | The Company incurred store closing, asset impairment and asset disposal expenses of $1.1 million compared to expenses of $0.4 million for the second quarter of fiscal 2016. |
| • | Other charges, net during the second quarter of fiscal 2017 resulted in income of $0.2 million, primarily related to the now terminated merger, compared to charges of $0.9 million in the second quarter of fiscal 2016, primarily for management and organizational changes and the now terminated merger. |
| • | Adjusted EBITDA before other charges was $4.1 million compared to $3.3 million for the second quarter of fiscal 2016. Adjusted EBITDA before other charges is defined in the financial tables at the end of this press release. |
| • | GAAP net loss was $2.8 million, or $0.20 per diluted share, compared to GAAP net loss of $2.5 million, or $0.18 per diluted share, for the second quarter of fiscal 2016. |
| • | Adjusted net loss was $1.8 million, or $0.13 per diluted share, compared to adjusted net loss of $2.0 million, or $0.14 per diluted share, for the second quarter of fiscal 2016. For a reconciliation of GAAP to non-GAAP financial information refer to the financial tables at the end of this press release. |
1
First Six Months of Fiscal 2016 Financial Results (26 weeks ended July 29, 2017)
| • | Net sales were $204.7 million compared to $231.0 million for the six months ended July 30, 2016. The decrease in sales was primarily driven by a decline in comparable sales, the closure of underperforming stores, and the wind down of the Kohl’s, Sears and Gordmans relationships. |
| • | Comparable sales decreased 5.5%, compared to a decrease of 4.2% for the six months ended July 30, 2016. |
| • | Gross margin increased 80 basis points to 53.7% compared to 52.9% for the six months ended July 30, 2016. |
| • | SG&A for the first six months of fiscal 2017 decreased $6.9 million to $108.5 million, or 53.0% of net sales, compared to $115.4 million, or 50.0% of net sales. |
| • | Store closing, asset impairment and asset disposal expenses were $2.6 million, compared to $1.0 million for the six months ended July 30, 2016. |
| • | Other charges, net during the first six months of fiscal 2017 were $0.6 million, primarily related to the now terminated merger, compared to $1.5 million in the first six months of fiscal 2016, primarily for management and organizational changes and the now terminated merger. |
| • | Adjusted EBITDA before other charges and change in accounting principle was $10.4 million for the first half of fiscal 2017 compared to $16.5 million for the first half of fiscal 2016. Adjusted EBITDA before other charges and change in accounting principle is defined in the financial tables at the end of this press release. |
| • | GAAP net loss was $3.9 million, or $0.28 per diluted share, compared to GAAP net income of $1.5 million, or $0.11 per diluted share, for the six months ended July 30, 2016. |
| • | Adjusted net loss was $2.5 million, or $0.18 per diluted share, compared to adjusted net income of $2.5 million, or $0.18 per diluted share, for the six months ended July 30, 2016. |
Other Financial Information
| • | Inventories were $69.8 million at July 29, 2017, a decrease of approximately $0.7 million compared to $70.5 million at July 30, 2016. |
| • | Capital expenditures totaled $3.6 million primarily driven by investments in stores and, to a lesser extent, investments to support key systems projects. For the first six months of fiscal 2016 capital expenditures of $6.8 million were primarily driven by investments in stores and investments to support key systems projects. |
| • | Debt, net of cash, was $37.1 million at July 29, 2017, a decrease of $3.4 million compared to $40.5 million at July 30, 2016. |
2
Retail Locations
The table below summarizes store opening and closing activity for the three and six months ended July 29, 2017 and July 30, 2016, as well as the Company’s total store, leased department and retail location count at the end of each fiscal period.
| Three Months Ended | Six Months Ended | |||||||||||||||
| July 29, | July 30, | July 29, | July 30, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Store Openings (1) |
1 | 3 | 5 | 6 | ||||||||||||
| Store Closings (1) |
5 | 7 | 13 | 16 | ||||||||||||
| Period End Retail Location Count (1) |
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| Stores |
507 | 526 | 507 | 526 | ||||||||||||
| Leased Department Locations |
643 | 701 | 643 | 701 | ||||||||||||
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| Total Retail Locations |
1,150 | 1,227 | 1,150 | 1,227 | ||||||||||||
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| 1) | Excludes international franchised locations. As of July 29, 2017 Destination Maternity has 210 international franchised locations, including 18 standalone stores operated under one of the Company’s nameplates and 192 shop-in-shop locations. |
Conference Call Information
As announced previously, the Company will hold a conference call today at 9:00 a.m. Eastern Time, regarding the Company’s second quarter fiscal 2017 financial results. Interested parties can participate in this conference call by dialing (800) 219-6970 in the United States and Canada or (574) 990-1028 outside of the United States and Canada. Please call ten minutes prior to 9:00 a.m. Eastern Time. The conference call will also be available on the investor section of the Company’s website at http://investor.destinationmaternity.com. The passcode for the conference call is 76527468. In the event that you are unable to listen to the call, a replay will be available at 12:00 p.m. Eastern Time on Thursday, September 7, 2017 through 12:00 p.m. Eastern Time Thursday, September 14, 2017 by calling (855) 859-2056 in the United States and Canada or (404) 537-3406 outside of the United States and Canada. The passcode for the replay is 76527468.
About Destination Maternity
Destination Maternity Corporation is the world’s largest designer and retailer of maternity apparel. As of July 29, 2017 Destination Maternity operates 1,150 retail locations in the United States, Canada and Puerto Rico, including 507 stores, predominantly under the trade names Motherhood Maternity®, A Pea in the Pod® and Destination Maternity®, and 643 leased department locations. The Company also sells merchandise on the web primarily through its brand-specific websites, motherhood.com and apeainthepod.com, as well as through its destinationmaternity.com website. Destination Maternity has international store franchise and product supply relationships in the Middle East, South Korea, Mexico, Israel and India. As of July 29, 2017 Destination Maternity has 210 international franchised locations, including 18 standalone stores operated under one of the Company’s nameplates and 192 shop-in-shop locations.
3
Reconciliation of Non-GAAP Financial Measures
This press release and the accompanying financial tables contain non-GAAP financial measures within the meaning of the SEC’s Regulation G, including 1) adjusted net income (loss), 2) adjusted net income (loss) per share - diluted, 3) Adjusted EBITDA, 4) Adjusted EBITDA before other charges and change in accounting principle, 5) Adjusted EBITDA margin, and 6) Adjusted EBITDA margin before other charges and change in accounting principle. In the accompanying financial tables, the Company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. The Company’s management believes that each of these non-GAAP financial measures provides useful information about the Company’s results of operations and/or financial position to both investors and management. Each non-GAAP financial measure is provided because management believes it is an important measure of financial performance used in the retail industry to measure operating results, to determine the value of companies within the industry and to define standards for borrowing from institutional lenders. The Company uses each of these non-GAAP financial measures as a measure of the performance of the Company. In addition, certain of the Company’s cash and equity incentive compensation plans are based on the Company’s level of achievement of Adjusted EBITDA before other charges and change in accounting principle. The Company provides these various non-GAAP financial measures to investors to assist them in performing their analysis of its historical operating results. Each of these non-GAAP financial measures reflects a measure of the Company’s operating results before consideration of certain charges and consequently, none of these measures should be construed as an alternative to net income (loss) or operating income (loss) as an indicator of the Company’s operating performance, as determined in accordance with generally accepted accounting principles. The Company may calculate each of these non-GAAP financial measures differently than other companies.
Forward-Looking Statements
The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this press release or made from time to time by management of the Company, including those regarding earnings, net sales, comparable sales, other results of operations, liquidity and financial condition, and various business initiatives, involve risks and uncertainties, and are subject to change based on various important factors. The following factors, among others, in some cases have affected and in the future could affect the Company’s financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any such forward-looking statements: the strength or weakness of the retail industry in general and of apparel purchases in particular, our ability to successfully manage our various business initiatives, the success of our international business and its expansion, our ability to successfully manage and retain our leased department and international franchise relationships and marketing partnerships, future sales trends in our various sales channels, unusual weather patterns, changes in consumer spending patterns, raw material price increases, overall economic conditions and other factors affecting consumer confidence, demographics and other macroeconomic factors that may impact the level of spending for apparel (such as fluctuations in pregnancy rates and birth rates), expense savings initiatives, our ability to anticipate and respond to fashion trends and consumer preferences, unanticipated fluctuations in our operating results, the impact of competition and fluctuations in the price, availability and quality of raw materials and contracted products, availability of suitable store locations, continued availability of capital and financing, our ability to hire, develop and retain senior management and sales associates, our ability to develop and source merchandise, our ability to receive production from foreign sources on a timely basis, our compliance with applicable financial and other covenants under our financing arrangements, potential debt prepayments, the trading liquidity of our common stock, changes in market interest rates, our compliance with certain tax incentive and abatement programs, war or acts of terrorism and other factors set forth in the Company’s periodic filings with the U.S. Securities and Exchange Commission (the “SEC”), or in materials incorporated therein by reference.
4
Although it is believed that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and persons reading this announcement are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this announcement. The Company assumes no obligation to update or revise the information contained in this announcement (whether as a result of new information, future events or otherwise), except as required by applicable law.
– Financial Tables to Follow –
| CONTACT: | Allison Malkin |
| Caitlin Morahan |
| ICR, Inc. |
| [email protected] |
| 203-682-8225 |
5
DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except percentages and per share data)
(unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| July 29, | July 30, | July 29, | July 30, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net sales |
$ | 98,280 | $ | 106,529 | $ | 204,706 | $ | 230,959 | ||||||||
| Cost of goods sold |
46,227 | 51,699 | 94,714 | 108,857 | ||||||||||||
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| Gross profit |
52,053 | 54,830 | 109,992 | 122,102 | ||||||||||||
| Gross margin |
53.0 | % | 51.5 | % | 53.7 | % | 52.9 | % | ||||||||
| Selling, general and administrative expenses (SG&A) |
52,806 | 56,619 | 108,455 | 115,394 | ||||||||||||
| SG&A as a percentage of net sales |
53.7 | % | 53.1 | % | 53.0 | % | 50.0 | % | ||||||||
| Store closing, asset impairment and asset disposal expenses |
1,120 | 442 | 2,638 | 1,048 | ||||||||||||
| Other charges, net |
(171 | ) | 875 | 646 | 1,544 | |||||||||||
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| Operating income (loss) |
(1,702 | ) | (3,106 | ) | (1,747 | ) | 4,116 | |||||||||
| Interest expense, net |
979 | 973 | 1,983 | 1,625 | ||||||||||||
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| Income (loss) before income taxes |
(2,681 | ) | (4,079 | ) | (3,730 | ) | 2,491 | |||||||||
| Income tax provision (benefit) |
93 | (1,570 | ) | 186 | 959 | |||||||||||
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| Net income (loss) |
$ | (2,774 | ) | $ | (2,509 | ) | $ | (3,916 | ) | $ | 1,532 | |||||
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| Net income (loss) per share – Basic |
$ | (0.20 | ) | $ | (0.18 | ) | $ | (0.28 | ) | $ | 0.11 | |||||
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| Average shares outstanding – Basic |
13,793 | 13,700 | 13,771 | 13,692 | ||||||||||||
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| Net income (loss) per share – Diluted |
$ | (0.20 | ) | $ | (0.18 | ) | $ | (0.28 | ) | $ | 0.11 | |||||
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| Average shares outstanding – Diluted |
13,793 | 13,700 | 13,771 | 13,697 | ||||||||||||
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| Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss): |
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| Net income (loss), as reported |
$ | (2,774 | ) | $ | (2,509 | ) | $ | (3,916 | ) | $ | 1,532 | |||||
| Add: other charges for proposed business combination |
(165 | ) | 652 | 649 | 873 | |||||||||||
| Add: other charges for management and organizational changes |
(6 | ) | 223 | (3 | ) | 671 | ||||||||||
| Less: income tax effect of other charges |
64 | (334 | ) | (242 | ) | (590 | ) | |||||||||
| Less: effect of change in accounting principle |
— | — | (764 | ) | — | |||||||||||
| Add: income tax effect of change in accounting principle |
— | — | 284 | — | ||||||||||||
| Add: deferred tax valuation allowance related to cumulative losses |
1,073 | — | 1,497 | — | ||||||||||||
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| Adjusted net income (loss) |
$ | (1,808 | ) | $ | (1,968 | ) | $ | (2,495 | ) | $ | 2,486 | |||||
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| Adjusted net income (loss) per share – diluted |
$ | (0.13 | ) | $ | (0.14 | ) | $ | (0.18 | ) | $ | 0.18 | |||||
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DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
| July 29, 2017 |
January 28, 2017 |
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| ASSETS | ||||||||
| Current assets: |
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| Cash and cash equivalents |
$ | 2,161 | $ | 2,859 | ||||
| Trade receivables, net |
5,904 | 5,683 | ||||||
| Inventories |
69,759 | 69,040 | ||||||
| Prepaid expenses and other current assets |
7,568 | 9,464 | ||||||
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| Total current assets |
85,392 | 87,046 | ||||||
| Property and equipment, net |
76,128 | 83,029 | ||||||
| Other assets |
4,048 | 5,912 | ||||||
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| Total assets |
$ | 165,568 | $ | 175,987 | ||||
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| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
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| Line of credit borrowings |
$ | 4,200 | $ | 4,600 | ||||
| Current portion of long-term debt |
8,094 | 6,948 | ||||||
| Accounts payable |
17,071 | 17,656 | ||||||
| Accrued expenses and other current liabilities |
28,403 | 31,359 | ||||||
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| Total current liabilities |
57,768 | 60,563 | ||||||
| Long-term debt |
26,986 | 31,485 | ||||||
| Deferred rent and other non-current liabilities |
22,781 | 22,789 | ||||||
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| Total liabilities |
107,535 | 114,837 | ||||||
| Stockholders’ equity |
58,033 | 61,150 | ||||||
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| Total liabilities and stockholders’ equity |
$ | 165,568 | $ | 175,987 | ||||
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Selected Consolidated Balance Sheet Data
(in thousands)
(unaudited)
| July 29, | January 28, | July 30, | ||||||||||
| 2017 | 2017 | 2016 | ||||||||||
| Cash and cash equivalents |
$ | 2,161 | $ | 2,859 | $ | 2,752 | ||||||
| Inventories |
69,759 | 69,040 | 70,528 | |||||||||
| Property and equipment, net |
76,128 | 83,029 | 89,793 | |||||||||
| Line of credit borrowings |
4,200 | 4,600 | 1,700 | |||||||||
| Total debt |
39,280 | 43,033 | 43,297 | |||||||||
| Stockholders’ equity |
58,033 | 61,150 | 94,814 | |||||||||
DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Six Months Ended | ||||||||
| July 29, | July 30, | |||||||
| 2017 | 2016 | |||||||
| Operating Activities |
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| Net income (loss) |
$ | (3,916 | ) | $ | 1,532 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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| Depreciation and amortization |
8,888 | 8,927 | ||||||
| Stock-based compensation expense |
830 | 968 | ||||||
| Loss on impairment of long-lived assets |
2,446 | 733 | ||||||
| Loss on disposal of assets |
116 | 215 | ||||||
| Grow NJ award benefit |
1,815 | 1,833 | ||||||
| Deferred income tax benefit |
— | (75 | ) | |||||
| Amortization of deferred financing costs |
235 | 139 | ||||||
| Changes in assets and liabilities: |
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| Decrease (increase) in: |
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| Trade receivables |
(221 | ) | 3,297 | |||||
| Inventories |
(719 | ) | 1,981 | |||||
| Prepaid expenses and other current assets |
1,962 | (10 | ) | |||||
| Other non-current assets |
(44 | ) | (24 | ) | ||||
| Increase (decrease) in: |
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| Accounts payable, accrued expenses and other current liabilities |
(2,965 | ) | (14,057 | ) | ||||
| Deferred rent and other non-current liabilities |
(179 | ) | (153 | ) | ||||
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| Net cash provided by operating activities |
8,248 | 5,306 | ||||||
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| Investing Activities |
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| Capital expenditures |
(3,611 | ) | (6,800 | ) | ||||
| Proceeds from sale of property and equipment |
— | 2 | ||||||
| Additions to intangible assets |
(18 | ) | (45 | ) | ||||
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| Net cash used in investing activities |
(3,629 | ) | (6,843 | ) | ||||
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| Financing Activities |
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| Decrease in cash overdraft |
(1,342 | ) | (425 | ) | ||||
| Decrease in line of credit borrowings |
(400 | ) | (26,700 | ) | ||||
| Proceeds from long-term debt |
3,401 | 32,000 | ||||||
| Repayment of long-term debt |
(6,673 | ) | (1,436 | ) | ||||
| Deferred financing costs paid |
(268 | ) | (1,252 | ) | ||||
| Withholding taxes on stock-based compensation paid in connection with repurchase of common stock |
(37 | ) | (18 | ) | ||||
| Proceeds from exercise of stock options |
— | 3 | ||||||
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| Net cash (used in) provided by financing activities |
(5,319 | ) | 2,172 | |||||
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| Effect of exchange rate changes on cash and cash equivalents |
2 | 1 | ||||||
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| Net (Decrease) Increase in Cash and Cash Equivalents |
(698 | ) | 636 | |||||
| Cash and Cash Equivalents, Beginning of Period |
2,859 | 2,116 | ||||||
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| Cash and Cash Equivalents, End of Period |
$ | 2,161 | $ | 2,752 | ||||
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DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
Supplemental Financial Information
Reconciliation of Net Income (Loss) to Adjusted EBITDA(1)
and Adjusted EBITDA Before Other Charges and Change in Accounting Principle,
and Operating Income (Loss) Margin to Adjusted EBITDA Margin
and Adjusted EBITDA Margin Before Other Charges and Change in Accounting Principle
(in thousands, except percentages)
(unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| July 29, | July 30, | July 29, | July 30, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net income (loss) |
$ | (2,774 | ) | $ | (2,509 | ) | $ | (3,916 | ) | $ | 1,532 | |||||
| Add: income tax provision (benefit) |
93 | (1,570 | ) | 186 | 959 | |||||||||||
| Add: interest expense, net |
979 | 973 | 1,983 | 1,625 | ||||||||||||
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| Operating income (loss) |
(1,702 | ) | (3,106 | ) | (1,747 | ) | 4,116 | |||||||||
| Add: depreciation and amortization expense |
4,427 | 4,541 | 8,888 | 8,927 | ||||||||||||
| Add: loss on impairment of long-lived assets |
1,100 | 322 | 2,446 | 733 | ||||||||||||
| Add: loss on disposal of assets |
22 | 113 | 116 | 215 | ||||||||||||
| Add: stock-based compensation expense |
416 | 510 | 830 | 968 | ||||||||||||
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| Adjusted EBITDA (1) |
4,263 | 2,380 | 10,533 | 14,959 | ||||||||||||
| Add: other charges for proposed business combination |
(165 | ) | 652 | 649 | 873 | |||||||||||
| Add: other charges for management and organizational changes |
(6 | ) | 223 | (3 | ) | 671 | ||||||||||
| Add: effect of change in accounting principle |
— | — | (764 | ) | — | |||||||||||
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| Adjusted EBITDA before other charges and change in accounting principle |
$ | 4,092 | $ | 3,255 | $ | 10,415 | $ | 16,503 | ||||||||
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| Net sales |
$ | 98,280 | $ | 106,529 | $ | 204,706 | $ | 230,959 | ||||||||
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| Operating income (loss) margin (operating income (loss) as a percentage of net sales) |
(1.7 | )% | (2.9 | )% | (0.9 | )% | 1.8 | % | ||||||||
| Adjusted EBITDA margin (adjusted EBITDA as a percentage of net sales) |
4.3 | % | 2.2 | % | 5.1 | % | 6.5 | % | ||||||||
| Adjusted EBITDA margin before other charges and effect of change in accounting principle (adjusted EBITDA before other charges and change in accounting principle as a percentage of net sales) |
4.2 | % | 3.1 | % | 5.1 | % | 7.1 | % | ||||||||
| (1) | Adjusted EBITDA represents operating income (loss) before deduction for the following non-cash charges: (i) depreciation and amortization expense; (ii) loss on impairment of tangible and intangible assets; (iii) loss on disposal of assets; and (iv) stock-based compensation expense. |
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Exhibit 99.2
Destination Maternity
Second Quarter Fiscal 2017
Results Conference Call
09/07/17
David L. Courtright, Senior Vice President & Chief Accounting Officer:
Thank you, operator. Good morning everyone, and welcome to Destination Maternity’s second quarter fiscal 2017 earnings call. The earnings release that was disseminated this morning is available on the investor section of our website. Additionally, we will file our 10-Q today with the SEC.
The earnings release contains definitions of various financial terms, as well as reconciliations of certain non-GAAP financial measures, we will be discussing in today’s call. If non-GAAP financial information is provided on this call, a reconciliation of the non-GAAP information to the most comparable GAAP financial measure is available in our press release.
This call will include certain forward-looking statements within the meanings of the federal securities laws. These statements relate to expectations, beliefs, projections, trends, and other matters that are not historical facts, and are subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the Company’s SEC filings.
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Also I would like to remind you that today’s call cannot be reproduced in any form without the expressed written consent of Destination Maternity.
Joining me on the call today is David Stern, our Executive Vice President & Chief Financial Officer, and Ronald Masciantonio, our Executive Vice President & Chief Administrative Officer. Dave will open with an overview of the quarter followed by additional commentary on our financial results and some closing remarks. Afterward, both Dave and Ron will be available to take your questions. It is now my pleasure to turn the call over to Dave.
David Stern, Executive Vice President & Chief Financial Officer:
Thank you, Dave and good morning to everyone on the call.
First and foremost, I would like to acknowledge those impacted by Hurricane Harvey. Our thoughts are with everyone in the region, especially our valued team members, as they begin their recovery efforts from this disaster. The most important thing to us is the safety of our team members and customers and we will continue to monitor the situation. We operate 64 locations in the impacted area, 51 of those were directly impacted and were closed at least temporarily, and today we have two locations that are closed.
2
Before providing an update on our strategic initiatives and second quarter results, I would like to call your attention to the press release distributed this morning regarding changes in our executive management and Board of Directors. As noted, Allen Weinstein, an independent director of the Company, has been appointed interim Chief Executive Officer, and Barry Erdos, also an independent director, has been elected Board Chair.
Regarding the proposed merger, as previously announced on July 27th, the merger with Orchestra Prémaman was terminated. While we are disappointed that the merger was not completed, we had planned to operate Destination Maternity separately from Orchestra, so not much has changed in that regard, and we move forward with our team 100% focused on our turnaround.
I will now turn to an update on our strategic initiatives starting with e-Commerce.
We continue to be pleased with the performance of our new web platform, with e-Commerce sales rising 30% in the quarter. We saw strong increases at Motherhood.com, A Pea in the Pod.com, and Macys.com. In addition to improved site navigation, online sales were driven by exclusive web offerings.
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Looking ahead, we expect to continue to drive strong web performance through the implementation of omnichannel initiatives, including the continued expansion of stores fulfilling ecommerce orders, offering a pick-up in store option, and through the implementation of shipping system enhancements allowing more customer choice and speed to delivery. Additionally, we are launching an enhanced international shipping experience in the third quarter.
As it relates to marketing, in the second quarter we continued to invest in digital marketing to drive awareness and purchases. We are currently redefining our digital strategy to capitalize on our web success to help drive traffic to stores, with improved locator tools and future opportunities such as wardrobe appointment scheduling.
Additionally, we have engaged Berkeley Research Group (BRG) to work with our leadership team, study our business, and understand our strategies, challenges and ideas, in order to make recommendations regarding initiatives to accelerate, and to make suggestions on how to be more efficient and profitable.
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Finally, we continue our in-depth review of our real estate portfolio. In this environment, where customers are increasingly shopping online, it is critical to ensure we are operating the right number of stores and leased departments in the right locations, and with the appropriate rent structure.
Moving to the financial results of the quarter,
Sales for the second quarter were $98.3 million, a decline of $8.2 million, or 7.7% from the comparable quarter last year. The decrease in sales was primarily driven by the net closure of 19 stores since the end of the second quarter last year, a decline in comparable retail sales of 3.4%, predominantly driven by decreased store traffic and a decrease in the average selling price, partially offset by a 30.2% increase in e-Commerce sales.
Gross margin for the second quarter was 53.0%, an increase of 150 basis points from the comparable quarter last year. This improvement was primarily driven by reduced product costs. Gross profit for the second quarter was $52.1 million, a decline of $2.7 million, or 5.1% from the comparable quarter last year, with the decline in sales partially offset by improved gross margin.
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Selling, general & administrative expenses for the second quarter were $52.8 million, a decline of $3.8 million, or 6.7%, from the comparable quarter last year. The decline in SG&A was primarily driven by reduced employee costs and lower occupancy expense, partially offset by additional marketing spend. However, as a percentage of sales, SG&A increased by 60 basis points to 53.7%.
Adjusted EBITDA before other charges for the second quarter was $4.1 million, an increase of $0.8 million from the comparable quarter last year.
The net loss for the second quarter was $2.8 million, or $0.20 per share, compared to net loss for the second quarter of fiscal 2016 of $2.5 million, or $0.18 per share.
Adjusted net loss was $1.8 million, or $0.13 per share, compared to adjusted net loss of $2.0 million, or $0.14 per share, for the second quarter of fiscal 2016.
I will now turn to our year-to-date results through the second quarter.
Sales for the first six months ended July 29, 2017 were $204.7 million, a decline of $26.3 million, or 11.4% from comparable period last year. The decline in sales was primarily driven by a decrease in comparable sales of 5.5% and the previously referenced decreases in store counts, leased department relationships, and the licensed brand relationship.
6
Gross margin for the first six months of 2017 was 53.7%, an increase of 80 basis points from the comparable period last year. The improvement in gross margin was primarily driven by reduced product costs and the exit from the leased department and licensed relationships, which generated lower than average gross margins. Gross profit for the first six months was $110.0 million, a decrease of $12.1 million, or 9.9%, from last year. The decline in gross profit was driven by reduced sales partially offset by the increased gross margin.
Selling, general & administrative expenses for the first two quarters of 2017 were $108.5 million, a decrease of $6.9 million, or 6.0% from the comparable period last year. The decline in SG&A was primarily driven by reduced employee costs and lower occupancy expense, partially offset by increased marketing spend including support for the web re-platform rollout. However, as a percentage of sales, SG&A increased 300 basis points to 53.0%.
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Adjusted EBITDA before other charges and change in accounting principle for the first six months of 2017 was $10.4 million, a decrease of $6.1 million from the comparable period last year.
Net loss for the first six months of fiscal 2017 was $3.9 million, or $.28 per share. For the comparable period last year, the net income was $1.5 million, or $0.11 per share.
Adjusted net loss for the first six months of fiscal 2017 was $2.5 million, or $0.18 per share, compared to adjusted net income of $2.5 million, or $0.18 per share, for the six months ended July 30, 2016.
Turning now to the balance sheet:
At quarter end, Inventory was $69.8 million, a decrease from last year of $0.7 million, and Debt, net of cash, was $37.1 million, a decrease of $3.4 million from last year.
Through the second quarter of 2017, we opened 5 stores and closed 13 stores for a net reduction of 8 retail stores. We ended the quarter with 507 retail stores.
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Capital Expenditures for the second quarter of 2017 were $1.6 million, a reduction of $1.6 million from last year. Second quarter capital outlays were primarily the result of modest store investments, as we optimize our real estate portfolio, as well as investments in systems, primarily related to the new web platform. These investments represent a measured and revenue-focused approach to capital expenditures that we will continue as we move forward.
With that, I will now turn the call over to the operator to begin the question and answer portion of our call.
Following Questions:
Thank you for joining us today and we will talk with you again when we report our third quarter results.
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