Destination Maternity (DEST) FY14 Sales Miss Expectations

Destination Maternity (NASDAQ: DEST) reported sales for the fourth quarter and full year fiscal 2014 ended September 30, 2014.

Net sales for the fiscal year ended September 30, 2014 decreased 4.3% to $517.0 million from $540.3 million reported for the full year fiscal 2013. Comparable sales data (which includes Internet sales) for the full year fiscal 2014 and 2013 is presented in the table below.

*** Consensus estimates were modeling FY14 sales of $539.4

The decrease in total reported sales for the full year fiscal 2014 compared to the full year fiscal 2013 resulted primarily from the decrease in comparable sales and decreased sales related to the Company's continued efforts to close underperforming stores. Total sales of $517.0 million for the full year fiscal 2014 were below the low end of the Company's sales guidance range of $519.5 to $524.0 million provided in its July 30, 2014 press release, primarily due to the reported comparable sales decrease of 3.7%, which was below the low end of the Company's guidance range for a comparable sales decrease of between 2.3% and 3.0% for the year. The Company attributes this sales weakness to a number of factors, including a continued difficult overall economic and retail environment which resulted in decreased store traffic, and weaker consumer reception than expected to the Company's merchandise assortments.

The Company's sales for the full year fiscal 2014 were below the low end of the Company's expected sales range and, as a result of this sales shortfall, higher than planned price promotional and markdown activity to manage inventory, and management and organizational changes initiated during the fourth quarter, the Company expects diluted earnings per share for the full year to be between $0.81 and $0.86 per share, which is below the low end of the Company's prior earnings guidance range of $1.11 to $1.21 per share that was provided in the Company's July 30, 2014 press release, and significantly lower than fiscal 2013 earnings of $1.78 per share. The Company's full year fiscal 2014 earnings per share are expected to include approximately $0.14 per share of other charges (income) related to 1) the previously announced relocation of the Company's headquarters and distribution facilities, 2) the Company's now withdrawn proposal for a business combination with Mothercare plc, 3) management and organizational changes initiated by the Company during the fourth quarter, and 4) the gain on sale of the Company's current headquarters/distribution facility. Excluding the other charges (income), the Company's adjusted earnings for fiscal 2014 are expected to be between $0.95 and $1.00 per share, compared to the Company's previous guidance of adjusted earnings between $0.97 and $1.07 per share, and fiscal 2013 adjusted earnings of $1.69 per share.

Net sales for the fourth quarter of fiscal 2014 decreased 4.8% to $122.0 million from $128.3 million reported for the fourth quarter of fiscal 2013. Comparable sales data (which includes Internet sales) for the fourth quarter of fiscal 2014 and 2013 is presented in the table below.

The decrease in total reported sales for the fourth quarter of fiscal 2014 compared to the fourth 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. Total sales of $122.0 million for the fourth quarter of fiscal 2014 were below the low end of the Company's sales guidance range of $124.5 to $129.0 million provided in its July 30, 2014 press release, primarily due to the reported comparable sales decrease of 5.0%, which was below the low end of the Company's guidance range for a comparable sales change of between a decrease of 2.5% and an increase of 0.5% for the quarter.

As a result of the sales shortfall, higher than planned price promotional and markdown activity to manage inventory, and management and organizational changes initiated during the quarter, the Company expects a loss for the fourth quarter of between $0.09 and $0.14 per share. The Company's fourth quarter fiscal 2014 earnings (loss) per share are expected to include approximately $0.04 per share of other charges (income). The Company's prior earnings guidance range that the Company provided in its July 30, 2014 press release was for earnings of $0.16 to $0.26 per share, including net other income of approximately $0.12 per share, primarily from the gain on sale of the Company's headquarters/distribution facility. Excluding the other charges (income), the Company's adjusted earnings (loss) for the fourth quarter are expected to be a loss of between $0.05 and $0.10 per share, compared to the Company's previous guidance of adjusted earnings between $0.04 and $0.14 per share, and fourth quarter fiscal 2013 adjusted earnings of $0.33 per share.

Anthony M. Romano, Chief Executive Officer of Destination Maternity, noted, "We are obviously very disappointed in our performance during fiscal 2014. Since joining Destination Maternity two months ago, I have invested my time learning about our business, our team and, most importantly, our customer. I see an opportunity for us at Destination Maternity to enhance our relationship with our customer through continuous improvement in both the product we offer to her, as well as her shopping experiences, online and in stores. Over the next few months I will continue learning and working with our management team and our Board of Directors to further craft our go-forward strategy for fiscal 2015 and beyond. We will share more details of this strategy in our earnings release for the full year fiscal 2014, which we expect to issue on December 4, 2014."

For the quarter ended September 30, 2014, the Company opened six stores, including two Destination Maternity nameplate stores, and closed 13 stores, including five closings related to Destination Maternity nameplate store openings. For the year ended September 30, 2014, the Company opened 22 stores, including eight Destination Maternity nameplate stores, and closed 50 stores, including seven closings of Destination Maternity nameplate stores and nine store closings related to Destination Maternity nameplate store openings. As of September 30, 2014, the Company operates 568 stores, 1,326 leased department locations and 1,894 total retail locations, compared to 596 stores, 1,311 leased department locations and 1,907 total retail locations operated as of September 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 fourth quarter of fiscal 2014, calendar-adjusted comparable sales were measured for the period Tuesday July 1, 2014 through Tuesday September 30, 2014 compared to the period Tuesday July 2, 2013 through Tuesday October 1, 2013. The Company estimates the calendar shift unfavorably impacted its reported comparable sales for the fourth quarter of fiscal 2014 by approximately 0.2 percentage points. Thus, calendar-adjusted comparable sales for the fourth quarter of fiscal 2014 decreased 4.8%, compared to the reported comparable sales decrease of 5.0%. For the full year fiscal 2014, calendar-adjusted comparable sales were measured for the period Tuesday October 1, 2013 through Tuesday September 30, 2014 compared to the period Tuesday October 2, 2012 through Tuesday October 1, 2013. The Company estimates the calendar shift had negligible impact on its reported comparable sales for the full year fiscal 2014. Thus, both calendar-adjusted comparable sales and reported comparable sales for the full year fiscal 2014 decreased 3.7%. The Company estimates the calendar shift favorably impacted its reported comparable sales for the fourth quarter of fiscal 2013 by approximately 0.2 percentage points. The Company estimates the calendar shift unfavorably impacted its reported comparable sales for the full year fiscal 2013 by approximately 0.6 percentage points, primarily as a result of 1) having one less Saturday and Sunday versus the full year fiscal 2012, and 2) having one less day versus the full year fiscal 2012 due to the leap year in 2012.

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