Form 8-K Destination Maternity For: Nov 01
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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): November 1, 2018
DESTINATION MATERNITY CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 0-21196 | 13-3045573 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
232 Strawbridge Drive
Moorestown, NJ 08057
(Address of principal executive offices)
Registrant’s telephone number, including area code: (856) 291-9700
Check the appropriate box below if the Form 8-K filing 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 (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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 7.01 | Regulation FD Information. |
On November 1, 2018 at 9:30 a.m., EST, Destination Maternity Corporation (the “Company”) will host a conference call for the investor community using an investor presentation. The investor presentation is attached hereto as Exhibit 99.1. On November 1, 2018, the Company also issued a press release announcing details about the Company’s multiyear strategic plan. The press release is attached hereto as Exhibit 99.2.
The information contained in this Form 8-K and the Exhibits attached hereto is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor is it subject to the liabilities of that section or deemed incorporated by reference in any filing under the Exchange Act unless specifically identified therein as being incorporated by reference.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits
-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: November 1, 2018 | DESTINATION MATERNITY CORPORATION | |||||
| By: | /s/ Marla A. Ryan | |||||
| Marla A. Ryan | ||||||
| Chief Executive Officer | ||||||
-3-
Exhibit 99.1
STRATEGIC UPDATE 2018
FORWARD LOOKING STATEMENTS Some of the information in this presentation (as well as information included in oral statements or other written statements made or to be made by us), contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, but are not limited to: the continuation of economic recovery 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 expansion, our ability to successfully manage, retain and expand our leased department and licensed relationships and marketing partnerships, future sales trends in our existing store base and through the Internet, 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 maternity apparel, 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 and develop senior management and sales associates, our ability to develop and source merchandise, our ability to receive production from foreign sources on a timely basis, potential stock repurchases, potential debt prepayments, the continuation of the regular quarterly cash dividend, the trading liquidity of our common stock, changes in market interest rates, war or acts of terrorism and other factors set forth in the Company’s periodic filings with the Securities and Exchange Commission, or in materials incorporated therein by reference (including those referenced in our Annual Report on Form 10-K under the caption “Risk Factors.”) In addition, these forward-looking statements necessarily depend upon assumptions, estimates and dates that may be incorrect or imprecise and involve known and unknown risks, uncertainties and other factors. Accordingly, any forward-looking statements included in this presentation do not purport to be predictions of future events or circumstances and may not be realized. Forward-looking statements can be identified by, among other things, the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “pro forma,” “anticipates,” “intends,” “continues,” “could,” “estimates,” “plans,” “potential,” “predicts,” “goal,” “objective,” or the negative of any of these terms, or comparable terminology, or by discussions of our outlook, plans, goals, strategy or intentions. Forward-looking statements speak only as of the date made. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission, we assume no obligation to update any of these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting these forward-looking statements. 2
CONTENTS SLIDE 4: OUR MISSION SLIDE 5: FINANCIAL OUTLOOK SLIDE 6: DESTINATION -> FORWARD SLIDE 7 & 8: RIGHTSIZING OUR SHIP SLIDE 9 & 10: OPTIMIZING OUR INFRASTRUCTURE SLIDE 11 & 12: PRODUCT INNOVATION AND SOLUTIONS SLIDE 13: ABOUT DESTINATION MATERNITY SLIDE 14: MARKET AND CUSTOMER 3
OUR MISSION TO DELIVER INNOVATIVE SOLUTIONS TO OUR NEW MOMS & MOMS2BE AT THE BUSIEST & MOST JOYFUL TIMES OF THEIR LIVES. OUR MISSION 4
FINANCIAL OUTLOOK $ in millions except EPS FY 2017 FY 2018 FY 2019 FY 2022 Low High Low High Low High Sales $ 406.2 $ 390 $ 395 $ 377 $ 387 $ 450 $ 475 Comp % (1.4)% 0.0% - 1.0% 0.0% - 1.4% 6%+ CAGR in total sales vs FY19 Ecommerce Growth 41.0% 14.5% 15.1% 20%+ CAGR in ecomm sales vs FY19 Margin % 1 52.6% 51.5% 52.0% 51.5% 52.0% 48.0% 50.0% bps to LY down 60-110 bps flat SG&A $ 218.7 $ 202 $ 206 $ 191 $ 195 $ 195 $ 209 SG&A % 53.8% 51.5% - 52.5% 50.0% - 51.0% 42.0% - 45.0% Adj EBITDA b/f Other Charges $ 13.0 $ 16.9 $ 18.9 $ 19.0 $ 23.6 $ 42.0 $ 51.0 % to LY (up 30% - 45%) (up 19% at mid-point) (20%+ CAGR vs FY19) Adj EPS - Diluted 2 $ (0.74) $ (0.38) $ (0.29) $ (0.03) $ 0.15 $ 1.20 $ 1.60 Adj Operating Cash Flow 2 13.8 3.9 5.9 18.0 22.6 39.0 48.0 Capex 6.7 3.7 4.4 6.0 7.0 10.0 12.0 Adj Free Cash Flow 2 $ 7.1 $ 0.2 $ 1.5 $ 12.0 $ 15.6 $ 29.0 $ 36.0 Inventory Turns 2.7x 2.7x 2.8x - 3.0x 3.2x - 3.6x Owned Store Count 487 455 410 - 425 350 - 370 Leased Store Count 637 552 530 - 540 495 - 515 Total Store Count (Year-end) 1,124 1,007 940 - 965 845 - 885 1 Long-term (FY 2022) margin reduces due to shift in business mix i.e. growth in e-commerce, wholesale, and international 2 FY2018 figures exclude impact of charges related to organizational changes, proxy contest, debt refinancing, and other one-time charges This presentation contains non-GAAP financial measures within the meaning of the SEC’s Regulation G, including 1) Adjusted EBITDA before other charges and 2) adjusted net loss per share. 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. 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. FINANCIAL OUTLOOK 5
DESTINATION->FORWARD DRIVE PROFITABLE GROWTH AND LONG-TERM SHAREHOLDER VALUE GUIDING PRINCIPLES PROFIT GROWTH CUSTOMER STRATEGIC PRIORITIES SLIDES RIGHT-SIZE OUR SHIP 7 & 8 SLIDES OPTIMIZE OUR INFRASTRUCTURE 9 & 10 SLIDES 11 & 12 PRODUCT INNOVATION & SOLUTIONS THE PLAN 6
RIGHT-SIZING OUR SHIP YTD 2018 PROGRESS: • Signed LOI to refinance our five-year debt with Bank of America. • Estimated $1.2mm - $1.4mm in annual interest expense savings. • Working with Great American, to assist in overall inventory reduction. • Feb ’19 aged inventory expected to decline between 10% - 12% YOY. • Q4’ 18 implementation of markdown strategy driving faster turns. • Test during Aug - Oct ‘18 resulted in 125% incremental unit sales in test store. • Executed full retail fleet assessment with projected 117 store and leased shop closings by FYE’18. • Expected savings of $2.3mm - $2.5mm from lease renewal negotiations on owned stores FYE’18. • Enterprise-wide review of all contracts in progress. • Review of employee benefit contract to result in expected healthcare savings of $0.8mm - $0.9mm in FY’19. • Restructuring of corporate product and sourcing teams completed. • Expected net savings between $1.2mm - $1.4mm in FY’19. • One-time charges of $0.5mm in Q3’18. • Executive compensation, ‘Pay for Performance’ review completed. • Expected reduction in annual compensation of $1.0mm vs prior NEO’s in FY‘19. RIGHT-SIZING OUR SHIP 7
DESTINATION->FORWARD RIGHT-SIZING OUR SHIP • Challenge every expense with rigor. • Annual evaluation and re-negotiation of all enterprise-wide contracts. • Focus all discretionary spending against our three strategic priorities. REDUCE COSTS & • Tighter management of in-season markdowns. STABILIZE OUR • Begin aggressive aged inventory management in Q4’18. • Total inventory turns of 2.9x by FYE’19. BUSINESS • $5.0mm in cash flow from lower working capital and reduced total inventory in FY’19. • Close unprofitable stores and prune overly saturated markets. • Incremental savings of $1.5mm - $2.0mm from lease renewal negotiations on owned stores by FYE’19. • Projected store and leased shop reductions of 42 – 67 in FY’19. • Total of 240-280 projected store and leased shop reductions FY’17 - FY’22. RIGHT-SIZING OUR SHIP 8
OPTIMIZING OUR INFRASTRUCTURE YTD 2018 PROGRESS: • Execution of weekly A/B email testing to drive traffic and demand. • QTD results are up double digits: traffic increased 12.0%-15.0% and demand increased 9.0%-12.0%. • Implementation of four new website service providers late Q1’19. • Estimated increased demand lift by 3.0% - 5.0%. • Increase digital wallet payment solutions, late Q4’ 18. • Revenue increase approximately $0.5mm FY’19. • October launch of Same Day shipping in Metro NYC. • October financial dashboard launched to store field teams. OPTIMIZING OUR INFRASTRUCTURE 9 *future state
DESTINATION->FORWARD OPTIMIZING OUR INFRASTRUCTURE • Identify key leadership roles, attracting top talent to drive transformation. • Build a flat, nimble, flexible and digital driven organization. • Create a culture of excellence. SIMPLIFY & STRENGTHEN OUR • Digital flagship reaches 42.0% of sales by FY’22. • Earmark capital for key investments in technology upgrades, $4.0mm - ORGANIZATION FOR $6.0mm. FUTURE GROWTH • Enhance customer service to provide convenience. • Rollout regional expedited shipping, $0.5mm in sales by FY’20. • Live chat, in-store inventory look-up, $0.5mm in sales by FY’20. OPTIMIZING OUR INFRASTRUCTURE 10
PRODUCT INNOVATION & SOLUTIONS YTD 2018 PROGRESS: • Successfully executed 15 store test reducing product assortment SKU count, which resulted in positive single digit sales & margin increase on 50% less styles. • Shifted product mix to 70% to 80% evergreen for Q1‘19. • Launched first-ever August National Nursing Month Campaign. • Successfully drove double digit sales increases on nursing products. • Launched new product innovation August/September. • Seamless Bra and Hospital-Approved Delivery Gown, currently exceeding Q3’18 plan 7% to 10%. • Executed Q4’18 pricing architecture update. • Projecting $0.5mm in incremental revenue FY’18. • Increased distribution via October launch of Amazon Marketplace. PRODUCT INNOVATION & SOLUTIONS 11
DESTINATION->FORWARD PRODUCT INNOVATION & SOLUTIONS DELIVERING INNOVATIONS AND SOLUTIONS TO MEET THE UNIQUE NEEDS OF NEW MOMS & MOMS2BE • Deliver enhanced evergreen product, driving $12.0mm in sales by FYE’19, offsetting a decline from exited fashion categories. • New category revenue, $1.5mm in sales by FYE’19. • New pricing architecture update, $3.0mm - $4.0mm sales by FYE’19. • Re-energize core products with innovative solutions. • Product innovation, drives $10.0mm in sales FY’22. • Create strong product naming conventions for search ROI. • e-Commerce revenue increases to $190.0mm - $200.0mm by FY’22. • Broaden distribution points to globally serve new moms and mom2be. • Domestic wholesale revenue increases to $20.0mm - $25.0mm by FY’22. • International revenue increases to $7.0mm - $9.0mm by FY’22. • Partnerships revenue increases $1.0mm - $1.5mm by FY’22. PRODUCT INNOVATION & SOLUTIONS 12
OUR HISTORY ABOUT DESTINATION MATERNITY 13
OUR CUSTOMER 25-393 AGE 3 COLLEGE EDUCATED 69% $ 3 EARNS ROUGHLY 66,500 OWNS HER OWN HOME 73%3 miles3 SHOPS WITHIN 10 1. Respondents to a survey conducted by AMP Agency in 2014. 2. Ovia and Destination Maternity Market Research Report, 2018. 3. Destination Maternity Customer Factbook October 2013. 4. Destination Maternity client satisfaction survey program, October 2018. 90% FIND MOTHERHOOD MATERNITY APPEALING1 86% MOTHERHOOD AIDED BRAND AWARENESS2 85% OF OUR CUSTOMERS OPT INTO OUR EXCLUSIVE PERKS PROGRAM 78% OUR NET PROMOTER SCORE SHOWS OUR COMMITMENT TO SUCCESS, CREATING A LEGION OF BRAND 4 ADVOCATES 54% A PEA IN THE POD AIDED BRAND AWARENESS 2 MARKET AND CUSTOMER 14
36 Years of Experience 480 Stores 1000+ Retail Locations Nationwide 24 Patents 1,000s of Knowledgeable Associates 100,000s Loyal Fans & Followers 500+ Five-Star Reviews** 40+ Weeks of Connecting 4* Trimesters of Comfort & Support (*we consider those three months after baby arrives equally important) Countless stories of comfort & thanks Source: **motherhood.com, Full busted seamless nursing bra style. 15
Exhibit 99.2
DESTINATION MATERNITY CORPORATION ANNOUNCES STRATEGIC PLAN FOR LONG-TERM GROWTH AND PROFITABILITY
Multiyear Strategic Plan, Destination -> Forward, Focuses on Driving Shareholder Value
Company Outlines Performance Goals to Deliver Improved Profitability; Provides Long-Term Outlook Through FY 2022
Re-affirms FY 2018 Guidance and Introduces FY 2019 and FY2022 Outlooks with
Dramatically Improved Adjusted EBITDA and Adjusted Free Cash Flow
MOORESTOWN, N.J. – (November 1, 2018) – Destination Maternity Corporation (NASDAQ: DEST) (the “Company”) today announced the Company’s multiyear strategic plan, Destination -> Forward, which focuses on driving profitable growth and long-term shareholder value. The Company anticipates the plan will help achieve FY 2022 goals of:
| • | Adjusted EPS of $1.20 to $1.60 |
| • | Adjusted EBITDA of $42 million to $51 million, representing 20%+ annual growth |
| • | SG&A declining 42% to 45% of sales, down 1000 bps from 53.8% in FY 2017 |
| • | Revenue of $450 million to $475 million with e-Commerce growth of 20%+ annually |
| • | Generate $29 million to $36 million in adjusted free cash flow |
A full review of the Company’s multiyear outlook through FY 2022 is provided in an investor presentation posted to the Company’s investor relations website. Destination Maternity will host an investor conference call at 9:30 am ET today to discuss Destination -> Forward and the Company’s multiyear financial outlook.
“Since becoming CEO of Destination Maternity, we have conducted a rigorous assessment of the entire enterprise aimed at identifying areas to rationalize expenses, accelerate revenue growth, and improve profitability,” said Marla Ryan, CEO of Destination Maternity. “Destination -> Forward is the result of this effort and provides a comprehensive blueprint for cost reduction, infrastructure optimization and innovative solutions to meet the unique needs of new moms and moms2be. I look forward to working closely with the Board and all our employees as we continue to implement this strategic plan. Destination -> Forward will help us return the business to a sustainable growth trajectory and drive shareholder value.”
Destination -> Forward: Roadmap to FY 2022
Destination -> Forward focuses on transforming the iconic Destination Maternity brand into a more nimble organization that generates profitability and long-term shareholder value. Key priorities of the plan include:
| • | Right Size the Ship: Reduce costs & stabilize the business |
| • | Optimize Infrastructure: Simplify & strengthen organization for future growth |
| • | Product Innovation and Solutions: Trusted solution specialist |
Financial Outlook
The Company provided the following financial guidance for FY 2018, FY 2019, and FY 2022. Full year company comparable sales are on a 52-week basis.
| Guidance Metric |
Full Year Fiscal 2018 |
Full Year Fiscal 2019 |
Full Year Fiscal 2022 | |||
| Total Revenue |
$390 million to $395 million | $377 million to $387 million | $450 million to $475 million | |||
| Company comparable sales |
0.0% - 1.0% | 0.0% - 1.4% | (6%+ CAGR in total sales vs. FY’19) | |||
| E-Commerce growth |
14.5% | 15.1% | (20%+ CAGR in ecomm sales vs. FY’19) | |||
| SG&A |
$202 million to $206 million | $191 million to $195 million | $195 million to $209 million | |||
| Adjusted EBITDA b/f other charges |
$16.9 million to $18.9 million | $19.0 million to $23.6 million | $42.0 million to $51.0 million | |||
| Adjusted EPS - Diluted |
($0.38) to ($0.29) | ($0.03) to $0.15 | $1.20 to $1.60 | |||
| Adjusted Free Cash Flow |
$0.2 million to $1.5 million | $12.0 million to $15.6 million | $29.0 million to $36.0 million |
Conference Call
Destination Maternity will host a conference call today, Thursday, November 1, 2018 at 9:30 am ET to discuss its strategic plan, Destination -> Forward. An investor presentation outlining Destination Maternity’s strategic plan will also be posted on the Company’s investor relations page prior to the start of the call.
Investors and analysts can participate in this conference call by dialing (866) 316-2683 in the United States and Canada or (720) 405-4066 outside of the United States and Canada. The call will also be available on the investors section of the Company’s website at http://investor.destinationmaternity.com. Passcode for the conference call is 1279315.
In the event that you are unable to participate in the call, a replay will be available at 12:30 pm ET on November 1, 2018 through 11:59 p.m. ET on November 8, 2018 by calling (800) 585-8367 in the United States and Canada or (404) 537-3406 outside of the United States and Canada. Passcode for the replay is 1279315.
Non-GAAP Measures
This press release contains non-GAAP financial measures within the meaning of Regulation G of the Securities and Exchange Act of 1934, including, but not limited to, Adjusted EBITDA before other charges and adjusted net loss per share. The Company’s management believes that these non-GAAP financial measures provide useful information about the Company’s results of operations and/or financial position to both investors and management. Non-GAAP financial measures are 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 these non-GAAP financial measures as a measure of performance of the Company. These non-GAAP financial measures reflect 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 indication of the Company’s operating performance, as determined in accordance with generally accepted accounting principles.
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 release or made from time to time by management of the Company, including those regarding various business and financing initiatives, involve risks and uncertainties, and are subject to change based on various important factors. The following factors, among others, could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements in this press release: 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; our ability to enter into definitive documentation for the refinancing facility with Bank of America in the timeframe expected or at all; our ability to successfully manage our real estate relationships; 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), availability of suitable store locations, our ability to develop and source merchandise and other factors set forth in the Company’s periodic filings with the Securities and Exchange Commission. 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 release are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this release. The Company assumes no obligation to update or revise the information contained in this release (whether as a result of new information, future events or otherwise), except as required by applicable law.
About Destination Maternity
Destination Maternity Corporation (Nasdaq: DEST) is the world’s largest designer and retailer of maternity apparel. As of August 4, 2018, Destination Maternity operates 1,114 retail locations in the United States, Canada and Puerto Rico, including 480 stores, predominantly under the trade names Motherhood Maternity®, A Pea in the Pod® and Destination Maternity®, and 634 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 August 4, 2018, Destination Maternity has 188 international franchised locations, including 11 standalone stores operated under one of the Company’s nameplates and 177 shop-in-shop locations.
Contact
Sloane & Company
Dan Zacchei / Erica Bartsch, 212-486-9500
[email protected] / [email protected]
###