Form 8-K

 

 

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): June 12, 2019

 

 

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))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.01 per share   DEST   NASDAQ

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 June 12, 2019, Destination Maternity Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended May 4, 2019. The full text of the press release issued by the Company is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

The information contained in Item 2.02 of this Current Report, including Exhibit 99.1, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act unless specifically identified therein as being incorporated by reference.

 

Item 9.01.

Financial Statements and Exhibits

The following exhibit is furnished with this Form 8-K:

 

Exhibit
No.

  

Description

99.1    Press Release, dated June 12, 2019

 

-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 hereunto duly authorized.

 

Date: June 12, 2019

   

DESTINATION MATERNITY CORPORATION

    By:   /s/ David J. Helkey
      Name: David J. Helkey
      Title: Chief Operating Officer & Chief Financial Officer
EX-99.1

EXHIBIT 99.1

 

LOGO

Destination Maternity Reports First Quarter Fiscal 2019 Results

- Operating income of $1.6 million versus $1.4 million in prior year period

- Adjusted EBITDA before other charges of $6.7 million versus $7.9 million in prior year period

- Gross Profit Margins Improve to 54.8% from 53.7% in prior year period

- Selling, General and Administrative expenses decline 6.5% from prior year period

MOORESTOWN, N.J., June 12, 2018 — Destination Maternity Corporation (NASDAQ: DEST), the world’s leading maternity apparel retailer, today announced financial results for the first quarter of fiscal 2019 ended May 4, 2019 compared to the first quarter of fiscal 2018 ended May 5, 2018.

Commentary

“We had a challenging start to the year with comparable store sales down 7.2% in the first quarter,” said Dave Helkey, Chief Financial Officer of Destination Maternity. “We were successful in mitigating a significant portion of the impact on the bottom line with a 110 basis point improvement in margins and a 6.5% reduction in SG&A expenses, but know there is more work to be done.

As we look ahead, we are committed to strengthening the underlying fundamentals of the business and driving long term, profitable growth. Due to the recently announced leadership transition, the Board of Directors is conducting a comprehensive review of the Company’s strategic initiatives to ensure that the Company is pursuing an aggressive strategy that will drive real and sizeable change in the business.”

Leadership Changes

In a separate press release issued today, Destination Maternity announced that Marla Ryan, by mutual agreement with the Board, will step down as Chief Executive Officer, effective June 13, 2019. Ms. Ryan will remain with the Company to assist with the transition and will also assume a new role as President of product design, sourcing and merchandising.

The Destination Maternity Board has created an Office of the CEO on an interim basis, which will provide ongoing leadership and oversight of the day-day operations of the Company while a search is conducted for a new CEO. The interim Office of the CEO is comprised of Lisa Gavales, a member of the Board of Directors, Marla Ryan, now President of product design, sourcing and merchandising and Dave Helkey, current CFO and COO. Ms. Gavales will serve as Chair of the Office of the CEO.


First Quarter Fiscal 2019 Financial Results

 

   

Net income for the first quarter of fiscal 2019 was $0.1 million, or $0.01 per share (diluted), compared to net income of $0.2 million, or $0.02 per share (diluted), for the first quarter of fiscal 2018.

 

   

Operating income of $1.6 million for the first quarter of fiscal 2019 compared to operating income of $1.4 million in the first quarter of fiscal 2018.

 

   

Adjusted net income for the first quarter of fiscal 2019 was $0.6 million, or $0.04 per share (diluted), compared to the comparably adjusted net income for the first quarter of fiscal 2018 of $1.0 million, or $0.07 per share (diluted).

 

   

Adjusted EBITDA before other charges and effect of change in accounting principle decreased to $6.7 million for the first quarter of fiscal 2019 from $7.9 million for the first quarter of fiscal 2018.

 

   

Net sales for the first quarter of fiscal 2019 decreased 8.7% to $94.2 million from $103.2 million for the first quarter of fiscal 2018. Sales were negatively impacted by the net closure of 32 owned locations and 88 leased lease locations as well as a decrease in comparable sales.

 

   

Comparable sales for the first quarter of fiscal 2019 decreased 7.2% from the first quarter of fiscal 2018.

 

   

Gross margin rate for the first quarter of fiscal 2019 was 54.8%, an increase of 110 basis points from the comparable gross margin in the first quarter of fiscal 2018.

 

   

Selling, general and administrative expenses (“SG&A”) for the first quarter of fiscal 2019 decreased 6.5% to $48.5 million from $51.9 million for the first quarter of fiscal 2018. As a percentage of net sales, SG&A increased 130 basis points to 51.5% vs 50.2% for the first quarter of fiscal 2018.

Other Financial Information

 

   

Capital expenditures for first quarter fiscal 2019 totaled $2.5 million primarily driven by investments to support key systems projects with minor investments in stores.

 

   

At May 4, 2019, inventory was $72.1 million, an increase of $5.7 million compared to $66.4 million at May 5, 2018.

Retail Locations

 

     Three Months Ended  
     May 4, 2019      May 5, 2018  

Store Openings (1)

     1        0  

Store Closings (1)

     7        3  

Period End Retail Location Count (1)

     

Stores

     452        484  

Leased Department Locations

     546        634  
  

 

 

    

 

 

 

Total Retail Locations

     998        1,118  

1)     Excludes international franchised locations.


Financial Outlook

With the recently announced leadership transition, the Board is now conducting a comprehensive review of the Company’s strategic initiatives to identify areas to improve and accelerate performance going forward.

For FY 2019, the Company now expects annual Adjusted EBITDA guidance to be in the $13 million to $17 million range.

Conference Call Information

The Company will host a conference call regarding first quarter fiscal 2019 financial results that includes comments on the results from members of our senior management on Thursday, June 13, 2019 at 9:00 a.m. Eastern Time. Management will conduct a question and answer session following its prepared remarks.

Investors and analysts 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. 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 1488698.

In the event that you are unable to participate in the call, a replay will be available at 12:00 p.m. Eastern Time on Thursday, June 23, 2019 through 12:00 p.m. Eastern Time on Thursday, June 20, 2019 by calling (855) 859-2056 in the United States and Canada or (404) 537-3406 outside of the United States and Canada. Passcode for the replay is 1488698.

About Destination Maternity

Destination Maternity is the leading designer and omni-channel retailer of maternity apparel in the United States, with the only nationwide chain of maternity apparel specialty stores, as well as a deep and expansive assortment available through multiple online distribution points, including our three brand-specific websites. As of May 4, 2019, we operate 998 retail locations, including 452 stores in the United States, Canada and Puerto Rico, and 546 leased departments located within department stores and baby specialty stores throughout the United States and Canada. We also sell our merchandise on the Internet, primarily through our Motherhood.com, APeaInThePod.com and DestinationMaternity.com websites. We also sell our merchandise through our Canadian website, MotherhoodCanada.ca, through Amazon.com in the United States, and through websites of certain of our retail partners, including Macys.com. Our 452 stores operate under three retail nameplates: Motherhood Maternity®, A Pea in the Pod® and Destination Maternity®. We also operate 546 leased departments within leading retailers such as Macy’s®, buybuy BABY® and Boscov’s®. Generally, we are the exclusive maternity apparel provider in our leased department locations.

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 loss, 2) adjusted net loss per share—diluted, 3) Adjusted EBITDA, 4) Adjusted EBITDA before other charges, 5) Adjusted EBITDA margin, and 6) Adjusted EBITDA margin before other charges. 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. 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 SEC, or in materials incorporated therein by reference.

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.

Contacts

Sloane & Company

Erica Bartsch, 212-446-1875

Ebartsch@sloanepr.com

Alex Kovtun, 212-446-1896

Akovtun@sloanepr.com


DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except percentages and per share data)

(unaudited)

 

     Three Months Ended  
     May 4, 2019     May 5, 2018  

Net sales

   $ 94,213     $ 103,227  

Cost of goods sold

     42,616       47,824  
  

 

 

   

 

 

 

Gross profit

     51,597       55,403  

Gross margin

     54.8     53.7

Selling, general and administrative expenses

     48,490       51,857  

Store closing, asset impairment and asset disposal expenses

     869       969  

Other charges

     662       1,150  
  

 

 

   

 

 

 

Operating income

     1,576       1,427  

Interest expense, net

     1,415       1,157  
  

 

 

   

 

 

 

Income before income taxes

     161       270  

Income tax provision

     31       56  
  

 

 

   

 

 

 

Net income

   $ 130     $ 214  
  

 

 

   

 

 

 

Net income per share— Basic

   $ 0.01     $ 0.02  
  

 

 

   

 

 

 

Average shares outstanding— Basic

     13,825       13,839  
  

 

 

   

 

 

 

Net income per share— Diluted

   $ 0.01     $ 0.02  
  

 

 

   

 

 

 

Average shares outstanding— Diluted

     13,901       13,963  
  

 

 

   

 

 

 

Reconciliation of Net Income to Adjusted Net Income

    

Net income, as reported

   $ 130     $ 214  

Other charges

     662       1,150  

Income tax effect of other charges

     (154     (273

Deferred tax valuation allowance related to cumulative losses

     (30     (67
  

 

 

   

 

 

 

Adjusted net income

   $ 607     $ 1,024  
  

 

 

   

 

 

 

Adjusted net income per share—diluted

   $ 0.04     $ 0.07  
  

 

 

   

 

 

 


DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

 

     (unaudited)         
     May 4, 2019      February 2, 2019  
ASSETS  

Current assets:

     

Cash and cash equivalents

   $ 1,193      $ 1,154  

Trade receivables, net

     8,807        7,945  

Inventories

     72,133        70,872  

Prepaid expenses and other current assets

     9,855        9,407  
  

 

 

    

 

 

 

Total current assets

     91,988        89,378  

Property and equipment, net

     50,510        51,483  

Operating lease assets

     128,065        —    

Deferred taxes and other non-current assets

     5,232        5,313  
  

 

 

    

 

 

 

Total assets

   $ 275,795      $ 146,174  
  

 

 

    

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY  

Current liabilities:

     

Line of credit borrowings

   $ 26,200      $ 20,400  

Current portion of long-term debt

     4,257        4,372  

Accounts payable

     21,355        21,854  

Operating lease liabilities

     32,327        —    

Accrued expenses and other current liabilities

     24,608        31,056  
  

 

 

    

 

 

 

Total current liabilities

     108,747        77,682  

Long-term debt

     22,294        21,784  

Operating lease and other non-current liabilities

     119,938        19,557  
  

 

 

    

 

 

 

Total liabilities

     250,979        119,023  
  

 

 

    

 

 

 

Stockholders’ equity

     24,816        27,151  
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 275,795      $ 146,174  
  

 

 

    

 

 

 

Selected Consolidated Balance Sheet Data

(in thousands)

 

     (unaudited)             (unaudited)  
     May 4, 2019      February 2, 2019      May 5, 2018  

Cash and cash equivalents

   $ 1,193      $ 1,154      $ 2,005  

Inventory

     72,133        70,872        66,419  

Property and equipment, net

     50,510        51,483        62,481  

Line of credit borrowings

     26,200        20,400        15,200  

Total debt

     52,751        46,556        42,701  

Stockholders’ equity

     24,816        27,151        41,192  


DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

     Three Months Ended  
     May 4, 2019     May 5, 2018  

Operating Activities

    

Net income

   $ 130     $ 214  

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization

     3,553       4,050  

Stock-based compensation expense

     144       328  

Loss on impairment of long-lived assets

     562       887  

Loss on disposal of assets

     188       13  

Grow NJ award benefit

     (643     (707

Amortization of deferred financing costs

     177       165  

Changes in assets and liabilities:

    

Decrease (increase) in:

    

Trade receivables

     (862     (2,197

Inventories

     (1,261     4,837  

Prepaid expenses and other current assets

     (448     (252

Other non-current assets

     6,317       (14

Decrease in:

    

Accounts payable, accrued expenses, operating lease and other current liabilities

     (4,931     (9,031

Operating lease and other non-current liabilities

     (7,522     (752
  

 

 

   

 

 

 

Net cash used in operating activities

     (4,596     (2,459
  

 

 

   

 

 

 

Investing Activities

    

Capital expenditures

     (2,478     (1,141
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,478     (1,141
  

 

 

   

 

 

 

Financing Activities

    

Decrease in cash overdraft

     1,106       (1,980

Decrease in line of credit borrowings

     5,800       7,200  

Proceeds from long-term debt

     1,802       —    

Repayment of long-term debt

     (1,562     (1,151

Deferred financing costs paid

     —         (80

Withholding taxes on stock-based compensation paid in connection with repurchase of common stock

     (33     (19
  

 

 

   

 

 

 

Net cash provided by financing activities

     7,113       3,970  
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

       —       —    
  

 

 

   

 

 

 

Net Increase in Cash and Cash Equivalents

     39       370  

Cash and Cash Equivalents, Beginning of Period

     1,154       1,635  
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 1,193     $ 2,005  
  

 

 

   

 

 

 


DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

Supplemental Financial Information

Reconciliation of Net Income to Adjusted EBITDA(1)

and Adjusted EBITDA Before Other Charges,

and Operating Income Margin to Adjusted EBITDA Margin

and Adjusted EBITDA Margin Before Other Charges

(in thousands, except percentages)

(unaudited)

 

     Three Months Ended  
     May 4, 2019     May 5, 2018  

Net income

   $ 130     $ 214  

Income tax provision

     31       56  

Interest expense, net

     1,415       1,157  
  

 

 

   

 

 

 

Operating income

     1,576       1,427  

Depreciation and amortization expense

     3,553       4,050  

Loss on impairment of long-lived assets

     562       887  

Loss on disposal of assets

     188       13  

Stock-based compensation expense

     144       328  
  

 

 

   

 

 

 

Adjusted EBITDA (1)

     6,023       6,705  

Other charges

     662       1,150  
  

 

 

   

 

 

 

Adjusted EBITDA before other charges

   $ 6,685     $ 7,855  
  

 

 

   

 

 

 

Net Sales

   $ 94,213     $ 103,227  
  

 

 

   

 

 

 

Operating income margin (operating income as a percentage of net sales)

     1.7     1.4

Adjusted EBITDA margin (adjusted EBITDA as a percentage of net sales

     6.4     6.5

Adjusted EBITDA margin before other charges (adjusted EBITDA before other charges as a percentage of net sales)

     7.1     7.6

 

(1)

Adjusted EBITDA represents operating income 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.