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Destination Maternity Reports First Quarter Fiscal 2017 Results

MOORESTOWN, N.J., June 8, 2017 /PRNewswire/ -- Destination Maternity Corporation (NASDAQ: DEST), the world's leading maternity apparel retailer, today announced financial results for the first quarter of fiscal 2017 ended April 29, 2017 compared to the first quarter of fiscal 2016 ended April 30, 2016.

First Quarter Fiscal 2017 Selected Financial Results (13 weeks ended April 29, 2017)

  • Net sales were $106.4 million compared with $124.4 million for the prior year quarter.
  • Gross margin improved 30 basis points to 54.4%, up from 54.1% in the prior year quarter. 
  • SG&A declined approximately $3.2 million to $55.6 million, a decrease of 5.3% from the prior year quarter.
  • GAAP net loss was $1.1 million, or $0.08 per diluted share, compared to a GAAP net income of $4.0 million, or $0.30 per diluted share, for the prior year quarter.
  • Debt, net of cash, was $36.7 million, a decrease of $10.5 million from end of the prior year quarter.

Anthony M. Romano, Chief Executive Officer & President, stated, "Our financial results in the first quarter were challenging and below expectations. While we are disappointed in these results,  we have made tangible progress in a very difficult retail environment. Notably, we successfully re-launched our new eCommerce sites with minimal disruption and strong initial performance metrics, including a 40+% increase in conversion rate driving 18.8% web sales growth. Working capital improvements and reduced capital expenditures allowed us to reduce our debt, net of cash, by $10.5 million year-over-year and our focus on inventory management produced modest improvements in conversion and units per transaction. As we look ahead to the remainder of the year, we continue to believe we are positioned to drive improvement in sales and profitability, and we look forward to completing our proposed merger with Orchestra-Prémaman, which we expect to provide significant synergies and resources to allow us to accelerate our turnaround."

First Quarter Fiscal 2017 Financial Results 

  • Net sales were $106.4 million compared with $124.4 million for the first quarter of fiscal 2016. The decrease was driven by a decline in comparable sales, the closure of underperforming stores, and the wind down of the Kohl's®, Sears® and Gordmans relationships, partially offset by recognition of $0.8 million of revenue related to a change in our method of accounting for gift card breakage.
  • Comparable sales decreased 7.3%, compared to a 5.4% decrease for the first quarter of fiscal 2016.
  • Gross margin was 54.4%, up 30 basis points over the comparable prior year quarter gross margin of 54.1%.
  • Selling, general and administrative expenses ("SG&A") for the first quarter of fiscal 2017 decreased 5.3% to $55.6 million, compared to $58.8 million for the first quarter of fiscal 2016. As a percentage of net sales, SG&A increased to 52.3% for the first quarter of fiscal 2017 compared to 47.2% for the first quarter of fiscal 2016.
  • The Company incurred store closing, asset impairment and asset disposal expense of $1.5 million compared to expense of $0.6 million for the first quarter of fiscal 2016.
  • Other charges during the first quarter of fiscal 2017 were $0.8 million, primarily for legal and advisory fees related to the proposed merger, compared to $0.7 million in the first quarter of fiscal 2016.
  • Adjusted EBITDA before other charges and change in accounting principle was $6.3 million compared to $13.2 million for the first quarter 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 $1.1 million, or $0.08 per share, compared to net income of $4.0 million, or $0.30 per share, for the first quarter of fiscal 2016.
  • Adjusted net loss was $0.7 million, or $0.05 per share, compared to adjusted net income of $4.5 million, or $0.33 per share, for the first 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.

Other First Quarter Fiscal 2017 Financial Information

  • Inventory was $73.7 million at April 29, 2017, a decrease of $3.5 million compared to $77.2 million at April 30, 2016.
  • Capital expenditures totaled $2.0 million primarily driven by investments in stores and investments to support key systems projects. First quarter fiscal 2016 capital expenditures of $3.6 million were primarily driven by expenditures for new stores, improvements to existing stores and investments to support key infrastructure and systems projects.
  • Debt, net of cash, was $36.7 million at April 29, 2017, a decrease of $10.5 million compared to $47.2 million at April 30, 2016.

Destination Maternity and Orchestra-Prémaman Combination

On December 20, 2016, Destination Maternity and Orchestra-Prémaman announced that they entered into a definitive agreement to merge, which will create a leading global provider of maternity apparel, children's wear and baby hard goods. The strategic transaction, which was unanimously approved by the Boards of Directors of both companies, will combine two highly complementary businesses resulting in enhanced capabilities for the benefit of customers, shareholders and employees. The combined company will also enjoy greater financial strength and flexibility, with the ability to deliver long-term operating performance and improvements through its increased scale and significant synergy opportunities.

Work is proceeding on the preparation of the registration statement on Form F-4 to be filed with the Securities and Exchange Commission (the "SEC") covering the shares of Orchestra-Prémaman, represented by American Depositary Shares, to be transferred to holders of Destination Maternity shares in exchange therefor upon completion with the merger, as well as the coordinated filing with Orchestra-Prémaman's French regulator, the Autorité des marchés financiers (the "AMF").  Both companies continue to work through the regulatory process, as well as pre-closing integration planning.  The public SEC filing is expected to follow the filing of Orchestra-Prémaman's audited financial statements as of and for the year ended February 28, 2017, which, under French regulation, are to be filed by June 30, 2017.  The merger remains subject to other customary closing conditions, including receipt of the required approval of both Destination Maternity's and Orchestra Prémaman's shareholders.  Both companies remain confident in the completion of the merger, which is targeted to close by the end of Destination Maternity's third fiscal quarter of 2017.

Retail Locations

The table below summarizes store opening and closing activity for the three months ended April 29, 2017 and April 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


April 29,


April 30,


2017


2016





Store Openings (1)

4



2








Store Closings (1)

8



8








Period End Retail Location Count (1)






Stores

511



530


Leased Department Locations

646



957


Total Retail Locations

1,157



1,487




1)

Excludes international franchised locations. As of April 29, 2017 Destination Maternity has 219 international franchised locations, including 19 standalone stores operated under one of the Company's nameplates and 200 shop-in-shop locations.

Conference Call Information

As announced previously, a pre-recorded conference call regarding the Company's first quarter fiscal 2017 financial results that includes comments on the results from members of our senior management, will be available today at 9:00 a.m. Eastern Time.  Interested parties can listen to 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 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 28077503. 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, June 8, 2017 through 12:00 p.m. Eastern Time Thursday, June 15, 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 28077503.

About Destination Maternity

Destination Maternity Corporation is the world's largest designer and retailer of maternity apparel. As of April 29, 2017 Destination Maternity operates 1,157 retail locations in the United States, Canada and Puerto Rico, including 511 stores, predominantly under the trade names Motherhood Maternity®, A Pea in the Pod® and Destination Maternity®, and 646 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 April 29, 2017 Destination Maternity has 219 international franchised locations, including 19 standalone stores operated under one of the Company's nameplates and 200 shop-in-shop 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 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.

We have made and may in the future make forward-looking statements relating to our planned merger with Orchestra-Prémaman S.A. Factors that 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 include, but are not limited to, the possibility that the merger does not close when expected or at all because required regulatory, shareholder, stockholder or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all; or the possibility that the anticipated benefits of the merger are not realized as a result of such matters as general business and economic conditions in France, the United States and other countries in which we or Orchestra-Prémaman conduct business; the impact of the movement of Euro relative to other currencies, particularly the U.S. dollar and the currencies of other countries in which the combined company will conduct business; the effects of competition in the markets in which we or Orchestra-Prémaman operate; the impact of changes in the laws and regulations regulating the clothing and childcare products industries or affecting domestic and foreign operations; judicial or regulatory judgments and legal proceedings; our ability to successfully integrate the two companies; our success in retaining the services of executives, key personnel and other employees that the combined company needs to realize all of the anticipated benefits of the merger; the risk that expected synergies and benefits of the merger will not be realized within the expected time frame or at all; reputational risks; and other factors that may affect future results of us or Orchestra-Prémaman, including changes in trade policies, timely development and introduction of new products and services, changes in tax laws, technological and regulatory changes, and adverse developments in general market, business, economic, labor, regulatory and political conditions.

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 –

 



DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations

(in thousands, except percentages and per share data)
(unaudited)






Three Months Ended




April 29,



April 30,




2017



2016


Net sales


$

106,426



$

124,430


Cost of goods sold



48,487




57,158











     Gross profit


57,939




67,272


     Gross margin


54.4

%



54.1

%

Selling, general and administrative expenses (SG&A)



55,649




58,775


SG&A as a percentage of net sales


52.3

%



47.2

%

Store closing, asset impairment and asset disposal expenses


1,518




606


Other charges


817




669











     Operating income (loss)


(45)




7,222


Interest expense, net



1,004




652











     Income (loss) before income taxes


(1,049)




6,570


Income tax provision



93




2,529











     Net income (loss)

$

(1,142)



$

4,041




















Net income (loss) per share – Basic


$

(0.08)



$

0.30


Average shares outstanding – Basic


13,748




13,684











Net income (loss) per share – Diluted


$

(0.08)



$

0.30


Average shares outstanding – Diluted



13,748




13,686











Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss):



Net income (loss), as reported


$

(1,142)



$

4,041


Add: other charges for proposed business combination



814




221


Add: other charges for management and organizational changes



3




448


Less: income tax effect of other charges



(306)




(256)


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



424





Adjusted net income (loss)


$

(687)



$

4,454











Adjusted net income (loss) per share – Diluted


$

(0.05)



$

0.33


 

 

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)





April 29,

2017


January 28, 

2017


ASSETS









Current assets:









Cash and cash equivalents


$

2,328


$

2,859



Trade receivables, net



7,172



5,683



Inventories



73,681



69,040



Prepaid expenses and other current assets



5,759



9,464



Total current assets



88,940



87,046



Property and equipment, net



79,738



83,029



Other assets



3,347



5,912



    Total assets


$

172,025


$

175,987












LIABILITIES AND STOCKHOLDERS' EQUITY









Current liabilities:









Line of credit borrowings


$

2,100


$

4,600



Current portion of long-term debt



6,967



6,948



Accounts payable



17,940



17,656



Accrued expenses and other current liabilities



32,072



31,359



Total current liabilities



59,079



60,563



Long-term debt



29,996



31,485



Deferred rent and other non-current liabilities



22,557



22,789



Total liabilities



111,632



114,837



Stockholders' equity



60,393



61,150



Total liabilities and stockholders' equity


$

172,025


$

175,987



 

 

Selected Consolidated Balance Sheet Data

(in thousands)

(unaudited)




April 29,


January 28,


April 30,



2017


2017


2016









Cash and cash equivalents

$              2,328


$             2,859


$              3,782


Inventories

73,681


69,040


77,183


Property and equipment, net

79,738


83,029


91,348


Line of credit borrowings

2,100


4,600


8,800


Total debt

39,063


43,033


51,064


Stockholders' equity

60,393


61,150


97,202


 

 

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)





Three Months Ended




April 29,

April 30,




2017


2016


Operating Activities








Net income (loss)


$

(1,142)


$

4,041


Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:








Depreciation and amortization



4,461



4,386


Stock-based compensation expense



414



458


Loss on impairment of long-lived assets



1,346



411


Loss on disposal of assets



94



102


Grow NJ award benefit



2,533



(900)


Deferred income tax benefit





(220)


Amortization of deferred financing costs



103



51


Changes in assets and liabilities:








Decrease (increase) in:








Trade receivables



(1,489)



(2,223)


Inventories



(4,641)



(4,674)


Prepaid expenses and other current assets



3,705



1,766


Other non-current assets



(15)



(46)


Increase (decrease) in:








Accounts payable, accrued expenses and other current liabilities



1,474



(9,392)


Deferred rent and other non-current liabilities



(253)



281


Net cash provided by (used in) operating activities



6,590



(5,959)










Investing Activities








Capital expenditures



(2,027)



(3,617)


Proceeds from sale of property and equipment





2


Additions to intangible assets



(10)



(43)


Net cash used in investing activities



(2,037)



(3,658)










Financing Activities








(Decrease) increase in cash overdraft



(1,004)



702


Decrease in line of credit borrowings



(2,500)



(19,600)


Proceeds from long-term debt





32,000


Repayment of long-term debt



(1,540)



(715)


Deferred financing costs paid



(6)



(1,094)


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



(35)



(15)


Proceeds from exercise of stock options





3


Net cash (used in) provided by financing activities



(5,085)



11,281


Effect of exchange rate changes on cash and cash equivalents



1



2


Net (Decrease) Increase in Cash and Cash Equivalents



(531)



1,666


Cash and Cash Equivalents, Beginning of Period



2,859



2,116


Cash and Cash Equivalents, End of Period


$

2,328


$

3,782


 

 

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




April 29,


April 30,




2017


2016










Net income (loss)


$

(1,142)


$

4,041


Add: income tax provision



93



2,529


Add: interest expense, net



1,004



652










Operating income (loss)



(45)



7,222


Add: depreciation and amortization expense



4,461



4,386


Add: loss on impairment of long-lived assets



1,346



411


Add: loss on disposal of assets



94



102


Add: stock-based compensation expense



414



458










Adjusted EBITDA (1)



6,270



12,579


Add: other charges for proposed business combination



814



221


Add: other charges for management and organizational changes



3



448


Less: effect of change in accounting principle



(764)












Adjusted EBITDA before other charges and change in accounting 
     principle


$

6,323


$

13,248










Net sales


$

106,426


$

124,430










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



(0.1)%



5.8%


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



5.9%



10.1%


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)



5.9%



10.6%




(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.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/destination-maternity-reports-first-quarter-fiscal-2017-results-300470699.html

SOURCE Destination Maternity Corporation

Allison Malkin, Caitlin Morahan, ICR, Inc., DestinationMaternityIR@icrinc.com, 203-682-8225



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