Dive Brief:
- Destination XL Group Inc. received an offer to go private from Fund 1 Investments, the retailer confirmed on Monday. Under the non-binding proposal, Fund 1 would acquire all of DXL Group’s outstanding shares for $3 per share, according to a letter to the company from the equity firm.
- The offer from Fund 1 Investments for the big and tall-focused men’s apparel retailer is a 34% premium over the company’s closing stock price as of Dec. 19, and the offer does not include a financing condition, the firm said. The company’s stock was up and trading at $2.84 on the Nasdaq at midday Thursday.
- Destination XL’s board of directors will review and evaluate the proposal and other strategic alternatives together with its financial and legal advisors, the company said in its statement.
Dive Insight:
Fund 1 Investments was part of a deal that took beauty brand L’Occitane private this year. DXL Group stands to gain similar benefits if the retailer moves ahead with the offer to go private, the investment firm said.
“We believe DXLG, similar to L’Occitane, would be far better served outside of the public markets, with the ability to focus on free cash flow generation without the overwhelming pressure of reporting quarterly results and satisfying the needs of short-term public market investors,” Fund 1 said. “DXLG stands to benefit even more because as a micro-cap stock, it lacks trading liquidity and is unable to attract a quality institutional investor base.”
Should DXL accept the offer, Fund 1 Investments said the deal would be structured as a merger and that it would work with the retailer on a go-forward business plan focused on operations and growth.
Destination XL Group ended the third quarter on Nov. 2 with a net loss of $1.8 million versus net income of $4 million the prior year. The company also posted a Q3 operating loss of about $2.5 million. Total sales for the quarter fell nearly 10% to $107.5 million year over year from $119.2 million a year ago.
The company revised its full-year financial outlook, citing its sales results for the first nine months of the year and ongoing headwinds in men's apparel. DXL Group now expects its fiscal 2024 sales to reach $470 million, the lower end of its previous guidance, and a comparable sales decrease of about 10%, the higher end of its prior outlook.
“It's frustrating to be talking about the macro environment once again in Q3, but our customers are still holding very tight to their wallets,” CEO Harvey Kanter said during an earnings call in late November, according to a transcript. “We continue to face consumer spending headwinds and it appears buying new clothes has just not been a priority for the big and tall consumer.” Instead, Kanter said, those who choose to shop and spend with the company are focusing on lower priced items and promotions, continuing a shift toward value-driven options.
Destination XL was experiencing financial hardships when Kanter joined the company in 2019, and hit further problems during the early days of the pandemic. However, by 2022 the company reversed its financial trajectory and at that point was after market share of other big-and-tall players.
Destination XL Group operates two banners in the U.S. — DXL Big and Tall retail and outlet stores and Casual Male XL retail and outlet stores. The company says it has worked to highlight value throughout the year with several initiatives. DXL said earlier this month it lowered prices on more than 100 popular styles.
Earlier this year, the retailer introduced a price match guarantee. And in the past month, DXL said it gave about $7 million worth of surprise reward certificates to enrolled members of its rewards program.
In July, DXL Group reopened its flagship store in New York City on Sixth Avenue. Overall, DXL Group ended Q3 with 285 stores. The retailer opened two new stores during the quarter and said in November it planned to open four more in Q4, for a total of eight openings in 2024.
