Destination Maternity slims losses despite falling sales and slipping margins

By

Robin Driver

Published
Apr 17, 2019

Moorestown, New Jersey-based maternity apparel retailer Destination Maternity, Inc. announced a narrowed fourth-quarter net loss of $6.4 million or ($0.46 per diluted share diluted) on Tuesday, as the company’s cost-cutting initiatives helped compensate for tumbling sales. In the prior-year period, Destination Maternity reported a net loss of $10.2 million, or $0.73 per share.
 

The company’s net sales for the fourth quarter ended February 2, 2019 decreased 13.1% from $105.1 million to $91.3 million, suffering from the negative impact of widespread store closures and a 5.8% decrease in comparable sales, as well as the loss of fiscal 2017’s extra 53rd week.
 
Destination Maternity’s gross margin rate also fell 200 basis points to 48.4% in the quarter, a decline which was attributed to the retailer’s “promotional cadence and more aggressive approach to rightsizing inventory” by CEO Marla Ryan.

The company did, however, manage to reduce quarterly selling, general and administrative expenses by 16% to $47.8 million, down from $57.0 million in the equivalent period in 2017.
 
For the full fiscal year 2018, Destination Maternity was again able to narrow its net loss to $14.3 million, or $1.03 per diluted share, compared to the loss of $21.6 million, or $1.57 per diluted share, reported in the previous year.
 
Annual net sales, however, fell 5.5% to $383.8 million, compared to $406.2 million in fiscal 2017. Comparable sales decreased 1.8%.
 
“Several factors represented significant headwinds for our business in the fourth quarter,” explained Ryan in a release. “As we look to the balance of the year, we are actively taking measures to ensure we execute against our long-term strategic plan, Destination -> Forward. There is much to do to deliver satisfactory results and the scope of the changes we are making are causing our transition to a more nimble and profitable organization to take longer than previously anticipated.”
 
Having closed 29 company-owned stores and 83 leased locations over the course of last year as part of its ongoing "Destination -> Forward" transformation plan, the company currently operates through a network of 1,012 retail locations under its Destination Maternity, A Pea in the Pod and Motherhood Maternity banners.

As it pushes forward with its strategic plan, the retailer announced the appointment of Doug Goeke as the company’s first ever chief transformation officer in January, tasking the executive with leading the process as Destination Maternity steps into fiscal 2019. 
 
In light of its fourth-quarter results, the company has updated its full-year outlook for 2019, reducing its total sales prevision to between $370.0 million and $380.0 million. Comparable retail sales are now expected to decrease up to 1.0%, remain flat or increase up to 1.0%.