Actions of Destination XL (NASDAQ: DXLG), which sells plus size men’s clothing, fell sharply on Nov. 18, dropping as much as 17% at one point in morning trading. By 11:30 a.m. ET, the stock had rallied somewhat to only show a drop of 4.5%, which isn’t bad. But it is always important to look at what got on the nerves of investors.
Destination XL reported earnings after the close on November 17. On the surface, the news was mostly positive for the men’s retailer. Sales increased by 42.6% in the third quarter of 2021 compared to 2020 and even increased by 14% compared to the third quarter of 2019. Same-store sales, considering stores opened in 2021 and 2019, increased by 22.9%. Ultimately, Destination XL gained $ 0.20 per share in the third quarter, compared to a loss of $ 0.14 per share in the same quarters of 2020 and 2019. Basically, that was a pretty good one. performance, reinforced by the increase in its forecasts for the year. for sales and earnings.
The only negative point here seems to be more in the trend lines. Indeed, sales have increased sequentially from the second quarter of 2020 until this quarter, breaking a positive uptrend. While the fourth quarter of 2021 will likely be a relatively easy comparison next to the pandemic-hit fourth quarter of 2020, it could be that the recovery in sales here has largely slowed down. By doing some substantive math, using the company’s new annual sales forecast of $ 500 million to $ 510 million, and pulling in the roughly $ 371.6 million in sales in the first nine months of 2021, the first line of the fourth quarter appears to be almost stable at 7% compared to Q2. If the holiday season sales are as good as the second quarter sales, it’s not so good. When you look at the third trimester from this perspective, it might not have been that good after all.
There are a lot of moving parts at Destination XL right now. And investors have a lot of information to digest, including the fact that management believes it will have enough inventory for the fourth quarter, but remains alert to the potential risks of a supply disruption. Considering the change in direction on the top line this quarter, it is perhaps understandable that investors were initially put off. That said, the quarter’s year-over-year strength appears to have helped dampen the backlash from the streets.
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