Destination XL: Priced For Bankruptcy, Despite Liquidity

Highlights

• Destination XL recently delisted from the NASDAQ.

• Despite COVID headwinds, the business has not yet had to add a going concern warning on their financial statements.

• I believe $20m in EBITDA, positive cash flow, and break-even earnings are possible for DXLG in FY21.

Brief Commentary

Destination XL Group is the largest specialty retailer of big & tall men’s clothing and shoes with retail locations in the United States and Toronto, Canada, operating 228 DXL retail stores, 17 DXL outlet stores, 50 Casual Male XL retail stores, 28 Casual Male XL outlet stores and a direct business at www.dxl.com. In fiscal 2018, they launched a wholesale business unit through Amazon (AMZN) offering both private label and co-branded men’s big & tall apparel lines.

Despite ample liquidity, no cash burn, and significant concessions on leases, the market gave DXLG no credit for their handling of the Covid-19 pandemic. After shares were unexpectedly delisted off the Nasdaq in December 2020, the market capitalization dropped under $10m, despite strong evidence the business could produce EBITDA more than double that amount in FY21. With the reopening tailwinds, weight gain from the pandemic, and strong merchandise margins, DXLG obliterated even our most optimistic projections, generating $64.2m of operating cash flow through just the first 9 months of FY21.

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