Destination Maternity posts lousy earnings, highlights better online sales

Destination Maternity reported disappointing nine-month results Thursday, although Allen Weinstein, interim CEO of the Moorestown-based company, dubbed it "a productive period" as the retailer attempts a turnaround.

"Although we are not fully satisfied with our financial results, the third quarter was a productive period for our company. After my initial few months of observations, I feel confident that we have many opportunities to improve our operations and performance," Weinstein said in a statement.

He pointed to online sales rising nearly 34 percent year to date and "increased momentum" in the fourth quarter bolstered by record online sales during the Thanksgiving-through-Cyber Monday period.

"In the fourth quarter to date, we have seen our comparable-store sales improve 190 basis points to down 6.4 percent, with improving traffic," Weinstein said. "We also remain on track to achieve the approximately $10 million in annualized cost savings commencing in fiscal 2018 as we announced earlier in the quarter. In short, although we have much to do, we are moving in the right direction."

For the nine months of the fiscal year ending Oct. 28, Destination Maternity's net sales totaled $301.1 million, down sharply from $333.5 million for the nine months ended Oct. 29, 2016.

The drop was driven by the closure of underperforming stores and the winding down of the company's in-store relationships with Kohl's, Sears, and Gordmans. Comparable sales fell 3.5 percent, vs. a drop of 4.5 percent for the nine months ended Oct. 29, 2016.

Gross margins increased to 53.4 percent compared with 52.9 percent for the nine months ended Oct. 29, 2016, driven by reduced product costs and exits from leased-department and licensed relationships.

Other charges during the first nine months of fiscal 2017 included $3.7 million, primarily for management and organizational changes and the terminated merger with the French clothing company Orchestra-Prémaman, compared with $2.0 million in fiscal 2016.

Destination Maternity is still losing money: Its net loss was $11.4 million, or $0.83 per share, compared with net income of $26,000, or $0.00 per share, for the nine months ended Oct. 29, 2016.

Adjusted net loss was $5.2 million, or $0.38 per share, compared with adjusted net income of $1.3 million, or $0.09 per share, for the nine months ended Oct. 29, 2016.

On Oct. 28, 2017, inventory was $73.9 million, up from $73.5 million last year. Debt, net of cash, was $39.3 million at Oct. 28, 2017, down compared with $43.9 million at Oct. 29, 2016.

Shareholders were not happy earlier this year when Destination turned down a merger offer from Orchestra, as well as the offer of new board seats.

The stock has fallen nearly 50 percent in the last year, and was going for $2.38 a share on the Nasdaq, down 8.11 percent, at the close of trading Thursday.

"I'm surprised the gross margins held up as well as they did," activist shareholder Timothy J. Stabosz, based in LaPorte, Ind., said Thursday.

"It's a low-priced stock," Stabosz said. "High e-commerce growth can overcome weakness in same-store sales. Then we've got a business here. E-commerce growth is continuing, same-store sales decline has moderated, so I think that they're going to be given more time to turn it around. We do need a new CEO at this point to replace the interim."