Destination XL Talks Private Label And Margins

May 28, 2013
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In reporting first quarter earnings for 2013, Destination XL talked about the improved performance of its DXL stores, driven in large part by private label sales.

Same-store sales for the quarter fell 0.5 percent but at its 53 DXL comp stores, sales rose 17.7 percent. And private label sales at those stores were on the rise, CEO David Levin told analysts on a conference call.

“The percent of the brand – what we call the Rochester brand – the type of product ranges anywhere from 20 percent to 30 percent when we usually kick off a new store,” Levin said, according to transcripts of the call from Seeking Alpha. “And we’ll base that upon the demographics and what our core customer spend is. And then we tweak it and adjust it up or down. The one consistent pattern seems to be, over time, the percent of the branded business tends to grow.”

As the DXL stores bring more branded items into the company’s mix, across all its flagship stores, margins are under some pressure, Chief Operating Officer Dennis Hernreich said.

“We continue to challenge ourselves and where we produce and manufacture our private-label merchandise,” Hernreich said, according to the Seeking Alpha transcripts. “We're also talking extensively with our brand vendors as our purchases from them become more and more significant as a result of expanding DXL stores. The markdown rates are down. And sort of an intermediate to longer-term view of all of this, I do expect our markdown rates to continue to subside as they become more brand-driven versus – or rather less reliant on promotional activity like in Casual Male stores.

“There's a natural pressure on merchandise margins as a result of DXL stores because the brand product margins aren’t as rich as private-label margins. So as our mix of sales gravitates towards the brand product, right now, it’s about 25 percent of the company sales, it will probably gravitate upwards to, say, 35 percent of the company's sales mix. We do expect to neutralize that natural erosion with better product costs in the long run such that our merchandise margins will be slightly up to neutral in the long term.”

With first-quarter total sales of $93.6 million, and a private label share of about 75 percent, Destination XL brought in around $70 million in private label sales in the quarter, which would equate to about $280 million annually. Nash Finch was at the bottom of the PLB Top 35 list with about $296 million in private label sales in 2011.

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