Destination Maternity on Tuesday reported that net sales for the fourth quarter fell 13.1% to $91.3 million from $105.1 million in the year-ago quarter — in part because of the net closure of 29 owned stores and 83 leased locations, a comp sales decrease and one less selling week compared to a year ago.
Also in the quarter, comparable sales fell 5.8% year over year, and gross margin rate contracted by 200 basis points to 48.4%, according to a company press release. As of Feb. 2, the company's inventory stood at $70.9 million, a decrease of $0.4 million from last year. Net loss for the quarter narrowed to $6.4 million from a net loss of $10.2 million in the year-ago quarter, operating loss narrowed to $5.4 million from last year's $7.8 million, and adjusted net loss narrowed to $4.4 million from last year's $5 million.
The company recently ended its pursuit of a refinancing agreement with Bank of America, per a filing with the Securities and Exchange Commission. On a conference call with analysts, CFO/COO Dave Helkey said that the terms "could have adversely affected the company's credit availability," and noted that the company still has the support of existing lenders Wells Fargo and Pathlight Capital.
CEO Marla Ryan said the company's fourth quarter results were not expected — and not what it hoped for. She defended the company's approach to inventory reduction, saying the retailer doesn't want to flood the market with under-priced merchandise and said that the company will continue to shift to more digital and wholesale sales.
She noted that when the new executive team took over, the retailer's inventory and assortment had been chosen, which has got in the way of their ability to right-size its inventory. Ryan was appointed CEO after she and three other "dissident" nominees, put forward by activist investors, were elected to the board. Shareholders also then swept the board, replacing members with, in addition to Ryan, Skullcandy co-founder Holly Alden, equity analyst Christopher Morgan and retail consultant Anne-Charlotte Windal. More recently Helkey joined in January.
"We are heavily stored and we know that we need to right-size that fleet," she told analysts, adding that they have found a path to create an assortment, along with cutting costs, that will bring in the higher prices that company desperately needs to boost margins. The company has 1,012 stores as of Feb. 2, along with its Motherhood.com, APeaInThePod.com and DestinationMaternity.com websites.
As a percentage of net sales, the company's selling, general and administrative expenses decreased 190 basis points to 52.3% from 54.2% for the year-ago quarter, effectively wiping out margins. Executives said they're looking at all expenses and expect to save on rent as it shutters stores. Ryan said that it could take 24 months to move through its excess inventory.
Ryan also said that, while the company is maintaining its position in the market, a lower birth rate "doesn't help" in boosting sales numbers. "We have to deliver the right product at the right price at the right time," she said.