Destination Maternity Considers Sale After Bleak Quarter

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Destination Maternity Considers Sale After Bleak Quarter

By Jamie Grill-Goodman - 09/18/2019

On the heels of a grim quarter, Destination Maternity said it is exploring a possible sale or merger, as well as "value-enhancing initiatives" if it stays a standalone company.

If it remains independent, it is also perusing “capital structure optimization," that may involve potential financings, as well as the sale or other disposition of some businesses or assets.

The retailer’s second quarter 2019 sales fell nearly 12% year over year, driven by 61 store closures in the quarter and a 10.5% drop in comparable store sales. While it experienced improved conversion rates in store, weaker foot traffic in the quarter weighed heavily on sales. E-commerce sales are fumbling as well, down 6.4%.

“Our results this quarter illustrate the ongoing headwinds facing our business,” said CFO Dave Helkey. “While cost savings initiatives drove reductions in SG&A expense and a pullback in promotional cadence helped to hold margins in line with the prior year, sales declines of 11.9% year-over-year more than offset the benefits to our bottom line.

“While we continue to believe we have a compelling business and remain focused on delivering long-term profitable growth, challenges persist and more needs to be done."

To reinvigorate the e-commerce channel, Destination Maternity recently took steps to reorganize its leadership team and continues to make upgrades to its websites, said Lisa Gavales, who currently serves as chair in the company’s “interim office of CEO” as it looks to replace Marla Ryan.

The company also announced a reduction in force in June that is expected to generate cost savings of $4.0 million, or $4.5 million on an annualized run-rate basis. 

This coupled with continued expense discipline across the organization, drove a roughly 10% year-over-year decline in SG&A expense,” said Gavales. “We also held gross margin rates roughly in line with the prior year, but as with first quarter, the sales miss in Q2 was too significant to drive incremental profit dollars.”

The company has retained Greenhill & Co as financial advisor to assist with its strategic alternatives review.