Destination Maternity disappoints in Q3 amid ongoing changes

The nation’s largest maternity clothing retailer failed to meet sales and earnings expectations in the third quarter amid changes designed to focus on its core operations.



Destination Maternity reported a net loss of $1.5 million in its fiscal third quarter.



On a per-share basis, the company said it had a loss of 11 cents. Losses, adjusted for non-recurring costs, were 9 cents per share.



The retailer posted revenue of $102.6 million in the period, compared with $119.5 million for the prior year quarter. Same-store sales fell 5.2%.



The decrease was primarily driven by closure of leased departments in Sears and Gordmans stores, as well as reductions in Kohl's sales given the brand’s planned exit in 2017.



Destination Maternity ended its leased department relationship with Gordmans in first quarter 2016, and the company also discontinued its Two Hearts Maternity by Destination Maternity line, ending its relationship with Sears in June 2016.



Additionally, the retailer began to phase out production of its Oh Baby by Motherhood line during fiscal 2016 after being informed that Kohl's has decided to scale back, and ultimately discontinue, its exclusive license with the company for this line in early fiscal 2017.



These actions will allow the company to direct resources to the highest return opportunities and further optimize its footprint while reducing costs.



"While we continue to make progress on many of our initiatives, the third quarter was challenging as both our sales and earnings did not meet our expectations,” said Anthony M. Romano, CEO and president. “Our third quarter results do reflect continued improvement in gross profit margin and reduction in SG&A driven by the ongoing traction of our strategic initiatives. Overall, sales and adjusted EBITDA trailed the year ago period reflecting reductions in leased department and licensed brand sales and were adversely impacted by sales disruption from both the Hanjin shipping bankruptcy and Hurricane Matthew.”



Romano noted that the chain has improved its product assortment, elevated visual imagery both in stores and online, and now has a more disciplined inventory management, faster lead times and better product flow.



“While these improvements are not entirely visible in our latest quarter results, year-to-date earnings are improved and I remain confident that we are working on the right areas and are focused on the right strategic growth and efficiency initiatives to place us on the right path to deliver sustained long-term success,” he said.