US retailer DXL's gross margin drops to 45.1% amid lower sales in Q1
The company's gross margin rate decreased by 310 basis points, which was driven by an increase of 280 basis points in occupancy costs, as a percentage of sales, due to the deleveraging from lower sales and increased rents from new stores and lease extensions. Merchandise margin for the first quarter decreased by 30 basis points, as compared to the first quarter of fiscal 2024, primarily due to an increase in markdown activity and promotional offers associated with new marketing initiatives, including the new loyalty programme, as well as an increase in freight costs associated with the acceleration of inventory receipts. These increases were partially offset by an increase in merchandise margins as a result of a shift in product mix.
Destination XL (DXL) reported a Q1 FY25 gross margin of 45.1 per cent, down from 48.2 per cent in the prior year, due to higher occupancy costs and increased markdowns. Total sales declined to $105.5 million from $115.5 million, with comparable sales falling 9.4 per cent. Merchandise margin also dipped slightly amid promotional activity and rising freight costs.
'We are currently managing our business through an economic downcycle, and our performance does not reflect the opportunity in our total addressable market or the longer-term potential for our brand. We believe the broader macroeconomic challenges within the apparel industry and consumer sentiment are pushing our customer to be more discerning in what he is buying. Our assortment is well positioned to serve those value-oriented customers who are trading down from national designer brands to our private label brands, which have lower average unit retail prices but higher margins,' said Harvey Kanter, president and chief executive officer .
Total sales for the first quarter of fiscal 2025 were $105.5 million, as compared to $115.5 million in the first quarter of fiscal 2024. The decrease in total sales was primarily attributable to a decrease in comparable sales for the first quarter of 9.4 per cent, partially offset by an increase in non-comparable sales, the company said in a press release.
'We've recently implemented several initiatives to ensure the value of our assortment is clear. Today we offer our price match guarantee, fit exchange, and first responder programmes, which are helping with DXL's price perception and, together with our loyalty program, are helping to drive enhanced value and affinity for our brand. We are also extending our FiTMAP sizing technology programme which allows customers to use leading edge technology to understand their individual sizing. Our guests can now engage with our brand in a much more personalised manner using this full body scanning technology. Our net promoter score continues to shine and is touching just over 80 in stores and our conversion is up year over year. Although our sales performance was below expectations, we are seeing some improvement in sales velocity, while still maintaining a healthy merchandise margin and controlling costs,' explained Kanter.
Sales trends improved month over month, with comparable sales down 13.9 per cent in February, down 8.2 per cent in March, and down 7.2 per cent in April. Overall, the first quarter decline was consistent with the sales trend in fiscal 2024, as customers are continuing to pull back on discretionary spending. The company continues to see customers shift toward private-label brand merchandise and value-driven brands.
Fibre2Fashion News Desk (RR)
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