Destination Maternity Earnings 2019-08-03

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

10-Q 1 dest-10q_20190803.htm 10-Q dest-10q_20190803.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 03, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-21196

Destination Maternity Corporation

(Exact name of registrant as specified in its charter)

Delaware	13-3045573
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
232 Strawbridge Drive Moorestown, New Jersey	08057
(Address of principal executive offices)	(Zip code)

(856) 291-9700

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	DEST	NASDAQ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(1) of the Exchange Act ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value — 14,226,121 shares outstanding as of September 3, 2019

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets	3

	Consolidated Statements of Operations	4

	Consolidated Statements of Comprehensive Income (Loss)	5

	Consolidated Statements of Stockholders’ Equity	6

	Consolidated Statements of Cash Flows	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	31

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 5.	Other Information	34

Item 6.	Exhibits	35

Signatures		36

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

	August 3, 2019			February 2, 2019

ASSETS
Current assets:
Cash	$	1,142		$	1,154
Trade receivables, net		7,012			7,945
Inventories		67,691			70,872
Prepaid expenses and other current assets		9,961			9,407
Total current assets		85,806			89,378
Property and equipment, net of accumulated depreciation and amortization of $111,181 and $106,479		48,215			51,483
Operating lease assets		125,283			—
Deferred income taxes		3,967			2,671
Other non-current assets		1,868			2,642
Total assets	$	265,139		$	146,174

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit borrowings	$	23,300		$	20,400
Current portion of long-term debt		3,841			4,372
Accounts payable		21,477			21,854
Operating lease liabilities		30,301			—
Accrued expenses and other current liabilities		24,226			31,056
Total current liabilities		103,145			77,682
Long-term debt		21,343			21,784
Operating leases and other non-current liabilities		119,225			19,557
Total liabilities		243,713			119,023
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, 1,656,381 shares authorized, none outstanding		—			—
Common stock, $.01 par value; 20,000,000 shares authorized, 14,227,184 and 14,416,500 shares issued and outstanding		142			144
Additional paid-in capital		107,932			107,675
Accumulated deficit		(86,574	)		(80,594	)
Accumulated other comprehensive loss		(74	)		(74	)
Total stockholders’ equity		21,426			27,151
Total liabilities and stockholders’ equity	$	265,139		$	146,174

The accompanying notes are an integral part of these consolidated financial statements.

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended						Six Months Ended
	August 3, 2019			August 4, 2018			August 3, 2019			August 4, 2018

Net sales	$	84,901		$	96,395		$	179,114		$	199,622
Cost of goods sold		41,253			46,530			83,869			94,354
Gross profit		43,648			49,865			95,245			105,268
Selling, general and administrative expenses		45,153			50,095			93,643			101,952
Store closing, asset impairment and asset disposal expenses		778			672			1,647			1,641
Other (income) charges, net		(119	)		1,923			543			3,073
Operating loss		(2,164	)		(2,825	)		(588	)		(1,398	)
Interest expense, net		1,340			1,144			2,755			2,301
Loss before income taxes		(3,504	)		(3,969	)		(3,343	)		(3,699	)
Income tax provision		31			56			62			112
Net loss	$	(3,535	)	$	(4,025	)	$	(3,405	)	$	(3,811	)
Net loss per share— Basic	$	(0.25	)	$	(0.29	)	$	(0.25	)	$	(0.28	)
Average shares outstanding— Basic		13,871			13,823			13,848			13,831
Net loss per share— Diluted	$	(0.25	)	$	(0.29	)	$	(0.25	)	$	(0.28	)
Average shares outstanding— Diluted		13,871			13,823			13,848			13,831

The accompanying notes are an integral part of these consolidated financial statements.

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	Three Months Ended						Six Months Ended
	August 3, 2019			August 4, 2018			August 3, 2019			August 4, 2018

Net loss	$	(3,535	)	$	(4,025	)	$	(3,405	)	$	(3,811	)
Foreign currency translation adjustments		—			(2	)		—			(2	)
Comprehensive loss	$	(3,535	)	$	(4,027	)	$	(3,405	)	$	(3,813	)

The accompanying notes are an integral part of these consolidated financial statements.

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

	Common Stock												Accumulated
	Number of Shares			Amount			Additional Paid-in Capital			Accumulated Deficit			Other Comprehensive Loss			Total

Balance as of February 2, 2019		14,417		$	144		$	107,675		$	(80,594	)	$	(74	)	$	27,151
Adoption of ASC 842 - Leases		—			—			—			(2,576	)		—			(2,576	)
Net loss		—			—			—			130			—			130
Dividends forfeited		—			—			—			1			—			1
Stock-based compensation		75			1			143			—			—			144
Repurchase and retirement of common stock		(116	)		(1	)		(33	)		—			—			(34	)
Balance as of May 4, 2019		14,376		$	144		$	107,785		$	(83,039	)	$	(74	)	$	24,816
Net loss		—			—			—			(3,535	)		—			(3,535	)
Stock-based compensation		6			0			146			—			—			146
Repurchase and retirement of common stock		(155	)		(2	)		1			—			—			(1	)
Balance as of August 3, 2019		14,227		$	142		$	107,932		$	(86,574	)	$	(74	)	$	21,426

Balance as of February 3, 2018		14,684		$	147		$	106,865		$	(66,274	)	$	(70	)	$	40,668
Net loss		—			—			—			214			—			214
Dividends forfeited		—			—			—			1			—			1
Stock-based compensation		383			4			324			—			—			328
Repurchase and retirement of common stock		(62	)		(1	)		(18	)		—			—			(19	)
Balance as of May 5, 2018		15,005		$	150		$	107,171		$	(66,059	)	$	(70	)	$	41,192
Net loss		—			—			—			(4,025	)		—			(4,025	)
Foreign currency translation adjustments		—			—			—			—			(2	)		(2	)
Dividends forfeited		—			—			—			3			—			3
Stock-based compensation		60			—			256			—			—			256
Exercise of stock options, net		—			—			1			—			—			1
Repurchase and retirement of common stock		(260	)		(2	)		(8	)		—			—			(10	)
Balance as of August 4, 2018		14,805		$	148		$	107,420		$	(70,081	)	$	(72	)	$	37,415

The accompanying notes are an integral part of these consolidated financial statements.

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended
	August 3, 2019			August 4, 2018

Operating Activities
Net loss	$	(3,405	)	$	(3,811	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		6,992			7,961
Stock-based compensation expense		290			584
Loss on impairment of long-lived assets		1,172			1,519
Loss on disposal of assets		259			68
Grow NJ award benefit		(1,296	)		(1,412	)
Amortization of deferred financing costs		346			336
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables		933			(145	)
Inventories		3,181			3,503
Prepaid expenses and other current assets		(554	)		479
Operating leases and other non-current assets		8,583			12
Decrease in:
Accounts payable, accrued expenses, operating leases and other current liabilities		(4,822	)		(1,831	)
Operating leases and other non-current liabilities		(10,262	)		(1,417	)
Net cash provided by operating activities		1,417			5,846
Investing Activities
Capital expenditures		(3,780	)		(2,579	)
Net cash used in investing activities		(3,780	)		(2,579	)
Financing Activities
Increase (decrease) in cash overdraft		759			(2,657	)
Increase (decrease) in line of credit borrowings		2,900			(700	)
Proceeds from long-term debt		1,802			2,500
Repayment of long-term debt		(3,075	)		(2,537	)
Deferred financing costs paid		—			(160	)
Withholding taxes on stock-based compensation paid in connection with repurchase of common stock		(35	)		(29	)
Net cash provided by (used in) financing activities		2,351			(3,583	)
Effect of exchange rate changes on cash and cash equivalents		—			(2	)
Net Decrease in Cash and Cash Equivalents		(12	)		(318	)
Cash and Cash Equivalents, Beginning of Period		1,154			1,635
Cash and Cash Equivalents, End of Period	$	1,142		$	1,317
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	2,367		$	1,965
Cash (received) paid for income taxes	$	(177	)	$	118

The accompanying notes are an integral part of these consolidated financial statements.

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.	BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited consolidated financial statements for the three and six months ended August 3, 2019 and August 4, 2018 have been prepared in accordance with the requirements for Form 10-Q and Article 10 of Regulation S-X, and accordingly, certain information and footnote disclosures have been condensed or omitted. See the Company’s Annual Report on Form 10-K as of and for the year ended February 2, 2019 for Destination Maternity Corporation and subsidiaries (the “Company” or “Destination Maternity”) as filed with the Securities and Exchange Commission (“SEC”) for additional disclosures including a summary of the Company’s accounting policies.

In the opinion of management, the consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company for the periods presented. Since the Company’s operations are seasonal, the interim operating results of the Company may not be indicative of operating results for the full year.

The Company operates on a 52/53-week fiscal year ending on the Saturday nearest January 31 of each year. References to the Company’s fiscal 2019 refer to the 52-week fiscal year, or periods within such fiscal year, which began February 3, 2019 and will end February 1, 2020. References to the Company’s fiscal 2018 refer to the 52-week fiscal year, or periods within such fiscal year, which began February 4, 2018 and ended February 2, 2019.

2.	GOING CONCERN

As of August 3, 2019, the Company was in compliance with all covenants under the Credit Facility and Term Loan Agreement. However, the lender under the Credit Facility has imposed additional availability reserves which will increase over time. Based on the Company’s current operating plan, the Company anticipates significant liquidity constraints, and considering these liquidity concerns, there is no assurance that the Company will be able to remain in compliance. If any event of default is triggered and the Company does not obtain a waiver from its lenders, the lenders can, among other things, accelerate the entire outstanding amount of the debt, which could result in the Company needing to seek bankruptcy protection to protect stakeholder value. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company is, with the assistance of strategic advisors including Greenhill & Co., LLC, exploring various potential strategic and financial alternatives and is engaged in ongoing discussions with its lenders. Such strategic and financial alternatives include, among other things, a sale of the company or certain of its assets and consideration of out-of-court restructurings as well as bankruptcy court proceedings to effectuate any such sale or to recapitalize or restructure the Company’s indebtedness and other obligations. There are no assurances that such alternatives will be available on terms acceptable to the Company, or at all. In an effort to reduce costs and better position the Company for operational profitability the Company has adopted a plan to close approximately 50 underperforming stores as their leases expire over the next six months. The Company has also made provisions to have sufficient inventory available through the anticipated duration of the Company’s exploration of financial and strategic alternatives.

3.	EARNINGS PER SHARE (“EPS”)

Basic net income (loss) (or earnings) per share (“Basic EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding, excluding restricted stock awards for which the restrictions have not lapsed. Diluted net income (loss) (or earnings) per share (“Diluted EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding, after giving effect to the potential dilution, if applicable, from the assumed lapse of restrictions on restricted stock and restricted stock unit (“RSU”) awards, and from shares of common stock resulting from the assumed exercise of outstanding stock options. Common shares issuable in connection with the award of performance-based restricted stock units (“PRSUs”) are excluded from the calculation of EPS until the PRSUs’ performance conditions are achieved and the shares in respect of the PRSUs become issuable (see Note 14).

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

The following tables summarize the Basic EPS and Diluted EPS calculations (in thousands, except per share amounts):

	Three Months Ended
	August 3, 2019								August 4, 2018
	Net Loss			Shares		EPS			Net Loss			Shares		EPS

Basic and Diluted EPS	$	(3,535	)		13,871	$	(0.25	)	$	(4,025	)		13,823	$	(0.29	)

	Six Months Ended
	August 3, 2019								August 4, 2018
	Net Loss			Shares		EPS			Net Loss			Shares		EPS

Basic and Diluted EPS	$	(3,405	)		13,848	$	(0.25	)	$	(3,811	)		13,831	$	(0.28	)

In addition to PRSUs, for the three and six months ended August 3, 2019 and August 4, 2018 stock options and unvested restricted stock totaling approximately 707,000 and 538,000 shares, respectively, were excluded from the calculation of Diluted EPS as their effect would have been antidilutive. Stock options and unvested restricted stock totaling approximately 717,000 and 1,696,000 shares of the Company’s common stock were outstanding as of August 3, 2019 and August 4, 2018, respectively, but were not included in the computation of Diluted EPS for the three and six months ended August 3, 2019 and August 4, 2018 due to the Company’s net loss. Had the Company reported a profit for the three and six months ended August 3, 2019 and August 4, 2018 the weighted average number of dilutive shares outstanding for computation of Diluted EPS would have been approximately 13,872,000, 13,887,000, 14,284,000 and 14,124,000 shares, respectively.

4.	TRADE RECEIVABLES

Trade receivables are recorded based on revenue recognized for sales of the Company’s merchandise and for other revenue earned by the Company through its marketing partnership programs and international franchise agreements, and are non-interest bearing. The Company evaluates the collectability of trade receivables based on a combination of factors, including aging of trade receivables, write-off experience, analysis of historical trends and expectations of future performance. An allowance for doubtful accounts is recorded for trade receivables that are considered unlikely to be collected. When the Company’s collection efforts are unsuccessful, uncollectible trade receivables are charged against the allowance for doubtful accounts. As of August 3, 2019, and February 2, 2019 the Company’s trade receivables were net of allowance for doubtful accounts of $166,000 and $166,000, respectively.

5.	INVENTORIES

Inventories were comprised of the following (in thousands):

	August 3, 2019		February 2, 2019

Finished goods	$	67,479	$	70,660
Work-in-progress		34		148
Raw materials		178		64
	$	67,691	$	70,872

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

6.	ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities were comprised of the following (in thousands):

	August 3, 2019		February 2, 2019

Employee compensation and benefits	$	5,890	$	6,741
Insurance, primarily self-insurance reserves		3,164		3,049
Gift certificates and store credits		2,812		3,464
Sales and use taxes		2,757		2,737
Accrued expenses		2,045		4,561
Deferred revenue

Price	1.28	EPS	-1
Shares	14	P/E	-1
MCap	18	P/FCF	-2
Net Debt	24	EBIT	-10
TEV	42	TEV/EBIT	-4
TTM 2019-08-03, in MM, except price, ratios

10-Q	2019-08-03	Filed 2019-09-17
10-Q	2019-05-04	Filed 2019-06-12
10-K	2019-02-02	Filed 2019-04-16
10-Q	2018-11-03	Filed 2018-12-11
10-Q	2018-08-04	Filed 2018-09-10
10-Q	2018-05-05	Filed 2018-06-14
10-K	2018-02-03	Filed 2018-04-19
10-Q	2017-10-28	Filed 2017-12-07
10-Q	2017-07-29	Filed 2017-09-07
10-Q	2017-04-29	Filed 2017-06-08
10-K	2017-01-28	Filed 2017-04-13
10-Q	2016-10-29	Filed 2016-12-08
10-Q	2016-07-30	Filed 2016-08-25
10-Q	2016-04-30	Filed 2016-05-26
10-K	2016-01-30	Filed 2016-04-14
10-Q	2015-10-31	Filed 2015-12-03
10-Q	2015-08-01	Filed 2015-08-27
10-Q	2015-05-02	Filed 2015-06-11
10-K	2014-09-30	Filed 2014-12-12
10-Q	2014-06-30	Filed 2014-08-08
10-Q	2014-03-31	Filed 2014-05-07
10-Q	2013-12-31	Filed 2014-02-07
10-K	2013-09-30	Filed 2013-12-13
10-Q	2013-06-30	Filed 2013-08-08
10-Q	2013-03-31	Filed 2013-05-08
10-Q	2012-12-31	Filed 2013-02-08
10-K	2012-09-30	Filed 2012-12-14
10-Q	2012-03-31	Filed 2012-05-09
10-Q	2011-12-31	Filed 2012-02-07
10-K	2011-09-30	Filed 2011-12-14
10-Q	2011-06-30	Filed 2011-08-09
10-Q	2011-03-31	Filed 2011-05-10
10-Q	2010-12-31	Filed 2011-02-09
10-K	2010-09-30	Filed 2010-12-14
10-Q	2010-06-30	Filed 2010-08-09
10-Q	2010-03-31	Filed 2010-05-10
10-Q	2009-12-31	Filed 2010-02-09

8-K	2019-12-20	Enter Agreement, Leave Agreement, M&A, Officers, Exhibits
8-K	2019-11-06	Accountant, Exhibits
8-K	2019-10-21	Bankruptcy, Off-BS Arrangement, Shareholder Rights, Officers, Regulation FD, Other Events, Exhibits
8-K	2019-09-18
8-K	2019-07-17	Officers
8-K	2019-06-24	Regulation FD, Exhibits
8-K	2019-06-20	Exit Costs
8-K	2019-06-12	Earnings, Exhibits
8-K	2019-06-12	Officers, Regulation FD, Exhibits
8-K	2019-06-04	Shareholder Vote
8-K	2019-04-16	Earnings, Exhibits
8-K	2019-04-16	Regulation FD, Exhibits
8-K	2019-04-10	Accountant, Exhibits
8-K	2019-04-09	Leave Agreement, Regulation FD
8-K	2019-03-28	Officers, Regulation FD, Exhibits
8-K	2019-03-13	Officers, Regulation FD, Exhibits
8-K	2019-01-09	Officers, Regulation FD, Exhibits
8-K	2018-12-17	Enter Agreement, Exhibits
8-K	2018-12-11	Earnings, Exhibits
8-K	2018-11-01	Regulation FD, Exhibits
8-K	2018-11-01	Officers, Regulation FD, Exhibits
8-K	2018-09-26	Enter Agreement, Exhibits
8-K	2018-08-27	Other Events, Exhibits
8-K	2018-08-10	Officers, Regulation FD, Exhibits
8-K	2018-08-04	Earnings, Exhibits
8-K	2018-07-30	Officers, Exhibits
8-K	2018-07-30	Officers, Exhibits
8-K	2018-07-25	Amend Bylaw, Other Events, Exhibits
8-K	2018-06-14	Earnings, Exhibits
8-K	2018-06-04	Officers, Regulation FD, Exhibits
8-K	2018-05-29	Officers, Regulation FD, Other Events, Exhibits
8-K	2018-05-23	Shareholder Vote
8-K	2018-05-23	Other Events, Exhibits
8-K	2018-04-19	Earnings, Other Events, Exhibits
8-K	2018-04-12	Officers
8-K	2018-04-11	Officers, Exhibits
8-K	2018-04-02	Enter Agreement, Officers, Other Events, Exhibits
8-K	2018-03-13	Officers
8-K	2018-02-01	Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K	2018-01-02	Officers, Regulation FD, Exhibits

EX-31.1	dest-ex311_9.htm
EX-31.2	dest-ex312_8.htm
EX-32.1	dest-ex321_6.htm
EX-32.2	dest-ex322_7.htm

DEST 10Q Quarterly Report

Destination Maternity Earnings 2019-08-03