Tuesday, DA Davidson adjusted the price target for Destination XL Group (NASDAQ:DXLG) to $3.00 from the previous $3.50 while maintaining a Buy rating on the stock. The revision follows the takeover bid from Fund 1 Investments for DXLG at $3 per share, totaling an enterprise value of approximately $128 million.
Pleasant Lake Partners, a subsidiary of Fund 1, already holds an 11% stake in DXLG. According to InvestingPro data, the company's current market capitalization stands at $142 million, with management actively pursuing share buybacks to enhance shareholder value.
DXLG's management has acknowledged the offer, which values the company at roughly 4.5 times the consensus EBITDA estimates for the fiscal year 2025. However, this figure is closer to 5.5 times DA Davidson's own EBITDA forecast of $23.4 million for the same period. The retailer's comparable store sales have been slowing for the past six quarters, indicating challenges in a difficult retail environment.
Current trading metrics from InvestingPro show an EV/EBITDA ratio of 10.2x and a P/E ratio of 15.6x, suggesting the takeover offer represents a significant discount to current trading multiples.
The bid from Fund 1 comes on the same day as Nordstrom (NYSE:JWN)'s announcement to go private, suggesting a trend in the retail sector. Given DXLG's lower EBITDA margins compared to Nordstrom, the offer is seen as potentially favorable for DXLG shareholders.
DA Davidson's price target reduction is based on 5.5 times their EBITDA estimate for FY2025. They note that there is limited potential for DXLG's share price to rise above the takeover bid until further details emerge. Despite the lowered target, the firm reiterates its Buy rating, pointing out that with DXLG's shares trading at $2.55 at the time of the report, there is an approximate 18% upside to the new $3.00 price target.
In other recent news, Destination XL Group (DXL) reported a challenging third quarter for fiscal 2024, marked by a decrease in net sales to $107.5 million, down from $119.2 million in the same quarter of the previous year. The company also experienced a significant drop in comparable sales and reduced consumer traffic.
Despite this, DXL is implementing strategic initiatives such as customer segmentation, e-commerce replatforming, and an expanded partnership with Nordstrom Marketplace to improve performance. The company revised its full-year sales guidance to approximately $470 million. Looking ahead, DXL expects Q4 comparable sales to be in the negative mid-single digits.
DXL's CEO, Harvey Kanter, expressed optimism about potential improvements in consumer sentiment. Despite the current economic challenges, the company remains committed to serving its customer base.
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