On Friday, a Craig-Hallum analyst revised the stock price target for Destination XL Group (NASDAQ:DXLG), a specialty retailer, reducing it to $3.50 from the previous $4.50. The firm retained its Hold rating on the stock.
The adjustment follows the company's fourth-quarter update, which showed underperformance in sales and comparable store sales, yet demonstrated better-than-anticipated profitability. This was attributed to the company's disciplined approach to markdowns during the holiday season.
The company's financial outlook for fiscal year 2024 was less optimistic, with significant reductions in adjusted EBITDA and adjusted EPS. These downward revisions are due to planned investments in advertising, new store openings, and existing store remodels, aimed at long-term growth.
The analyst underscored that these strategic expenditures on selling, general, and administrative (SG&A) activities are expected to unfold over multiple years, potentially keeping margins under 10% at least through fiscal year 2025.
Despite the cautious outlook on profitability, the analyst noted that Destination XL Group is anticipated to generate positive free cash flow in the coming year. The company's financial position is described as robust, with $60 million in cash reserves and no outstanding debt. This strong balance sheet is seen as a protective factor for the stock's value, potentially limiting its downside.
The analyst concluded by stating that while the company's balance sheet should provide some stability, investors might remain hesitant to engage with the stock until there is clear evidence of sales growth. The reiterated Hold rating and reduced stock price target reflect this wait-and-see approach in light of the company's strategic investments and expected margin pressures.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.