Destination Maternity in NJ Weighs Possible Sale & Impact on 500+ Stores

Potentially adding to national retail properties' turnover this year, Destination Maternity, the largest U.S. chain of maternity apparel specialty shops, is weighing options for its nearly 500 brick-and-mortar stores, including a possible sale.

The retailer, based in Moorestown, New Jersey, said it is reviewing potential strategic and financial alternatives. Those include a sale or merger, "continuing to pursue value-enhancing initiatives as a standalone company, along with capital structure optimization that may involve potential financings and/or the sale or other disposition of certain businesses or assets," according to the company.

It has retained Greenhill & Co. as financial adviser to assist with its strategic alternatives review.

“While we continue to believe we have a compelling business and remain focused on delivering long-term profitable growth, challenges persist and more needs to be done," Destination Maternity Chief Financial Officer Dave Helkey said in a statement. "We believe that it is in the best interests of our shareholders to conduct a thorough evaluation of all options reasonably available to the company to position the business for success.”

The domestic retail landscape this year is littered with closed stores and bankruptcy filings, and more are looming, with a number of them involving apparel sellers. Kids clothing chain Gymboree Group filed for Chapter 11 protection, as did Charlotte Russe, Charming Charlie and Payless ShoeSource.

Destination Maternity sells its apparel at nearly 1,000 brick-and-mortar destinations. It operates 446 stores in the United States, Canada and Puerto Rico under the Motherhood Maternity, A Pea in the Pod and Destination Maternity brands. In addition, it leases space and sells goods within 491 department stores and baby specialty stores, including Macy’s, Buy Buy Baby and Boscov’s.

"Generally, we are the exclusive maternity apparel provider in our leased department locations," the company said.

Destination Maternity's net sales for the second quarter ending Aug. 3 dropped almost 12% to $84.9 million from $96.4 million in the year-ago period.

"Sales were negatively impacted by the net closure of six-owned locations and 55 leased lease locations as well as a decrease in comparable sales," the retailer said.

Comparable sales for the second quarter of fiscal 2019 decreased nearly 11% from a year ago, a drop attributable to a roughly 12% slide in comparable store sales and a 6.4% decrease in e-commerce sales. Destination Maternity has websites including motherhood.com, apeainthepod.com and destinationmaternity.com, as well as through some of its retail partners, including Amazon and Macy’s.

“Our results this quarter illustrate the ongoing headwinds facing our business," Helkey said. "While cost-savings initiatives drove reductions in [selling, general and administrative] expense and a pullback in promotional cadence helped to hold margins in line with the prior year, sales declines of 11.9% year-over-year more than offset the benefits to our bottom line."

In late June, Destination Maternity announced it was doing a workforce reduction that would generate cost savings of $4 million to $4.5 million on an annual basis in an "effort to become a more efficient and profitable organization." The retailer didn't disclose how many employees it let go.

During a second quarter analyst call, Lisa Gavales, described as chair of Destination Maternity's interim office of the chief executive, said there is no definitive timetable for completing the strategic review. Marla Ryan stepped down as CEO in June.

"During the review process, we will be focused on stabilizing our financial performance while the company also continues to search for a permanent CEO," Gavales said.

There's no assurance its review process "will result in the approval or completion of any particular strategic alternative or transaction in the future," according to Destination Maternity.

The retailer added it doesn't intend to disclose developments or provide updates on the progress of its review of strategic alternatives "unless and until required or when the company determines appropriate."
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