On Friday, analyst Craig-Hallum revised his target price for specialty retailer Destination XL Group (NASDAQ:DXLG) shares to $3.50 from the previous $4.50. The company maintained a Hold recommendation for the stock.
The adjustment followed the company’s fourth-quarter report, which showed weak sales and comparable store sales but showed better-than-expected profitability. This was due to the company’s disciplined approach to discounting during the holiday season.
The company’s fiscal 2024 financial outlook was less optimistic, with significant declines in adjusted EBITDA and adjusted earnings per share. This downward revision is driven by planned advertising investments, new store openings and existing store refurbishments aimed at long-term growth.
The analyst highlighted that these strategic selling, general and administrative (SG&A) expenses are expected to be spread over several years, potentially keeping margins below 10% until at least fiscal 2025.
Despite the cautious profitability outlook, the analyst noted that Destination XL Group is expected to generate positive free cash flow next year. The company’s financial position is described as strong, with $60 million in cash reserves and no outstanding debt. This strong balance sheet is seen as a protective factor for the share price, potentially limiting its decline.
The analyst concluded by saying that while the company’s balance sheet should provide some stability, investors may be hesitant to buy the stock until there are clear signs of sales growth. The reaffirmed Hold rating and lower target price for the stock reflect a wait-and-see stance in light of the company’s strategic investments and expected pressure on profitability.
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