In 2012, the Company embarked on a journey to transition from the Casual Male XL format to
the DXL format. The larger format DXL stores carry 2,000 styles with a greater selection of higher
ticket items, compared to 600 styles carried by Casual Male XL stores. Mature DXL stores are
also more productive with $200 to $220 per sqft of sales, compared to $180 SPSF at Casual Male
XL stores. This higher productivity results in higher four-wall contribution margins of 25%
compared to 18% at Casual Male XL stores. Since 2012, the Company has opened 186 DXL stores
and 14 DXL outlets, and closed 270 Casual Male XL stores and 27 Casual Male outlets through lease
expirations or terminations. Total store count decreased by 100, while selling square feet increased
from 1.8 million sqft to 2.1 million sqft today.
I believe DXLG is an above-average retail business trading at a cheap valuation.
• Off-mall retailer: DXLG stores are located in destination shopping centers such as strip
malls, power centers and stand-alone locations, so they are not dependent on mall
• Attractive IRR for new stores: each new store costs $400,000 to $500,000 to build out
after tenant allowances. A typical new store generates $150,000, $250,000, and
$310,000 of four-wall cash flow in year 1, 2 and 3 respectively as SPSF grows from $155
in year 1 to $195 in year 3. Payback period for a new store is 2.5 years, and five-year IRR
is north of 30%.
• Better online economics: retailers usually suffer greatly from 30% of online sales being
returned. In contrast, return rate at DXLG is only 8%. This is because the sourcing team
at DXLG works with suppliers (55% branded and 45% private label) to ensure that the
same size (say 48 inch waist) means the same thing across different brands. So when a
customer places an online order, he can be confident that the size will work for him.
• This sizing consistency has led to higher conversion rates and repeat purchases. 70% of
customers who visit a DXL store make a purchase, and 90% of those who make a
purchase intend to purchase again.
• Largest player with significant growth runway in a fragmented segment: the Company
has about 12% market share in the $3.5 to $4.0 billion men's big and tall apparel
segment. Based on a 2016 study, 6 out of 10 potential customers do not know DXL. The
Company thinks it can eventually operate 340 DXL stores and 60 DXL outlets, compared
to 202 and 14 existing today.