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Destination Maternity Reports First Quarter Fiscal 2018 Results

June 14, 2018

MOORESTOWN, N.J.--(BUSINESS WIRE)--Jun 14, 2018--Destination Maternity Corporation (NASDAQ:DEST), the world’s leading maternity apparel retailer, today announced financial results for the first quarter of fiscal 2018 ended May 5, 2018 compared to the first quarter of fiscal 2017 ended April 29, 2017.

Commentary

“Our financial performance in the first quarter was in line with expectations, highlighted by reductions in SG&A, double digit growth in our e-commerce channel and increases in operating income,” said Marla Ryan, Chief Executive Officer of Destination Maternity. “While I am encouraged by our progress, there is more work to be done to unlock the company’s full potential and improve our overall operating performance.”

“Since taking the helm as CEO, I have been working closely with our employees to implement a comprehensive and attainable business plan geared toward accelerating revenue growth, rationalizing expenses and improving profitability. This includes identifying opportunities to expand our ecommerce sales platform, prioritizing inventory optimization and developing new partnerships and innovations that will help us better engage with our customers and drive strengthened brand loyalty.”

“While it is still early days for me, I am excited for the opportunities ahead. With the support of a highly talented team of employees, combined with Destination Maternity’s strong brand equity, I am confident we can transform this company into a more nimble and profitable organization that generates long term shareholder value.”

First Quarter Fiscal 2018 Financial Results

Net sales for the first quarter of fiscal 2018 decreased 3.0% to $103.2 million from $106.4 million for the first quarter of fiscal 2017, which included $0.8 million related to a change in the method of accounting for gift card breakage. Comparable sales for the first quarter of fiscal 2018 decreased 0.1%. Gross margin for the first quarter of fiscal 2018 was 53.7%, a decrease of 70 basis points from the comparable prior year gross margin. Selling, general and administrative expenses (“SG&A”) for the first quarter of fiscal 2018 decreased 6.8% to $51.9 million. As a percentage of net sales, SG&A decreased 210 basis points to 50.2%. Adjusted EBITDA before other charges was $7.9 million for the first quarter of fiscal 2018, an increase of 24.2% compared to $6.3 million for the first quarter of fiscal 2017. Net income for the first quarter of fiscal 2018 was $0.2 million, or $0.02 per share (diluted), compared to a net loss of $1.1 million, or $0.08 per share (diluted), for the first quarter of fiscal 2017. Adjusted net income for the first quarter of fiscal 2018 was $1.0 million, or $0.07 per share (diluted), compared to the comparably adjusted net loss for the first quarter of fiscal 2017 of $0.7 million, or $0.05 per share (diluted).

Adjusted EBITDA before other charges, and adjusted net income, are defined in the financial tables at the end of this press release.

Other First Quarter Fiscal 2018 Financial Information

Capital expenditures totaled $1.1 million primarily driven by investments in stores and investments to support key systems projects. At May 5, 2018, inventory was $66.4 million, a decrease of $7.3 million compared to $73.7 million at April 29, 2017.

Conference Call Information

As announced previously, a pre-recorded conference call regarding the Company’s first quarter Fiscal 2018 financial results that includes comments on the results from members of our senior management, will be available today at 9:00 a.m. Eastern Time. Interested parties can listen to this conference call by dialing (800) 219-6970 in the United States and Canada or (574) 990-1028 outside of the United States and Canada. The conference call will also be available on the investor section of the Company’s website at http://investor.destinationmaternity.com. The passcode for the conference call is 1561749.

In the event that you are unable to participate in the call, a replay will be available at 12:00 pm Eastern Time on Thursday, June 14, 2018, through 12:00 p.m. Eastern Time June 21, 2018, by calling (855) 859-2056 in the United States and Canada or (404) 537-3406 outside of the United States and Canada. The passcode for the replay is 1561749.

About Destination Maternity

Destination Maternity Corporation is the world’s largest designer and retailer of maternity apparel. As of May 5, 2018 Destination Maternity operates 1,118 retail locations in the United States, Canada and Puerto Rico, including 484 stores, predominantly under the trade names Motherhood Maternity®, A Pea in the Pod® and Destination Maternity®, and 634 leased department locations. The Company also sells merchandise on the web primarily through its brand-specific websites, motherhood.com and apeainthepod.com, as well as through its destinationmaternity.com website. Destination Maternity has international store franchise and product supply relationships in the Middle East, South Korea, Mexico, Israel and India. As of May 5, 2018 Destination Maternity has 186 international franchised locations, including 13 standalone stores operated under one of the Company’s nameplates and 173 shop-in-shop locations.

Reconciliation of Non-GAAP Financial Measures

This press release and the accompanying financial tables contain non-GAAP financial measures within the meaning of the SEC’s Regulation G, including 1) adjusted net loss, 2) adjusted net loss per share - diluted, 3) Adjusted EBITDA, 4) Adjusted EBITDA before other charges, 5) Adjusted EBITDA margin, and 6) Adjusted EBITDA margin before other charges. In the accompanying financial tables, the Company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. The Company’s management believes that each of these non-GAAP financial measures provides useful information about the Company’s results of operations and/or financial position to both investors and management. Each non-GAAP financial measure is provided because management believes it is an important measure of financial performance used in the retail industry to measure operating results, to determine the value of companies within the industry and to define standards for borrowing from institutional lenders. The Company uses each of these non-GAAP financial measures as a measure of the performance of the Company. In addition, certain of the Company’s cash and equity incentive compensation plans are based on the Company’s level of achievement of Adjusted EBITDA before other charges. The Company provides these various non-GAAP financial measures to investors to assist them in performing their analysis of its historical operating results. Each of these non-GAAP financial measures reflects a measure of the Company’s operating results before consideration of certain charges and consequently, none of these measures should be construed as an alternative to net income (loss) or operating income (loss) as an indicator of the Company’s operating performance, as determined in accordance with generally accepted accounting principles. The Company may calculate each of these non-GAAP financial measures differently than other companies.

Forward-Looking Statements

The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this press release or made from time to time by management of the Company, including those regarding earnings, net sales, comparable sales, other results of operations, liquidity and financial condition, and various business initiatives, involve risks and uncertainties, and are subject to change based on various important factors. The following factors, among others, in some cases have affected and in the future could affect the Company’s financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any such forward-looking statements: the strength or weakness of the retail industry in general and of apparel purchases in particular, our ability to successfully manage our various business initiatives, the success of our international business and its expansion, our ability to successfully manage and retain our leased department and international franchise relationships and marketing partnerships, future sales trends in our various sales channels, unusual weather patterns, changes in consumer spending patterns, raw material price increases, overall economic conditions and other factors affecting consumer confidence, demographics and other macroeconomic factors that may impact the level of spending for apparel (such as fluctuations in pregnancy rates and birth rates), expense savings initiatives, our ability to anticipate and respond to fashion trends and consumer preferences, unanticipated fluctuations in our operating results, the impact of competition and fluctuations in the price, availability and quality of raw materials and contracted products, availability of suitable store locations, continued availability of capital and financing, our ability to hire, develop and retain senior management and sales associates, our ability to develop and source merchandise, our ability to receive production from foreign sources on a timely basis, our compliance with applicable financial and other covenants under our financing arrangements, potential debt prepayments, the trading liquidity of our common stock, changes in market interest rates, our compliance with certain tax incentive and abatement programs, war or acts of terrorism and other factors set forth in the Company’s periodic filings with the SEC, or in materials incorporated therein by reference.

Although it is believed that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and persons reading this announcement are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this announcement. The Company assumes no obligation to update or revise the information contained in this announcement (whether as a result of new information, future events or otherwise), except as required by applicable law.

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