Destination XL Group's (NASDAQ:DXLG) Conservative Accounting Might Explain Soft Earnings

The most recent earnings report from Destination XL Group, Inc. (NASDAQ:DXLG) was disappointing for shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

View our latest analysis for Destination XL Group

The Impact Of Unusual Items On Profit

For anyone who wants to understand Destination XL Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$5.8m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Destination XL Group doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Destination XL Group's Profit Performance

Because unusual items detracted from Destination XL Group's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Destination XL Group's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Destination XL Group.

Today we've zoomed in on a single data point to better understand the nature of Destination XL Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.