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Growth & Income

Destination Maternity Corporation recently reported better-than-expected results for the first quarter of 2011. Earnings per share came in 17% above the Zacks Consensus Estimate, and management raised its guidance for the full year.

The company also announced the initiation of a regular quarterly dividend. It currently yields 3.3%.

Company Description

Destination Maternity Corporation engages in the design and retail of maternity apparel. It operates its stores under four names: Motherhood Maternity, Mimi Maternity, A Pea in the Pod and Destination Maternity.

The company also operates 268 leased departments in retailers like Macy's, Bloomingdales, Gordmans and Babies "R" Us. It is headquartered in Philadelphia, Pennsylvania and has a market cap of $267 million.

First Quarter Highlights

The company recently reported first quarter 2011 earnings per share of 81 cents, crushing the Zacks Consensus Estimate of 69 cents.

Net sales increased 1.2% over the same quarter in 2010 due to a 1.2% increase in same-store sales.

The gross margin expanded from 53.6% of sales to 53.9%. Selling, general and administrative expenses declined as a percentage of sales from 47.8% to 46.9% as the company was able to leverage its fixed costs. Meanwhile, adjusted operating income increased 21.5%.

Outlook

Management raised its guidance following the strong quarter. The company now expects to earn between $3.62 and $3.98 per share, up from previous guidance of $3.52 to $3.87. The Zacks Consensus Estimate is within guidance at $3.83, representing a 19% increase over 2010 EPS.

The 2012 Zacks Consensus Estimate is $4.32, equating to 13% EPS growth.

It is a Zacks #2 Rank (Buy) stock.

Fundamentals

The stock has risen 58% since September 1:

DEST: Destination Maternity Corporation

Valuation remains attractive, however, with shares trading at just 11.0x forward earnings, a discount to the industry average of 16.7x. Its price to sales ratio 0.5 is slightly lower than the peer group multiple of 0.6.

The company also recently initiated a regular quarterly dividend of 35 cents per share. This equates to a nice dividend yield of 3.3%.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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