Good day, everyone, and welcome to the Destination XL Group Fourth Quarter Fiscal Year 2014 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jeff Unger. Please go ahead, sir.

Good morning, everyone. Thank you for joining us today on Destination XL Group's fourth quarter fiscal 2014 call. On our call today is David Levin, our President and CEO; and Peter Stratton, our Senior Vice President and Chief Financial Officer. During today’s call, we will discuss some non-GAAP metrics to provide investors with useful information about our financial performance. Please refer to our earnings release, which was filed this morning and is available on our website at investor.destinationxl.com for an explanation and reconciliation of such measures. Today’s discussion also contains certain forward-looking statements concerning the company’s operations, performance and financial condition, including sales, profitability, EBITDA, expenses, gross margin, capital expenditures, sales per square foot, earnings per share, store openings and closings, and other matters. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those assumptions mentioned today, due to a variety of factors that affect the company. Information regarding risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. Now, I would like to turn the call over to our President and CEO, David Levin.

Thank you, Jeff, and good morning everyone. Before I get into the details of the quarter, I want to put our performance into perspective. These results were outstanding and represented a true breakthrough for Destination XL, by a number of measures. We have reached a new level of performance with the DXL concept, and we are excited about what the success means for us as we move into fiscal 2015. Highlighting our performance this quarter was the 16.4% comparable sales increase and our 93 DXL stores that were opened at least 13 months. It is important to note that this was a very strong comp on top of a solid double-digit comp in the prior year's fourth quarter. We also achieved our seventh consecutive quarter of double-digit DXL store comps, a very impressive result in what has been a challenging overall retail environment. Perhaps most importantly, we executed well against the plan we laid out for investors at the beginning of 2014 fiscal year and achieved our financial targets even as many other retailers were forced to reduce their expectations for the year. Our financial performance demonstrates the success of our DXL transformation strategy. One aspect of the DXL strategy that has been a big success recently was our decision to keep Casual Male XL stores open for several months in markets where we have opened new Destination XL stores. This initiative is really paying dividends as our Casual Male stores are serving as brand ambassadors to direct existing shoppers to the new DXL stores. In these markets, we are seeing a higher rate of Casual Male customers transitioning to the DXL brand. In fact, 44% of Casual Male customers have now become DXL customers compared with 30% at the start of fiscal 2014. Overall, our 2014 conversion rate is…

Thank you, David. Good morning, everyone. There are few different topics that I would like to talk about today. First, I will start by highlighting the company's results for the fourth quarter of fiscal 2014. Then I will go through our new guidance for fiscal 2015. Lastly, I would like to talk a little bit about our long-term outlook for the company and more specifically our expectations for fiscal 2016. First, let me start with telling all of you how extremely pleased we were with our fourth quarter performance as sales exceeded our expectations. For the quarter, we reported a total comparable sales increase of 8.9% versus just 4.2% in the fourth quarter of fiscal 2013. At the heart of this improvement were our 93 DXL stores that have been opened for at least 13 months. These stores delivered a comparable sales increase of 16.4%, which is the highest quarterly comp that we have seen in the DXL stores since the second quarter of 2013, when we launched our first DXL television and radio commercials. This quarter also represents our seventh consecutive quarter with double-digit DXL comp sales growth. Sales for the quarter were propelled by a 13.9% increase in transactions both, traffic and conversion which we define as a percentage of visits that resulted in the transaction, contributed to this increase. The growth in traffic and conversion is a very positive indicator for our business, because it proves that not only are we building customer awareness with the DXL, but we are also improving our sales productivity. Moving on to gross margin, for the fourth quarter gross margin including occupancy cost was 47.9% versus 44.8% for the fourth quarter of fiscal 2013. The 310-basis point improvement was largely due to a gain on the termination of our lease at…

Thank you. [Operator Instructions] We will take our first question Bernard Sosnick with Gilford Securities.

Good morning and congratulations for the successful season.

Thanks, Bernie.

I would like to focus a little bit on the projection for expenses. You said that the incremental expense increases are going to be modest. Could you fill in a little bit why there will be only modest increases when in fact you are going to be opening more stores. Will it be the leveling off of marketing expenses? What else will be contributing to that?

Sure. That is a great question Bernie. A couple of things on that, as we talked about, we are going to be opening 40 stores in 2015. Then in '16, that number is coming down to 30 stores, so we are starting to see a drop-off in those one-time conversion costs as we slowdown. No, I should not say slowdown, but as we near completion of getting all these stores built out, so we are going to be dropping off some of those conversion costs such as store set up, pre-opening rents, some of our training costs, and so forth. We are also going to be seeing a little more leverage in occupancy as we get out to 2016, so that is going to help on the gross margin side. We are starting to reach that high point in SG&A, so that that is certainly going to level off.

Bernie, this is David. Also, you made the reference to the leveling off of marketing and that is true. We took our marketing from 4% up to 7% to get the awareness level up and that is definitely coming down, so our marketing costs are definitely becoming more rationalized and even coming down as a total net spend beyond the fact on the percentage basis.

I have not yet figured out what the expense ratio would be, but you have been running over 40% in recent years, and I presume that you are going to be going under 40, perhaps even under 39 by 2016. Do you foresee reaching 38% by 2016?

Yes.

…and continuing down?

That is right, Bernie. You know as we said, $181.5 in SG&A costs for next year. If you extend that out to 2016, and say "Okay. We are going to be maintaining that amount to a slight increase on sales of $470 million", then you certainly see that percentage coming down to 40% and sub-40.

Okay. Thank you very much.

[Operator Instructions] We will go to next Liz Pierce with Brean Capital.

Good morning. Congratulations to you guys, great job. David, just to pick up on that subject just a little bit, can you share with us what the plans are for marketing for next year?

For 2015?

Yes. For this current year, sorry. Yes.

The plan is, we are going to be anniversarying our commercials during virtually the same time periods that we did last year. The spend is down somewhat, but not dramatically, the bigger drop in the spend as a percent of sales comes in '16, but we are pretty much going to be duplicating our advertising campaign that we did last year.

Okay. Will it continue to be T.V., I mean, the same mediums?

Yes. Again, a little more weighted towards T.V. versus radio.

Okay. Then on the small market stores, can you just share with me any kind of detailed insight what you are seeing on those stores and customers, conversions, new customers etcetera?

We are extremely pleased. The customers, again, are seeing this concept for the first time. The DNA of the store look looks the same, so the fact that it is 5,500 square feet versus 8,000 square feet, the customer experiences the same and we are getting a higher return on investment on these new stores. They are exceeding their plan in the first 12 months, so we are very excited about it. Again, you could tell we are accelerating that ratio by opening up 16 of the 40 stores this year will be in that small format, so very pleased with the results.

David, has this opened. I think that was one of the things that you felt originally opened up more markets for you, so that number, the end number of DXL stores, has that changed because of this?

Yes. It is certainly going up. Again, we only are saying by 2017, we will add 210, but that number is going to go up, because we still have a lot of single-store markets that now will be able to convert to DXL versus abandoning those markets, so we have not put a new number out there, but it is definitely going to increase now that we have the success of the 5,000 square foot stores.

Then just quickly last question, and I will get back in the queue. Are you going to open another store in San Francisco?

No. It is not on our schedule at this time.

Okay.

One of the things, Liz, we have seen is that a lot of that traffic from San Francisco, the customers do shop other stores, so we do see that they are going to Pleasant Hill, they are going to San Jose, and they also will shop our other stores around the country. We get a lot tourist traffic, or we got a lot of tourist traffic in the San Francisco store.

Okay. All right. I will get back in the queue guys, but great job and best of luck.

[Operator Instructions] We will go next to Lee Giordano with CRT Capital.

Thanks. Good morning, everybody. Just a question on your capital structure, just wondering how you feel about your liquidity position, this year looks like you are going to take out some more money on your credit facility. Do you anticipate the need to increase the size of that facility and just any thoughts on the capital structure would be helpful. Thanks.

Hi, Lee. It is Peter. As you know, we restructured our debt back in the end of the third quarter beginning of the fourth quarter of this year, and we feel very comfortable that that is going to be sufficient to get us through the completion of the DXL conversion. Yes, we will be continuing to spend more cash this year as we are opening 40 more stores, but that number starts coming down once we get into 2016, and the pace of openings gets closer to the finish line.

Great, and just on the merchandise margins in the promotional environment, how are you thinking about merchandise margins this year in 2015? Do you think that if you are having the same level of marketing that it can level off, I guess, what are your thoughts there? Thanks.

We do not anticipate any erosion in our gross margins for this year. We have done the extremely good job in our global sourcing, our internal department that places most of our private label goods adds cost advantages in the placements for this year, promotional cadence is very similar to last year, so we do not see any of merchandise margin erosion for 2015.

Great. Thank you.

We have no further questions in the queue, [Operator Instructions] Gentlemen it appears we have no further questions at this time.

Okay. Thank you all for joining our call today. As I always do, I would like to end by inviting you to visit one of our DXL stores. As I stated, on April 16th, we are going to have an Investor Analyst Day at our new store in Manhattan. We encourage all of you to come for a nice tour. We are very proud of the store we have put there. Again, if you like to visit about any other store, please let us know and we will give you a tour and we look forward to speaking with you next quarter. Thank you very much.

Thank you. That does conclude today's conference. Thank you for your participation.