Good day and welcome to the Destination XL’s Third Quarter Fiscal 2016 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeff Unger. Please go ahead sir.

Thank you [Audra] (Ph). Good morning and thank you for joining us today on Destination XL Group’s third quarter fiscal 2016 call. On our call today is David Levin, our President and Chief Executive Officer, as well as Peter Stratton, Vice President and Chief Financial Officer. During today’ 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 Investor Relations 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, gross margin, capital expenditures, earnings per share, free cash flow, store openings and closings and the Company’s ability to execute on strategic plan and the effectiveness of the Destination XL concept. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those assumptions as mentioned today due to a variety of factors that affect the Company. Information regarding risks and uncertainties is 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. It’s really quite remarkable to witness what is happening in our Company this year. Despite all the challenges that retailers are facing this year with concerns about weather, concerns about consumer confidence and overall retail and the wave, the DXL is on track to deliver a breakout year in fiscal 2016. To begin with. we opened 12 DXL retail stores and one DXL outlook this quarter. We also celebrated an important milestone with the opening of our 200th DXL store in Oxnard, California. We have canvassed the country with DXL and we now have a retail presence in 98 out of the top 100 metropolitan areas by population consensus in United States. The DXL format now represents 74% of the Company’s total store footprint. We expect to finish this year having opened approximately 29 DXL stores consisting of 25 retail stores and four outlets. We also expect to open approximately 30 stores next year, two of which will be in Toronto, Canada. New store performance has been excellent. The DXL stores that opened this year are trending in excess of 10% ahead of plan. As our brand awareness is grown, we are getting better traction in year one of the stores openings. We have also been very focused on right sizing the square footage for each store. Furthermore, by reconfiguring and fine-tuning the design of the new stores, we have improved our required capital investment per square foot. The foundation for our DXL transformation is a sound capital allocation model and all of these new stores elements contribute to a very high return on investment. All of these steps that we have taken to transform our Company are paying off. One of the most telling signs that we have achieved are transformation is…

Thank you David and good morning everyone. Overall, our financial performance for the third quarter was positive, while many in our industry have reported negative comps and we reported the total comparable sales increase of [nine-tenths of] (Ph) 1% on the top of the 4.3% increase in the prior year quarter. We had a 158 DXL stores opened for at least 13 months, which delivered a comparable sales increase of 2.3% on top of the 9.2% comp sales increase in Q3 of 2015. The number of DXL transactions increased 1.8% from the third quarter of last year, while there average dollars per transaction rose five-tenths of 1%. In the third quarter, gross margin including occupancy costs was 44.4% compared with 45% for the third quarter of fiscal 2015. The decrease of 60 basis points was the result of a 30 basis point decrease in merchandise margin, and a 30 basis points deleveraging in occupancy cost as a percentage of total sales. The decrease in merchandize margin was primarily due to a shift in the timing of clearance markdowns. You will recall from our second quarter call that we rolled some of our slow moving inventory from the full price to clearance in Q2 whereas in the prior year, we didn’t roll that merchandise until Q4. As we expected, merchandise margins declined from last year in both Q2 and Q3, because of this timing change. In Q4 of this year, we expect to see an improvement in merchandise margin due to the anniversary of the prior year dock roll. Moving on to SG&A cost. We continue to be disciplined with managing expenses. Our SG&A expense for the third quarter were 4.6% of sales compared with 42.6% a year ago. For an improvement of 200 basis points. On a dollar basis SG&A…

Thank you. [Operator Instruction] We will go first to Eric Beder at Wunderlich Securities.

Good morning. Congratulations on the next step in this turnaround.

Thanks, Eric.

Could you talk a little bit about some of the products here? You have been a little bit more aggressive in offering customized product in suiting. I’m curious how that’s working. And what are you learning from the DXL outlet stores in terms of going forward?

Well, in terms of closing which we call suits, sport coats, dress pants, et cetera that’s been our fastest growing category. And it’s really moving more into the fashion side, just more updated looks. Really our basic suit business is fairly stagnant. But, as we are getting in this younger guy, who is shopping more often, he is definitely looking for something new to freshen up his wardrobe, but that’s been a real positive. In terms of made to measure that’s a kind of the business that we monitor, it’s in a select number of stores, we can offer that service in shirts and some pants and things. But it’s pretty much a very contained business; we are not looking at that as major growth for the future. The outlet stores are doing well, especially the conversion as we have converted a dozen or so of our Casual Male outlet stores into DXL outlet stores, they are getting the similar lift that we have been getting as we have converted our full price stores. So, and we are actually looking to expand into some more markets next year with some new outlet stores also.

In terms of the smaller DXL stores, are those meeting your expectations and should we expect going forward that the majority of the stores will be the smaller DXL locations as you expand?

Sure, I will take that one. So the smaller DXL stores, which we have referred to as our DXL 5K, those are typically our stores that are 5,000 to 6,500 square feet. And I think what has been great about those stores is, our ability to leverage the right store footprint. Given the volume that we are going to do in each market is maximizing our return on investments. So that’s something that we have been very focused on and it’s one of the biggest levers that we have to get the most out of our capital allocation. So the stores are performing well and we expect that - yes, most of the stores going forward will be more in the 5,000 to 7,000 square foot range than the 8,000 to 10,000.

Great. And it sounds like you guys are still pretty confident in the growth expansion of opportunity to take the full price stores to 300 plus. Is that still the case and is that what we should be thinking going forward?

Absolutely, we have still got over 100 Casual Male stores that are going to need conversion. And again, through our whitespace study, we saw there is up to potentially 75 more locations where they are probably once a Casual Male store there over the last maybe seven, 10 years ago that we left those markets. And with the stronger brand of DXL it gives us the opportunity to come back and regenerate our customer base in those areas.

Great. Congratulations again. Good luck for the holiday season.

Thank you.

Thanks Eric.

We will go next to Bernard Sosnick at Madison Global Partners.

Good morning. Could you remind me what is the average age of the DXL stores?

So the average age of the DXL stores right now is about three years old.

Okay, so they were in the heart of the maturation cycle and for some reason you are not getting what I would expect during this maturation period in terms of consistent same-store sales growth notwithstanding the difficulties of the environment. What are your thoughts about that?

Well, we have been running consistently high single-digit comps for the last three or four years and this year. It's in the first quarter the DXL stores they are in the 5% range and of course we didn’t meet our expectations in the current quarter at under 3% comp. but we strongly believe that retails guidance issues right and everybody pretty much got the same story going on. So it’s not just a traffic issues. One of the things that generating to bring up right now is we are opening these new stores, they are getting a bigger boost to start with than we did several years ago. So the new stores were doing 10% better out of the box. So the model is changing a little bit. Over the five year period we certainly still should end up at the same point of growth, but we are going to get a little more growth in year one and maybe a little less growth in year two. Because the awareness level of our brand right now as we open these new stores we are getting much more traffic in that first year than we had in the previous years. But to add for that as more of our storage start to hit four and five years old that there will be some coming down of their comp, because the weight of the new stores won't cover the weight of the balance of the change that's now hitting year four, year five. But it is going according to pretty much how we have forecasted it for the future.

But the target for sale per square foot despite the good start on new units has fallen back as well versus what might have been expected to 2017?

Yes, and I think part of that's the environment that we are in. we are still growing sales per square foot at a very good rate I believe, we are at a $184 up from mid 170s last year. So should that number be a little bit higher, I think in a better environment, but I wouldn’t say that it's falling off of our trajectory.

In the latest quarter occupancy cost de-levered. If I'm not mistaken in the second quarter you had 40 basis points of positive leverage from occupancy cost. Am I correct about that and if so what is the reason for the variability?

Yes, that's correct and part of it is due to when the additional storages have come on this year. So as we have been increasing our square footage, we have seen more occupancy in Q3 leading to more deleveraging on the lower sales base. So I would say it's more timing than anything else.

Yes one of the other thing is Berny is when we opened new stores, they are probably $100,000 of pre opening expenses and we opened 13 stores in the third quarter, which is going to have a short-term impact on that occupancy cost. That’s should - out as we go forward.

Okay, so what are your expectations for occupancy cost impact on a gross margin in the fourth quarter, given your sales forecast?

So we expect that we are going to see the return of that sales leveraging in the fourth quarter.

Okay. The gross margin in the fourth quarter varied greatly over years 47.5%, 47.9% down to 45%. What is a normalized gross margin that you would expect? And why this shop variability?

So part of the issue with gross margin is we have the occupancy in there. And part of the variability you might be referring to was a couple of years ago we had a very significant buyout as one of our Rochester stores that caused a lot of variability. So when you back out that issue, I think it gets a little more normalized. The number that I’m looking for is 46%, that’s what our guidance is for the full-year. We have been right around 46 for most of the year and that’s what we are expecting.

Well for the fourth quarter, you were 45.8 last year. So if the occupancy is going to be levering, then you are not forecasting anything from the merchandise margin, which I would expect there should be some benefit after taking earlier markdown as slow moving goods?

Well it’s a combination of both. So we are taking a very close look at what promotions we need to run in the fourth quarter and our best feeling right now is that we will be above 46%.

Okay. Thanks very much. Good luck on the season.

Thank you.

We will go next to Greg Pendy at Sidoti.

Hey guys, thanks for taking my call. Just can you give us a little bit color, you cited weather in the past, you have kind of talked about weather sensitive regions and non-weather sensitive regions. Can you give us any color on whether those regions are holding up better?

Well, we have yet to seeing cold weather anywhere across the country and that is our big surge in sales when that happens. Our guy buys on need and he is a procrastinator, he will not come out until the weather gets cold. Certainly, the last few weeks of October and into November, we have yet to seeing that cold snap happen. One interesting point to note is that we are seeing a much different landscape in the middle of the country. In central areas of the country, there is definitely a differential of comp sales going on versus our east and west coast. Our east and west coast counts have been very close to plan, where we have been getting hit the hardest would be through you have heard this from other retailers, Texas, Oklahoma all the way up through the Heartland. Our comps have been significantly lower. So is that macro weather? We are trying to figure it all that out ourselves, but that has been a disparity. Our east and west coast stores are doing very well.

That’s helpful. And can you just give us a little bit color, inventory looks very clean, but just given the warehousing procurement that you have on. And also the calendar shift in clearance of items. Can you just comment and give us a little bit of color on how you see kind of in-store inventory levels as we head into the fourth quarter?

Yes. That’s a good point, because our in-store inventories are pretty much the same as they have been and we don’t really see a change building from the inventory in our stores. Where we are bringing down the inventories is in our warehouse. The amount of stock we carry for backup, and we are learning how to flow that better how to time that seek better. So that’s for the inventories coming down, and it’s a really big initiative for us going into next year, because we plan on taking that inventory down even further.

Okay. That’s very helpful. Thank you.

Thank you.

[Operator Instruction] We will go next to Steven Ruggiero at R.W.Pressprich.

Yes. Good morning. Thanks for taking the question. End-of-rack is the first one merchandizing strategies for end-of-rack seem to be working well. That’s said can you give us quantify for us the impact on you are on a conversion of those EOR strategies.

I think it’s consistent with everything we have talked about. We haven’t really talked about that specifically, but to reiterate what we said in the past, this end-of-rack guy is shopping 54% more often than our bigger guy and he is spending a 120% more on an annual basis. So I mean this is the sweet spot of our strategy, we continue to grow into getting better penetration with this guy. He is the younger, he shops more often and he is spending money. So we continue to watch that and watch it grow because that’s clearly future for us. Basically, this guy is was too of our bigger guy.

So, given the popularity of that and effectively the conversion can we assume that the merchandizing margins for end-of-rack are at least equal if not better than the average?

Yes. We really don’t see a difference in that. Correct.

Okay. And this is a very specific question just relating shoe performance, if there is an inventory builds you are doing some promotions on that online. And how is shoes going just we are hearing other anecdotes out there pressure with boots et cetera?

Well boots aren’t a big part of business. Our shoes business actually is one of our strongest areas; I would say footwear and men’s clothing. Why footwear grows at such a great rate is it really gets a big push from the amount of styles we carried in the Casual Male store which are probably around 40 into a DXL store, which is over a 100. So every time we open a DXL store we get a nice lift in footwear. Categorically, I think we are doing fine whether its dress, shoes, casuals or athletic they are all running pretty good. One of the beauties about our footwear businesses, we are moving a lot of our vendors into drop-ship programs. So about a third of our styles right now, we don’t even carry in the warehouse, we ship directly from the vendor to our customers. So, we are going to go more in that direction and keeps our inventory down, we don’t have to deal with markdowns and that project is working well and we are getting more of our vendors to do that. And now we are making progress in sport wear too, where we are getting the vendors to be able to drop-ship certain categories directly into our stores.

That's helpful. And final question regarding your downsize DXL stores that you are opening that you referenced. Will you eliminate any categories or look for mix change in those smaller DXL stores?

No we really need the categories, because it's really about lifestyle and regardless of where we are, we are going to have a young men's business, we are going to have a traditional business and the age groups don’t change much. Our customer could be 18 years old, they could be 80 years old, we have to cover all of them with the lifestyle. Now what changes dramatically in the stores is the percent of real estate we will allocate to those and that could change dramatically. Certainly on the coastal areas, they are getting a much higher percentage of fashion products, they could turn into and that what their customers are looking for. One more important thing I wanted to say is for the first time, we are really connecting in our young men's business. Our fastest growing category right now, we are expanding into more stores, we have tried this in the past and we went for that younger consumer, we haven’t been successful and now we are getting great success. I think it's strictly matter of this DXL store is now getting in this guys that had nowhere to go and didn’t understand what our Company was all about and whether through word of mouth or marketing, he is coming into store and really getting excited about the new product that we are bringing in.

Thank you. Very helpful.

And we will go next to Chris Krueger at Lake Street Capital Markets.

Hi good morning. Most of my question have been answered, but just one on the TV advertising expenses. I'm not sure if you guys have quantified where those expenses have been in the last three years, but if so wondering how much that costs.

It's several moving dollars a year and we have two flights a year, we do one around the Fathers Day period for six weeks and then we do one in the holiday period for six weeks. So the holiday period one that would be running right now in this time frame that's what we eliminated, we allocated some of those dollars into the digital social media area. Again, we are learning, we are finding good traction in some things, paid search, banner, affiliate; again, we think in the future it's just going to be much more focus for us versus TV. Again, on TV we are talking to a niche market, basically one out of 10 adult males is going to register with our commercials and that's got a high cost ratio to it. So we think going forward for the earnings and profitability of this company, we want to start reallocating those dollars into other areas. Everybody knows that TV viewership is down whether you are watching Netflix or you are [DVRing] (Ph) and not listen to commercial. Again, we see they are strategically long-term that we want to reallocate those dollars moving forward into a more progressive marketing campaigns in the digital and social media world.

All right, so if the retail industry gets to be call it normal again, let say next year, do you think your this current strategy would probably stay the same and you would kind of hold off in the TV advertising knowing what you know now?

I would answer that with the good may be. Now we are going to evaluate at the end of this quarter how we are transitioning to over and make a judgment call after we get through this year.

Okay. That’s all I got. Thanks.

Thank you.

And that does conclude today's question-and-answer session. At this time, I will turn the conference back over to management for any closing remarks.

Okay, well thank you all for joining us today. As a reminder, as always we invite you to visit one of our DXL stores and to experience what we have been building into this destination concept. And if you would like to visit any of our stores, let us know, we will be happy to give you a tour. And we look forward to speaking with you next quarter and have a great day. Thank you.

And that does conclude today's conference. Again, thank you for your participation.