Good day, and welcome to the Destination XL Q1, 2017 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Tom Filandro, Managing Director at ICR. Please go ahead.

Thank you, Christina and good morning everyone. Thank you for joining us today on Destination XL Group's first quarter fiscal 2017 earnings call. On our call today is David Levin, our President and Chief Executive Officer, as well as Peter Stratton, our Senior 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 Web site 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 its strategic plan. 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 is detailed in the Company’s filings with the Securities and Exchange Commission. Now, I'd like to turn the call over to our President and CEO, David Levin.

Thank you, Tom and good morning everyone. I'm pleased to report today that DXL is off to a solid start to fiscal year 2017. For the first quarter, our comparable sales declined 2.1%, which is very much in line with how our business was trending for the fourth quarter of last year. When we reported our fourth quarter results in late-March, it was clear that both February and March would be challenged from a top line perspective. The good news is that our sales performance accelerated dramatically with the positive comp of 6.4% compared to last year and net sales momentum has continued into May. We’re on track to deliver a positive comp for the second quarter and we’re achieving our goal of reinvigorating top-line growth by expanding our brand reach and driving new to file shoppers to the DXL men’s apparel brand. Back in March, we highlighted that our first strategic initiative to grow our customer base was supported by increasing our 2017 marketing budget by approximately 40%, which included reinstituting television advertising, utilizing creative content renew work. We launched our spring television and the advertising campaign on April 2nd comprising 10 weeks of air time compared to only six weeks last year. We expected to see a lift in traffic and transaction from the advertising in the month of April, but the response exceeded our expectations. We’re also pleased to see that our end of the rack penetration increased to 44.8% in first quarter 2017 compared to 43.8% in first quarter 2016. This is a clear indication our marketing efforts are paying off. We’re now halfway through the spring campaign, which will continue through Father’s Day. We’re building our brand awareness and we remain on track with our positive comp sales guidance for the full year. What we…

Thank you, David, and good morning, everyone. I’d like to start off today with a brief summary of our first quarter 2017 results. For the first quarter, net sales were $107.6 million, inclusive of a total Company comparable sales decline of 2.1% compared to 2% increase in the prior year quarter. As David mentioned, our top-line results were in line with our expectations for the quarter, but ended strongly as our April comp accelerated to positive 6.4%, benefiting from the launch of the television advertising campaign. Performance across the country was evenly balanced. Some of you will recall from last year that our comparable sales performance in the Middle American states was approximately 600 basis points behind our performance on the coast. We are very pleased to see that gap has closed in the first quarter of 2017 and the stores in the middle of the country are once again performing in line coast. Gross margin for the first quarter, including occupancy costs, was 45.2% compared with 46.1% for the first quarter of fiscal 2017. Our merchandise margins increased by 10 basis points, but we also experienced 100 basis points deleveraging in occupancy costs for a net decline of 90 basis points in gross margin. Our merchandise margin is benefited from lower promotional marks down compared to last year. Occupancy expense was negatively impacted by pre-opening rent expense on 11 new DXL store openings this year compared to only five last year. Next, I’d like to talk about SG&A costs. Obviously, our elevated investment and advertising is going to have an impact on expenses. Our SG&A expense for the first quarter was 42.9% of sales, which was better than we expected compared with 38.3% a year ago for an increase of 460 basis points. On a dollar basis, SG&A expense…

[Operator Instructions] We’ll take our first question from Eric Beder with Wunderlich.

Could you talk a little bit -- let’s see, I have a number of questions here. Could you talk a little bit about the Canadian opportunity in terms of how many doors you’re seeing? And is there any difference really in what they’re wanting in terms of product or pricing than we’re seeing in the U.S?

That’s a good question. So we’re starting out in the Toronto market; currently, there is our competitive who’s there they actually in bankruptcy right now; to mention that also about 14 stores overall. I mean Toronto is the fourth largest city in North America. So I think that we could certainly have seven, eight stores in that market overtime. What’s interesting is on the customers’ response to our stores, very similar to the profile we have of our U.S. customers. We were a little quizzical, would they be more inclined to buy our brands, because they’re more familiar with it. But they really are taking too our private label product as they do in the United States, which is great for us, because obviously we get a higher margin dollar on our private label.

In terms of just kind of switching gears, when you’re looking at the e-commerce business, I know it’s going to be a nice growth driver for you. What are you seeing the difference in margins between your e-commerce versus stores in terms of that? And what do you see the return rates there to drive that business?

So in the ecommerce business, I think first of all, we do have a bit of difference in mix where the direct customer shopping on the Web is more value-based, looking for deals more frequently, so we take a little more in markdowns. We obviously have to pay for the freight, but a number of our customers they actually prefer to expedite, which they pay for. So when we're comparing direct versus stores, there is not a huge difference. It's more a difference in mix where we saw more full pricing stores and more low value product on the Web.

The important thing to notice when you mentioned returns, we're very fortunate in this environment where returns really eat up the profits of brick-and-mortar online sales. Our return rate is 8% which is, to me, that's probably the lowest I’ve heard of a lot of apparels 25% to 30% returns. And that's really based on the fact that we stack out-sizing for all brands in private label. So when the customer is buying one of our sizes, there is high degree of confidence that that product is going to fit him. And I think long-term, that's a big advantage for us.

When you look at the mobile app, do you believe that this is going to bring in new customers, or it's going to reinforce your leadership online? How do you look at the mobile app as a competitive tool?

Our mobile app increase quarter-over-quarter is dramatic, like I know a lot of retailers have. It's got a high rate of engagement, but conversion isn't quite where anybody wants it to be, but it is getting better. But it's giving us the ability to talk directly personalized to our customer. It's built on speed and today our average mobile page load time is of several seconds, 16 seconds. And our low time once we start the app going will be less than 1 second. And we'll be able to engage him, talk to him, interact and make that more seamless relationship that he's coming from the Internet and coming back into our stores. So we're excited about the mobile app and it's coming up shortly. And we'll see the results in action probably on the next quarter call we could talk specifically how it's working.

And last question, so you've ramped up TV spend. What is it driven in terms of income -- the TV spend is there historically, does it drive more branded business, does it drive more private label business? What does -- what customers brought in by the TV that has been and brought in by just what you've done before?

Well, our mission is always, as you know to grow the end of the racking for those who are familiar with that. It's really the guy who is in between being able to shop in traditional department stores and retailers and then going into a big and tall store. And 65% of big and tall guys fall between 40 and 46 and it was only 35% of our penetration. TV clearly is effective. When we started this campaign on TV, it was in the low-30s and now as we just announced now 44.8%; so almost half of our customers are into the rack. But it does also drive traffic to our existing customers. It is awareness our awareness didn’t go down for the first time when we do not have a TV run last fall, and now our customer count is going back up, getting very comfortable. And the best part about us keeping customer comp up is there is somewhat of a cost of acquisition to get that customer. But he comes back, he’s sticky and that’s what is about, getting him in and retaining him, will allow us to amortize the cost of that marketing overtime.

Your next question comes from Chris Krueger with Lake Street Capital Markets.

Just looking at the results, I think obviously the April same-store sales of 0.4% really stands out, and to me that implies a sequential jump of, I’ll call it 12% 13%, if I’m doing my math correctly from the February and March period. And I know your new marketing campaign kicked in. Can you talk a bit about what that all entail, or is mostly spent on TV or is it more radio and other sources?

It was pretty much the same balance we’ve used historically; it’s mostly TV, supported by radio; mostly, sports-driven; we have some really good spots this year and some play-up games; a big boost from being on the NFL draft; and actually being a sponsor of the NFL draft. Our name was all over there, I got lots of feedback from a lot of people that saw that marketing campaign. But the advantage we have this spring is that we have a more intensive program with 40% more spend to really get that customer acquisition list going up again. But we’re very pleased with that and it has a halo effect. So even after we stop running the spring summer flight and Father’s Day, for the next several weeks, there is a nice carryover of that marketing campaign that does impact traffic into our stores and onto our Web.

And then the mobile app that you’re going to launch soon, how do you make these big and tall potential customers even aware of your app?

I think a lot of it will be through our store associates. There’re some of the best ambassadors that we have for our brand and they’re working with our customer ever day. So when somebody is coming into the store, we need to make sure that we have a good plan to show him that this app is out there, what it can do for him. It’s going to be more about, more than just another tool with which to transact business. We want him to be able to -- things like update his loyalty points and see what deals we have out there. So that will be the biggest part is through our store associates.

Okay. And you guys indicated that your CapEx for new DXL stores is going to be about $13.7 million this year. Can you remind us what that number was for last year?

Let me get back you on that, I think, it was about $20 million. But I’d have to double check…

Thank you. That’s all I got.

We’ll take our next question from Greg Pendy with Sidoti.

Just wanted to understand, can you just run it through, I guess, the puts and takes of the gross margin. I know there is a little bit in the press release. But were some of these stores, particularly higher cost than typical stores? I know you said the merch margin was up 10 basis points. But I believe, overall, there was about 100 basis points deleverage with some store cost within that?

Greg, so that's a very good question, I wanted to make sure that we're clear about that. Because you're right, merchandise margin was up 10 basis points. The merch margins were very similar to last year. We don't have a problem there. But you're correct there was some deleveraging on the occupancy cost. And the primary driver behind that is the timing of our new store openings this year versus last year. So last year, I think, we opened five new DXL stores in the first quarter. This year, we opened up 11 new stores. And keep in mind we take possession of those stores in some cases three months before opening. So you've got a lot of preopening rent in the first quarter that doesn't have any top line sales to go with this. So that's really what the biggest driver was. It's not that overall we're seeing that leases are getting significantly more expensive. It's more the preopening rents that we have to absorb in Q1 without sales to go with it.

Okay, that's very helpful. I appreciate it.

No problem. And just one follow-up point for Chris Krueger on your question earlier, the CapEx was $19.6 million last year for the DXL stores.

And then one more point to make on that, that's why we're confident we're going to have excellent cash flow in 2018, because with the store count going from 19 to 5, that's obviously going to open up a lot of CapEx for us.

Our next question is from Bernard Sosnick.

April had a benefit of Easter shift for most retailers, I'm assuming DXL included. Therefore, it's a little bit difficult to judge what 6.4% gain for the month meant. And it's especially important since the commentary implies a similar 6% rate of growth going into May. Could you give us a little bit of clarity with regard to the lift expected in May, and how much of that in April came from the advertising program?

Well, we got the lift to the advertising program did start in the month of April. And a point for us is the Easters shift for us is not that dramatic in the men's business. I think it used to be 20 years ago and even last 10 years ago. It's just not becoming a significant buying holiday, and we've seen that over the years. So with the shift, it's a couple of 100 basis points at most. And that trend, post Easter, has maintained itself quite well. So we're feeling that the impact of the TV is certainly taking place, it's been like six weeks now of good run on our store comps. We were feeling confident that we’re going to be able to deliver positive comps going forward for the rest of the year.

I just want to be certain that there isn’t an overly optimistic expectation out there for 6% comp increase in the second quarter. Is that what you’re implying or something less?

No, I would not say we’re implying that. I think that as David just mentioned in April, we were advertising against no advertising last year. And over the course of the spring, we expect that that comp will come down a bit. For the second quarter, I would think we’re in low to mid-single-digits.

With regard to the end-of-the-rack shopper, you’re doing very well there. But I’m wondering whether or not you’re getting as much response from your Casual Male shopper as you would’ve expected in DXL store. There was some difficulty in the beginning, getting the transfer of the shopper. But I’m wondering whether or not there is responsiveness from the larger size guy who felt comfortable shopping in an out of the way store, as compared with something a lot more contemporary with DXL. So could you give us your thoughts with regard to the traditional larger size shopper and DXL?

Bernie, I think it’s completely the opposite. Our big guy loves the store. In fact, he can’t wait for the store to open because when it comes in; he comes in opening day; he’s walking around the store; loves the selections. We’re giving him everything he wanted; this is what the Casual Male customer wanted from us; he wanted more brands; he wanted more selection; he wanted bigger dressing rooms. Basically, what we gave him came from focus groups and surveys of everything we’ve done over the years. So he totally embraces the store, and they’re converting over a much better than ever before and that was more of a marketing issue than a resistance. They just didn’t know where the hell the store was and we’re doing a much better job keeping the Casual Male store open for three months after the DXL store opens to continue to move that guy -- let him to move over to where the DXL store is; sometimes it could be four or five miles away and it takes time; but we continue to see continued comp growth being a destination strategy here. And no, I’m in the stores, we’re on the stores, the big guy loves the concept.

One other point with regard to DXL, could you remind me what the sales per square foot were for 2016. And what level of sales per square foot would be required from DXL to achieve your return investment objectives?

So the sales per square foot in our DXL stores, it’s about -- last year is about $177 to achieve our return on investment objectives, it’s a lower much -- it’s a number of much lower than that. We certainly think that overtime the sales per square foot should be growing up to $200, $220 but we think we're making nice progress on that. We should in the mid-180s this year.

And we'll take our next question from Steven Ruggiero with R.W. Pressprich.

I just like to say before I give the question, just as a full cap structure analyst, I just want to say congratulations on the new bring through this tough retail environment, not only with favorable trends that could appeal for your growth analyst, but you have great financial flexibility and strength. And I just wanted to note that.

Thank you.

So TV spend, you mentioned fourth quarter '17 versus fourth quarter '16. And perhaps I missed this. But can you give me a sense of what the dollar of that cost will be?

A fourth quarter '17 versus fourth quarter '16?

Specifically for that TV spend that didn’t exists last year but does this year.

The amount for just Q4, I don't think we have that with us. But I can get that. I will get that to you.

And then your merchandise SKUs. What percentages are available through your mobile app now and toward the end of '17, what percentage do you expect?

At least 100%.

And then ecommerce sales as a percentage of total sales for all of '17, you mentioned 15% for the latest quarter, I believe. And just want a sense for where it will be a year from now?

Well, we don't break that out. We give updates on it, but we don't give out that number we give out one comp number. But I will say this it's growing at an accelerated rate, obviously, compared to our store count.

And last question, when your products just sold through Amazon. What's the incremental cost per unit? Or more generally, what percentage -- which COGS as a percentage of an Amazon-directed sales as opposed to a non-Amazon-directed sales? And I know that might be a tough one to answer, but…

That's one we're not going to answer that one?

I understand, I had to ask you. All right, thank you.

Your next question comes from Peter Rabover with Artko Capital.

I had a question on your -- in your investor deck, you guys have a breakdown of stores as you opened them that from year one to year five. And I think in year one, you expect to generate $150,000 in cash flow per store, year three is about 300, year five is 400. And so, I guess, two part question is any updates to those numbers; and then what would be the weighted average life of the new DXLG stores to think about in context with those numbers?

So the answer to the first part of the question is, is it changing. The answer to that is no. It moves a little bit, but we still see that the maturation cycle of the DXL store is four to five years. And we're seeing nice comp growth each year that the store matures. And it's still pretty closely sticking to that schedule that's in the investor presentation. Our payback on these stores is about 2.5 years, so we feel like we’re getting a good return on investment for our new stores that we’re opening. But again, we’re going to continue to open stores as we need to. But we’ve now got enough reach that we have a DXL store in every major market in the United States. So as we think about this year, the focus is shifting more towards digital and ecommerce.

And then maybe on the -- with your advertising. Did that drive more of online or the brick-and-mortar sales?

It’s definitely both. A lot of -- you get very big spikes in our Web traffic when we’re on prime time. Conversion at that point is fairly low, because the guy is just more curious. But again, we’re getting him aware of the brand so when he is ready to shop, he knows where to go. But it drives traffic to the stores, it drives traffic online.

And then you had mentioned that your return rate was 8%. Do you think that’s because the people who shop online are your actually brick-and-mortar buyers, or would you say -- do you guys have that data to see who’s buying online, or is it brand new guys or is that people that have shopped with you before, they’re just loyal customers that are migrating to online?

It’s really all about fit. Fit and comfort are the driving forces of our customers, because they’re challenged to find things that could fit them right. Once they find something that fits them, they’re going to buy multiples because they don’t think they can get it again or will be out of the size, so we have a big emphasis on that whole process; so we sit in months with each brand; we have global sourcing team that’s excellent at putting out the trim; getting this fits and everything to fit just right. So just for example, if you have a Tommy Bahama XXX shirt, we have a Calvin Klein XXX shirt, they both will fit him, but the DNA of that fit will be the same. So Tommy Bahama will be a little more generous in its fit and Calvin Klein will be a little more trimmer in its fit. But either one for guy that’s what differentiate ourselves from everyone else, I know, if I don’t buy jeans online because you never know how the brand is going to be size it, so I could be any of three sizes, which really means I want to go in the store and try it on. Our customer knows if he’s going to buy a 48-inch, 32-inch and seam, it’s going to fit him. And again having that low return rate is critical to our future growth, because I think it’s a real problem going forward for the brick-and-mortar retailers to make money if they’re going to have high return rates.

That concludes today’s question-and-answer session. That concludes today’s call. Thank you for your participation. You may now disconnect.