Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 Destination XL Group, Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. I will now like to hand the conference over to your speaker for today, Shelly Mokas. You may begin.

Thank you Towanda and good morning everyone. Thank you for joining us on Destination XL Group's fourth quarter fiscal 2020 earnings call. On our call today is our President and Chief Executive Officer, Harvey Kanter and our Chief Financial Officer Peter Stratton. 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 now available on our Investor Relations website at investor.dxl.com for an explanation and reconciliation of such measures. Today's discussion also contains certain forward-looking statements concerning the company's outlook for fiscal 2021, the continuing impact of the COVID-19 pandemic on its business in fiscal 2021, expected leverage from reduced operating costs, savings in the restructuring of its store leases, expectations regarding store closures, expectations regarding improved customer demand and gradual sales improvement, the impact of direct sales on results in fiscal 2021 and marketing efforts to encourage shopping in-store and online. 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. I would now like to turn the call over to our CEO, Harvey Kanter. Harvey?

Thank you Shelly and good morning everyone. It is my pleasure to speak with you today about DXL and the progress we are making in the business as we leave 2020 behind and look forward to a brighter future in 2021. As I have shared with you on our quarterly call this past year, we have been thoughtful and decisive in our approach to managing through the challenges of 2020. We are encouraged by some of the early signs we are seeing in the first seven weeks of 2021, given the decisions made in the positioning of the company for a longer term recovery and for our future growth. Most importantly and before I begin my remarks in regards to our business, I want to again recognize our associate and their tremendous level of commitment and sacrifice to keep our business moving forward through what has been quite possibly the most difficult period in our company's history. It cannot be said enough, if it were not for them, we might not be here. To our associates and our guest engagement center associates, thank you for continuing to serve our guests and for helping him look his best when he needed us. To our distribution associates, thank you for keeping our product flowing uninterrupted despite all the logistical and health and safety challenges this year. To our corporate associates, thank you. Thank you for continuing to evolve and innovate our business while we are adapting to a new network, a new work-from-home dynamic. I am so proud of what our team has accomplished this year and the credit goes to all of you who have answered the call day-in and day-out to serve and support our big and tall guys. Now for today's agenda, I want to update you on three…

Thank you Harvey and good morning everyone. There are a few topics I am looking forward to sharing today. I will start with a summary of our fourth quarter and full year financial results. Then I will cover some of the recent steps we have taken to strengthen our cash position. And I will close with our full year financial guidance and expectations for 2021. So let's begin with sales. Total sales for the fourth quarter decreased 23.7% to $100.1 million, down from $131.2 million in the fourth quarter of last year. On a comparable basis, sales in the fourth quarter were down 23.4% to last year. Our stores which were down 37.3% from the prior year fourth quarter improved over the course of November, December and January and have continued to accelerate in the new year. Our direct business continued its strong performance throughout the fourth quarter led by DXL.com which was up 28.7% over last year. Features like buy online, pick up at curbside and buy online, pick up in store continue to grow at a faster rate than the core website as our customers see convenience and optionality in their shopping experience. The sale penetration in our direct channel was 41.4%, up from 27.4% a year ago. Our wholesale business contributed $4.5 million in sales during the fourth quarter, flat to last year. Gross margin rate, inclusive of occupancy costs, was 39% as compared to a gross margin rate of 43% for the fourth quarter of fiscal 2019. The 400 basis point decrease in rate was comprised of a 230 basis point decrease in merchandise margins and a 170 basis point deleveraging and occupancy costs against a lower sales base. Shipping costs increased year-over-year due to growth in online sales, free shipping promotions and volume-based shipping surcharges.…

Thank you Peter. As you heard or so we hope, both in my remarks and Peters, we remain quite optimistic. We believe we have weathered the worst of the storm and challenges. We believe we have come through in a solid financial position and most of all we believe we have a strategy to leverage the recovery to engage consumers in what we do best, creating memorable experiences for big and tall guys to look and feel their best and drive growth back. We do that by offering the most extensive and uniquely curated assortment from value price essentials to luxury brands and exclusive designers, both online and in-store giving the underserved consumer the be-all, end-all place to shop and interact, interacting with their friends and our associates and that is something that cannot be bought, it has to be earned. And now we will take questions, operator.

[Operator Instructions]. Our first question comes from the line of Eric Beder with SCC Research. Your line is open.

Good morning. Congratulations.

Good morning.

You guys, as usual, provide a lot of color here. Would you talk a little bit, I know it was mentioned about brands and how you are shifting around the brands, how should we think about that as that evolves throughout this year and how are you strategically looking at what brands to emphasize or deemphasize?

Eric, it's a great question. And as we have, I think, previously communicated, we are materially reducing the brands in our mix and that is to more fine tune really the products that the customer wants. The other thing, I think, that is equally exciting, maybe even more so, is, as we do that we become more important to those brands that obviously stay in the mix and we are able to drive even greater level of exclusivity, either in spring or in fall as those brands actually transition out of other retailers that are either in more stress or just not productive enough to continue to sell to. The categories that more than likely you would expect us to say would be those that are casual driven, work-from-home driven but there is still an element, certainly, of tailored clothing and what we call socializing clothing. And in spite of maintaining a breadth of offer, it is still being narrowed in both in the brands that are bought off market as well as a reduction in brands that are private label. We are reducing our private label brands from nine to five. And I would say, at a high level over the last two years we will reduce our brands by about 50% in terms of those brands at a market. And in both cases, then you can understand that we are really driving into those brands that are most productive and that the consumers really expect from us and in many cases we are the only place they can buy it, literally in the big and tall sizing.

Makes a lot of sense. When you look at the online business, obviously it has the incremental cost of having to be shipped. How do you and what's the campaign to get people who buy online, pick up in store more so you can save and get the fruits of both and get the higher margin than you would get from just shipping directly, shipping just online?

Yes. Another really great question from the standpoint of the cost, right. So we look at shipping as almost a version of occupancy, but obviously at a greatly reduced version of occupancy. But to the to the point you specifically asked, we are doing several different things. One, we are making it simpler to buy online, pick up in curb or buy online, pick up in store. Number two, we have done some level of test and control to understand incrementality by offering incentives. And while the incentives are at some level of discount, they are very minimal. But to offer the customer the opportunity to come pick it up and they are basically offsetting the shipping costs, so it's somewhat neutral but we do know that when a customer enters a store to buy online, pick up in store specifically, that in many cases they are one of our best customers and they are interacting with other sales associates and we are seeing incrementally in ticket because they came to the store. And that is obviously really important to us in addition to offsetting the reality of shipping costs to the extent there is no incentive. So we are pursuing a number of different things but ultimately trying to incent the customer and make the experience simpler so that they can access goods quicker and in many cases you might imagine as fashion becomes more and more important and the reality is they are going to go out, they don't want to wait a day or two or three for shipments. They want to easily just come to the store and pick it up and go out.

Great. And final question. You have given a lot of granularity on the sales the last few weeks. I really appreciate that. When you look at states like Florida, which has pretty much opened up, are you seeing improvements there even more than what you are seeing in terms of the general overall numbers?

Yes. We talked about a 500 basis point change in geography at a high level. At a micro level, I would tell you we have seen as much at times of 20 points differential in those states that have been much more at ease with, hard to believe that you could say at east, but at ease with COVID versus those states either have been more challenged or less at ease with higher stringency in terms of masks and what have you. And so, yes, we are seeing in select states and probably more the Southeast than anything and directly in comparison to the coast, California specifically and New York and that area in the Northeast where there's been greater challenge. But yes, we are seeing distinctly different trends but overall the macros that I referred to are really moving the customer and it will be interesting to see how this evolves over the weeks and months ahead.

Well, guys, congrats and good luck as we get back to normal.

Eric, thanks so much for your interest.

[Operator Instructions]. Our next question comes from the line of Alex Silverman with AWM Investments. Your line is open.

Hi. Good morning.

Good morning Alex.

So a bunch of my questions were already asked, but a couple of small follow-ups. So you gave the cadence of the last few months, even last few weeks or last few days. I assume that's companywide. Have you seen a comparable increase or improvement in foot traffic?

Not at the same level but we definitely see a material change in foot traffic. But the reality is, we are seeing conversion at pretty incredible levels. And as you might imagine intuitively, the customers that either are getting stimulus checks or there is ease in mask wearing and what have you, they are coming in with a purchase intent. And so we are absolutely seeing increasing conversion. The other thing, although not as high and the conversion is double digit growth but not as high as DPT which is the average order value. We are seeing low single digit increases in the purchase value of the transaction. So we have seen a reduction in the decline of traffic and an increase in conversion and increase in ticket. That's the composition of the transaction in store. Online, similarly conversion is up. Actually one of the things that is exciting is paid users up by nearly 20% which means they are looking at more product. Again, I think it implies purchase intent. And we are seeing the ticket up slightly. So that in combination with heightened levels of traffic online and I would tell you meaningfully heightened levels of traffic online, which again goes back to just kind of an easing of expectations around the need to stay-at-home and potentially go out. But again, it creates some of the optimism we spoke to today.

Got it. That's very helpful. Really last question for me is, how do you think about inventory? Do you think it's at the right level? Do you think you overshot in order to ring out to clean up inventory? How should we think about that?

Yes. I think the reality is, we are watching it literally daily. And as we mentioned multiple times before, are pretty actively engaged in making decisions quickly and trying to understand where we are. And so I think the expectation is, if business continues to ramp and we are obviously hopeful that that will be, I think we will be quickly evolving our perspective. And as I mentioned in my comments, the shipping and logistics challenges as well as the cost of shipping and logistics are going to push us pretty hard. So we will not wait. We have been really good at managing inventory, both up and down. And to the extent that we see things happening, we will move pretty darn quickly.

Got it. Very helpful. Thank you very much.

Well, listen, thanks so much for your interest. Operator, that looks like the end of the call. If there's nothing else, we can call this today and I want to just thank everyone for their support and ongoing interest in DXL and the exciting opportunities hopefully yet ahead.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.