Ladies and gentlemen, thank you for standing by and welcome to the Q1 2021 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'd now like to turn the conference over to your speaker today, Ms. Mokas. You may begin.

Thank you Nancy and good morning everyone. Thank you for joining us on Destination XL Group's first quarter fiscal 2021 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 updated sales and earnings guidance and other expectations for fiscal 2021. 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 solid progress we're making in our business financially in terms of sales and profit, as well as in regards to our ongoing strategic transformation. On our fourth quarter earnings call in March, I shared with you my perspective that we were starting to see signs of a shift in consumer buying behavior and our optimism for greater recovery in fiscal 2021 was growing. And starting today's call, while I have several opening comments, I'd want to certainly lead off by saying sales in both our stores and direct channels have continued to accelerate, and our first quarter financial results have materially exceeded our internal expectations. This has been a strong quarter for DXL and the quarter we believe is a step-forward in a post-pandemic world. We were both fortunate and grateful that since we last spoke, our teams and the recrafted operating model in place are working well to drive sales back and enhanced levels of profit as we serve the big indulge consumer through our ongoing digital transformation. Given our first quarter's performance and what we believe is a chapter of greater growth from our initial expectations at the onset of the year, we are raising our guidance for fiscal 2021 annual performance, which Peter will cover in more detail later. As I noted, before I get into the first quarter business details, there are a few topics that I want to cover off. First, I truly want you to thank all of our employees in our stores, in our guest engagement center, in our distribution center and in our corporate supporting departments for your unwavering commitment to our mission of empowering big and tall men everywhere to look…

Thank you, Harvey and good morning everyone. I'm very excited to speak with you today about our first quarter results. As Harvey discussed, the turnaround in our sales trends that began in March occurred sooner and more dramatically than we had expected. Along with the increase in sales, we pulled back on promotions and leverage the many cost reductions that we implemented over the past year, which drove improvements in earnings, cash flow and our balance sheet. Accordingly, we are increasing our full year sales and earnings guidance, which I will review with you after I discussed the first quarter results. Due to the significant impact that COVID-19 had on our first quarter 2020 results, I will also compare our results against Q1 of 2019 for better compatibility. So, let's start with sales. Total sales for the first quarter were $111.5 million as compared to $57.2 million in the first quarter of fiscal 2020 and $113 million in the first quarter of fiscal 2019. On a comparable basis, total sales increased 3.7% over first quarter 2019. Stores were down minus 6.7% for the quarter to 2019 levels and improved rapidly from minus 33.1% in February to over plus 3% in both March and April. Harvey spoke about some of the tailwinds that we believe the stores benefited from this quarter. And there was a strong correlation to store performance, vaccine distribution, and relaxing of state specific COVID restrictions. While it is uncertain how long each of these tailwinds will last, we are pleased to see similar trends continuing in May. Our direct business continued to build and was up 40.7% over 2019, primarily driven by DXL.com website, which was up 55.8%. We were especially pleased by the high number of new to file customers that have found us through the…

Thank you, Peter. As you heard or so we hope both in my remarks and Peter's, we are quite optimistic and energized. We have an incredible team. We strive to be worthy of their esteem, our customers, and to create meaningful returns for shareholders. We believe we have weather, the worst of the storm and challenges, and we believe we have come through a solid financial position. And most of all, we believe we have a strategy to lever -- to leverage the recovery and do engage consumers in what we do best, creating memorable experiences for big and tall guys to look good and feel good. We do that by offering the most extensive and uniquely curated assortment from value price essentials to luxury brands and exclusive designers, both online, in-store serving an underserved customer, the be all and end all place to shop, browse -- excuse me -- and interact, interacting with their friends and our associates, and that is something that cannot be bought. It has to be earned. And with that, we'll take questions.

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

Good morning. Congratulations on a strong start to the year.

Good morning. Thank you.

When you look at some of the gains you have here, I know we're trying to segregate how much of it is stimulus, how much of it isn't. Are you seeing shifts in terms of sizing and other pieces that lead you to believe that even a wider group is looking at your product?

Yeah. We've been doing a lot of analysis. I don't know if it's -- the way it's phrased, but the COVID-15 kind of like the Freshmen-15 and the belief that some level of the amount of time people have stayed at home, they have changed sizes. And we're seeing what I would call it's not material, but small shifts in percentages. So 1%, 2%, 3% movement from a -- let's say a size 48 to a 49 or 52, so small movement up, but I would characterize it as material.

Okay. And when you look going forward and the stores -- the amount of store personnel, are we going to see adjustments kind of increases in the store personnel and potentially at the home office now to support this level of growth?

Yeah. For sure, relative to variable expense and variable payroll in our stores, we have taken two stabs at increasing payroll commensurate with the revenue. We've tried to be very respectful of maintaining social distancing and the way we've talked about our business. And I'll remind you the way we've talked about our business is three priorities for our stores. First is to engage the consumer in meaningful ways, but to maintain social distancing as makes sense. Second, to create the store experience and really visual merchandising that allows the store to basically sell itself because of social distancing and the practices that we have in place. And the third is the ability to ship from stores with each store being a mini warehouse. And we are leveraging the inventory through that. When you add three of those up, the one that is most changing is the velocity of sales. And in that case, we are adding payroll as it makes sense, but we are still trying to maintain some level of social distancing and those elements, and specifically not layering up the store with a lot of more sales associates in payroll, which would create crowding in the store.

Great. And one more question, and you actually brought it up a little bit. Ship from store has enabled you -- how has it enabled you to lower inventory and how has it helped in the overall sales process, the ability for people to pick up and for you to have, as I said, ship from store directly to the customer?

Yeah. Eric, it has been something which has been in place pre-COVID. And I think what we've seen is a shift in terms of the consumer sentiment to buy online pickup in store or buy online pickup at curbside. And each store has had the capacity and shipped product. The biggest change I think we're seeing is buy online pickup at curbside or in store where the customer is actually coming in. And we're seeing materially greater levels of incremental purchases in addition to double-digit revenue coming from bylined pickup and stored curbside. And we're seeing the growth of that. If you will, the add-on sale as they come in and they forgot something or literally want you to shop and browse at a different level than historically. Historically, it was very low single digits as a percent of revenue. And today, it's running in very low, but still double-digits compared to single digits from before.

Great. Good luck for the rest of the year.

Thanks so much.

Your next question comes from the line of Alex Silverman with AWM Investments.

Hey, good morning and congratulations.

Good morning and thank you.

Hey, thanks so much. Really appreciate it.

Three quick questions. First, what are your -- the 415 to 435, what kind of assumptions are you using for store comps to get to those numbers? And what kind of assumptions are you using for direct growth?

Sure. So, Alex, I'll take that one. The assumption for the store comps is that they're still going to be slightly negative, but very close to where they were -- and slightly negative to 2019. But very close to where they were in 2019. But we do expect to see continued growth in comps indirect, which as we mentioned in Q1 outpaced stores significantly, and we expect that that will continue for the rest of the year.

Great. Are you finding that the shopper that's coming in is buying one type of product online now that he's coming in and a different product in the store?

No. We're not seeing materially different. The biggest thing we believe, and we continue to see elements of this is where the customer comes into the store is typically shopping or interacting with our associates. And when they understand a brand, they really like, and the sizing, they have a greater comfort level of shopping online. When we see a customer that is uniquely only shopping online, they're more spot on in specifically purchasing an item. And obviously, the trifecta is when they do both. And our best customer, the richest lifetime value, we continue to see as the customer that crosses channels between the app, which is our richest customer by far the browser experience and the store. But relative to specific product, I would not say there's anything material we have yet seen that they are buying online versus in-store or that's material.

Got it. That's helpful. And then my last question is, did you find yourself in out-of-stocks in any broad way in some of your stronger geographies with certain items?

We see -- as we mentioned, a material difference in the comps on the Coast versus the middle of the country, but obviously we have a great inventory practice and between our ability to ship from stores to support the net and the ability to move inventory around based on the DC, we have no out-of-stocks that I would acknowledge of any kind that are material.

That's pretty amazing that you were able to keep up with surprisingly above plan. So, congratulations on that. Thanks. That's all.

Thanks. Our goal is to continue to evaluate turnover performance, but our hope is that we will actually see and growing level turnover in the mix and more productive use of inventory.

Got it. Thanks guys. Appreciate it.

Thank you.

Your next question comes from the line of Mike Baker with D.A. Davidson.

Hey, thanks guys. Just two or three for me. One, really following up on that last point. I mean, pretty strong sales here, of course, on a very low inventory and cutting promotions. As demand comes back, do you start to maybe lead into those a little bit? I get -- we want to be efficient with the inventory and the promotions, but it seems to me as if there's an opportunity to maybe start to be a little bit more aggressive to drive even more sales?

Well, quite honestly, we are going to hang on the evolution of the positioning as long as possible. And I would define as long as possible forever, if we can drive sales with a different brand positioning. And we truly believe that if you think about the three elements we spoke about fit and our proprietary fit, which you really can't get elsewhere, we don't just grade product, we actually developed a proprietary fits for every size. Secondarily, the experience of the assortment, which is exclusive in many cases and certainly unique in most cases. And then last but not least, the experience we're creating. And our hope is by bringing marketing to life in different ways and much more confidently in the words we use in the creative we execute and all the variables we've talked about through segmentation and personalization, that we will actually not return even remotely to the level of promotion we've had historically. And we're actually okay, selling less units strategically and a higher average ticket. The belief is that if we live by the great mix we have and experience we're creating unlike traditional retailer, which I think is not a secret to anybody. There's always that a race to the bottom in promotion. We won't return to level of promotion, and then specifically accomplishing greater level of sales if we pull that off, which we truly believe we can, we will continue to push on inventory. The good news is that our inventory management team has really gone very aggressively at and allowed us in fall to accelerate our revenue if the customer comes in and we're managing the risk and reward of those two variables.

Okay. That makes sense. Well, perhaps a follow-up to that, that would be, the implied EBITDA margin in your guys for this year is just under 6%. As you sort of do more with less, to really to talk about the art of the possible, what could that be over time?

Yeah. I think when we put out the guidance for this year, we are -- as I mentioned, we're trying to be cautious with it. We think that the 20 to 30 is absolutely something that's achievable, but it's just really hard to tell what's going to happen in the second half of the year. And I think we're going to be in a great position with inventory. We've certainly got customers coming to our website, coming to our stores. And if we can hang on to that through the end of the year, then yes, there should be -- there could be upside to that EBITDA number, but there's still water that has to pass under the bridge.

Yeah. I think I want to double down on that because I think that one of the things that Peter just said, and I hope you recognize the cautious optimism we have, we have multiple variables that we're literally, as that thing goes, flying the plane while we build it. And this brand's repositioning, which really has been the better part of nine months in this evolution from away from promotion is a big bet. And so, there's a lot of variables that come into that, our ability to drive revenue, grow our margins, et cetera, et cetera, and then inventory. So, I think we're being pretty prudent and pragmatic with what we've provided as guidance and pretty thoughtful about the risk that's inherent in our results.

Okay. That makes sense. Two more quick ones, if I could, not to hog the phone line here. But I'm intrigued by the Coast being so far behind the rest of the country. I presume that's just because of the timing of reopening. And so, do we think those ramp up over time to look more like the middle part of the country? And then relate to that, are you seeing any slowdown in the middle part of the country as they move past that perhaps initial surge with the reopening?

So yes, Mike, your understanding is correct. We saw that surge in the middle part of the country, and it has just continued since beginning of March when we first started seeing it. The Coast, we believe had been just a little bit slower to respond and we link that very much to the tighter restrictions and maybe less comfort with going out in resuming life like some parts of the middle of the country have found. But we do expect that the Coast will catch up.

Okay. And so, importantly, and they said the middle part of the country isn't seeing the slowdown, which is good. One more little one here, and this is just math and maybe I got it wrong. But if you look at your gross margins and then -- versus two years ago and subtract out the occu -- so there are 190 basis points. I think the occupancy saved 230 or so basis points without imply that the merchandise margins are down versus two years ago or something. Am I missing something in my math there?

Yeah. No. the merchandise margins are down just a little bit, and it's primarily due to the shifting mix that we're doing more business indirect. And you've got some added shipping costs. So, it's not a huge amount. I think we had put it in the press release that it was 30 basis points. But that's what the difference is. It's the change in direct sales penetration.

Right. Okay. All right. I appreciate all the time on the call today. Thank you.

Thank you.

Your next question comes from the line of Raphi Savitz with RYS Advisors.

Harvey, really, really masterful leadership over the course of the last year. Thank you on behalf of shareholders.

Hey, that very kind of you. I will tell you, let's be really clear. We have thousands -- a couple thousand people doing heroically good work, and their commitment to our customer is pretty amazing. So, really appreciate the comments. But -- it -- my hats off to our group and our employee population. I'm just one of the team helping have them get through this.

Absolutely. And it was great to hear the comments about winning new customers, what can you tell us about that new customer and what have been your learnings there? How are those customers differ than kind of your existing customers? And then I have a follow-up as well.

I'd say at a very high level, they don't seem to be materially different. I think what we're experiencing is, at some level kind of two elements. One, the customer that might've shopped at another retailer, and I won't go through the names, but that might be under more pressure and might not have the in-stocks or the assortments and they're looking elsewhere. And the way we're really winning there is through our digital strategies where the marketing team is really pushing hard on being where the customer is looking. It's not a secret that nearly 90% of consumers start their shopping process today, regardless of channel shopping online. And then -- and when they're doing that, they're either searching for a specific product or big and tall apparel. And we are popping up there in meaningful ways. And regardless of whether it's for store or web, that's where the customers shop today. And I think a lot more customers -- what we see is it as a perfect example, where direct putting in DXL.com that business is not weak, but it's not as strong as search and search for us implies that a customer might have shopped elsewhere and is now looking to -- obviously come to us because they haven't found what they want or the ability to buy it at another retailer. So, relative to how we're getting that customer, I think it's the combination of both our digital transformation strategies as well as some of the duress other retailers have had and relative to what they're buying. We're not actually seeing a materially different -- actually outcome in terms of the assortment. We are seeing some of our private label brands, which are greater value brands, penetrating pretty meaningfully. And the expectation is a lot of the other retailers that I would have referred to might not be carrying Ralph Lauren, Psycho Bunny, Vineyard Vines, and what we would call collections that are somewhat more fluently oriented versus Harbor Bay and Oak Hill and value brands that are part of our mix.

Got it. Okay. And I guess, as you think out about this business over the next few years, let's say, I mean, what aspects of the business or what portions of the business do you ultimately think will create the most shareholder value? And what I'm getting at is it, is it acquiring new customers, telling more visiting customers, is it the merchandising mix? Is it resizing the store fleet? What -- what's really going to move the needle for you guys over the next few years?

I would say other than your last comment of resizing the store fleet, which will not materially move the business, that's a different conversation. I would say, yes, yes and yes. So, our belief is that there is no silver bullet. There's a lot of heavy lifting that we've been doing as we go through this digital transformative process. It's the assortment. It's the experience or creating the store. It's how we market ourselves to customers in a broad way and then a very specific way relative to segmentation with personalization to great productivity. And there is no silver bullet. I think the greatest excitement we have is the ability to demonstrate what I talked about, which is we're there to create the fit, the lifestyle and the relationship with consumers to be an incredible brand and business, not just incredible retailer, not just a big and tall company, but actually being a really sticky retailer that creates belonging community for a customer that is underserved, who we greatly respect, it's our only business. It's not a business as a sideline. It's all we do.

Got it. Well, thank you. Thank you very much, Harvey and congrats yet again.

Thanks again. Appreciate the comments.

Your next question comes from the line of [indiscernible].

Hello, Seymour.

Hello. Congratulations on an incredible quarter and several quick question for you guys. So, was curious you had mentioned that you were closing unproductive stores and was wondering where you guys were where you are and where that's looking like in terms of retail locations.

Sure. I'll take that one. So, we are continuing to close unproductive stores, but every store is evaluated on a one for one basis. So each store in the act of the four-wall economics of each store need to be able to carry their own weight. So, I think we started the year at 314 stores. We're down to 300 -- just over 300 today. We will close a few more stores this year and there's some something like 150 stores that have lease expirations or kick-outs over the next two years. Obviously, there are many, many great stores within that 150 number, but there are some that we'll have to take a real hard look at. And the bottom line is that each store needs to be able to carry a [technical difficulty]. And if the stores cannot be productive, then we're going to think really hard about should those stores be closed.

Awesome. Thank you. And that’s it. Appreciate all the efforts you guys do.

Thank you.

Your next question comes from the line of Joshua Goldman, Private Investor.

Good morning. Thanks and -- for taking my call and congratulations on a phenomenal quarter. Keep up the good, work hard work.

Thank you.

Okay. My question pertains to any buyout offers or merger, has DXL [technical difficulty] approached about a possible buyout of the company in the last, let's day 12 to 18 months?

So, I'll take that one. We're -- we have -- we're not engaged in any conversations about that.

Okay. But have you ever been approached in the past 12 to 18 months? Is it possible that a company approached you? That's exactly my question. And maybe, obviously, it didn't happen yet, but my question pertains to, has any company or maybe -- buyout from private equity approached you guys about purchasing the entire company?

Joshua, sure. We appreciate that question, but it's just not something we would ever touch base on and comment on.

Okay. Understood. Thanks again. And one more follow-up regarding the NASDAQ relisting. So you say that the NASDAQ requires a $4 of consistent -- $4 share price to apply for a relisting?

Correct. That's one of the listing requirements is a $4 share price. So, as -- I had mentioned in the comments, we had moved to the OTCQX we're actually quite happy there right now. And with where the stock is right now, we're just -- we're not thinking about it because we're not close to that $4 share price.

Okay. How long does the $4 share price have to be maintained for NASDAQ and to obtain that application or accept it?

Yeah. That's a good question. I'm not sure exactly, but it might be like you have to have a 30-day -- 30 days about $4. I don't know exactly what it is.

Okay. And if that share price for DXL G would have $4 for a consistent 30 days or more, the company would consider relisting at that point?

No. I'm not necessarily saying that. I guess, all I'm saying is that we've been where we are. It's kind of a moot point because of the $4 requirement, but it's something that we're watching and we will consider and have discussions with our board in the future as to whether we want to do that.

Thank you very much. Continued success. Amazing. Amazing. Have a great day.

Thank you. Operator, we have one last question I believe. And then we'll wrap this.

Yes. Your final question comes from the line of Seymour Holtzman [ph], Private Investor.

Hi, Harvey. Seymour.

Hey, good morning, Seymour. How are you? We are happy you're on the call.

Thanks. Great job. Thank you. Somebody told me that -- with the academic, that 40% of the adults have gained, like something like 29 pounds or something like that. Do you ever hear a number like that?

We've definitely seen some published data that, that adults have gained weight. That was my reference to the COVID-15. I don't think we've seen the magnitude that you're referring to. And what we've seen in our results is a small movement in nearly every size up by a couple points, but again not material.

Okay. Good. Say -- Peter, [indiscernible] grow. Okay. Go ahead. All right. Thanks. Great job. Okay.

Take care more, Seymour. Thank you so much operator. I think we're done.

Pleasure. Bye.

This concludes today's conference call. You may now disconnect.