Good day and welcome to the Fourth Quarter 2023 Destination XL Group Inc. Earnings Call. At this time, all participants are in a listen only mode. Later, we'll conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. I would like to turn the call over to Shelly Mokas, Vice President of SEC and Finance Reporting. You may begin.

Thank you, Michelle, and good morning, everyone. Thank you for joining us on Destination XL Group’s fourth quarter and fiscal 2023 earnings call. On our call today are 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 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 sales and earnings guidance, long-range strategic plan and other expectations for fiscal 2023. 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. I appreciate all of you taking the time to hear our update on the business. There are a few different topics that I will cover on the call today. First, I want to start with our Q4 and fiscal 2023 performance. After two years of unprecedented growth, delivering the strongest financial performance in the company's history, we certainly felt our customer pullback with his spending and the frequency of visits this year. The biggest challenge that we fought all year was traffic, but I am proud of the way we stayed true to our brand positioning and we executed with rigor those fundamentals that were within our control. In a minute, I'm going to get into more details regarding our fourth quarter and full year performance and we'll also talk about where we are through the first six weeks of the first quarter and our near-term expectations for fiscal 2024. But before I do that, I want you to know that I am pleased with several areas in which we made significant progress this year. At the top of the list is further clarifying our vision, which culminated in the development of our long range plan. We have been calling it the LRP and I look forward to sharing with you today the opportunity we see in the long range plan beginning to come to life in fiscal 2024. For well over a year now, I've talked to you on each quarterly earnings call about our orientation towards becoming a true growth company. We believe the men's big and tall business in the U.S. is approximately $23 billion a year. We also know this market is highly fragmented, where almost everyone who sells men's apparel dabbles to one degree or another in big…

Thank you, Harvey and good morning, everyone. I'll start with some additional color around our fourth quarter and full year financial performance. As many of you saw in our press release that was filed this morning, sales for the fourth quarter came in at $137.1 million as compared to $143.9 million in the fourth quarter of fiscal 2022. Our fiscal calendar included an extra 53rd week this year, which contributed $7.1 million of sales in the fourth quarter. After adjusting for this extra week and for closed stores, our sales decreased by 10.1% on a comparable basis. This result was in the range of what we previously communicated in our holiday sales press release and reflects a further deceleration of the business in January. As Harvey noted, the decrease in comps was driven primarily by traffic and January performance was up against a very strong prior year, which had a 23.7% sales increase. For the quarter both our store channel and the direct business experienced similar trends with stores down 9.4% and direct down 11.3%. Conversion rates and dollars per transaction held relatively flat but we did observe a shift in consumer behavior towards our opening price point brands. For the full year, our comp sales decreased by 4.6% but 2023 still marks the second highest sales year in our company's history. Gross margins inclusive of occupancy costs for the fourth quarter were 47% as compared to 47.7% a year ago. This decrease was primarily driven by the drop in sales, which caused our occupancy costs to deleverage by 90 basis points. We were pleased that our merchandise margins held up quite well and actually improved by 20 basis points over the prior year fourth quarter. Our merchandise margin improvement was primarily the result of decreased freight costs, which offset…

Thanks, Peter. And given consistent is defined as what is consistently done, I could not close without acknowledging that I remain incredibly inspired by the grit and perseverance of our entire DXL team. Through the challenges we've experienced, the volatility and the ups and downs of our own success, we, and by we, I really mean they work every day. And what the team has achieved over the past four years is remarkable. From a company, some thought we would potentially not be around long to our mostthree -- most recent three years, every one of which could be characterized as one of the best in DXL's history. None of this would be possible without the hard work and dedication of all of our people in the stores, in the distribution center, in the corporate office, and of course in the guest engagement center. It is because of this talented team and the culture that we have created together that I want to get up every morning and keep moving on this journey. Thank you to DXL for all your hard work and commitment in our pursuit of serving big and tall men and making DXL the place where they can choose their own style and wear what they want. And with that operator, Peter and I will be happy to take questions. Thanks.

[Operator Instructions] Our first question comes from Raphi Savitz with RYS Advisors.

You had mentioned that traffic has been a challenge, but if you look at the total of 2023, are your active customers growing?

Raphi, our repeat rate is one of the greater challenges. And our new two file is equally under some pressure. The absolute growth rate of our customer has shrunk, obviously at some level with respect to the business itself. You can see the fourth quarter where that negative 10 happened. So directly, and answer your question, fourth quarter we shrunk in on the overall year about held to own.

And we're talking about a pretty significant investment program, both in terms of OpEx and CapEx. I guess what sort of operational metrics are you open to sharing along the way to show us that these investments are paying off?

The two things. First of all, I want to regroup and make sure it's crystal clear that the two investments we're making are driven by facts. They're not driven by anecdotal perspective, they're not driven by opinion, and they are required, and we believe really critically important to changing the trajectory of our company. And so, let's be clear, the awareness level of our company unaided is under 10%, and the aided awareness level of our company, DXL, is under 30%. The fact that 44% of consumers say that they don't shop with us because there's no store near them, or 35% saying there's no store convenient near them, those facts require us to make the investments we're making and we believe that they will materially grow the business. Ultimately, the brand campaign, which is really the awareness campaign, will be judged by one single metric, which is the reversal of traffic decline. It requires us to see more people coming to a store and more sessions on our website. From a store perspective, obviously it's some variance of that as well, but then there's extensions beyond that. So obviously you have to drive traffic to our stores based on greater awareness and the accessibility of those store openings. But ultimately we have sales plans for those stores individually, and the sales plans are basically driven by three key metrics, which is traffic, ultimately ticket, are they spending money in the stores because we have a great assortment and is it keeping pace with our normal ticket,. And then conversion, which for us has been a high watermark and something we're quite excited about the ability to continue to leverage based on the experience in the stores, the product we sell and the price points we sell product at.

And will or maybe I should ask this a different way, is there openness to giving us additional disclosure on those various metrics going forward?

So I think the biggest one that we'll continue to give guidance on Raphi is, we'll certainly be talking about traffic every month. I think we'll be or every quarter. We will certainly be talking about store openings. I think we've been pretty transparent in the size of the store. You can see what the store sales are and we can come up with store expected sales for new openings. So I think as we go along, we'll continue to talk about how we're dealing with stores. We will continue to talk about brand awareness and we'll be talking about customers to a certain level as well.

And it may be helpful, you may want to think about kind of going forward to kind of paint the picture of how these all interplay, right? And showing an example of a new store opening. You don't need to say what city it's in, but just kind of how those sales developed, how the awareness changed and so just paint?

I assume you have been on the site and seen the investor deck. So to Peter's point, we've provided a fair amount of detail in what a store opening looks like and store growth. But yes, to your question, we will provide updates each quarter on the success of our store openings, the timeline. And ultimately the question you asked at the beginning is our file growing and obviously our file will grow if we have --if we drive basically trial, which is greater awareness, traffic obviously then to our stores, our website, hopefully there'll be trial, which ultimately means conversion. And with conversion our 12 month file will grow. And that will be then addressing the first question you asked, which is our absolute file growing. And obviously the expectation we have is when we use the words greater scale, it's not just revenue, it's taking share of market. It starts with share of eyeballs, for lack of a better way to say it, share of voice and ultimately drives to share of market, which is revenue driven. But the opportunity to make good on that has to happen.

The next question comes from Michael Baker with D.A. Davidson.

Keegan on from Mike right now. I just wanted to ask on the profitability, like you said, it's going to go down to 7% this year. I was just wondering, like with the investment process, what is the plan for ramping it back up to double-digits? Is this kind of like a one-time investment year or is it a multi-year investment cycle?

I'll start it and then Peter will follow-up at whatever level required it. The most important thing you need to hear is if you're going to develop greater level of brand awareness, unaided or aided, it's not like a light switch. It takes time. Hopefully, you heard that our initial launch of the brand campaign is a matched multi-market test. We will launch it in three markets. We will test it before we invest at a greater level, and we acknowledge that we would've conservatively invest and with outcomes that we are comfortable with, we will continue to invest at a greater level potentially. But we also want to be clear, this is not a match market test. It didn't work and stop. If you are going to build awareness, it's multiple years. And so, we've talked about a three to five year long range plan. Our expectation is over the next two to three years, we must consistently move forward in the brand campaign to build awareness. And in so doing we'll create greater trial and ultimately grow the file and grow the size of our business. So it's not a one and done. It couldn't be a one and done. To be honest, we would've no backbone if it didn't work initially and we bailed because that then doesn't address the issue. That is a fact, which is not enough people know who DXL is.

Our next question comes from CJ Dipollino with Craig-Hallum Capital Group.

It's CJ on for Jeremy Hamblin. Wanted to touch on same store sales a little bit. I know some of it's the math of passing easier comps in the second half of the year, but are there any additional drivers beyond the math and the LRP that can point to that?

For sure. It is not just comps. Year-over-year comparisons are either your friend or your enemy, but regardless they are not, if that's the reason we're going to grow that would be disappointing. It certainly not a bad thing, but it'd be disappointing. The fact of the matter is we're going to grow on really four key initiatives. One is overall marketing, and whether it's the brand campaign pre-Father's Day, moving into hopefully fourth quarter with a greater level of effort based on the success of that, it's the evolution of our brand positioning. So it should be clear that the brand campaign is not just -- it's going to be linear TV, it's going to be cable TV, it's going to be cable color TV. It's going to be video assets like YouTube and others, but it's driven by video but it's not exclusively driven by video and once it starts, it will continue to evolve our entire marketing program. So whether it's shopping behavior based emails, whether it's trigger based emails, whether it's batch and blast emails, whether it's how we actually load social media, it's a multifaceted campaign that leverages really our core reason for being as a company and that is relevant today, tomorrow, a year from now, because no one actually has the proprietary fit that we bring to market, which is literally our calling card. In addition to obviously the exclusivity of offer and obviously the experience we create. When you put all that together, the successful marketing of where, what you want and the evolution of our communication to our customer is a reason that we will continue to turn around the comps. And as I articulated in my opening comments, we have continued to refine the vision and our positioning in a…

And then one more, so it looks like you guided adjusted EBITDA about $20 million below where you came in this year. I get some of it's going to come from marketing investments and maybe a little deleverage in gross margin. Is there anything else that you could point to kind of fill in that gap?

Sure, I'll take that one. So the biggest piece of it you just mentioned, which is the brand marketing campaignand we've mentioned as high as 7.5% of sales this year. That's a pretty meaningful number for us. The other half of it I would say is it's SG&A increases due to the other initiatives that we're pursuing. So whether that's technology investments, it's related to store development, site selection and then just general cost increases that we are constantly battling every year, whether that's inflation in medical plans and benefit plans or insurance rates. But those are the big pieces that are contributing to the decline it is primarily the marketing and then there's other elements I just mentioned.

Operator, it does not look like there's any other calls and so without anybody else in the queue, I would say thank you very much for attending our conference call today. We greatly appreciate your ongoing interest in DXL and we look forward to bringing in May our updated quarterly results.

Thank you for your participation. This does conclude the program and you may now disconnect. Everyone, have a great day.