Good day and thank you for standing by. Welcome to the Q1 2024 Destination XL Group Incorporated Earnings 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] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Shelly Mokas, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us on Destination XL Group's First Quarter Fiscal 2024 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 2024. 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 let off with this 30-second spot and did so very purposely because one of our key focuses right now is on [catos] (ph) for greater growth and the strategic long-range plan initiatives to accomplish this. In this regard, the first quarter of fiscal 2024 has proven to be two different conversations. We are happy to report that our long-range plan growth initiatives are continuing to progress forward. Conversely, we are disappointed by the first quarter's tough comp sales performance. While we are energized by our brand campaign that just launched and the greater opportunity to grow market share, I'll get into the brand, marketing, and campaign details shortly. But know that what you have heard is but one tangible element of our LRP, and specifically an initiative to create greater awareness and access for DXL, with big adult consumers to drive greater growth. So now, I'll say thanks again to Shelly, and thank you all for joining us on the call today. For today's call, there are two major topics that I want to talk about. First, I want to cover our first quarter results. As many of you likely have already seen in our press release, which was issued earlier this morning, our first quarter sales performance was disappointing. We posted a comp sales decrease for the first quarter of negative 11.3%, driven primarily by lower traffic levels to our stores and lower conversion of traffic on our website, while average order value was pressured in both channels. At this point in the year, we are hoping to start to see a greater inflection in sales, but the consumer is pressured and he is just not prioritizing spend on big and tall apparel yet. With that said, I'll get into more…

Thank you Harvey and good morning everyone. I'll start with some additional color around our first quarter financial performance. Net sales for the first quarter were $115.5 million as compared to $125.4 million in the first quarter of last year. A total sales decrease of 7.9% and a comparable sales decrease of 11.3%. The difference between total sales and comparable sales was primarily from two factors, which will continue throughout this year. First, we had an increase in non-comparable sales of $1.8 million, which primarily related to new store openings. And second there is a one-week calendar shift in our comp calculations resulting from the 53rd week in fiscal 2023 which was worth $3 million for the first quarter. Stores which continue to penetrate about 70% of our total business were down 11.4% in the direct channel which comprises the other 30% of our total business was down 11%. We believe the disappointing sales results are directly tied to the ongoing macroeconomic challenges that our customers are facing. With a cumulative impact of inflation pushing up grocery bills, housing costs, and gas prices, leaving our guy with less discretionary income to spend on himself. As Harvey noted, we are now estimating full year sales at $500 million, which represents a negative 4.5% comp. We expect the second quarter will remain challenging with comps in the mid to high single digit negatives, but with improvement in the second half of the year to approximately flat as our growth initiatives start to have more impact. Next I'll speak a bit about gross margin which is a bright spot in our first quarter results. Our gross margin rate inclusive of occupancy costs was 48.2% as compared to 48.6% in the first quarter of last year. The 40 basis point decrease was due to…

Thanks Peter. I'll close with this statement. I remain energized by the grit and passion of the entire DXL team to serve the underserved big and tall consumer and despite the challenges. What the team has achieved over the past four years is remarkable and none of this would be possible without the hard work and dedication of all our people in the stores, in the distribution center, in the corporate office, and the guest engagement center. It is because of this talented team and the culture that we've created that I want to get up every morning and keep moving on this journey. Thank you for all your hard work and the 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, we will now take questions.

[Operator Instructions] And our first question will come from Jeremy Hamblin of Craig-Hallum Capital Group. Your line is open, Jeremy.

Thanks for taking the questions. I wanted to start with the investments in the business. So you are progressing forward with the marketing investments. And in terms of thinking about matching the slower sales trends with that investment, and thinking about what you're looking for in terms of response on the marketing or probably better put like the timing of response of when you would expect to see some inflection here from the new media campaign. How should we think about the kind of the jump in expectations where you're guiding to a mid-single to high single digit decline in Q2 and then seeing that get back to a flattish level in the back half of the year, how quickly are you expecting a response?

Jeremy, it's Harvey Kanter. Thanks for the question. It's a great question, one we've debated a lot in terms of how to present it, but it's pretty simple. The fact of the matter is we have done a lot of consumer work in 2022 and most importantly in 2023, and that insight is that consumers provided two perspectives and without addressing those two perspectives, we might have a much more limited opportunity to take share of market. Those perspectives are factually that 7% to 8% of consumers in an unaided context know who DXL is. I would expect if you're at a dinner party and you somehow get to a coverage conversation and you say among others you cover DXL, mostly 90 plus percent of men, unless you offer them something, won't know who we are. And in an aided awareness, it's less than 30%. The other factual basis of our insight is that over almost 50% -- it was actually 44% in the last brand study – of men said they do not shop with us because there's no store near them or 35% said no store conveniently near them. And the reason I stress both these elements and then I'll answer your question is that they are catalysts for change. And we would not and should not have great expectations for double digit growth which we ultimately are striving for in a period of time which I'll discuss in a moment, unless there is something that is going to change the opportunity that we believe is present for us. We've obviously been at this. I've been with the company now in my sixth year. We've had some very big success. We've managed to grow the EBITDA rate, EBITDA dollars at multiple points in time. Even with our current…

Understood. That's a helpful color. I also wanted to follow up on the point that you made. I think you said 55% of units sold are coming from the lowest quartile of price point. And think about putting that in context of how you expect that to potentially impact your channel mix. In terms of what you see from your online business, from your store business, is this potentially, I think you've said that at times your online customer can be a bit more price sensitive. But wanted to just see how you expect that to potentially impact your mix of business.

Yeah, Jeremy, the question about the insight that we shared, which was Adobe, I want to stress that was Adobe reported information of recent weeks. And that insight was 55% of consumers are now shopping the lowest quartile and that compared with 32% a year ago. So ultimately it means there's been a shift down in price points being shopped at. It's not a huge surprise at some level. The largest part of the big and tall market is the mass market. The largest part of the 20-plus-billion-dollar addressable market is in the mass. The consumer's pressure that we believe the economic challenges, whether it's gas or mortgage rates or food or what have you, are putting on the consumer is at the level he's choosing to shop, which we think is down, but at the level he is, we believe that Adobe was representative of where the market's going. And I reference specifically the DXL is traditionally a moderate or even upper moderate price point brand. So think about things like UNTUCKit or Ralph Lauren or Vineyard Vines. Those are price points that are not mass market price points. And so, by definition we are losing a customer that is under pressure, excuse me, and has options in the mass market. That being said, we are not trying to be all things to all people because that would be the kiss of death and when I say that we're not going to now add 15 or 20 brands that are lower price points because if you try to be all things to everybody you're nothing to no one that cliche is Real, but we are evolving our mix with what we would say are barriers to entry today, which is potentially price points, by augmenting the current assortment with…

No, it's helpful. Last one for me and I'll hop out of the queue. Just want to come to the Nordstrom collaboration and get a sense for, in terms of timing of the launch on the marketplace, in getting a sense for when you, kind of the first timeframe that you expect that that could have a potential benefit on sales. I'm going to assume that there's probably pretty little included in your 2024 sales guidance, but just wanted to understand the timing of when that potentially could really show up -- as a result.

Yeah, I'm incredibly excited to literally tell you that it's live now. It is live on their site. It has been a challenge for both us and Nordstrom's. We both have a lot going on, but we became live about 36 hours ago. I think we went live like 04:00 on Tuesday afternoon, and what's really amazing is I think 12.01 A.M. On Wednesday morning, which was obviously yesterday, we sold 3 pants. And we were very excited at how quickly we sold something. The plan right now is something in the vicinity, let's say, you know, maybe a couple thousand units, approximately, styles that will double over time by fall. And our hope and belief is that it will spool up. I would not call it material this year, but that's not material, as you said, in our guidance. We are hopeful that we will be surprised. Nordstrom's is an incredible retailer. Their relationship with the consumers is a hallmark of retail, and one we're incredibly excited to align with if you think about our net promoter score and our offer online in the digital marketplace. If you search now, you will see a number of styles that are available. It's kind of a process and for lack of a better word, it's a birthing process. So we are seeing more and more styles come online every hour and it won't probably be complete probably until sometime next week on the first pass but it will be a meaningful assortment across sportswear and tailored clothing and one -- I'm both incredibly proud of the merchant team and the marketing team for the efforts to get it across and that was turned over to our tech team who is now working incredibly diligently with Nordstrom's to get it all up and running. And that's where the opportunity is to understand how quickly the consumer will respond.

Great, thanks for taking my questions and good luck this year.

Thank you so much for your time.

[Operator Instructions] Our next question will be coming from Michael Baker of D.A. Davidson. Michael, your line is open.

Hey, Mike.

Hey, how are you? A couple bigger picture than shorter-term, and maybe you kind of answered this, so maybe there won't be any more color to add. But in Boston, I've seen the advertising campaign. I think it looks great. Commercials are good. Is it too early to have any insight as to how customers are thinking about those, are responding, or anything like that in the [test] (ph) markets?

Yeah, I would tell you, I want to make sure we don't get ahead of ourselves, but what we are seeing in the markets, St. Louis, Detroit, and Boston, against the three match markets is I would say material upside in initial first-plus obsessions. And when I define material upside, we didn't have an expectation, literally, it was going to be a light switch. Like all of a sudden, we're going to do an advertising and everyone's going to come to the website. But we are seeing what we would call a catalyst change in the number of sessions in those markets. And there's a lot of variables, right? So we have Father's Day coming, which obviously was a timing we executed. Will it last after the advertising goes away? It will come back for holiday. We've been challenged by the level of investment in a perfect world, I was so excited. We wanted a front roll, all of the holiday into Father's Day and go farther deeper, but the team appropriately challenged me and said let's not get ahead of our skis. So we're seeing some movement and we expect it will continue to grow, but it's a long road. You know, building awareness is a long road and that's why we've articulated a two to three year run rate and we've specifically said that national rollout, full blown national rollout at the millions of dollars that we'll take will be 2025 with an expectation between now and then we prove to you and ourselves and our investors that we are getting a return that will continue to grow and ultimately generate revenue because we'll bring people in and convert and drive an AOV that is similar to what we have.

Yep, makes sense. If I could ask a question for Peter, just on the guidance, can you sort of walk us through how sales can be at the low end, but you maintain the EBITDA margin, particularly with the gross margin, I think you've basically reiterated your plan, maybe drop the low end a little bit. So I presume, I guess the difference is, you must be taking out a lot of costs or something. But if you could just sort of square that circle how you can still generate the same 7% EBITDA margin with sales at the low end and the growth margin outlook virtually unchanged?

Yep, happy to do that, Mike. I would agree with what Harvey has said throughout. Sales is the most difficult piece for us to control, but I think over the last several years, we've really developed our capabilities at exercising different levers, depending on how sales responds. So to your point, we are trying to scale back everywhere that we can, whether that's in SG&A. You know, we've had, as you'll see in the results this quarter, our merchandise margins were really good. We had some good news in our shipping costs. The mix of product was a little bit better, what sold. So I guess without getting into the specific details, the general answer to your question is yes, we are throttling back on every controllable area that we possibly can within SG&A, occupancy, and margin.

Yeah, Mike, The thing I would add to that, and you'll appreciate this, and hopefully our investor base will, we're trying to navigate something very difficult, which is how do you grow a business and have factual-based insights that are required, a catalyst. And so we're doing what we need to do, and we're very protective of the long-term investments because without those investments, why would we have any expectation to change the sales trajectory? So, as Peter said, SG&A, merchandise margin, shipping costs, There's no stone unturned at this point and reality, hopefully, we will continue to balance that appropriately.

Great. Makes sense. Appreciate the time.

And I'm showing no further questions. I'd now like to hand the call over to management.

Well, operator, thank you for your time and thank you -- from the investor base for being on the call with us as well as our analysts. We appreciate your looking to hear our insights and perspective. We hope that we will continue to make progress in our initiatives. We are very excited about that and hopefully you've heard that enthusiasm. I also want to underline the operating regimen that we have that Peter referred to is one of the cornerstones that I think give us some belief that we know how to run the business successfully and we just need to go after those things that are identified by consumers as reasons why they don't shop with us. And with that, I wish you all a happy Father's Day, hopefully a good summer, and we will talk to you in August.

And this concludes today's conference call. Thank you for participating. You may now disconnect.