Good day, everyone, and welcome to the Destination XL Group, Inc. Fourth Quarter Fiscal 2024 Financial Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Ms. Shelly Mokas, Vice President of Financial Reporting and SEC Compliance at DXL. Please go ahead, Shelly.

Thank you, operator, and good morning, everyone. Thank you for joining us on Destination XL Group's fourth 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 long-range strategic plan and expectations for comparable sales and other expectations for fiscal 2025. 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 joining us today for our fourth quarter 2024 earnings call. I want to start by acknowledging the challenging fourth quarter results that we posted earlier today. Despite a few pockets of optimism and recovery in the overall retail space, the men's apparel sector has been challenged and in particular, men's big and tall, and we have felt that impact to filter down to our DXL business. Sector headwinds, coupled with greater volatility, have created heightened levels of consumer uncertainty, which we believe have resulted in lower traffic that is challenging our growth intentions. Many consumers have been selective about their spending, and men's big and tall clothing has not shown the same resilience as the broader retail market. Despite the difficulties and difficult sales environment and tepid financial performance, there were some bright spots for DXL this past year that we can point to and provide some optimism. For those of you who follow our results each quarter, you are likely aware of the ongoing development and execution of our long-range plan that we've been talking about for well over a year. In 2024, we began executing elements of our strategic plan in earnest with the belief that these initiatives were critical to driving growth and over time, a heightened pace for the rate of growth. We brought to market the brand awareness campaign by initiating the brand work and executing a three-city matched market test to test our ability to ultimately build greater brand awareness for DXL. We began to address the challenge of no store near me or no store conveniently near me, and expanded our physical presence by opening seven new stores and converting eight others from Casual Male to DXL, offering our customers greater…

Thank you, Harvey, and good morning, everyone. I appreciate all of you joining us on the call today. I'm going to take a few minutes to provide you with some additional color on our fourth quarter and full year financial performance. Let's start with sales for the fourth quarter, which came in at $119.2 million as compared to $137.1 million in the fourth quarter of fiscal 2023. As a reminder, our fiscal calendar included an extra 53rd week in 2023, so we are reporting on a 13-week Q4 2024 against a 14-week Q4 2023. That 14th week added about $7.1 million of sales and $1.7 million of EBITDA to last year's fourth quarter results. On a comparable basis, adjusting to 13 weeks and for store openings and closings, our comp sales decreased by 8.7% for the quarter. While there was some volatility with the calendar shift, leading to a weaker November and stronger December, our overall Q4 sales trends were not materially different to the rest of this past year. As Harvey talked about, we were able to drive some limited success in customer response through our Black Friday and related holiday offers, but we then saw trends in January and February return to the low double-digit negative range. We believe our sales performance remains primarily a function of the challenging environment within men's apparel, particularly in the men's big and tall sector. While we have well-thoughtout strategies in place and under development to help combat this, we have not yet seen the tide turn here. For the year, our net sales came in at the low end of our guidance at $467 million, which was a comp of minus 10.6% to last year. Moving past sales, our financial statements include some wins and some challenges, which I'll highlight for…

So, hopefully, it's clear, and as I noted at the end of our prior earnings call, DXL will stay the course, and we will weather the storm. We expect that the operating regimen we have in place and the foundational extensions and legwork we have worked on will pay us back meaningfully as an uptick in cycle returns. And lastly, as I wrap up and before we take questions, as I always do, I want to thank the DXL team that I work with every day. Their hard work and their dedication in the stores, in the distribution center, in the corporate office and in the guest engagement center provide a level of optimism for the opportunity yet ahead. The passion and commitment our team has for our underserved customers and consumers is our reason for being, our purpose and why we do what we do. It is because of the great team and the culture that we've created that I want to get up every morning and keep moving on this journey. Thank you all for your hard work and ongoing commitment to our pursuit of serving big and tall men and making DXL the place where they can choose their style and wear what they want. And with that, operator, we will now take questions.

Thank you. [Operator Instructions] Our first question comes from the line of Michael Baker with D.A. Davidson. Your line is open.

Okay. Great. Thanks. A couple of questions. One, on the GLP-1 study that you did, which sounds really interesting, anything -- did you learn anything about, are customers losing enough weight such that they drop out of your big and tall sizing or get to a size where they can shop elsewhere? Just wondering if you learned anything about that.

Yeah, Mike, it's Harvey. There's no question that there is learning that some customers are dropping out of our size range. But in terms of quantification, no. Our study was statistically significant of men on GLP drugs. The distribution of weight was known to us at some level. But the reality is knowing how many of them are literally dropping out are, is not clear. And equally, I guess, relevant is that some are becoming -- having the opportunity to shop elsewhere because they're down into the 38, 39 where we're not as competitive. And so, those are, for lack of a better way to say it, headwinds. But the flip side is there are tailwinds as well. So, I think at this point, we're just trying to continue to study this. We've used the research we had to inform some decisions like the creation of the exchange program, which can't be underlined enough that 50% of men are donating their clothes and need kind of a repository, and we're providing access and an incentive to come to us, which I think we've had over 1,000 consumers in about 3.5 weeks take advantage of the program, which is actually pretty meaningful.

Yeah. No, that sounds like a great program. Can I just follow up on that then? In the past, you've talked about share and you have some good data on that. Can you talk about what you're seeing your results this quarter relative to competitors or market share or for the full year, et cetera? In other words, if you're seeing this GLP-1 issue, both positive and negative, are others in your space seeing something similar?

Yeah. I don't think, unfortunately, you can make that connection good or bad or at any level, because the data we have and the platforms we're using are primarily things like credit card data where we can understand in an aggregated anonymous way where businesses are -- other businesses are on that platform. And we can definitely see the men's business, as a category, is not performing exceptionally well. In fact, many of our competitors are actually worse hard to believe, I guess, at some level. And many competitors are just operating somewhere in the realm of where we are. But unfortunately, that data is just aggregated sales data of credit card information. It does not provide an opportunity to understand things like GLP at any more finite level.

Okay. Understood. Thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Jeremy Hamblin with Craig-Hallum. Your line is open.

Thanks for taking the questions. I want to start with talking about tariffs, and it's obviously been a big topic du jour. So, it sounds like the owned brands, you have fairly limited exposure, 10 basis points to gross margin. At this point, you've noted some shift in terms of where your customers spending and the types of brands. But where do you stand in terms of third-party national brands as a percentage of mix today versus your own brands? And then, as you look at those third-party brands, what we're hearing and seeing is that most are indicating they're going to need to take some price to account for those tariffs. But is that your expectation? How have the negotiations gone thus far as you're looking at 2025?

Yeah. So, Jeremy, you asked kind of three questions. One, you asked about our private brands versus national brands. And I would tell you that we've seen a small shift into our private brands, mostly driven by the price points and the greater value that those brands typically provide to the consumer. It's not a lot, but there has been a small immaterial shift towards our private brands, which we feel great about. We have certain brands like Oak Hill, which is just an incredible brand of Italian piece goods, really great quality and the customer is recognizing the value there. So, that's exciting to us. Even though that's not by design, the customer is choosing to do that. The second element that you mentioned, which I think is an accurate statement is we have minimal exposure at this point. We think it's something like 7 basis points to 10 basis points. It is, as you are very well aware, and I'm probably sure the entire marketplace across America is that volatility and gyrations of what will or won't happen is very hard to manage. So, as much as we are in contingency mode and attempting to steer in terms of expectations that tariffs are coming, the reality is until they arrive, we're not executing something specific unless there's an opportunity. And furthermore, we have some level of concern that they will reverse course just as quickly as they're put in place and actions that we take might be disruptive to what will actually transpire. So, we're trying to figure out how to navigate that. And I'd say being agile enough to move quickly. But as you might appreciate, it's not one lever. If tariffs are put in place and costs go up, we have everything from preproduction to goods on the water to goods in the DC to goods in the store. And then, the question is where and when do you actually affect price changes to the degree you do to offset potential tariffs or cost changes. And then, last but not least, I would tell you that our head merchant and our merchandising team has been, obviously, as you would imagine, incredibly actively engaged with national brands. Every brand has a different perspective. The brands actually don't have one country of origin, so to speak. And so, they're trying to read the tea leaves and react and goods that we bought already that are long ago done. We're not having a lot of conversation, but goods that are imminent and potentially going to be impacted, we're obviously deepening in conversation. But for the most part, no action has been taken because nothing has been done for us to execute against, i.e., where they're sourcing from, which is not at the same level that we are in terms of country of origin. It's just hard to navigate until a decision has been made, and we haven't seen an impact yet in national brands doing anything specific.

Just to clarify, what's the portion of -- what's the part of your mix today that's third-party national brand?

It's high 40%s. So, Peter, the breakdown, 50% to 48%, I think that's...

Yeah, that's about right, Harvey. The private label, it's always right around 50-50, but we haven't seen a meaningful shift. If anything, there's been a little bit of a shift towards private label, as you've mentioned. And I would agree that's in large part because customers have been seeking out more value and our private labels are predominantly our opening price point.

Got it. And then, I wanted to come back to the commentary about you had some success with some promos that were run in December. And you indicated that it sounds like you might be a little bit more aggressive on that this year in this environment. But I wanted to get a sense for balancing that kind of challenging environment versus getting some benefit from the promos to traffic trends. What do you anticipate the potential impact to gross margin to be from -- in 2025 from maybe a slightly more aggressive approach on mixing in promos along the way?

Sure. So, Jeremy, let me take that one. I think our orientation right now and has how it's been all year, it is 100% focused on reenergizing the customer, driving traffic back to the stores. And one of the things that our customer has been signaling to us, as we've talked about all year, it's that he's under pressure. His dollar is not being stretched as far as it used to. And what can we do to motivate him to spend, encourage him to spend more, particularly at that opening price point. So that's really the gist of where the increases in promotion are coming from. I think the other part of your question was about how do we think of what impact that might have on margins for next year. I think by and large, the biggest impact on margins is it's going to be, it's occupancy costs where occupancy costs are largely fixed, and we've seen a lot of deleverage this year. As you think about next year, there may be some erosion in the merchandise margin. This year, we had a lot of mitigation of the markdowns from favorable shipping, less loyalty. So, there should be -- maybe this is a long answer to a short question, but I think in merchandise margins, you're probably going to see some small erosion, but not a lot, less than 100 basis points.

Got it. And then, wanted to come back to just understanding the new rewards program that you're launching here and just get a sense for how you're going to kind of migrate the legacy program into this one and how -- from the perspective of how this may manifest with your customers and kind of through financials, any additional color you can share on that?

Jeremy, it's Harvey. What is a couple of material -- truly material changes which I'm really excited about in terms of the loyalty program that we recognize what it was, and I'll share that to make sure you do as well and the distinct change in what it is today. Historically, when a customer made a purchase with us, they automatically almost entered the loyalty program. And when I say that, they provided their contact information, e-mail address, and we asked them for that information and they gave it to us, and it was an avenue for us to basically create a customer file. But in reality, and it is what it is, the customer didn't actively then engage in the loyalty program. So, our loyalty program was largely comprised by customers that were actually less engaged in the loyalty program itself and just providing an opportunity for us to communicate with them. And as a result of that, the platinum and gold portion of our program and really the platinum portion of our program was remarkably penetrated in comparison to other loyalty programs where that customer typically wouldn't have the penetration of sales. They're our most productive customer, but they aren't necessarily, they're a small group with a lot of revenue. In our case, they were a small group with the majority of the revenue. The new program, which is, I think, a masterful change on the part of the platform we're using and what our Head of Marketing has brought forward is a program where we only migrated the very best customer automatically. So, there's a number of customers that were our best customers, and we automatically moved them to the new program, and we gave them an incentive and introduction to join that program. The balance of…

Got it. Thanks for the color. Last one for me is just on your new stores. So, it sounds like not quite meeting the metrics that you expected when you made those investments. Can you provide a little bit more detail on what you're seeing in terms of kind of year one sales from those new stores or what the run rates look like? And then, also just from a cost perspective, what the average investment or cash outlay looks like here as you get those up and running?

Yeah. I'll touch on the first part and then probably turn it over to Peter for the second, if that's okay. I think the view we have is we've opened 11 stores. And I say this not sarcastically or anything other than just factually, but we've opened 11 out of 11 stores and not one has met its expectation. And I would tell you that there's no question, two or three of the stores, you could kind of sort of say, okay, well, is this right? Is this location perfect? Is there a reason it's underperforming, but not all 11. And then, when you take our current comp of what we said was negative 12% for the period-to-date spring season as an example, and you look at the stores, the performance, yes, they're slightly worse than negative 12%, but they're not like negative 50%. They're something worse than negative 12% and the view we have and when you actually cut them is that the performance short of the total average company is you can see elements and pockets of awareness, so those stores, there's one in Texas, there's one in California that not that long ago had a Casual Male not that far away. We see outperforming the majority. And so, there's, from us and our perspective is there's an awareness opportunity that customers that have come in literally and said like Pasadena, California, "Hey, weren't you used to down the block and you called me a Cold Casual Male," that store is performing better than the average of the openings. And so, we believe that, again, we have an awareness issue we know as a company, that awareness issue when you open a brand-new store where the store hasn't even had time to traffic drive by is not performing as well as those stores that had at some point, some nearby store. Houston is another example where the Sugar Land store in Houston, there was a store that was not that far away, Casual Male. And in Houston, it's one of our best markets. We already have seven stores there. So, the awareness in that market. So, we see, I'm not sure I'd call it a really bright line, but we definitely see a point of demarcation in those stores that had awareness and/or Casual Male nearby in somewhere in their history, outperforming the stores that didn't. And overall, we see the business short of the average company performance relative to plan, but not materially that far short relative to our overall performance, i.e., a sector that is being challenged right now from by new close.

And I'll just add in terms of cost for seven stores opened this year, roughly upwards of $1 million. I think as we think about the eight stores that we're planning to open in 2025, that should come down a little bit, mostly because we've been pretty aggressive with trying to engineer cost out and get the cost per store down considering what Harvey mentioned earlier about these stores just haven't been opening as high as we initially expected.

Hey, Jeremy, one other point of clarification just to help you actually appreciate the store performance. Our DPT, which is the average transaction value is at or, in some cases, slightly above the company average, our UPT as well. And our conversion for the most part, where we believe the traffic is clean as opposed to people coming in and saying, what is the store where yeah, we don't sell normal traditional-sized clothing, we're big and tall specifically. Those metrics are good. Our failing metric is traffic. And that's the one that is very much synonymous with the overall company's results, just getting people to come out and shop in our stores. And we believe that if traffic was more of what we expected, given conversion DPT, even our new-to-file, our new-to-file in those new stores is about triple the new-to-file of an average store. So, we have some number of customers. I don't know who we are coming in. But again, at an aggregate total level, traffic is the number one issue in those new stores.

Got it. Thanks for the color and good luck this year.

Hey, thanks. Operator, I don't believe we have any more questions in the queue. We really appreciate the interest in our business. We are excited about what's ahead and hopefully able to successfully navigate the challenges between now and our initiatives coming online, and we will talk to you all in 90 days, and you have a happy and wonderful spring.

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