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DXLG Destination XL

Participants
Tom Filandro MD, ICR
David Levin President and Chief Executive Officer
Peter Stratton Executive Vice President and Chief Financial Officer
Alex Silverman AWM Investments
Call transcript
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Operator

Good day ladies and gentlemen. And welcome to the First Quarter 2018 Destination XL Group Incorporated Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference maybe recorded. to Director host at like Tom today's now Managing Filandro, ICR. would introduce for your conference I Sir, you may begin.

Tom Filandro

XXXX Group's Thank Chief you, joining quarter call XL for Officer; David Chief and Levin, Peter Thank everyone. On our fiscal today first President is Monee and President us Stratton, good on our Financial morning, Vice earnings Officer. our call. Executive and you and Destination Executive

financial Commission. to store of our is with at regarding is today gross forward-looking and of assumptions from capital financial certain condition, such will materially profitability, to uncertainties a we the the company's some company. due metrics on investor.destinationxl.com EBITDA, also useful discuss our information subject ability margin, investors release, Web per reconciliation could in share, and strategic and detailed this about expenditures, our the Please During contain earnings Securities openings was and forward-looking company's today's various risks closings, to will call, Relations and an variety for are measures. statements earnings performance. marketing free to Today's results those Such Exchange and company's costs, corporate non-GAAP risks including to available the refer adjusted actual filed provide explanation sales, Investor factors EBITDA, plan. discussions related concerning cause to and site the differ which affect morning on performance uncertainties operations, and that its mentioned the execute Information that savings and cost statements flow, with and cash restructuring filings

Levin. and call our President turn David? would over I CEO, like to the Now, to David

David Levin

Tom, are and morning Well, like would topics few to thank discuss today. There I everyone. you, good

recap give quick performance. business our to going I'm First, quarter first of a

QX have and morning, and release seeing for We're improved momentum by year. are quarter fourth QX of you fiscal many into to XXXX to press come in we business of anticipating our update. some has comp from in our with single There's our last digits. sales in the of mid-to-high continued believe As month an strong this sales the encouraged today, May saw we have stellar in be we earnings the been from the half what significantly year. a the second opportunities still

to Second, our improve accelerate we Two plan our ago, margins. profitability. I path weeks discuss will as a operating our corporate restructuring to initiated reported, to

we savings of against are progress eliminated our million. or approximately before an expect our a these May or As we'll also for priorities update cost savings XX on the from remainder actions of strategic when taken discuss And office annualized the workforce. XX% $XX.X goals. result, and bulk we on corporate our of of our year provide The positions XX

terms, report happy terms improved than secured plan. is we our our the confidence the of facility under agreement very May on is the the on our bank the our part only we prior the with and Not overall a benefit feel and you that going I'm we facility will better facility. from financial entered credit pricing Peter discuss Finally, with XXth, into to but to new deal, of senior group. our business this then new demonstrates lenders

traffic, in-store first site transactions in Now beginning at in growth quarter. first sales negative report growth unseasonably country the exceptional a per April, our and and was outstanding and in-store rates, number XX-month of QX dollars campaign, in an unique mobile experiences period results marketing a where now the on yet launch of weather, ago. our storytelling leveraging slight cold X.X% and of sales And with store In basis, in engagement to fit. our the our executed store the right despite increase our by direct conversion transaction. than more associates productivity quarter line are shopper positive space. to sales to to slightly of healthy our our On in I'm service, were direct Once business, usability XX.X% selection again, increase particularly we for continuing with powerful with increase and conversion expectations. comparable three-week performance. business experienced driven delivered spring we of a that pleased compared had a much our the delivering Other accounts the year our XX.X% trailing enhancements for

include marketplaces, walmart.com. see to which We very gains continue nice and also Amazon from

with large first available our the quarter our the assortment portion Now saw and that we shipping, that see of two is in customers a shopped stores our are to or of continue business the we who from generated during Prime a days of on our have transactions Amazon site. majority never doubling on

margins business that year. as our our direct shipping balance report feel costs, Our expectations doubled pleased promotions, offers our half find shipping customer expectations $X.X second We're than I'm evaluating was particularly the that quarter shipping costs. EBITDA to of meeting more expected, to million less in offers. from and we minor minimizing of shipping free benchmarking first due last million gross some all our $X.X our we the direct also back confident margin shipping while to slightly of the relates year. business, in warehousing right and quarter the and first in line to strategies, in will currently competitors to to We our the key than during changes our it bring with our

quarter with expenses our line were the SG&A in plan. for Our

planned April $X.X campaign down we feel the marketing the year in due to as our first million of quarter solid approximately compared and is national Our were progressing our launch quarter April had advertising expected. this X as for Overall, XX year. costs on last we the business performance we to

and of about improve experience. we'll In our to two, our focusing One, digital today structure; improving on our and marketing on our strategy. return discuss four, our cost initiatives; plan managing particular, our pillars like our to and profitability. in-store enhancing talk I'd customer; investment three, Now, major four shift gears on the

Our first cost more build efficiency. is our than on are focused our largely store step ever With our operating structure. we complete, improving managing out

has a show the past For and our return net years, the on to operated we better loss company needs a at six recognize investment. that company

get in level. enough. starts Our EBITDA, line sales and good of in as with profitability need a that's that bringing to percentage not our and we know X.X% current XXXX, know fiscal to sales We we costs our with was

XX% we had in the XXXX including XXXX, positions. workforce. At amounts elimination The included country approximately of we employees fiscal May positions reduction XXX end of As XXth, four which President positions. corporate on to across I eliminated XX mentioned, positions Senior our the corporate XX a Vice

decreased One the this direct behind has CEO and of to the core more [ph] X. number this reports and to our communication X of drivers. business focus be We was key create restructuring among and efficient business a strategies The will coordination believe new improve to team. to more smaller, executive from allows on focused structure units

benefits, such facing as are reducing projects. non-essential and travel, non-customer Additionally, costs corporate we

contribute decisiveness with to all quarters completed Of size to by acting to planned are X. structure. expected will three actions the We savings, of our July be annual the cost $XX.X million right

area our results. previous $X.X For of million a last that fiscal help comparison exercises in XXXX earnings is factored our $X.X to us other ourselves We the we outcomes savings benchmark yielded cost of comment and successful our announced when which our the we of base. expect were process. these against into to well-known was process each expense want guidance decisions enlisted retailers a firm the feel functional QX I We XXXX, outcome. assist specialty realize to evaluating approximately apparel and million, we rigorous SG&A make The a already restructuring about grounded of that party consulting third conducted benchmarked of in

biggest, to the business. XX% is to and on on understand The segments and second of core help our to data allows and From quickly the finishing on customer consumers already focus that We're critical help can study this in will our the that segments segmentation our laser customer. know marketing tall focus of first and big our most we'll group our step grow will sales market market most and business. the group up our focused our the we of quickly ever of us become development on to different our base generates business. the particular, attractive X% that product In focus top build grow of standpoint, we plan

digital ROI on better a marketing and create our to is investments. step third Our

across growing us which the On more We're is and new One, draft particular, us experience and site all the in CMO. the directly believe can adjustments. better EVP our consolidating desktop getting to are CRM on over to Jim tools to late strategy, within they're allow businesses. matters site our analytical It sales and and of deliver of we'll us customer in looking make and and under Part research. allows new important consumers to higher personalize a data. also online we comes extensive announced and hiring e-commerce gives our comes program. of an Two, the and our data Davey our touch customers opportunity, which suite is to leverage points. experience important to accelerate both and Timberland as to fly allow in-store centralizing from Three, site involves launch. for track engagement to to brand shopping we traditional under April launch for. campaign marketing will allow marketing the and what provides fit one and We strategy digital analytics, has on Jim our find in restructuring from sales. consumer a our digital driving last the during department. our plan It to Jim better experience customer a of experience from customers. NFL initiatives. upgraded launch use loyalty offline an QX. in new his CRM; what most site XX% e-commerce data launch in Jim QX, campaign mobile all cleaner customers. that quickly of site all selection investing This responsibility quickly us our be intuitive four strong driving team capture a during consumer connected system will extensive we gather will communication feedback The them creative To In The new allows this call, upgraded this identifies

built segmentation our ESPN athletes to to more connection and aspirational this XL the and as well build as mix that we've delivers right excel, our are of message for study marketing experience to sports our like important Our perfectly built pipeline segments DXL segments via allies is Finding making engaging of growing strategic segment tagline pillar and improve our is fit, not each both customers new programs. marketing our business. outside last the This major finally, we're communicating also tools customers what better ROI. The guys may have target considered to overall with strategic internally that to ensure to recruiting to got the programs and before. will developing current those experience. enhancing new via help and all store ROI with understand who the us is Four; will the our specific

another and store Casual We with XL five stores. Large have today DXL stores XXX Male XXX

positive portfolio metropolitan almost covers the generating our and a all continental wall United every cash four store flow. stores Our States in market major are of

as inventory that importance bring in stores are easier an job that integrated the it the improving four to retention at result, support items new store counter. portal one lost a at for they that whatever of The in-store and plan of minimum. allowing Our truly we're a unfolds. Stratton all stores for was we sell further our service of new purchasing And the of trend shop To web may will our our two to to our transactions way pass our in the our And call technology past in past and over transaction Peter leverage and I a who to portal continue customers the have this that, web In and experience tune Peter? sales. strategy, point-of-sale associates universe to tool. business now level seeing was nice our incremental fine That make our frustrating the to said, purchases drive doing a seeking reside orders alike. for be recognize Labor seamless faster requiring of excellent our as this making to performance. CFO, and made items customers the our access represent year that associates present the omni-channel not sales view wish. walls. customer, project omni-channel as to life technology We the allows technology utilizing this financial we're the a the We offering call with full been and acquisition outside both to sales and recognize DXL online to and physical associates

Peter Stratton

morning, and good this morning with summary financial you, David, results. I'd everyone. of to Thank like a our brief start

of margin as pleased For $XXX.X to for sales This costs XXXX. XX comparable The to of was in occupancy offset direct rate margin a of to increase by increase net million. seeing a point the driven expectations first fiscal and XX encouraged increase merchandise the a in was the channels. below contraction increased of of in quarter, quarter Gross a growth for are deliver we partially in by a sales decrease X.X% margin of the basis positive and quarter basis XX.X% non-comparable improvement trends of business. the costs. first our another million. points first comparable XX.X% sales margins $X.X gross our due was we're inclusive We our very quarter basis were in to sales with compared X.X%, And stores by both currently was gross point XXX occupancy

As specifically as margin promotional in costs. increased merchandise in David was an to in decrease already related our activity business increase well direct mentioned, shipping as the

minor in to underway our and believe We with bring some comprehensive promotional are review back with margins of strategies will distribution currently and offers. and adjustments line direct shipping we our our shipping we a

XXX as a improved as by XX.X% SG&A for XXXX. sales quarter for Our to XX.X% to points of the first the basis percentage of first compared quarter fiscal

supporting expense beginning SG&A year. in our $X.X of in $XXX,XXX. as quarter our primarily the as increases Our lower partially lower decreased end marketing our more the EBITDA costs was launching other associated than driven basis, to of costs of marketing year million costs stores year last for over DXL quarter by sales the first costs. compared lower $X.X EBITDA the $X.X and this first decrease significant spend at was April adjusted by for fiscal approximately for was of initiatives improvement quarter marketing million to well last dollar million spring double the the a counts were first store in due On or by QX XXXX. campaign e-commerce in due The to offset The with growth the The

few sheet on would restructuring. Before provide results. I I move to flow structure balance impacted our a and highlights in our to be going our to SG&A structure by cash details is that regarding corporate more expense like how

program other positions the plans supporting customer two corporate that as costs. which affecting corporate First, to functional adjustments SG&A The costs our travel we is benefits restructuring facing categories non-essential think corporate or staffing This programs, within manage includes of majority of we corporate and consider levels, and supporting. we programs costs.

of we first target costs costs store of X% corporate marketing, as at approximately quarter, realize number we the sales, The target In first by benefits in and customer over from other at total four XX.X% This we X% is such quarter store would in functional this customer sales of what less sales. payroll which to facing costs. of cost year. supporting the the that consider was as at XX% sales. impacted which include Our the restructuring we improve sales costs which we represented facing approximately wall we of expect approximately restructuring represented area in the the coming target XX.X% our

resulting I'm full I XX.X%, our costs our gross our to first XX.X%. an the for before be guidance of how restructuring. I would do subtract update provide that, year want the on the by the for quarter few being is our guidance for year. impacted explain from contribution wall customer XX.X% a In facing going of margin But minutes, the EBITDA four you If to

corporate we administrative As million to Of million $X $XX.X million a changes, million $XX.X of result staffing from costs. $X.X and as from our million, non-essential expect restructuring. other come savings $X.X annual we changes from defined to David of contribution mentioned, plans to general to corporate expect realize come the

of the which be our million an clear increase Of fiscal the guidance. were realize were savings $XX.X account those announcing savings XXXX. last for are year in into fiscal also of million, to restructuring. to with savings the me today impact to factored identified XX from of we $X.X million expect in we QX guidance Let eliminations XX how our savings important Therefore, It's updated $X.X original includes million approximately of expected that EBITDA $X.X that XXXX. of the note are position and

Now from million and was let our flow. cash and me operations negative cash flow flow for $X.X turn free to was our Cash quarter balance negative first $X.X the sheet million.

million fluctuation weeks hand. payables. accounts we've reduction timing since compared inventory a Inventory that of of been year. QX, and $XX.X continued This XXXX direct once timing of to substantial to compared was of with result expenditures of we quarter on $X.X of our to openings. the down receipts pursuing improve cash to well again year we Father's the noting worth Every spring of store last our than advertising due as as line in was of that to with an lower It's year Day first quarter, outflow expect a First expectations. buildup seasonal quarter this increase in in our was capital first inventory end primarily million an result initiatives campaign supply prepaid inventory fewer the XX% up at the some but ahead due last as in of million experienced $X.X costs were was

previous at $XX.X borrowings $XX.X $XX.X topic This which quarter to announce million under we is million. ago $XX.X availability debt a with This access with total $XXX facility excess the credit for years credit America company refinance inventory of opportune Thursday, this terms. Total today. We in improvement five entered X.X%. of into to felt brings compares an XXX a clearance term of last-out May total million our credit end pleased facility five-year of that very as and XX, the year includes of priced facility million, on at million NA. debt to percentage depending our in was includes XXX availability inventory Bank me revolving to a facility with $XXX at plus was million shape a an excess another a our facility availability. loan LIBOR a to revolving good with $XX.X time of secured Our the first-in Under facility. million revolver Effective $XX million. last The new are was facility,

to that demonstrates pricing. the confidence $XXX,XXX did group have an a bank facility will the payoff new the the revolver or Fargo approximately an and Wells compares Our points. facility relationship pricing same credit to key been was in banks we an loan plus annual excess that not is debt I is the structured with our threshold want XX used at to to improvement this XXX basis. this in years our of A priced priced great extended of LIBOR We've at that our points. favorable we agreement new which the term XXX have to The with on XXX credit favorable at for increase term another basis term improvement our with transaction rather make FILO XXX Overall, is is over save availability basis under XXX. our or levels to to loan priced XXX point facility plus expense This plus fortunate company. five was with about LIBOR expect LIBOR years interest XXX our which which

on Now our for an update guidance.

to the earnings corporate restructuring. our savings revising $X.X that are fiscal guidance We XXXX expect for million expense we reflect the from

$X.X We are guidance severance CEO costs million reflect charges to earnings associated also revising $X.X transition. of approximately and and restructuring in with million

net of $XX.X projects; $X.XX for increase of is sales $XX diluted million cash company million; to GAAP to $XXX of million of to open the CEO positive $XX million approximately we comparable fiscal million for XX.X%; to for allowances which follows; like infrastructure flow million tenant a including questions. approximately This call transition rate XXXX and adjusted guidance charges of $XX.X free prepared EBITDA to expenditures And X%. capital or activities as includes Gross million $XX.X approximately on the $XX.X to $X.X X% $XXX loss to $X.X revised million. cash concludes with of in sales flow and digital million our per of $XX.X operating margin of costs basis resulting would $X.XX share; Our total million million restructuring for from $XX.X approximately remarks. to

Operator

And Thank our AWM from Silverman question first with you. comes Alex Instructions] [Operator Investments.

now Your line is open.

Alex Silverman

good morning. Hey

David Levin

Good morning.

Alex Silverman

give more Just around on little sales I e-commerce detail that both the wondering margins, and impacted of business the could if some some you changes guess shipping? us margins direct a --

David Levin

shipping for numbers, the costs shipping free to aren't has to cut us. and threshold the we right -- it, best so loyal but side on where lower on manipulate Well, offer it for working customers we something set with shipping as to the our can of customers profitable do are that we're and of that's free the to a lot back shipping, still customers now

one areas shipment. the certainly that's on of So

promotional year the back ago, customers also. as we were -- taking a and a we've more promotional were been we of little a something the adjusting the than half that we're activity more are that's far price points, into As promotional year the little going

in think that year. direct of So we will the back margin rate half on neutralized drop the have the

Peter Stratton

that's stores of one on are costs, we would from things new direct efficient coming to fall stores. years more to be the in that's the us that I frequently shipping more that be from shipments our and some more how deploying last shipping have over the allow going do software we add couple just going more to we of to specific Sorry, and is with

at the order allow software going side is us upgrade of to stores more to to side efficient on and avoid the country the from we country, be So fulfilling is to an much what one that. this want other of

Alex Silverman

Makes Prime a fueling This merchandise to And lot neither promotional related a of about you the that. comment pricing sales. this is Amazon to related not sense. nor -- made shipping is is on

David Levin

Well, two find more no – do in because you requirements that. no, in to would promotionally expensive prices stores. days, Amazon the is shipping get would are on no to you are lower the it's But the our there than find

Alex Silverman

helpful. Okay. That's you. Thank

Second question, did transition? for say you million $X.X CEO

Peter Stratton

Yes. That's correct.

Alex Silverman

-- what's $X.X money it always are And mean spending lot How million? I for you transition. a of sounds

Peter Stratton

just So, a couple of comments on that.

terms is First, to I'd of and CEO. ultimately expect that months install departure has to like would other with which out transition from separate to in by search also agreement. agreement, conducting a smooth the next costs new incurring incurring to point the employment filed David his a search, year year be David agreed ensure at this company, to company stay company the we couple his and ago a point on the his governed X-K to We're that and CEO, the will was expenses this of transition The an a retain firm. some

So, right a we're I'm successful our to $X.X of makes about smooth incurring transition. these is million, get specifics the what but going not costs up and that into best now all ensure to estimate

Our it's $X.X is million. best estimate that right now

Alex Silverman

I to me mean that severance. sounds like

Peter Stratton

entitled contract, but of employment piece million. to would part as again, be certain one that's of benefits, only Well, he the separation David's $X.X

Alex Silverman

I David thought retiring. was

Peter Stratton

the separation, of accruing terms that and are this refer can have agreement transition filed agreements. we those but we for David to of you that according David the again has specific terms -- to a

Alex Silverman

egregious that be find so just I you to know? somewhat

Peter Stratton

Understood. Thank you.

Operator

question comes Henner you. Orkney] from [Harvey our Thank [ph]. And next with

Your line is now open.

Unidentified Analyst

that specific confused have little a I questions two I I'm by. think

projects, $X.X those are expensed? capital Peter and capitalized infrastructure under or those for expenditures, the first is, million The digital are

Peter Stratton

Yes.

So – that’s for expenditures those are year. our capital the of part

$X $XX So forth. in expect year. to every $X past, year This -- million infrastructure have to normalizes a we been number typically year, to some between incur are and coming That number we million $X million a runs costs it's like that I projects systems $X more a the so at year. CapEx million certainly that related big implementations million on.

and is new operating being a site which end the system the back have deploying fall. in management that second system, and additional some we'll Web quarter, site be the we the have in We management deployed warehouse of

to that's answer So question, capital. your

Unidentified Analyst

-- what depreciated? time over approximately or And Okay. what is amortized period that

Peter Stratton

Typically, over years. five that's amortized

Unidentified Analyst

Okay. Thank you.

to question in still go change the that savings on would million call and know I'm the many like? words, other second So million So you The million this at What if confused way in discussed a EBITDA this you've The and it. calls, that in by that are it of but numbers to from to $XX it. get exactly there XXXX, be year? going I -- new a you're the the $XX is changes other to amount just are you -- for million of lot beginning apples-to-apples. I on this $XX we before that don't that you call. XXXX what at $XX look what your beginning the would as look to from vacant including so you’ve the If of but be this described for initiative, positions would at SG&A projected were XXXX XXXX projected would around what to described, realize would it EBITDA look like, mean moving I

Peter Stratton

I lot can. to to answer try understand me the make question as I because a are right. let will so of you I numbers, as it as -- are it simple There try

number total $X.X million in guidance. million. included original the savings had of is our So, We $XX.X annualized

be old basis million, number would for, an million. thinking are that $XX.X account how much number on you is amount if would $X.X year-over-year $X.X included So the be million, new about the annualized so incremental the

Unidentified Analyst

Okay.

$XX add million, I operations sustaining $XX level So, wanted of the now to was believe of business it fewer The if capable costs? at you say million that okay. project just could if to same $X.X this and it I is million just with I

Peter Stratton

Yes.

that's fair a statement. I think

Unidentified Analyst

Okay. a Well, and thank positive on very continue you much trajectory.

David Levin

Thank you.

Operator

Instructions] Thank program. the gentlemen, today's conclude Ladies conference. you [Operator and you. This concludes does participating Q&A This today's thank in session.

disconnect. You may all