Destination XL Group, Inc.

Good day, and thank you for standing by. Welcome to the Destination Excel Group Incorporated's fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Shelley Mokas, Vice President of Financial Reporting, SEC. Please go ahead.

Thank you, Norma, and good morning, everyone. Thank you for joining us on Destination XL Group's fourth quarter fiscal 2022 earnings call. On our call today are our President and Chief Executive Officer, Harvey Cantor, 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 discussions also contain certain forward-looking statements concerning the company's sales and earnings guidance 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 Cantor. Harvey?

Thank you, Shelley, and good morning, everyone. We have made a lot of progress this year, and it is a privilege to speak with you today. about both our results for 2022, as well as our objectives and priorities for 2023. 2022 was a remarkable year in the transformation of DXL as we continue the work of the last several years. As you all can relate to, 2020 was a year of survival, 2021 a year of recovery, and 2022 was a year of sustained progress. Our vision to provide big and tall men the freedom to choose their own style, and the role that DXL plays in their life continues to drive and motivate us. At DXL, big and tall is all we do. Whether he is shopping online or in store, we are that haven where big and tall men are respected, valued, and celebrated. At DXL, he is not an afterthought or a bystander. DXL is big and tall, and in this regard, DXL is a category of one. The progress we've made this past year and the brighter prospects that lie ahead are why we remain incredibly enthusiastic and hopefully why you as an investor are here to listen to the DXL story today. It's truly remarkable and it is my privilege to speak to you today about our journey. The singular focus that we've embraced is to provide big and tall men with the freedom to choose his own style so he can wear what he wants to wear. or as we have coined the phrase from our customer's point of view, wear what you want. This clarity of focus in messaging and digital assets and what we curate and how we engage is now coming to life in more profound ways. And in a way, this is the cornerstone of our plans for 2023 and beyond. We believe the conceptual framework for big and tall men to wear what you want has the potential to propel our business to new heights, and I am excited to tell you more. But first, let me share with you a few milestones and achievements that we accomplished this past year in fiscal 2022. Let's start with sales, a second consecutive year of record-breaking sales, 545.8 million, and now eight consecutive quarters of positive comp sales increases, and adjusted EBITDA margin of 13.5%. free cash flow of over $50 million, a fortress balance sheet with over $50 million of cash in the bank, no debt, and a strong inventory position. We launched a new and improved loyalty program this year with more ways to earn points and greater differentiation in between tiers. We announced the addition of four more national brands to our exclusive portfolio with Vineyard Vines and Nautica at the beginning of the year and Life is Good and Original Penguin Golf at the end of the year. The only place to find these great brands in big and tall sizes is at DXL. We have 281 stores across every major market in the country, and we are actively taking steps to open new DXL stores, remodel existing DXLs, and convert our remaining casual mail stores to DXL. We repurchased 2.9 million shares of stock this past year, which returned $12.7 million of capital to our investors. And perhaps most important of all, We continue to focus on our team and culture to better align company priorities, improve and upgrade talent, and fill gaps to achieve better results even faster. Well, 2022 was another historic year for DXL. Our work is not done. I believe it's worth reiterating the U.S. men's big and tall market is still highly fragmented. There are many retailers who dabble in big and tall, offering piecemeal products here and there to a traditionally underserved customer. We are changing that narrative. At DXL, big and tall isn't a section. It's the entire store. We believe that the total addressable men's big and tall market is more than $23 billion. And while we currently hold a meaningful slice of the better and best market share, we have far greater opportunity. Going forward, we believe that we can grow that market share profitably by maintaining our shift away from discounting it into greater differentiations. while also increasing our share of wallet and attracting and retaining new customers who have not yet experienced the DXL difference. Our differentiation is built on our positioning, our ethos that leverages fit, assortment, and experience. We consistently hear from big Intel customers that fit and style are the most important factors in their purchase journey, and we believe our proprietary fit and expertise is a strategic asset along with our curated and mostly exclusive offering. We have dedicated teams focused solely on developing precise specifications to deliver unique, ownable, and authentic fit, and an assortment that looks, feels, and moves great for the big and tall consumer. Our assortment refers to our thoughtfully curated offering of designer collections and our own brands, including many exclusive brands and styles that can only be found at DXL. In fact, between our brands and exclusive arrangements with national brands, over 80% of our assortment is exclusive to DXL. This delivers a product rate and quality that stands in stark contrast to our competitors and is one of the biggest elements of the DXL difference. Lastly is the signature experience. We call it the DXL factor. Whether in-store or online, we create spaces that are built solely with a big and tall man in mind. With DXL, he can satisfy all his wardrobe needs, feel valued and respected throughout his shopping experience, and emerge looking great and feeling even better all in one place. The customer is at the heart of everything we do. We get him, we respect him, and we strive to further his confidence. And we want him to be just inspired by DXL as we are by him. A testament to this and an objective metric that underlines the success we have in creating this experience is our year-end net promoter score metric, which is solidly in the mid-70s. For those of you familiar with NPS scores, this is a retail industry-leading metric and one we are appropriately proud of. Thank you very much, store associates. Now that I've provided some preliminary context to how we think about our customers and our place in the big internal landscape, I want to provide a little more detail around our Q4 results. Sales in the fourth quarter were ahead of expectations and included a comp increase of 10.8% for the quarter, with stores up 13.2% and our direct business continuing to be up, up 6.2%. Sales momentum started slowly with November comp sales up 2.7%, December up 10.8%, and January a whopping 23.7%. we were very selective in our promotional cadence in a quarter where many retailers q4 is the single most promotional and transactional time of the year our promotions which on occasion we shared publicly were all oriented to addressing customer file and inventory opportunities similar to 2021 dxl relied very sparingly on public promotions and we primarily offered private promotions at lower discount levels to drive retention and re-engage lapsed customers. We did not entertain any public promotions during Black Friday nor Thanksgiving weekend. Ultimately, we believe this strategy paid off as we were able to maintain a high gross margin in Q4 while remaining faithful to our vision of repositioning the DXL brand around differentiators as opposed to discounting. We also made specific progress in our digital business in the fourth quarter in areas of experience and performance marketing. To begin with, we continued to optimize the customer experience by reducing friction points. We were successful in reducing multiple site overlays, pushing sign-up for email, SMS, and app channels. We also attacked customer checkout flows to identify points of frustration and the needs for simplification. We leveraged performance marketing with a heightened attention to clearance levels and investments in paid search to drive traffic. Overall, we were effective at migrating customers through the shopping process, but like anything else, this will require continued evolution and improvements in both the landing experience and in checkout in 2023. I know one question on everyone's mind is how is business performing today? I can share with you that through the first six weeks, we have definitely seen greater volatility and overall trend of slowing. That being said, we are tracking to a low single-digit comp quarter to date, but remain cautious in our belief in the consumer's resiliency. Our customers are feeling the same macro headwinds that you read about and read about every day in the press. And while we do believe we have positioned the company to take more share of market every day, the overall macro environment continues to have the potential to limit revenue growth. Time will tell how resilient the US consumer is in 2023 and how far we push spending for greater growth in the coming year. We'll speak to more specific guidance for 2023 later in the call, but I wanted to give you a brief update on what we've seen the first six weeks. Now, let me share some thoughts on Q4 performance in the context of our merchandise assortment. We continue to see strong sales performance across all categories. As a reminder, Our current virtualized assortment is approximately 55% our own brands and 45% national designer brands, and our sales presentation for the fourth quarter was relatively consistent with that inventory composition. Tailored clothing accounted for 16% of the Q4 business compared to 13% in the fourth quarter last year. This is an area where we aggressively sought to improve our in-stock position with even greater potential upside seen in the number of companies requiring greater returns into offices, plus spring season events and occasions this year. In sportswear, the top-selling brands in our summer continue to see slightly higher selling velocity, including Polo Ralph Lauren, Nautica, and Reebok. In the spring 2023 season, Life is Good and Original Penguin Golf officially joined DXL's growing exclusive brand portfolio, further reinforcing us as the number one destination. for desirable national brands in big and tall sizes. As you may recall, we talked about other brand introductions, and while not exclusive, we're excited to note the introduction of Hey Dude Shoes, and we'll also acknowledge that in fall, we will launch yet again another two exclusive leading menswear brands. Inventory. Inventory continues to be a key priority for us, and we made good progress this year on getting back better in stock positions as compared to the fourth quarter of 2021. As noted before, we would rather be chasing inventory than chasing cancellations. We have a very strong orientation to try to turn faster, and compared to 2021, our inventory levels are up 14%, but compared to 2019, our inventory levels are down 10%. We have been working to improve our inventory return for years, and I'm happy to report their inventory returns are up 30% to pre-pandemic levels. Our clearance inventory at the end of the year is 7.9% as compared to 6% at the end of fiscal 2021. We are very comfortable with our clearance inventory levels where we are still looking at historical targets of 10%. I'm happy to report that we are finally seeing some cost relief in terms of transportation, and container costs have returned to more normalized rates, and we are seeing more overseas shipments arrive on time. In summary, I'm very proud of our team and the sustained momentum that we achieved throughout the year. 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 engagement center. And I want to take a moment to just say thank you again. We make a point of recognizing our employees on every earnings call, but that doesn't mean our gratitude today is any less genuine than last quarter. I truly believe that all we have accomplished is because of who we are as a team, as Team DXL. Thank you all for your hard work and your commitment in our pursuit of serving big and tall men and making DXL the place where he can best satisfy his desire to wear what he wants. I'd now like to start shifting the remainder of my prepared remarks to our 2023 objectives. I started out on the call by highlighting the last three years of survival, recovery, and sustained momentum. How do we continue to build the momentum on top of another strong record-breaking year? Despite the caution that so many other retailers are rightly talking about today, we believe we will continue to gain share of market. I am thrilled with DXL's prospects, and the cornerstone of my enthusiasm is grounded in wear what you want. We have been talking about the newly positioned DXL and a new brand ethos. And just last week on March 7th, we unveiled it to our customers and the world. I'll repeat it again. We exist to provide the big Intel man with the freedom to choose his own style. We relentlessly strive to serve the fit and style needs of the big Intel man. And we aspire to deliver a haven for the big Intel man with the largest assortment of brands and sizes and accompanied by an unrivaled expertise that creates an experience like no other place on the planet. Wear what you want is not just a tagline or an idea. Instead, it's an invitation to both our existing customers and those who have yet to experience our brand and to finally shop like everyone else. For too long, the big and tall man has been forced to settle. Settle for less elections, settle for less styles, settle for fewer options and experiences that leave him feeling less than ideal. This is the power of WWYW, our shorthand for wear what you want. It truly represents the freedom to choose the clothes he wants to wear instead of accepting the clothes he's forced to wear. Clothing for most of us is an expression of our individuality, a reflection of our own brand, and even at times, our armor. Think about that. It may sound trite to those who have never had to think about this, but because they simply find clothes that fit and they like, but to our customer, it's something he has never been able to do. His wardrobe can now be an expression of his style, his personality, his mood, his armor. The most powerful and transformational ideas come from simple, honest insights. And when we get it right, it becomes an economic multiplier. We are not simply selling stuff. Instead, we are selling something he cannot buy anywhere else. In so doing, we help him to be who he wants to be to set his own path, and specifically because of what we offer, which is just not available, for the most part, anywhere else on the planet, enabling him to wear what he wants at DXL. It creates a strong relationship, one built on the totality of what I've noted, and creates a strong visceral emotion. We believe he can ask and answer the question, why shop anywhere else? And specifically versus other retailers, simply buying transactions with an assortment and experience far less endearing than a DXL. We call this a brand ethos, and because it is much bigger than an idea, bigger than an advertising campaign. It's an ethos because it really informs everything we do moving forward. How we make our site and the stores a haven for him. How we relentlessly strive to serve his fit and style. how we build our strategies, how we build our plans and buy our assortment, how we design our stores and our website, how we engage our guests, and how we ultimately serve the needs of our big and tall customers. It is bigger because it requires all of us to live it every day for customers to see it and, more importantly, believe it. And when he does, it creates an incredible attachment to DXL. Humans are emotional beings. We make choices emotionally. When we connect with our customers on this emotional level as a brand, It becomes a bond much harder to break than a connection based on pure price and deep discounting, which really just undermines the value in the assortment and the mix itself. We have launched Where Would You Want across multiple customer channels, including EMS, excuse me, email, SMS, DXL.com, the DXL app, YouTube, social channels, direct mail, public relations, and in all of our stores. We believe that 2023 will be another year of refining and clarifying the DXL brand positioning and enhanced consumer engagement. We also believe 2023 will be a year where we more clearly define our long-term objectives for the brand with specific strategies and paths to create financial return expectations that we'll be proud of. We have long said there's an opportunity to grow our top line, and we are beginning to converge on what that really means. For example, one of the more tangible strategic imperatives is to grow our customer base by expanding our store footprint. For the past year, we've been slowly restarting our real estate process and store development capabilities, which include investments in people, process, and technology. In fiscal 2023, we expect to open three new DX stores, all of which have been specifically identified and are in various stages of lease negotiation. We expect to convert 10 of our casual mail stores to DXL nameplate with an in-store refresh and remodel, and we also expect to remodel five existing DXL stores and close five stores. In most cases, the DXL remodels will receive an exterior upgrade, a change in the floor set, and the introduction of guest engagement centers. We are optimistic that these remodels will reinvigorate the local markets and drive improvements in store productivity. We have developed a preliminary store plan over the next three to five years and should provide you with an estimate of scale We believe we could potentially open up 50 net new DXL stores. We believe the casual mail conversions could be upward of 30 stores, and the DXL remodels could be more than 50 stores. The bottom line is we see developing stores lead to more customers, and we are going to pursue three avenues and adjust our tactics as we learn. There is much more we're working on behind the scenes, but which we are not yet ready to unveil. We will continue to articulate a clear vision and find specific initiatives to demonstrate how we will grow further as the initiatives come online, so to speak, but we are not sharing what we see as competitive intelligence until the time it makes sense. It's an incredibly exciting time for us at DXL, and I am truly honored and humbled to speak with you today about these opportunities ahead. And with that, I'm now going to turn it over to Peter for an update on Q20, excuse me, an update on 22 financials and how we're thinking about guidance for 2023. Peter.