Destination XL Group, Inc.

Good day, and thank you for standing by. Welcome to the second quarter 2023 Destination XL group earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one 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 SEC Financial Reporting. Please proceed.

Thank you, Catherine, and good morning, everyone. Thank you for joining us on Destination XL Group's second quarter fiscal 2023 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.dxhealth.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 risks and 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. It's great to have this opportunity to speak with all of you today. Today's agenda for our prepared remarks is a little different than a historical practice. As always, I'm going to talk about our quarterly results and then share with you some of our thoughts and expectations for the second half of the year. But equally important, I want to start sharing with you some perspectives today on where DXL is heading and our vision for the next chapter in the DXL story. When I joined the company back in 2019, What attracted me most to the company was an incredible business model serving an underserved customer that had the potential to scale. Since late 2020, and despite the pandemic, we have made tremendous progress in building process, structure, and discipline, which provides the foundation to position the company for greater rates of growth. The results we achieved in fiscal 2021 and 2021 to illustrate that progress. Given 2023's macroeconomic challenges, the goal of sustained double-digit growth is eluding us, but we do believe it is still to come. Today, we are announcing our plan to meaningfully accelerate growth at DXL through three distinct pursuits, which I'll discuss later in the call. But let me be clear. clear about this. We believe greater growth is on the horizon. My comments in the latter part of the prepared remarks will give you a sense of how we are thinking about greater growth and begin to define our roadmap for the next three plus years. But before we talk about the future, let me get started with a quick review of the current quarter's results. On our last earnings call in May, we talked about how we expect our comp sale results for a full year to be approximately flat, and for the second quarter, we expected a low single-digit negative comp. In the second quarter, we did, in fact, post a low single-digit negative comp of minus 1.4% as we guided to. The trajectory of our comp performance improved slightly as the quarter progressed. In May, we saw comp sales decline 2.8%. In June, comp sales improved to a negative 1.7%, And in July, comp sales were positive at plus 1%. In stores, traffic was tepid and our dollars per transaction were down slightly, primarily due to fewer units per transaction and some level of the consumer trading down from national brands into our private brands. This resulted in a second quarter comp decrease of minus 1.4% for stores. And in the digital space, a comp sale decrease of minus 1.3%. with traffic to the website and app up slightly, while dollars per transaction were down slightly and conversion was roughly flat. Continuing with the second quarter, one of the very brightest areas for this quarter is inventory. We are turning our goods faster, and our Q2 inventory balance is down 9.5% versus last year and down 20.7% versus 2019. Our merchandising, planning, allocation, and global sourcing teams have worked proactively to manage receipt flow and strategically execute programs to prevent any bloating of our inventory and our balances. This did lead to a slight increase in markdown levels compared to last year, but we are in a very favorable inventory position as we head into fall with markdown levels that are still very near historical lows. Our clearance inventory at the end of Q2 2023 is 9.3% as compared to 6.9% at the end of Q2 and fiscal 22. We are very comfortable with our clearance inventory levels, which are still less than our target of 10%. From a merchandising perspective, our formal sportswear and tailored clothing categories such as sport coats, sport shirts, and casual bottoms performed well in Q2. Seasonal product categories such as shorts and swim underperformed our expectations. Sales in tailored clothing increased 4% to last year and made up 16% of the total sales penetration compared to 15% last year. As a reminder, our current merchandise assortment is a balance of private brands and national brands. And in Q2, we did experience a shift into our private brands, as I noted earlier, with approximately 15%, 55% of our sales driven by our own brands and 45% driven by national brands. As I mentioned on our last quarterly call, we have two more iconic brands that are set to launch with DXL. I'm very pleased to report that Faraday and Hugo Boss are both joining our portfolio brands this fall. Both brands will be available in selected stores and online. Verity is exclusive to DXL in big and tall sizes, while Hugo Boss is delivering exclusive big and tall product capsules, meaning in both examples, you cannot find this product anywhere else. Also, we are launching a third brand as a collaborative effort with another iconic retailer. In September, we will be launching Untuckit, fit by DXL, in partnership with Untuckit. This brand edition will be exclusively sold by DXL, but marketed jointly by both Untuckit and DXL. Driven by a reputation for fit and Untuckit's product and brand following, we believe this is going to be a wonderful strategic alliance and a big win for the big and tall man. These brand editions and collaborations give us great confidence that DXL brand is building a reputation with other great retail brands as the place to be if you want to make your brand available to big and tall consumers. It really is an exciting time for us at VXL, and we are 100% oriented around growing this business. Let me also now touch a bit on marketing and advertising. There are a number of foundational improvements that we have been working on this past year, and a few are worthy of highlighting today. One is email deployment. which is critical to get right. We continue to make good progress on our long-term goal of developing more sophisticated ways to approach segmentation and personalized communication with our customers, including using modern software platforms, such as our CDP. During the quarter, we launched an upgraded capability to deliver more relevant, personalized, and individual behavior-based email communication to our customers in near real time. Consumer engagement has been excellent and likewise an improvement in revenue. We look forward to extending these capabilities to additional areas of customer need. This is but one further step in our journey to personalize and derive more uniquely relevant marketing communication based on actual personal shopping behavior. Another example of foundational improvements is the user experience on our app and on our browser-based website. Enhancements on both platforms have been developed and executed to specifically drive increases in conversion and have largely been defined by consumers' actual online engagement. In our app, for example, we've improved the design of our product catalog and product detail pages to address specific points of customer drop-off. And on our site, We've made updates to our navigation to increase customer engagement with our most valuable content. Next is our loyalty program, which was revamped and introduced last November. The loyalty program continues to evolve to increase active engagement, building upon affinity, which is what we envisioned from the onset. The second quarter was really focused on framing loyalty messaging better and engaging the consumer in more meaningful ways. To do this, we stopped auto-enrollment and doubled down on communicating why they should want to be part of DXL's loyalty program. We did this because we saw meaningful differences in tier levels of loyalty program cohorts, and ultimately, it was about the utilization of the program, not absolute membership. Because the loyalty program is about how we treat our customers, our very best customers, in unique and engaging ways, We want the loyalty program to mean something special and provide something different to our customers than just shop and save. The elimination of auto-enrollment creates a slowdown in loyalty acquisition, but it will in time improve brand affinity, or so we believe, through self-enrollment and then greater engagement, which ultimately leads to greater advocacy. Now let me touch on the second half, which is off to a tough start. So far, through the first three weeks of the third quarter, our combined comp sales rate is down 6.5%. The themes of why business has been tough are the same we have identified already, traffic, ticket, and conversion. Despite the slow start to third quarter, we remain relentlessly focused on five critical areas, file, relevant personalization, traffic, brand awareness, and customer experience to engage and serve the big and tall consumer. We are deploying specific tactics in each of these areas to encourage greater visits and avoid customer lapses. Some of our initiatives include path to purchase, the rollout of greater behavioral-based email triggers, upper funnel print media in the holiday season, and a rebalancing of the paid media investment mix Our path to success is grounded in improved traffic levels and ultimately better customer acquisition and retention. We are poised to begin refocusing on the brand's awareness and DXL's unique, differentiated position to serve the big and tall consumer like no one else can. And that's really what I want to spend the remainder of my time to talk about with you today. But before I do that, I'm going to ask Peter to run through the second quarter financials and how we are thinking about guidance for the remainder of the year. After that update, I'll come back on and talk to you about the next steps. Peter?