Richard Jaffe - Stifel Nicolaus

Good day ladies and gentlemen and welcome to the Casual Male Retail Group’s Third Quarter Earnings Call for 2009 Conference. 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 today's conference call is being recorded. I would now like to introduce your host for today’s conference Mr. Dave Levin. You may begin, sir.

Hi, it's Jeff Unger. Good morning everybody. On our call today is David Levin, our President and CEO; and Dennis Hernreich, Executive Vice President, Chief Operating Officer and Chief Financial Officer. I’d like to read our forward-looking statements and then turn the call over to David. Today’s discussion will contain certain forward-looking statements concerning the company’s operations, performance and financial conditions including sales, expenses, gross margins, capital expenditures, earnings per share, store openings and closings and other matters. Such forward-looking statements are subject to various risks and uncertainties that could cause the 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 are detailed in the company’s filings with the Securities and Exchange Commission. Our complete Safe Harbor statement is available at www.casualmale.com. Now, I would like to turn the call over to David.

Thank you, Jeff. Today we announced our third quarter financial results. We are very pleased that the initiatives we enacted to adjust to a difficult retail environment continued to perform to our expectations. Sales for the quarter came in as we expected. Our comps were down 10.6%, which was an improvement from being down 14.1% in the second quarter. At the same time we had a reduction in SG&A of $7.5 million or 18% to offset the loss of top line sales. Included in the lowering of SG&A was a 40% cut in our marketing expenses. We also did not anniversary two promotional events in the quarter. No doubt, this has had an impact on our comp sales, but our strategy this year continues to focus on cash flow and the bottom line. At the same time, we do not believe we are losing any significant market share. We have surveyed several thousand of our existing customers, who have not made a purchase for over 12 months and approximately 90% of them say they deferred shopping during this time period. They plan on shopping our stores when they are ready to make a purchase. We’ve been diligent about our ability to manage our inventory and maximize any gross margin opportunities. Through a combination of improved IMUs, less promotional activity and greater sell-throughs at regular price, our merchandise margins continue to improve from last year. This quarter merchandise margins improved by 240 basis points and we anticipate a 700 to 800 basis points improvement in the fourth quarter. Our inventories at this fiscal end of the year should be down by another $10 million with much less seasonal carryover than we faced going into spring last year. During the last webcast, I mentioned that we’re opening a new prototype version next…

Thank you David and good morning everyone. Thanks for joining us as we review our third quarter results and discuss our outlook for the balance of the year. We are very pleased to report that despite an over 11% drop in sales for both the quarter and the nine months, the company’s pretax earnings have improve by almost $4million for the quarter and over $5 million for the nine months compared to the corresponding periods of a year ago. During the quarter and nine months, the company’s merchandize margins improved by 240 basis points and 125 basis points respectively, while SG&A levels have been reduced by approximately 17% in each period. At the end of the quarter inventory levels have been reduced by 17% from a year ago, and as a result earnings per share performance improved to a loss of $0.03 for the quarter and $0.06 for the nine months compared to $0.08 loss in last year’s third quarter and of $0.03 loss for last year's nine months. Most importantly the company’s free cash flow has just improved by over $50 million for the year so far, compared to last year's nine months. The company’s free cash flow improvement together with just under a $5 million share equity sale, producing net proceeds of approximately $12.5 million enabled us to reduce our debt levels from $72 million a year ago to just under $35 million at the end of the third quarter. In addition, the company’s equity availability under its revolver facility currently approximates $50 million. For 2009, I expect the company will generate free cash flow between $15 million and $20 million with debt levels lower to approximately the same $15 to $20 million at the end of year. The company’s sales levels for fiscal 2009 are expected approximate…

(Operator Instructions) Our first question comes from Richard Jaffe with Stifel Nicolaus.

Two questions, one would you take us through the XL superstore the Destination XL, besides the store and the kind of commitment you see putting into one of those stores to built that out to inventory and then the result, the kind of productivity you think you can achieve having Shoes with the Living accessories with the broader apparel assortment.

We haven't given a lot of numbers as to how the four-wall is going to perform. Based on what we have done with the hybrid, we are seeing extremely positive results and what kind of cash flow we can generate per store. As I said before, the stores are going to be 10,000 to 12,000 square feet on an average to house all the products that we are talking about, and what we are really doing; it won't be much increase in inventory because we are going to collapsing the inventories from the stores that we are going to be closing. As far as the build outs, we have not defined as to exactly what the average cost will be to open these stores at this time, and will be giving more information on that probably in the next quarter.

The remaining Rochester stores, is there a calendar for closing those?

No. We don’t really plan on closing all the Rochester stores. There are Rochester stores that have performed quite well in New York, Chicago, Beverly Hills and some of the other markets. For example, Dallas, Houston, which are solid stores, we really believe that expanding those if we could find the right location into the Destination XL as a concept we’ll enhance those performers. So I would say we probably have several more Rochester stores that will close overtime.

Then become…

…Markets.

Either DXL or hybrid stores of some sort in that market?

Right. So the reality is, we are not going to be opening anymore Rochester stores or anymore Casual Male stores in the future. Everything will be working towards this goal of consolidating into the bigger box.

I guess the other opportunity is integrating the internet into a single platform for all the catalog brands and the two to three different store venues?

You’re exactly right. The timing on that will coincide very close to the first openings of these stores but there will be one master site Destination XL. We’re seeing very positive results from the mailing piece when we mail a portfolio, which is really a combination of catalogs in one mailing. We’re seeing increased average transactions going on there. So if you look at our mailings, we are already starting to introduce the word Destination XL from a marketing point of view for our direct channel.

(Operator Instructions). We have no further questions at this time.

Okay, well thank you for joining us today and we look forward to our results for the year end.

Ladies and gentlemen that concludes today’s presentation, you may now disconnect.