Good day, and welcome to the Destination XL First Quarter 2013 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Mr. Jeff Unger. Please go ahead.

Good. Thank you very much, Noah. Good morning, everyone, and thank you for joining us today for Destination XL Group's First Quarter Results. On our call today is David Levin, our President and Chief Executive Officer; and Dennis Hernreich, Executive Vice President, Chief Operating Officer and Chief Financial Officer. Today, David and Dennis are in separate locations. If you have a question for Dennis, please address him directly. If not, David will answer any questions first. 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 at our website at investor.destinationxl.com for an explanation and reconciliation of such measures. Today's discussion also contains certain forward-looking statements concerning the company's operations, performance and financial condition, including sales, expenses, gross margins, capital expenditures, earnings per share, store openings and closings and other such matters. 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 are detailed in the company's filings with the Securities and Exchange Commission. I'd now like to turn the call over to President and CEO, David Levin.

Thank you, Jeff, and good morning, everyone. We performed well in the first quarter as we continue to execute on our DXL strategy. In terms of the Q1 results, the quarter started off slow with colder than usual weather in February and March, delaying the sale of our Spring apparel such as shorts and T-shirts. As the weather warms up, we bounced back in April and had a 7.4% comp for the month. The strong sales in April were not enough to offset softness in the first months of the quarter, resulting in a decline in quarterly sales and net income. The weather-related issue contributed to consolidated comps that were down by about 0.5%. More importantly, we made progress executing our accelerated 3-year strategy to roll out the DXL concept. We now have 53 DXL stores in operation in comparable established markets, which generated first quarter comparable sales of 17.7% and accounted for 22% of total comparable retail sales during Q1. We have opened one DXL store in a new market for a total of 54 DXL stores nationwide. An important metric for the long-term growth of the DXL concept is dollars per transaction, which rose 17.6% in the first quarter to $154 from last year's $131. In comparison, dollars per transaction at our Casual Male XL stores during the quarter was only $110. This impressive year-over-year increase resulted not only from better sales productivity, but also improved sales mix toward higher-end name brands and increased sales penetration in tailored clothing. Also, all DXL stores now have a custom made-to-measure department that offers a robust selection of suits, sport coats, along with dress pants and shirts. It's important to point out that the traction we have made with the DXL concept has been accomplished with essentially no marketing, but that…

Thank you, David, and good morning, everyone. In my prepared remarks, I will first provide a synopsis highlighting the company's results for the first quarter and give you an update on the company's progress and what's still to come with respect to the transformation to the DXL concept, and lastly, provide the earnings and cash flow guidance for the strategically critical 2013 year. For the first quarter of 2013, total sales decreased to $93.6 million from $95.5 million for the prior year's first quarter. We had 11 fewer stores in operation during quarter 1 compared with last year, which was partially responsible for $1.5 million of the decline in year-over-year revenues. Comparable sales decreased 0.5% for the quarter. We expect to end 2013 with a store count of approximately 360 stores, which is about 52 fewer stores than we had at the start of the year. As David mentioned, quarter 1 sales started out slow due to the unseasonably cool weather, specifically in the Northeast and Midwest. Our comparable sales for the end of March were down approximately 3.9%. However, for April, our comparable sales increased 7.4% once warmer weather emerged in these regions. April comparable sales in DXL stores increased 29.1%. Let me quickly define what we mean by comparable sales. Total comparable sales for all periods include retail stores that have been opened for at least 1 full year. Stores that have been remodeled, expanded or relocated during the period also are included in determining comparable sales. Most DXL stores are considered relocations and are comparable to all closed stores in each respective market area. Therefore, those DXL stores are considered a comparable store upon opening. If the DXL stores are open in a new market, however, of which we have one DXL store like that today, such…

Before we -- hold on 1 second. Before we open up the call, Dennis misspoke in one point. He said that our gross margins will be plus or minus 20%, not 20 basis points, which he reiterated in our guidance. So the gross margin this year is going to be up or down 20 basis points, not 20%. The call is now open for any questions or answers -- or questions.

[Operator Instructions] And we'll take our first question from Lee Giordano with Imperial Capital.

Can you talk a little bit more about the performance of the private label versus the branded apparel at the DXL stores and how that's working and the opportunity going forward as far as looking at the mix of those?

Yes. It's pretty much the -- going in openings. The percent of the brand -- what we call the Rochester brand, the type of product ranges from anywhere from 20% to 30% when we usually kick off a new store, and we'll base that upon the demographics and what our core customer spend is. And then we tweak it and adjust it up or down. The one consistent pattern seems to be, over time, the percent of the private -- branded business tends to grow.

Got it. Can you also talk about the build-out costs for the new DXL stores? And as you're opening those, do you see opportunity to lower those costs? And then secondly, what regions of the country are you targeting for the initial phase of the rollout, if any?

Well, the rollout is random. The rollout is pretty much based on lease terminations. So as our -- it's wherever the leases expire is where we start converting the market to the DXL brand. The first part of your question, on the costs, we've reduced the costs significantly from -- originally, the CapEx of stores was running in the neighborhood of about $100 a square foot. Now we've got it down to about $65 a square foot. And we've also reduced the size of the box from 10,000 to 12,000 square feet to about 8,000 to 9,000 square feet. There's not going to be much more going forward in terms of being able to reduce those costs. We've got it down to a pretty manageable level right now.

We'll take our next question from Tom Filandro with Susquehanna Financial.

A couple of questions. First, David, I want -- can you expand a little bit of this custom shirt online initiative that you had mentioned? I'm curious to know, are you promoting that in-store as well? Then Dennis, if you can expand, you made a comment about -- I think you said that IMU and MMU are both up in the first quarter, any comments on your outlook on those 2 metrics? And what drove the IMU performance? And David, can you also tell us what you're seeing in that smaller waist shopper in the DXL stores, in particular in those markets where you tested the awareness campaign? And then I have 2 follow-ups, please.

Okay, I'll start with the first one. Yes, the custom shirt online is really an extension of what we have available in the stores. As I mentioned, all our stores are now outrigged for made-to-measure suits, sport coats, dress shirt, business. And we're very excited about it because it offers the customer a much broader range of product that they could buy in those categories. It gives a great fit. And we've put it out there at a very reasonable price. So for $100 or $200 more than an off-the-rack suit, our customers can now buy something custom. And we're excited about the shirt business online. Again, over 100 new patterns and styles that they can choose from, so we're pretty excited about that. As far as the smaller waist shopper, yes, clearly, we're moving the needle. For the first time, we've been able to resonate with the customer through the commercial. We're seeing that smaller waist guy come in. We'll give metrics on that on our next call, but I could say that in the test markets and on the national campaign that's running right now, we're clearly seeing an increase in attracting that no man's land guy, the guy who is a 40- to 46-inch waist. And then I'll pass this to Dennis.

The margin performance, Tom, in the first quarter where our gross margin was up, the merchandise margin -- rather component of gross margin was up 50 basis points, partially because of a better IMU and lower markdown rates. And that is the -- the IMU was just the result of just better product cost. We continue to challenge ourselves and where we produce and manufacture our private-label merchandise. We're also talking extensively with our brand vendors as our purchases from them become more and more significant as a result of expanding DXL stores. The markdown rates are down. And sort of an intermediate to longer-term view of all of this, I do expect our markdown rates to continue to subside as they become more brand-driven versus -- or rather less reliant on promotional activity like in Casual Male stores. So I think that, that is a positive going forward. There's a, as you know, Tom, there's a natural pressure on merchandise margins as a result of DXL stores because the brand product margins aren't as rich as private-label margins. So as our mix of sales gravitates towards the brand product, right now, it's about 25% of the company sales, it will probably gravitate upwards to, say, 35% of the company's sales mix. We do expect to neutralize that natural erosion with better product costs in the long run such that our merchandise margins will be slightly up to neutral in the long term.

Got it. Two follow-ups. I assume, too, that you would expect in that scenario to drive a higher overall average transaction value as the branded mix accelerates in items like these custom shirts, which are higher AUR. Is that a fair assumption to think about the metrics with how the model works?

Yes, yes. And then in addition to that, the ticket is rising just as much as a result of the effort that we put in to hiring the right type of people to service our customer base as they visit the stores? As you know, we've put a significant investment in training this year. And so the service that a DXL customer receives in a DXL store is really fantastic, and it's a real opportunity for us to help dress our guys and look like what they should. And so we're very proud of that though.

That's excellent. Two follow-ups, if I could. Lots of talk from other specialty retailers. And I apologize if you talked about this earlier, I got on a little late, but a lot of talk about the calendar shift, the 52 versus the 53rd week impact on the quarters. Can you tell us what the impact was in the first quarter in terms of sales and EPS? And is there a meaningful impact that we should be aware of for the balance of the year on a quarterly basis? And then one other follow-up for David. Any new brand introductions worth noting for either the summer, fall or holiday selling season this year at DXL?

Tom, the shift in 52 to 53 week, I'll have to -- I mean, we're reporting comparable sales on the right. We lined up the new weeks right -- in the right way last year.

Right for you guys, Dennis. My guess, it is not as important. The back-to-school players, they've seen a big week move into like the second quarter and they're giving up a smaller week. So I guess, from your perspective, there's no major shifts that we should be aware of?

No, no. No major shifts in quarter 1 and no major shifts in future quarters.

And in response to new brand launches, yes, we'll have 4 new brands launching in the fall season. And we're not going to tell you yet because we'd like to keep that kind of advantage, but we will be announcing it on the next quarter call.

We'll take our next question from Jack Bayliss [ph] with Focus Research.

Regarding advertising and marketing going forward, what are your plans for Father's Day? And how -- and the holiday in terms of the degree to which your advertising will be increased? And also promotions. In other words, how is the comparison going to be this year versus last year?

Well, Father's Day continues to be less significant year-after-year as Easter has gone away and all those types of events. We specifically built our marketing campaign to run right up to the Father's Day period, however, so we took the sweetest spot we could for the spring season, which would be May through the middle of June, which we believe is certainly going to help us accelerate the traffic in the stores as we get closer to Father's Day. The promotion itself is pretty much the same thing. It's -- if you spend money -- the more money you spend, you could get a discount. It's not a deep-driven promotional event for us. Again, we -- those who have followed us, we've really weaned ourselves over the years out of that promotional event with coupons and things like that. We used to have 24 promotions a year, and now we're down to around 4. And that -- and certainly, for the DXL brand, we want to build our future more on brand awareness and what DXL is all about rather than trying to get there through heavy discounting.

Okay. So the additional spending on DXL stores nationally, do you expect that to impact your overall sales?

Yes, we do. I mean, it's certainly built in our plan. I mean, we're talking about having an 8% to 10% comp for the year. And after the first quarter, we're flat and we're hoping for that number. So we're certainly anticipating a buildup in our comp sales as we get to the third quarter, and even more significantly in the fourth quarter when we have the heaviest weight of our new DXL stores opening.

What is your opinion of the 23 DXL stores that are open more than a year that had a comparable sales increase of 4.7%? Was that what you were expecting?

Actually, that's about what it's been running, even slightly less than that. But you have to understand, we have put no marketing dollars for the first couple of years into building new customers into those markets. We intently waited until we had enough critical mass that we could launch something on a national level. But we anticipate and should be reporting a much greater increase in those stores that have anniversaried themselves. And I think you'll see those numbers throughout the next several quarters.

We'll take our next question from Mark Garfinkel with Perimeter Capital.

David, I guess, the first one would be directed to you. How -- you talked a little bit about some of the metrics that you would begin to communicate on the national advertising campaign. I'd like to -- I'd like you to address how you intend to communicate some of those metrics on future calls. And what type of granularity you would provide, particularly, for instance, as it relates to the end-of-the-rack customers you mentioned earlier?

We'll be supplying all these metrics. We did supply these for our test markets, so the things we're going to be looking at are obviously the comp sales. We're going to be measuring traffic. We're going to be measuring new to file, which we are -- which we consider customers that are not in our database, market awareness, pre and post. I can say that our pre-market awareness going into the national campaign is about -- ranges from 12% to 17%, 17% in markets where we have an existing store and 12% where we don't have a store. So we know, going into this campaign, what our market awareness is. We're also looking at our web traffic. We're looking at our web sales, all of pre, during and post. By the time we announce the next quarter's earnings, we're going to fill in the blanks on all these items that I just mentioned to give the most transparency we can on what the impact of the marketing has been.

As a follow-up to that, you mentioned that you will launched Phase 2 of the campaign in the fall. Do you have any kind of a specific timing as to when you'll launch that? Has that been determined? And secondly, depending on the success of these campaigns, do you anticipate any changes to your budgeted spend?

We're going to run another 6-week flight through the -- the bulk of it being in the month of October. Again, it's a great month for us where our customers are really -- start to come out shopping for their fall products. As of now, it's, again, too early to say what type of tweaking we're going to do, but we are going to continue with a very similar campaign of national cable. Included in that would be radio and digital. The only change maybe, there may be some national network put into that number on top of it. But again, it's too early for us to really analyze what the impact is going to be. However, the spend for the fall is even greater than spring, so we're very encouraged that we're going to get a good bang for our buck.

But that's factored into your budget and guidance?

Sure. Yes, yes, yes, Mark.

On the dollars per transaction, and this could be directed to both of you guys, on the last call, you guys talked about a goal for your 2000 -- your long-term 3-year goal of a blended rate of $130 to $150. Already with this most recent quarter, you put up a very strong number, $150 plus. So did check come in and buy $50,000 worth of clothes and skew it up? Or is that something that's very sustainable moving forward? And how does that jive with your long-term projections if that number continues to move higher from here or the long-term projections that you're providing pretty conservative?

I think it's sustainable, Mark. I don't think it's a fluke that -- from any first quarter buying. It did surprise us to the positive. Perhaps long term, it's conservative, but we do expect DXL ticket to rise to $175 and on blended rate of closer $160 overall. So at this point, it's trending up, trending probably more positive than we expected at this point in time. We're not ready to change the long-term perspective on it. But certainly, it's on watch so we're very pleased about it.

[Operator Instructions] And we'll take our next question from Christina Brathwaite with Sidoti & Company. Christina Brathwaite - Sidoti & Company, LLC: I just wanted to ask a little bit about sourcing risk. Could you -- just given the issues in Bangladesh and the tragedy over there, what is the most stuff that you guys are taking to mitigate your sourcing risk?

Well, we are obviously looking at alternatives. We're already starting to organize to put in some of the same product of our core product into some other Asian countries, and we're watching it as closely as we can. We've been a little more conservative on our lead times to make sure we're getting the right delivery dates and -- with some of the strikes that have been going on. But yes, we're aware of it, and we're making alternative placements around the country -- around certain countries to offset some political issues and everything else that's been going on in Bangladesh.

[Operator Instructions] And we have no further questions at this time.

Okay. Well, I'd like to thank everybody for being on the call. And I wouldn't -- I'd like to encourage everybody to visit a DXL store in the future. Again, I say it a lot, but once you've experienced what we're trying -- what we've accomplished in the DXL world versus what we had in Casual Male, it's quite remarkable. So again, thank you all for being on the call.

This concludes today's conference. Thank you for your participation.