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

Thank you, Melanie, and good morning, everyone, and thank you for joining us today for Destination XL Group's Third Quarter Results Conference Call. On our call today is David Levin, our President, Chief Executive Officer; and Dennis Hernreich, Executive Vice President, Chief Operating Officer and Chief Financial Officer. 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 we filed this morning and is available on 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 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 David. Please begin.

Thank you, Jeff, and good morning, everyone. We performed well in the third quarter, especially given the soft retail environment. The first 2 months of the quarter were quite slow, as uncertainties surrounding the government shutdown negatively affected consumer behavior and unseasonably warm fall weather further hindered sales. We also had promotions in quarter 3 last year that we did not anniversary this year. We then saw a very strong rebound in traffic and sales during October, which we attribute directly to the start of our fall national marketing campaign and that was certainly the highlight of the quarter. Like in the spring, we saw a dramatic and positive effect from the campaign, which started during the last week in September and is just ending now. When you look at our comps for October, we reported a 30.2% increase in sales across all DXL stores and a 25.3% increase for those that have been opened longer than a year. This compares with a 15.9 comp for all DXL stores in August and an 8.7 comp in September. So you could see how well these stores performed with the strength of the campaign behind them. Looking at comp sales for the third quarter overall, our DXL stores reported an increase of 17.7%. With the 36 DXL stores that have been opened greater than a year, the comparable sales increase in the quarter was 11.3%. Keep in mind that the marketing campaign only began at the end of September, so we only had about 5 weeks of benefit in Q3. In contrast in Q2, the 6 weeks spring campaign took place during the first 2 months of the quarter, and then we saw a positive halo effect for about a month after the conclusion of the campaign. Though looking at Q4, we'll…

Thank you, and good morning, everyone. In my prepared remarks, I will first provide a synopsis highlighting the company's results for the third quarter, then 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 some context around our updated guidance for 2013. In the quarter, total sales were $88.2 million compared with $88.7 million for the prior year's third quarter. The decrease of $0.5 million in total sales was principally due to a decrease of $3.5 million related to the overall drop in sales from our Casual Male and Rochester Clothing stores that have closed since last year and not been replaced with a DXL store, and a decrease of $400,000 due to the difference in comparable weeks. These factors were partially offset by a comparable sales increase of 4.4%, representing $3.7 million despite a difficult retail environment during the third quarter. Let me again briefly 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 are also included in determining comparable sales. Most DXL stores are considered relocations and are comparable to all clothes stores in each respective market area. Therefore, those DXL stores are considered a comparable store upon opening. If the DXL stores are opened in a new market, however, of which we have 1 DXL store like that today, such DXL store is not considered a comparable store until its 1 year anniversary. Direct businesses are included in the calculation of comparable sales since we are a multichannel retailer. The comparable sales increase of 4.4% consisted of an increase in our retail business…

[Operator Instructions] We'll take our first question from David Berman with Berman Capital.

I was wondering if you could please talk about the customer -- I know you mentioned that customer penetration increased of about 35% year-over-year, a phenomenal number. I was wondering what percent of that is the No Man's Land customer? like 46 inches and lower? And you could also talk about how much there maybe spending -- if their spending pattern is already different?

Yes, okay. So we've got 35% or something increase compared to last year in our new customers coming into the store. And of that, there's been a dramatic shift, the smaller waist customers are now penetrating into much higher percent than they did a year ago. That's been the key noticeable thing that we -- it's been dramatic. It's up -- whatever, low 40s from 36% a year ago. And when we start to look at his average spend, he is spending about 8% more as a new customer than a new customer who's bigger. And that just kind of follows the logic of all the reports you read that, younger guy could be a more affluent guy, we don't know that yet, but they'll tend to spend more money and they're certain -- we do know they're more brand conscious too. So that whole intent of the No Man's Land commercial was really talking to all our customers, but was directing to the guy who's lost between not being able to be fulfilled in the traditional retail and what we have to offer in big & tall.

But those numbers are really encouraging.

It's very encouraging. And you know, we've tried this for -- we've been trying to do this for 10 years because our penetration in those sizes has been so poorly, and the end result was not going to happen in the Casual Male environment. It was not with this guy who wanted to shop in and -- being in the stores and seeing the customers, they're just excited that they have the selection. It's all about the selection. They see so much to choose from with our private labels and our brands.

You spent about $6 million or so on all this marketing, advertising and [indiscernible] get those customers. How do you gauge the success of your campaign so far relative to these numbers that we're talking about? I think that, obviously, you would have had no idea exactly what would it be, but as far as your expectations, how it's looking?

I think the key thing is, look, we've been -- we started this in 2010 and as the stores have comped -- I mean, they're doing well when they open up. But as the stores have comped over the several quarters, we were getting a plus 2, a 0 or minus 1 on the anniversary stores. And then when we ran the campaign in spring, we had a 16% comp on stores opened greater than a year, and now in the fall we ran it, and now we are getting a 25% comp on stores opened greater than a year. And the thing that I'd like to stress the most is, this campaign was strictly about awareness, getting the name out there because it has no awareness, it had a 13% awareness when we started the campaign in spring. We don't know what awareness is until after this campaign, but there was no call to action. And in this environment, if you're not banging away at buy 1 get 1 or 20% off entire store -- to come out with the strength to have just the brand messaging campaign in this environment, I'm very pleased that we were able to drive the comps like we did.

We'll go next to Mark Argento with Lake Street Capital Markets.

Just talk a little bit about store openings. So you guys would click, if I'm doing my math right, roughly it was 24 -- 27 stores you need to open in Q4 to hit the 100 plus for the year? Could you give us an update on where you are? I think you said you've opened 10, I believe, recently?

12 in the last 10 days.

12.

And we'll be opening -- and there were a few others before that, but I think we're at about 15 for this quarter so far. And we'll be opening -- we'll be opening them throughout December and into January.

So you feel comfortable that you will be able to hit that bogey?

Yes.

And in terms of the overall -- I know things move around and shift around, is it just a planning thing in terms of new store openings? Things slip out, they push, unit isn't ready or you got to make changes, what's kind of the driving factor in terms of the cadence of the store opening?

Several factors, mainly around the deal with the landlord sometimes there has to be tenants that need to be moved out. We have estimates on all of our stores. And many times as you see, things take longer than anticipated. Deals get held up because of changes by the landlord. Deals get held up because of delays in getting the lease negotiated, signed and executed. Sometimes, stores openings get delayed because of permit or inspection issues, and so there's a host of things. But with all of that, these delays will have no bearing at all on what we -- what will go on in 2015 and 2016.

And I think the important part is that we're not going to compromise ourselves to make a delivery date on and out[ph] . And that slows us up sometimes. Tough negotiations, real estate is getting better and we have to fight for getting the best lease terms we can. And the other thing is it's a challenging size box to go -- to be looking for in strip centers, freestanding stores. 8,000 square feet is not normal. So it often requires breaking walls down, moving tenants. So again, what Dennis said, he's absolutely right. This has no impact on the future of us getting to where we are going to go, it's just a timing issue.

Yes, understood. So shifting gears a little bit. I think listening to your earlier comments regarding the higher ticket for the kind of lower or smaller waist size, I assume you're starting to see more of a shift in terms of the brand versus private label? I assume that mix was higher in the quarter. Can you just quantify that if you have that number handy?

It varies store by store. But the end result, we still sell about -- for all the brands that we have, we still sell about 70% of our private label. It's the driver. We'll always be the driver. But the number does drift over time more towards brands. Do I -- would we see it ever really collectively going over 40%? Probably not, but it seeks its own level. We're not forcing any one store into more brands or more private label. It seeks its own level and then we build the business from there and they vary. They vary from 20% to 50% or higher sometimes.

Can you touch a little bit on the custom clothing part of the DXL business that speaks [ph] your business? How is that progressing?

Dennis, why don't you go ahead.

The custom we're very excited about is not only custom clothing, Mark, but the whole clothing department opportunity. As you might know, Casual Male really didn't have the space to properly assort a true alternative for our customers in the clothing area. DXL has to stay fast and know how as the assortments to really be a player in the tailored clothing area, so we're very excited about that. And supplementing that, we mentioned this custom clothing, where no matter who you are, what you are, size wise or otherwise, we're able to get a perfect fit for you in the very wide selection of suiting, sport coats, dress pants and dress shirts and that business has been very good to us this year. We expect it to continue to grow. We are adding knowhow in our stores to be able to support the growth, so that's going to be a very important part of our tailored clothing areas in the DXL stores going forward.

That's helpful. And then shifting gears, I know as you've been making the conversion from the Casual Male stores over the DXL stores, kind of that process of opening a store while shutting 2 or 3 or 4 Casual Male stores that surrounds that new DXL store, kind of that transition seems like you kind of have -- you have a fairly well figured out from a logistics perspective. I know one thing you're working on though was the kind of the marketing angle little bit more and trying to get that Casual Male customer to follow you over to the DXL store. I know you're talking about thinking about different ways you could do that. Have you made any progress with kind of the continuity of the customer, and letting them know what you're doing and try to -- you don't want to alienate them or make them not buy when they're in your Casual Male store but at the same time, you want to let them know where you're going or what you're doing. Can you talk a little bit about any kind of changes of marketing program? Or anything that might be moving the needle on that side of the equation?

Yes, the big change is that for the last few years, we waited till about 2 months out before we started to work with the customer to tell them the new -- about where the new site is going to be in DXL. The fundamental problem with that is that if our customers only shopped 2x a year, there could be 4 months of customers coming in when they come back 6 months from now, there's no store there and no sign where this new store may be. So now, we have -- it's closer to a 6-month plan. As soon as we have a lease signed that store goes into a marketing campaign to explain to the customer what DXL is, where the store is, how we're going to continue to have the great product from Casual Male, how it will be enhanced and we're doing it in a multiple ways. We're putting screens behind the registers that will be live videos of the DXL store. We have banners going into the store, the shopping bags when they leave will be a DXL shopping bag, and we're working with our salespeople to really acknowledge that because -- guys are not aware of their surroundings and they really just have to be pounded in -- pounded with information to let them know because, again, after these -- we can't get there through traditional emails and direct mails because a lot of these guys don't read it. So we're pretty excited that we've got a lot of exciting things and that is all going into effect right now. Some of the stores are receiving their monitors right now, and I think it's going to make an impact.

We'll go next to Tom Filandro from Susquehanna Financial Group.

A couple of questions. David, could you guys provide a little insight maybe into some of the brands that are actually trending? And I was kind of curious have you launched any new relationships for fall and holiday? Maybe if you could give us a peek into 2014? And then you'd commented about not anniversarying select promotions during the third quarter, can you put a little more context around that? And then tell us what your positioning will look like for the holiday season? And then two final ones as it relates to holiday. I'm not really sure Black Friday weekend, is that an important weekend for your business and does 6 fewer days change at all the way you're managing the holiday season?

Okay. As far as the marketing, last third quarter, because we really didn't have any type of marketing, all we had was our direct mail and e-mail to work off of. There was no national campaign, so we did it through traditional free $20 coupons, 25% off, 75%. And in that second quarter last year, we had 4 different promotions going on. While we were doing that, however, we were tracking a select group of customers who we didn't give them the coupons. And what we found was over a 6-month period of time that they caught up and made the same spend and actually we made it at a better margin. So for this quarter now, we'll know more by the end of the year because if we're right, we're going to get customers -- more customers coming in, in November and December that last year we had pulled up into the earlier months. So that remains to be seen. But when it comes to the fourth quarter, we know we're in a different game, and we are matching up all our traditional promotions that we've done in the past. We understand at that time of the year, you have to put on a different hat. So we're matched up very well to last year as far as our promotional events. As far as the loss of the 6 days, Tom, I'm probably with every other retailer out there. I'm skittish. Nobody really knows what's going to happen. We seem to be well on our forecast right now, so it remains to be seen. I really don't know how this is all going to -- how it's all going to shake out. And we're hoping that weather will be a positive for us because we are weather-driven and it was a very mild fourth quarter last year. So we have to wait and see. And then you had another question, which you'll have to help me out.

What's the Black Friday. I was asking about the Black Friday weekend. I don't know for your customer, is that an important event weekend or not?

Well, look, it's a different type of day, Black Friday. It's a very good day for us, but we don't have lines outside our door at 5:00 a.m., people waiting in line to buy a shirt. So we tend to get the customers in the afternoon. But a lot of these guys don't want to fight that day. So what we do and this has been going on since we acquired the company, is we start our event on Wednesday. It's a Wednesday and Friday event, and Wednesday is a huge day for us because this guy could get his shopping done, he doesn't have to deal with the traffic, he gets the exact same offer he would've got on Friday. So it's been very effective to us to pull those 2 collective days together and they're very -- putting them together, yes, it's very important, that weekend is very important to us.

And the final question I was asking, David, is there any comments on brands that are trending new relationships, you're developing or have developed?

I don't like to talk about specific brands, but I can say we are full right now. We've got all the brands we want. If some new brand comes in, something has to -- something will have to come out. But we are very pleased with the new brands we're bringing in. Some are going to -- the higher the luxury, the less stores it ends up in, but we had some very good launches this fall. We have no new ones for next spring. What we do have for next spring is building on some of these brands into more of a collection than when we start with a brand it's more items. And now we could really build around these brands, add accessories to some of these brands, so we're very...

Even -- are there any anchor ones, you would highlight at least now that are now collection -- more collection-based?

Well, the Tommy Hilfiger, Tommy Bahama, Polo, Lacoste, Calvin Klein, Nautica, those are -- Lucky Jeans -- those are really pretty well broad-based that sell everywhere. And then as we build the new brands, we find out what parts of the country they sell in, what type of stores they sell in and then we build from there, but we usually start out fairly conservative to see how the brand is going to resonate with the customers.

We'll go next to Mark Montagna with Avondale Partners.

I have a few questions. Wondering and did you see any regional differences in terms of the comps for the quarter? Or perhaps for October?

Yes. We have a tropical zone that I believe is 70 stores and they've been outperforming the -- all the other parts of the country by 10 points. I think a lot of it is because we've come -- we've gotten very good at seasonal buying and, in fact, that's taking place right now. We call it, Southern strategy. So we have a really different look in our warm climates in the fourth quarter than we do in the rest of the country. In previous years, they didn't look quite as right as they needed to be. They had too many heavy weights. Actually it's a same product that the rest of the chain is going to receive come February. Not only does it give us an advantage to look better in those markets, it gives us a good read on what's working and what's not working. Outside of that, our West Coast business has been strong. And the other regions have been fine, but west and south have been the 2 strongest comping parts of the country.

Okay. And then was the negative impact from killing the catalog, was that big in line with your plan? Or perhaps worse?

I think we were hoping to get more of these guys moving. They're pretty stubborn, but we're making progress. The good news is, next year in the first half of the year, we're up against half the circulation we're up against last year, this year we're in right now. And when we hit August, there's nothing to go up against. And our web business continues to grow and it will all be positive come August, because we've had consistent growth on the web to start building that business again and then the catalog will -- we just won't be up against anymore. And so you listen to Dennis' numbers. There's a huge profitability difference by getting rid of that catalog.

Right. And then the IMU, I was impressed with the fact that you're getting the higher IMU. And I'm wondering how you're getting that? Because I figured, with more branded product, that would actually hurt your IMU. And also it sounds like you had lower markdowns and I would've figured, with the Casual Male closures, you would see some additional markdowns, so how is that happening?

Dennis, you want to take that?

Well, the -- your thought about the IMU, I mean, we're getting -- over half of our product mark is sourced by us globally, and we're getting very keen costs on that, that's helping to offset the natural erosion costs by the brands. But don't think that the brand penetration is growing tremendously, it's not. We're not getting a huge erosion from the brands because the growth in the brand penetration of our business is very slow. It's still about 1/3 of our overall DXL business. And so our customers, the majority of our customers, believe it or not, they enjoy and see the value, 2/3 of them in our brand -- in our own private labels as opposed to the name brands. So we hope to continue to offset IMU erosion from any brand growth from the private label side of our business. The markdowns that you mentioned, just like we have a perfected formula for opening and closing stores, we also have a perfected formula for liquidating and/or moving Casual Male inventories. Basically, generally, we have a small team that's doing an outstanding job and our planning group that oversees this, watches this very carefully, works with our outside firm that helps us liquidate inventories, but really, we're only liquidating the unwanted inventory, all their seasonal or clearance inventory, which typically represents no more than 1/3 of the casual inventory. Otherwise, the rest of that store's inventory is being recirculated back into our DC for further distribution or being fully transferred to our DXL stores. So the markdowns in closing our stores is not as great as you might have thought.

And when you were talking about the name brand penetration, it's only at about 1/3, but it's been going -- it's up significantly in terms of versus Casual Male...

Yes, that's...

[indiscernible] I would've thought. And with slashing so many Casual Males and increasing so many DXL's, that -- it just seems like you're getting a pretty meaningful increase in the units of the brand name product that...

Yes, there's no doubt about that. Again, we've just been able to -- we're getting better arrangements with our branded people, so the margins are getting better with our brands. And again, the strength in our private label and the growth in our IMU's in our private label are so far helping to offset this natural erosion.

Okay. And then within the private brand, are you seeing the customers trade up to higher priced private brands like the higher tier private brand?

Yes. We were seeing a tremendous amount. We are seeing a lot more trade up than we're seeing trade down. And that's primarily because the accessibility previously to our customers wasn't there. Now that it's there, they're loving it.

Okay. And then with the colder weather, I just want to clarify, I assume you saw a nice spike in winter coats, accessories, sales in those items?

Yes, no doubt.

Were there any categories that might have disappointed that you're kind of scratching your head why they may not be working?

No, no. It's very well-balanced right now. We're not seeing -- there have been years where we've had jags of inventory that we had to start liquidating at this time of year because we never were going to see our way out of it. But over time, we've definitely become more conservative on cold weather, sweaters and that. If we sell out early, we're happy. If we leave a few dollars on the table, that's okay. We play that -- we play those areas very tight. It's not that big guys wear a lot of heavy outerwear and sweaters, but the cold weather drives them in and they're buying everything else around it to. It's the motivator to get this guy into the store. Same with hot weather. They both work hand-in-hand.

We'll go next to Christina Brathwaite with Sidoti. Christina Brathwaite - Sidoti & Company, LLC: Most of my questions have already been answered. But just on the purchasing behavior that you've seen with your existing customers at DXL stores, are you seeing them coming into stores more often? Or changing their average trip at all?

That's a good question and that -- we don't have the data yet on the -- from the marketing campaign to see what impact it's going to be because we look at that over a year period and it's only been -- we only had 6 months, 7 months to follow his behavior. In the earlier stores, we were -- we weren't seeing any -- we saw some erosion in that trip, but then again that was before the marketing campaign. So I think we'll have color on that -- that's one of the metrics that we'll have color on probably on the next call. There's a lot of things that are midway that we don't know the final results and we -- it wouldn't be prudent to give certain numbers out until we know more. Christina Brathwaite - Sidoti & Company, LLC: Sure, no problem. And then for the catalog guys, I know that they're -- you mentioned they are a little stubborn, have you seen them go to the website at all? Or they kind of just dropping off?

Well, we see -- they slowly move. There's hardcore guys out there, and again, at the end, I'm not sure what's going to happen. I think, we'll -- hopefully, the hand will be forced to go online. And I mean, we have -- our website is excellent. It's very robust. We've got a lot of features and benefits to make the shopping experience great. But again, there will be that issue. The average age of our catalog customer is 55. So if the average age is 55, we've got a lot of guys in their 70s, 60s, that are pretty well set in their ways. But again, it's diminished down to a point where it's not -- we're not up against any significant dollars and our web business is starting to grow at a much better rate. We're converting better, we're converting new customers better with better messaging and a better experience. So -- you know what, it is what it is and we're going to continue to try and mine him to get him on to the Internet or into one of the stores.

[Operator Instructions] We'll go next to Jack Ballos with Focus Research.

First of all, do you expect to spend more marketing next year compared to this year?

Dennis, you want to?

I think that -- I think we need -- we're working at that, Jack, we're not sure. I think that it's going to probably approximate the dollars that we spent perhaps a little bit more than we spent in 2013. But it shouldn't be any dramatic change from what we've done this year.

Okay. Regarding the 36 DXL stores that you had opened longer than 1 year, you had 11.3% comp sales gain. In the second quarter, the stores in that category were up 16.5%. Why was there a lesser rate of gain this time?

Okay. Because -- I explained this, but here's the difference. In the first campaign, the commercial came out at the beginning of the quarter. So we had the commercial running in May and June, and we had the halo effect in July. This time, the commercial didn't break until the end of September, so our August and September comps drove down that number to bring it to 11%. But, in fact, if we take a snapshot of when the commercial was running in October, it comped 25%, and we anticipate that single -- that similar pattern taking place. So if you restage the quarter and you look -- the hard quarter and just say what comps should we expect for October, November and December, we anticipate them higher than the 16% comp we got in Q2. Again, it's a timing issue. It's difficult to understand, and -- but clearly we're actually comping better in round 2 than we did in round 1 in the spring. Did that make sense?

I'll try to figure it out. But in the fourth quarter, the dollar amount you're spending on marketing, how would that compare with the fourth quarter last year?

It will be about the -- let me think, it will be about the same, Jack, as last year. I mean, we had more catalogs last year, we're not doing that. We got some -- a few additional weeks of advertising running into Q4. The couple of promotions that we do will be anniversaried. So it's all in all would be a very similar dollar amount.

And...

The big change is in Q2 and Q3. In Q1 and Q4, there was not a whole lot of difference in the market.

But did you say you expect stronger comp sales gains for the fourth quarter than you had in the third quarter this year?

Yes.

For the DXL stores? Yes.

Yes.

Stronger than the 11% that you were talking -- that you're referring to.

Okay. Would it match to 16.5% of the second quarter?

Well, we would certainly like that number.

They should approximate or even exceed that, Jack. There's a lot of reasons for that.

And that will conclude our question and answer session. I'd like to turn the conference back over to management for any additional or closing remarks.

Okay. Again, thank you, all, for joining us today, and as we'll always like to say, talking about DXL is one thing, experiencing DXL is another thing. So please give us a call if you'd ever like to have a store tour with management to get a better understanding of what we're all about. And we look forward to speaking with you next quarter. Thank you very much.

This concludes the conference call. We thank you for your participation.