Good day, and welcome to the Destination XL Group Second Quarter 2017 Earnings Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Tom Filandro, Managing Director at ICR. Please go ahead.

Thank you, Kathy good morning everyone. Thank you for joining us on Destination XL Group's second quarter fiscal 2017 earnings call. On our call today is David Levin, our President and Chief Executive Officer; Peter Stratton, our Senior Vice President and Chief Financial Officer and also joining us today is Oliver Walsh, our Chief Digital and Information 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 was filed this morning and is available on our Investor Relations 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, profitability, EBITDA, gross margin, capital expenditures, earnings per share, free cash flow, store openings and closings and the Company's ability to execute on its strategic plan. 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. Now, I'd like to turn the call over to our President and CEO, David Levin. David?

Thank you, Tom and good morning everyone. I'd like to start off our call today with an update and where we are with the DXL transformation. As many of you know, we've spent the past seven years here at DXL striving to create an unparallel store experience for the XL community. Our DXL store format was designed to give bigger guys a place to shop that they would enjoy. We created a terrific store experience grounded in service, selection and fit. We now have 221 DXL stores covering every major market in the continental U.S. and have reached the point where our store rollout is now largely complete. We are now more than ever strategically focused on further building the DXL brand and aligning those efforts with the shopping behaviors of today's consumer. To this end, we are elevating our marketing and digital development efforts in the second half of the year with a focus on creating and executing the right digital strategy that leverages and is fully integrated with our store strategy. We need to seamlessly provide our customers with the ability to shop with us anywhere, anytime and on any device. We must continue to innovate and involve our position as the industry champion for the XL community. With that said, I'm very excited to announce that Jack Boyle, the President of Fanatics; and Oliver Walsh, former Chief Marketing Officer at Aritzia have joined our board and brings significant experience and expertise in the areas of e-commerce and brand management. In addition, Oliver has agreed to serve at a temporary consulting basis as our Chief Marketing Officer while we conduct a search for a full-time CMO. At the beginning of the year, we announced that Sahal Laher, former CIO of Brooks Brothers joined our Company as Chief Digital…

Thank you, David, good morning everyone. On the digital front, we remain focused on four key areas. First, acquisition. Leveraging digital marketing and a rich and intuitive online experience to attract new customers to the DXL men's apparel brand. Second, retention. Driving customer loyalty through targeted engagement and building the store of one with curated looks and experiences for our consumer. Third, fit and comfort. Delighting the customer with unique experiences that feature personalized fit and comfort as a competitive advantage. And fourth, marketplaces. Expanding the DXL men's apparel brand reach by leveraging strategic business relationships such as with Amazon. We have made the first step in elevating our engagement in our core shopper with the successful launch of our mobile app in July. The app is designed without customer in mind as it allows him to engage with the DXL men's apparel brand in a simple intuitive and frictionless way. The app automates elements of our loyalty program including a mobile wallet of loyalty rewards. With more than 80% of our customer base enrolled in our loyalty program which represents 90% of our transactions, providing them with instantaneous access to loyalty points when shopping either online or in-store is critical. In addition, the app provides the customer with high-speed intuitive access to our entire assortment for easier shopping. It also provides several additional features and perks including location-based special office, instant product searches, as well as in-store barcode scanning of merchandise. We are pleased with the engagement that we've experienced with our app and look forward to adding new features such as geolocation, beacon-based capabilities to better streamline in-store shopping experience which we believe will accelerate the adoption rate. Ultimately, we envision the DXL men's apparel app as a platform to engage with shoppers in a personalized manner while…

Thank you, Sahal. Now that you have insight into what Sahal and his team has been working on since he joined back in February, the time is right for us to leverage the teams work with elevated marketing across social and digital platform. Sahal and his team are moving fast and we're thrilled to add him on Board and excited about the opportunities in digital. With that said, I'd now like to briefly reiterate our store strategy. When we opened the call, I mentioned that we're substantially complete with the DXL store roll-out. Today we operate 221 DXL stores with a presence in every major market in the Continental United States. We will open approximately 20 new stores in 2017 down from 30 last year. The opening pace will drop dramatically in fiscal 2018 as we're planning approximately five new DXL stores. This strategy is financially aligned with our goal of delivering strong free cash flow while continuing to expand the brand reach of DXL men's apparel. As we go forward, we will manage our store base strategically to optimize sales, brand awareness, inventory management, and e-commerce distribution. We plan to close approximately 19 Casual Male stores in 2017 and we will grow total company square footage for the year by approximately 2.6%. Our Casual Male fleet remains healthy with 115 out of the 117 stores in operation generating positive free cash flow. We will end the year with our DXL men's apparel stores representing 80% of our retail square footage. One final point about Casual Male stores. We're testing a remodeled program. Our plan is to stay within the four walls of the Casual Male store, upgrade our visual presentation, reposition our signage to DXL and add some of our better brands to the assortment. This is a low-cost alternative for us to round out some of the Casual Male stores that are too small to justify relocation to the new DXL store but still capitalize on the investment we are making with the DXL brand. With that, I will now pass the call over to our CFO, Peter Stratton will review our financial performance. Peter?

Thank you, David, and good morning everyone. I'd like to start off today with a brief summary of our second quarter 2017 results. For the second quarter, net sales increased 2.8% to $121.1 million inclusive of the total company positive comparable sales gain of 0.1%. Gross margin for the second quarter including occupancy costs was 46.1% compared with 46.5% for the second quarter of fiscal 2016. Our merchandise margins decreased by 10 basis points which is primarily the result of more promotions related to our inventory productivity project which I will update you on shortly. We also experienced a 30 basis point deleveraging in occupancy costs which is an improvement over our first quarter when our gross margin deleveraged by 100 basis points. Overall we experienced a net decline of 40 basis points in second quarter gross margin but we also reduced our inventory by approximately $9 million compared to last year which is great progress for the business. Now turning to SG&A costs. As expected, our SG&A dollars increased year-over-year by approximately 6% in deleverage as a rate to sales by 120 basis points to 40.5%. Both metrics were an improvement from the first quarter. Similar to Q1, our elevated investment in advertising was the contributing driver to the second quarter SG&A dollar increase. On a dollar basis, SG&A expense increased $2.8 million from Q2 2016 and was primarily driven by a $1.1 million increase in advertising costs. The balance of the increase was related to store payroll and supporting costs associated with our existing store base. GAAP net loss for the quarter was minus $3.7 million or loss of $0.08 per share compared with net income of $0.2 million or breakeven per share a year ago. Net income on a non-GAAP basis assuming a normalized tax rate of…

[Operator Instructions] We'll take our first question from Eric Beder with FBR Capital Markets.

This is Bryan Caronia on for Eric. Congrats on some solid trends of improvement in the second quarter. So the first question we had is obviously your guidance is signaling for materially stronger topline trends in the second half of the year, materially broad on by the re-launch of your fall advertising campaign. But could you speak anything that you saw that may be was occurring over the course of the second quarter or first half period that gives you greater confidence in terms of consumer traction and the acceleration of trends into the second half of the year even independent of the acceleration in your marketing spend.

Yes, I think what we're seeing is what we're hoping for. First off the awareness growing from 34% to 38% was good. Most importantly we're focused on our customer count which have exceeded our plan for the first half of the year and then where the real payoff is coming is from the store operations themselves because average transaction is up, units per transaction is up, conversion is up. So where we would have seen traffic in the low mid single-digits rather than a report of negative comp, those triggers were able for us to get to flat. Now we think as we could get to somewhat flat comps - I mean flat traffic, our comp should go up in the mid-single digits. So we think we’re in the right zone right now and we’re very excited about the marketing campaign and also that lift we’re going to get with that additional spend in the second half, we’ll assure us of coming in with a strong base of customers going into 2018. Customer has a lot of traction and has a lot of leg, so we anticipate the customers we're picking up this year we’ll flow right into next year for us.

And I suppose dove telling off of that, could you maybe give some any insight that you allowed to give in terms of what product categories or even intentionally sort of what areas along the brand spectrum and where you saw potentially areas of strength obviously in the past you've spoken highly about the opportunity about the end of rack customer?

Yes, we’ll specifically - that we’re very excited about what we’re experiencing in our young men's classifications. Historically, we have struggled in that area never getting a lot of traction but within the last year we're seeing tremendous gains there. Now admittedly it's coming off a relatively low base, but as of this week our inventory in young men's is up over 100% and our sales are also up over 100% and most of that's due we’re expanding this classification at the more stores, its selling in all our stores, we’re ramping up for fall in with even bigger program for next year and that's part of what's on tap our ability to move quicker. But clearly this end of the rack positioning is paying off because - it tends to be younger as we’ve driven our age down of our customer considerably and now we’re reaching into that even younger market where there is great opportunity. This is a customer who likes to shop, he definitely shops more than two times a year. He is looking for what's new and we are delivering great product on a very timely basis now.

And then if I could just shift over to sort of the margin outlook both for this year and going forward. It's been a number of quarters now where since you guys have - if I’m not mistaken generated over any sort of year-over-year gross margin expansion. Obviously it’s a bit of jaded question as it pertains to the comparable sales growth but where do you sort of see that both in the short-term and longer-term sort of settling in. And then secondarily when you look at your marketing spend obviously it’s growing considerably versus last year but going forward do you think that on a dollar basis or on a somewhat percentage basis this is where you'd expect marketing to and advertising cost to somewhat settle into?

So I’ll take the first half of that question, I think when we think of gross margin it's really important to understand both the merchandise margin component and the occupancy cost component. The occupancy costs are causing gross margin to deleverage because our sales have been softer than expected and if we get that low single-digit comp then we should see leverage on our occupancy costs. Merchandise margin though is one element of the business that we're really pleased with. Our merchandise margins are holding up very well. In the second quarter we dropped only 10 basis points to last year, but on a year-to-date basis we’re actually flat to last year. So we've seen no erosion to-date in merchandise margin but we've reduced our inventory position by $9 million. So we expect to continue working on that inventory reduction and maintain our merchandise margin. We just need to get a little more leverage on the occupancy costs to get back to where we traditionally have been.

The second part of the question on the marketing spend, it looks like a big increase on paper this year, but we have to remember that we pulled the TV marketing in the back half of last year. So replacing that makes it look a little more extended, but we’re pretty comfortable with that. The fact that this year we’re spending about 6% of our sales on marketing, we feel very strongly about that - again six out of 10 of our customers still do not have awareness from us. It's important that we grow their topline, we’re going to grow their topline by getting more customers and as I said before it's not inexpensive investment to get a new customer, but he is sticky and he is loyal and once we get him into our database we could market him for several more years. So we are definitely going to be more aggressive in the short - over the next few years in that marketing area because we got to drive more customers into our stores.

[Operator Instructions] And we'll take our next question from Glenn Krevlin with GHC Capital.

I had a couple of questions. One, the Casual Male old stores the - I don’t know remodel, re-touchups, refurbish whatever you want to call them, have you test any of this yet to see what kind of lift if any you get?

Yes, we’re actually in construction right now, we’re looking at the end of September to be fully opened – we're remodeling it while the store remains open. What I could tell you is that the - our average investment in a DXL store is $400,000 to $500,000 and here we’re looking at doing it for about a $150,000. And again we’re going to be doing in the same space. We're bringing in new fixtures, some lighting and at this low cost we’re going to find out the leverage of the DXL brand. I could tell you historically that the markets get very excited when they hear DXL is coming. So these are going to be in more remote areas where they probably haven't seen what a full-fledge DXL store has, but they had been seeing commercials for quite a few years about DXL. And we’re going to be adding in a lot of the brands that we’re never available to them. It will start with more moderate price points to what level it seeks, and rebalance the assortments going forward. So again it's in a test phase, we feel pretty good that it's going to be effective and again it won't be for all our Casual Male stores but the net when you add it all up, we’re at about 350 stores and that number should probably stay in that area. We’ll continue to add stores where cash flow may diminish, but again as I said almost every single Casual Male store 115 out of 117 our cash flow positive today and their comps have been relatively okay after all these years of not investing any marketing money into the Casual Male brand.

And then secondly, what are you seeing David on rent renewals, what kind of flexibility you think you'll be able to get now and maybe looking out the next couple of years?

That project has been in place for a year now. We have virtually gone to every single one of our landlords whether we have a kick out coming up or an option coming due or a longer term lease. We are renegotiating all our properties with the landlords and we've had very good success in rent reductions. We haven’t quantified it on a dollar basis, but the projects are ongoing and I would say we’re winning almost everything with some concessions and some greater than others. But it's the right time for us to be doing this with the issues of store closures. We’re doing everything we can to keep all these stores profitable so off a rent reduction we’ll given more life we’re going to fight for it.

[Operator Instructions] We'll take our next one from Bill Gordon with Gordon Capital.

I guess this is a layup but I’m going to ask it anyway, to what extent is the Casual Male are all customers available to buy online in terms of simple brand in other words. It seems to me the uniqueness of our customers should keep them in the store as opposed to try to buy something through Amazon or basically online. I just can’t wrap my head around that threat, is this such a threat?

There has been a big movement into digital, I mean it's now 20% of our sales are coming into digital. And I think we have a good advantage on that because what we see for several years consistent right now is when our customers shop both our stores and online, their spend is three times on an annual basis from our customer shopping either digital or stores. So they are becoming seamless between each other. You have to have them both working and whatever customers' strategy is for shopping at that time whether they want to be online or come in the stores, order online pickup in stores, we have all those capabilities. And we see a great opportunity to expand our ability to gain market share. 350 stores is a lot of country and a lot of our customers are not accessible. We have some stores that are 200 miles apart from the next nearest store. This is a great opportunities for us to hit these smaller communities. It’s an opportunities for people who can't get out during the day. So honestly we’re very bullish about integrating our digital, making smooth between stores and again very excited. We brought in a lot of talent to really grow this part of the business and keep up with the technology and again the results have been very good.

But I guess what I’m asking is how easy is it for a large guy or chubby guy to actually buy online unless he knows that he has got a stock item that you guys are next door - that they tried your brand, they tried the size, they knows it's fitting and therefore they can buy it readily, easily. But the return, the advantage obviously what’s his name has this morning is the report in the journal American Eagle [70%] of their business is coming from the local stores, you have a local store and you can have a return product so that’s good and I recognize your returns are very low. But I guess what I'm asking you - can people who never visited your store actually buy online these unique items?

Yes, and part it’s a house presentations he is talking about that we’re adding a unique function that's going to tremendously improve getting the size right the first time. But this is really a critical point to make because in the regular size business around competitors business if your size is 2XL for example, every company has a different spec for that. Our global sourcing company does the tech ex for every brand that we have in our stores. So it allows us tremendous advantage because if our customer is a 2XL just trying out once, he could go from brand to brand to our private label brands and he's going to get the same fit over and over again. And that is why our return rate is 8% which is way below industry standards of apparel which your hear returns of 25% to 35%. At 8% return rate we could do this all day long and we're not one of these retailers who are saying yes our Internet is growing, but its impacting our profitability because the cost to do business is more not so in our case.

And we’ll go next to David Berman with Berman Capital.

I was wondering if you could - it’s a tough environment out there but I was wondering if you could just share with us a few things. First of all I noticed that you bought back some shares or maybe the dilution in this environment and given that you do have niche there, I was wondering why you did that. I understand the stock is cheap and understand that - but it just in terms of the focusing on the cash flow, we don’t know what the future holds for us. Secondly, I want to know - your days' inventory went down to 155 which is terrific, you reduced your inventories by about $10 million and I want to know it still $155 - one doesn’t know what it suppose to be because obviously if it's - men’s way as it go to much high number but some of the apparel guys have much lower numbers where do you expect to be. Can you reduce that much more and obviously from that you’re getting cash right so like you got $10 million extra in cash from that which helped your cash per se - your net debt with help of that. And then the third question is interesting is that if I’m reading this correctly, I haven’t actually focused since before forgive me. You have a 140 days of accounts payables and if I’m reading that correctly that’s about four months of payables and it’s just unusual for me to see that in apparel and I was wondering if you can sort of expand on that?

Let me get through the buyback part. When we announced the buyback earlier on, again we weren’t prepared with the digital side of the investments Sahal has put in and really have the pipeline ready to take on the marketing. So as we saw the great technology taking place and all these things being put in place, we realize we adapt to tuning now to call an audible and really move those dollars into marketing where we'll set ourselves up in a much better position than earlier in the year when we thought buying back the stock at a low price was the right direction. So, we identified it during quarter two and we’ve basically have not been - we’re not buying back stock at this point in time and putting those cash flow dollars more into the marketing to grow our business further. I think the inventory issue is - we turn very slowly, we carry a tremendous amount of sizes again our top-selling pant has 55 size combinations and we’ve really upgraded our algorithms to lower the stock that we need to carry. We don't need to be a 100% in stock by size and through a lot of hard work we've got net inventory down and we’re not done. I mean we’re seeing great opportunities. We have a consultant and that's been helping us with the next phase of that. So as Peter said, we could be reducing our inventory by as much as $10 million to $14 million.

$13 million, so our free cash flow this year we expect to be $13 million to $18 million. Let me also just address the accounts payable question. So when you look at our balance sheet, it's roughly a third - the accounts payable accrued expenses and other liabilities are roughly a third accounts payable, a third accrueds and a third deferred rents. So we think that that's pretty consistent with where it has been and where it should be. But as David said, we’re continually working down that inventory opportunity that we have and we think that there is some great opportunity to further reduce our days of inventory.

And there are currently no questions in the queue at this time. I'd like to turn the call back over to David Levin. Please go ahead.

Well thank you all for being on the call. We do have a lot of exciting initiatives ahead of us in the back of the year and we look forward to sharing some of those results with you on the next conference call. Thank you very much for joining us.

And this does conclude today's call. Thank you for your participation. You may now disconnect.