Good day, ladies and gentlemen and welcome to the Third Quarter 2018 Destination XL Group Inc. Earnings Call. 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, this conference call maybe recorded. I would now like to introduce Ms. Lisa McKee [ph] on today’s conference. Ma’am you may begin.

Thanks, Lauren. Good morning, everyone. Thank you for joining us on Destination XL Group’s third quarter fiscal 2018 earnings call. On our call today is David Levin, our President and Chief Executive Officer and Peter Stratton, our Executive Vice President 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 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, adjusted EBITDA, gross margin, marketing costs, capital expenditures, earnings per share, free cash flow, store openings and closings, the corporate restructuring and related costs and savings 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 would like to turn the call over to our President and CEO, David Levin. David?

Thank you, Lisa and good morning everyone. I am pleased to report that our third quarter financial results represent another solid quarter of sales growth and improved earnings performance. This was our fourth consecutive quarter of positive comp sales growth and the momentum that we started to experience in the fourth quarter last year has continued through the spring and fall selling seasons. Earlier this year, we launched an aggressive plan to reduce our SG&A expenses without sacrificing sales, and I’m happy to report that we are well on our way to achieving that goal. As highlighted in our press release this morning, we increased our comp sales by 3.4%, more than doubled our adjusted EBITDA from $2.8 million to $6.6 million and we are raising our fiscal year 2018 guidance. We remain well positioned for the all important holiday season and are confident our momentum will continue into 2019. This morning I will briefly discuss our third quarter performance and update you on the progress we are making on our strategic priorities before turning the call over to our CFO, Peter Stratton, for a more detailed discussion of our financial performance. Now our third quarter performance. As I mentioned, our comparable sales for the third quarter increased 3.4%. We saw particularly strong sales in the Northeast and Southeast, but all of our regions across the country saw positive comp sales increases. The performance was ahead of our expectations and due in large part to an improvement in traffic to our DXL stores. We’ve been battling declines in store traffic for much of the year, but traffic in the third quarter to our DXL stores flattened out. Our store associates are experts at leveraging our unique merchandise selection and fit to deliver outstanding in-store experiences which contributed to improvements in…

Thank you, David, and good morning, everyone. I’d like to start this morning with a brief summary of our financial results. For the third quarter, net sales increased 3.2% to $107.1 million. The increase was due to a comparable sales increase of 3.4%, an increase of $700,000 in non-comparable sales from DXL stores opened less than 13 months, an increase of $300,000 in other revenues and $700,000 shift in calendar weeks due to the 53rd week in fiscal 2017. These increases were partially offset by closed stores that contributed $1.7 million to sales last year. Gross margin for the third quarter inclusive of occupancy costs was 44%, as compared to a gross margin rate of 43.2% for the third quarter of fiscal 2017. The increase of 80 basis points was due to a 90 basis point decrease in occupancy costs as a percent of sales partially offset by a 10 basis point decrease at merchandise margins. The decrease in merchandise margin was due to a slight shift and lower sales penetration from our private label brands and higher sales penetration from our designer brands. Occupancy costs as a percentage of sales improved from leverage on higher sales base and a decrease of $300,000 primarily related to closed stores. Our SG&A as a percentage of sales improved by 270 basis points for the third quarter to 37.8% as compared to 40.5% for the third quarter of fiscal 2017. On a dollar basis, our SG&A expense for the third quarter decreased by $1.5 million. The decrease was primarily due to a reduction in payroll and payroll-related costs. We manage SG&A expense through two primary cost centers, Customer Facing Costs and Corporate Support Costs. Customer Facing Costs, which includes store payroll, marketing and other store operating costs represented 21.6% of sales in the…

Thank you, Peter. As you may recall, last March, the company announced that I plan to retire on December 31, 2018 and that Heidrick & Struggles was engaged to lead a search process to identify my successor. That search process was canceled in October. The company has engaged Russell Reynolds to lead a new CEO search process, which we expect to be completed by the end of the first quarter of fiscal 2019. You may recall that there is a transition agreement between the company and me. And under that agreement, I will resign as an Officer and Director of the company on January 1, 2019. And the company announced this morning that has entered into a letter agreement with me such that, if there is not a new CEO in place by December 31, 2018, I will assume the role of acting CEO from January 1, 2019 through April 30, 2019, and in addition, the Board does have the option to extend the arrangement through June 30, 2019. That concludes our prepared remarks and we’d like to open the call for questions.

Thank you. [Operator Instructions] And our first question comes from Eric Beder with Small Cap Consumer Research. Your line is now open.

Good morning. Congratulations on a solid Q3.

Thanks, Eric.

Thank you.

Could you talk a little bit about the Casual Male stores you’re converting into Destination XL’s. I know one of the uses of Destination XL was to bring in new customers and kind of move the area around. Are you still seeing that influx of new customers in these converted stores?

Yes, it has been consistent and as we’ve pretty well matured out the DXL expansion, we said, we still have 98 Casual Male stores and we think there are about 30 to 40 of them that have enough space and the locations are viable that rather than move the location and expand it to a much bigger box we could take the existing store and just basically remodel it and introduce the elevated brand products that we have from the DXL store and get a much better benefit with really a minimal amount of capital – CapEx and we’re getting some tenant allowance from the landlord to execute this. And again we have done 5 of them. They are doing very well in terms of ROI. So we think we’ve got the 30, 40 more to go and the remaining Casual Male stores will continue to stay open as long as they contribute significant cash flow to help support the rest of the company.

Great. And when you look at it, you added two key new brands to the mix there. Where are you significant level of brands that you want to add that your customers are asking for that they don’t have right now and you know when you add the new brand here, do you basically rotate out some older brands or is it just kind of spread it around. How do you look at that?

It’s a combination for example, when we talk about our strong brands in outerwear with Columbia and now with the North Face, that was a private label business for us, but we’ve seen a dramatic increase when we took when we moved those into brands so that really it’s been very successful for us so not that we do that as far as dimensioning out more brands we are – our house is full we have got over a 100 brands right now and if one comes in probably one will fall out but as of today there’s we’re working on one more denim brand for a launch next year we are very excited about, we’ve been working on that for many years but other than that, we are in great shape with all the brands that we could ever have imagined.

And custom suiting and suiting, how is that business doing? In general hear things that that’s been a very strong brand for some of your competitors. How are you looking at that business going forward?

It’s just not a significant part of our business it is not in our long-term strategy to really grow it much more we have so many sizes that we have to manage, we have the fits and now that we have the perfect fit, we have four different sizes within our suits to fit a guy who may be short and stout, or a guy who’s tall and lean, an athletic fit so we don’t see that as a growth business we have been in it for several years, but it’s just not significant to our future.

And last question here in terms of marketing and TV advertising, what should we be expecting for the holiday season versus last year and how does that fit into the entire mix going forward?

It’s our spend in the fourth quarter is very similar to last fourth quarter except we don’t have the incremental costs of a new commercial, we’re carrying a commercial that we’ve launched in spring, which has a much stronger impact than the commercial we ran a year ago we have increased our direct mail circulation, but all-in-all it’s pretty well apples-to-apples for us for the fourth quarter but again as we talk about targeting our customer, it’s much more focus and we did launch a catalog that got great reviews, our customers are referring to it, they’re coming in the stores they’re using it for mobile and as I mentioned before, I think that the catalog business which we abandoned several years ago we’re seeing a resurgence and a very targeted level we could be offering several season a few seasonal categories catalogs going forward.

It does look great. Good luck for the holiday season.

Great. Thanks a lot, Eric.

Thank you. And our next question comes from Chris Krueger with Lake Street Capital Markets. Your line is now open.

Hi good morning. You talked about your merchandise assortment improving can you tell us like your private DXL on private label brands versus the other brands like is it increasing as a percent of your total sales and can you give any examples of specific products that are working really well now versus maybe a year ago?

Well as we build out DXL and DXL’s comps outperform the comps of our other stores, there’s definitely a movement more towards more branded but it’s gradual, it’s manageable and we have not had an impact on our margins as one would suspect obviously because private label is so much, you get a higher margin but we’ve been able to offset that with great relationships with our brands normally we’re at the top of their list in terms of growth potential and we’re getting better terms with these brands, we’re getting more involved in the process of putting the lines together, it’s really been a collaborative effort so I think that the percentage of brands will continue to grow at a slow rate but again, we’ve been managing to go get through this over the years without really having any impact to the overall gross margins.

And you mentioned on the call that North Face has become a brand how long has that been in your stores and any other commentary on that?

Yes, we have a small cast late in the season to get some North Face product and, again, we’ve wanted for years we’ve been trying to get that brand and we really pulled it together and we put together a model for this year and candidly we were unprepared for the surge of sales we got right out of the box with the North Face so I think that we’re excited about having a great sell-through this year but on the other hand next year, we should be able to have a significant increase in their programs and again there are much more they’re very positive also in the success we’re having and we’re going to have a better a bigger and better assortment for next year.

And can you remind us last year in the Q4, did you have an extra week of business just a quick reminder on that?

Yes, we absolutely did last year the 53rd week, it contributed I want to I think it was about $7 million in sales and $1.5 million in EBITDA.

Okay. And finally any initial thoughts on store growth next year is that something we will wait for until a new CEO is in place?

Yes, I mean, again, I think we’re not looking at net store growth, but again, converting existing Casual Male stores into DXL stores is definitely growth potential for us we are getting nice increases when you think about it, this customer in this market has been seeing DXL commercials for 6, 7 years right now and wondering where’s their DXL store and even introducing it somewhat of a smaller it’s a smaller box we are getting a lot of new traffic and that just we had a perception of what Casual Male wasn’t really wasn’t connected to that brand and now they’re excited about getting DXL store in their neighborhood.

Alright. Thank you. That’s all I got.

Thank you.

[Operator Instructions] And our next question comes from Bernard Sosnick with Madison Global Partners. Your line is now open.

Good morning and congratulations on getting the follow through on your plans I’d like to talk about the CEO search one process and there’s another one who’s going to begin why will the second process do you think be more productive than the first?

Again, there’s no guarantees, but we’ve spent the last several weeks engaging with several different search firms and Russell Reynolds really created a dynamic thought process of the candidates they could bring in and for us it’s a refresh we have been at it several months and we’re just going to start with Russell Reynolds and we’re pretty excited and, again, we believe we’ll have somebody in place by the first quarter.

The other search firms I’m sure introduced you to some potential CEO candidates overall, what would you say were the factors that led you not to wish to engage them, were you’re not getting sufficient quality?

No, it wasn’t a matter there we are very practical I mean this is a big deal for us and we wanted to find the best candidate we possibly can and we just felt that it was time to move on and start with the new search firm it happens we’re not but it’s just a situation that came up and again, the search is starting now and that’s about all we can say and I would feel pretty good that we’re going to get a lot of fresh candidates.

I feel very comfortable that you’re going to be staying with the business seeing it through until the right time.

Absolutely, Bernie. I am totally committed and worked with the Board even though I am basically postponing my retirement. I am 100% committed, we’re on a great roll right now we have got some big initiatives ahead of us and I will do everything I can to continue to keep this the flow of this of our Company going until we get somebody in place.

I want to focus on ROI, you define that in your comments just now as improving the ROI on marketing now that undoubtedly is important improving the marketing and digital investment but the ROI overall is what we’re looking for and after what is it 6 years of losses, what is the probability of getting to an ROI that is minimally satisfactory in terms of overall return on investment?

Well, I think that, we’re always looking forward and we’re not at the point yet where we’re talking about 2019 but when we fully mature the expense savings we’ve laid out, because again, we only have 6 months of it we layer that in, we layer that in with the kind of comps that we’re looking for we are layering that in with the cost reductions, we’re having advertising as a percent of sales will start to come down we feel pretty good about the answer to your question, we feel pretty good that we’re getting there and hopefully when we on the next quarter, the call when we talk about 2019, I think you and the shareholders will be pleased that we’re definitely on the path to improve that ROI.

Well, thank you and best wishes, I guess we’ll be talking before your formal retirement but anyway best wishes to holiday season. Thanks.

Thank you very much, Bernard.

Thank you. Ladies and gentlemen, this does conclude today’s question-and-answer session. Thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone have a wonderful day.