Good day, ladies and gentlemen and welcome to the Destination XL Group Inc. First Quarter 2019 Conference 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 is being recorded. I'd now like to introduce your host for today’s conference, Lisa McKee with ICR. You may begin.

Thank you, Ashley, and good morning, everyone. Thank you for joining us on Destination XL Group’s first quarter fiscal 2019 earnings call. On our call today is our President and Chief Executive Officer Harvey Kanter and our Executive Vice President and Chief Financial Officer, Peter Stratton. 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 comparable sales growth, the wholesale segment and free cash flow. 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 CEO, Harvey Kanter. Harvey?

Thank you, Lisa and good morning, everyone. I am thrilled to be speaking with you today for the first time as President and CEO of Destination XL. In the less than few months, but I've already learned so much about this incredible company and the passion our teams have for engaging with big and tall consumers. I am learning fast and quickly acquiring greater insight for the powerful opportunities yet ahead. I've travelled to over 20 stores and heard first hand from our guests what they love about DXL. In short, they told me that the DXL experience is very different from other more traditional retailers and although my words, not theirs, what they said was that this different experience is memorable. It is what really sets us apart. For many big and tall consumers, it is a challenge if I am not quoting that truly fits him but the guests I spoke with told me that DXL gets it. DXL understands it's challenge and helps them solve it. At DXL we strive to empower the XL man to look and feel his best, by delivering a memorable experience and a wide assortment in men's clothing and shoes. We believe DXL's place in the market is as the quintessential specialty retailer of big and tall driven by the most extensive uniquely curate in size assortment of men's clothing and shoes that is designed and built for XL proportions. The reality is our clothing has not just scaled our product. We have a distinctive spec, fit spec to be specific, that is our secret sauce that we use to develop products for every size, which uniquely fits each customer in a way other retailers just do not. Our mix of value price labels to higher end brands and exclusive designers experienced…

Thank you, Harvey and good morning, everyone. I'd like to start this morning with a brief summary of our first quarter results. For the quarter, total sales decreased approximately $300,000 or three tenths of 1%, 0.3% to $113 million compared to last year's first quarter. The decrease was primarily due to a comparable sales decrease of 1.2% and a decrease of $1.6 million from closed stores. This decline however was partially offset by an increase in wholesale revenue of $2.4 million. Within our direct to consumer channel our e-commerce sales increased to 21.6% of our retail segment compared to 21.2% last year. From an operational perspective we struggled with sales momentum specifically across the northeast and upper Midwest. Our traffic for the quarter was negative low single digits while conversion in dollars per transaction was slightly positive. We believe weather played a significant role in our performance as severe winter conditions persisted in the first half of the quarter while the delayed arrival of consistent spring weather impacted the second half of the quarter. This trend was further evidenced by poor performance in our warm weather seasonal categories such as shorts. Gross margin for the first quarter inclusive of occupancy costs was 43.7% compared to 44.7% in the first quarter of last year. The 100 basis point decrease was due to a contraction of 150 basis points in merchandise margin partially offset by 50 basis points of occupancy cost leverage. It is important to note that our merchandise margin is being impacted by our new wholesale segment. Of the 150 basis point decrease in merchandise margin 110 basis points was due to the shift in mix between our wholesale segment and our retail segment. The remaining 40 basis point difference was due to a higher redemption rate for promotional offers…

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

Good morning and welcome Harvey Kanter. It was a very refreshing overview that you provided. I'd like to follow up a bit with regard to the marketing overview. It's clear that you're eliminating or moving away from broad based advertising to direct to consumer. What implications does that have from your viewpoint right now regarding the level of advertising dollars to be spent, which in the past for my opinion was much too high?

You know it's a great question and I would tell you that it's a little early to substantially say that there's a material change expected. I think what we're trying to evaluate is – and understand better is the impact for lack of a better word is that in building the recipe. So we do expect there is a place for broad based media communication i.e. TV and radio. And you may or may not have heard some of the increased TV we’re doing in the past going away but the radio replacing it with a belief that we can get close to do our core customer with all of the unique direct applications in media today. Those are still both broad based media opportunities but more importantly to your point we believe there's inflection created by digital marketing and be able to get closer to the customer. That being said, quite honestly it's too early to substantiate a material change yet but we believe we will maintain all of the elements evolving their presented total and their relevance in the marketing package that Jim's steering into.

Okay. Thank you. Can I follow up on that? The view with regard to fit and focus that DXL provides is key of course to the concept with regard to the wholesale business the $2.4 million revenue that you cited for the quarter was similar to the $2.4 million for the first two months from Amazon. Is that the pace that you anticipate or do you foresee Amazon coming in with higher purchases in the second half of the year?

Well we clearly expect the business to accelerate. We're in the very infancy of the process for building a wholesale plan. So I think directionally we could definitely say it will continue to growand be more meaningful in the future quarters. I would – at the same time, manage our expectations. We are trying to ensure that we're building a plan for a long-term vision as opposed to grab the shiny brass ring for the next quarter.

Well, thank you. I really look forward to hearing from you in future conference calls and the results that you are likely to produce. Oh, one more question by the way, I'm sorry. CRM, we heard in the last conference call that there was an investment in a new CRM system and you just said that the CRM system needs considerable improvement. Does this include significant capital investment?

So just to be really clear, I'm not sure what you're referring to exactly in the way you heard it last time, but we are in the process of putting in place a new CRM system. We had a 15-year-old home grown proprietary CRM database system and we are putting in a new one. So it's not an extension or improvement or what was. It is a new CRM system. That new CRM system should be live by early fall in the beginning elements that we can leverage for the second-half of the year 2020 will really be the point in time where it's fully implemented and the opportunity to create greater impact and specifically engage the consumer in a personalized unique one-to-one way will come to life. And so, it's important that you hear two things; one, there is a new system and yes, it does have a capital element to it. Peter, can certainly talk to that, but it's not in place yet. It will be in place in fall in the very beginning part, but in terms of what will happen it will really come to life in 2020 in a more meaningful way.

Okay. And is that the system that you would have chosen had you made the decision?

It's a great system. The one we're doing is really one of the best-in-class out there, and they've done an extensive process before I arrived. To be quite honest, they waited for me to put my name next to it, but it's a great system.

Good to hear. Thank you.

Thank you. And our next question comes from the line of Eric Beder with SCC Research. Your line is now open.

Good morning. Congratulations on your first quarter, Harvey?

Thank you.

We thought a little about online. So, the online business is already a 20% plus business. What do you think it should be, and what are the opportunities in terms of margin to drive the online business even higher?

I'm going to talk to the kind of a broad-based way because I don't think it would make sense for me to give you an exact answer. I think what I would tell you is if you think we're almost at 22 points in change penetration and the best-in-class players, I might note Williams-Sonoma as a reference point is nearly 50% direct to consumer. And so, I don't know what the right number is. But, I clearly believe if we are able to do what we want to do with both our CRM and understand that we're not here to define how the customer shops. We're here to give the customer options to the app through the browser-based experience and through our stores. The customer will choose how far they want to buy. But the requirement is really for us to be where the customer wants us to be, when they want to buy. And we believe that, that includes a meaningful growth of online and direct-to-consumer experience digitally. So north of where we are certainly, I never expect this to get to that 50% mark, but there is a lot of blue sky between 20% and 50%. So I would say that's kind of a reference point.

Great. When you look at the kind of legacy Casual Male stores, which are being converted into Destination XL you know what is the – should that be expanded even more in terms of being more aggressive in conversions and how should we think about kind of in the legacy pieces here and what's going to happen on them?

It's a great question and when we continue to evaluate especially with my joining the firm. We believe that those stores are producing at a level that we will convert all of them over time and it becomes a function of how much literally we can manage number one and what makes sense on the P&L. And we're moving through that as an ongoing conversation, but there's about 60 left and our belief based on performances we’ll continue to convert.

Great. And last question here in terms of looking at the designer brands you have I guess you [indiscernible] it’s pretty much done. Are there brands that you want to bring in that you don't have now?

Well, I think to the point you made I think we've done a great job at bringing in really relevant and important brands. That being said, we have to constantly as I said think about the consumer, think about how the consumer is moving and think about what's important to them. And the development of new brands is always going to happen. We have some brands like Psycho Bunny is the perfect example, which is a relatively new brand relative to things like Ralph Lauren and they're both really important. But Ralph Lauren is a core part of our mix that has been around for obviously a very long time as a brand. Psycho Bunny is a newer brand and Allison who's our head merchant is continue to work with the team to make sure that we are on top of new trends and I expect there will be some new brands to develop. But there's nothing out there that – there is a shiny new object that I would say that we have to have today.

Great. As a customer, I look forward to seeing the changes. Thank you.

[Operator Instructions] And our next question comes from the line of Chris Krueger with Lake Street Capital Markets. Your line is now open.

Good morning.

Good morning, Chris.

Hi. You indicated that your same store sales are down 1.2% in that volatile weather patterns had an impact. Was there any part of the quarter where the comps were down harder or was it fairly consistent throughout the quarter?

Sure. So Chris I'll take that one. And I think the toughest part of the quarter was in February. We saw a little bit better in March, and then in April, we struggled a bit as well. So it was pretty even across the quarter but the most difficult month was February.

And how about the month of May so far, we are almost to the end of it, is it been similar to April or a little bit better?

Yeah. It’s Harvey. I think it started out pretty rough to be quite honest and very much weather driven. We saw very much highs and lows across categories that were uniquely different based on the seasonality of the product. So shorts, T-shirts, shirts as I mentioned in the call – opening call and that’s were pretty difficult. We've definitely seen May moving forward in a relatively meaningful way as the weather is popped and what we can also see is regionality in those pops. It's unfortunate but where the stores have really taken a toll on the consumer we've clearly seen they're not oriented to shop. The flip side is in the northeast where we've had positive of 75 degrees and 80 degrees we've seen meaningful change in the comps for a moment as the customers come out and – in Memorial Day and leading up to this weekend has been a perfect example where warm weather has clearly impacted some of those categories.

Okay. And then, on your advertising plan and over the last several years, there’s typically two times a year where that was boosted typically leading up to Father's Day and then, the November-December timeframe. What's the outlook for this year?

I think it would be anything, but smart not advertise when the fish are biting for lack of [indiscernible] is what I’d say. So you actually – if you monitor our advertising over the last four weeks, you will see or would've seen we’ve said there’s somewhat of a slower pace building in the Father's Day and now, you see clearly the Radio that I already talked to re-igniting the TV and some other digital increases if you're monitoring our digital marketing that are leaning into Father's Day and obviously, Father's Day and the holiday are the two most meaningful points in time. Interesting enough, the male shopper – our big and tall male shopper, we believe is less seasonal, if you will overall and is really needs based and certain catalysts provide a compelling reason for him to want to shop and we're trying to lead into those like the weather where it's getting warm and he says, he need shorts, but we don't have quite the level of spike maybe other retailers do from the first-half to the second-half.

Okay. Last question, can you give us your viewpoint on what you think of tariffs and where your sourcing comes from and how much comes from China? Just an overall outlook on what you think of that situation?

Yeah. I think without getting into any commentary on the politics of it, just playing it simply, it creates risk and we have put in place a lot of measures long before to be quite honest, the tariffs to really leverage a number of different countries across Asia and even in North America, South of the states. And I think that we're well-positioned to manage our way through the tariffs given the change in sourcing the global team and our leader has done to really mitigate one country impacting us in a meaningful way.

Very good. That's all I got. Thanks.

Is there anybody else in the queue operator? I guess we're going to bring the call to an end at this point. It looks like there are no further calls or anybody waiting? So, operator we're going to bring the call to a close. Thank you, everybody for being on the call today. Enjoy Memorial Day weekend if you're traveling, safe travel. Take care, have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.