Good day ladies and gentlemen, and welcome to the DXLG Fiscal First Quarter Year 2020 Financial Results Conference Call. Today’s call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to y Nitza McKee, Senior Associate at ICR. Please go ahead, Nitza.

Thank you, operator, and good morning, everyone. Thank you for joining us on Destination XL Group's first quarter fiscal 2020 earnings call. On our call today is our President and Chief Executive Officer, Harvey Kanter; and our 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 now available on our Investor Relations website at investor.dxl.com for an explanation and reconciliation of such measures. Today's discussion also contains certain forward-looking statements concerning the company's ability to withstand the impact of the COVID-19 pandemic on its business and results in fiscal 2020 and to manage through the pandemic, including its efforts to restructure and reduce costs, manage inventory, negotiate rent concessions or rent release from its landlords, market to its customers to encourage shopping online and maintain sufficient liquidity, the expected pace of store reopenings and expected liquidity for the next 12 months. 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. I would now like to turn the call over to our CEO, Harvey Kanter. Harvey?

Thank you, Nitza, and good morning, everyone. There are several topics that I would like to cover, including the current state of our business, our response to the COVID-19 crisis, our progress in reopening stores and our plan to reopen all stores by the end of June. But before I do, I want to wish everyone continued progress in this recovery, good health and offer our condolences and prayers. These have certainly been the most trying of times for us as a nation and across the globe. I also want to give a great big heartfelt thank you to all our associates and a few quick shout outs for the teams perseverance during the pandemic, and most importantly, those on the team who kept us actively engaged in commerce and supporting our consumer base. For the past 12 weeks or so, our guest [Education] [ph] center, which includes chat, e-mail and the call center, which we refer to as our GEC, our warehouse team, our store operations team and our management team have all shown incredible resilience. And we've adjusted to a new working environment, while keeping our eye focused on what we need to do differently to keep servicing big and tall guys across the country. This includes everything from how we have engaged consumers to the GEC and the continued fulfillment of e-commerce orders for both the distribution center and 30 plus some stores to the safety precautions we are taking as we reopen stores and how we are reengaging with our customer. So let me get right into it and start with an update on our business operations. Before our stores closed, we began responding to a significant perceived impact expected from the pandemic. We triangulated on consumer data from Asia, from retailers doing business in Asia…

Thank you, Harvey, and good morning, everyone. I'd like to provide you all with a summary of our first quarter financial results and then talk a little bit about our financial position going into the second quarter. As Harvey mentioned, our primary focus this quarter has revolved around preservation of liquidity and developing a path to the other side of the pandemic. The actions that we've taken have been decisive and effective, and we feel confident that we will emerge from this crisis, well-positioned to continue serving big and tall guys all across the country. With that said, let's start with sales and margin. Total sales for the first quarter decreased 49.3% to $57.2 million, down from $113 million in the first quarter of last year. Obviously, store closures contributed to the majority of the decline, but we were pleased that our direct business performed well and made up for some of the loss in store sales. Gross margin rate, inclusive of occupancy costs was 23.1% as compared to a gross margin rate of 43.7% for the first quarter of fiscal 2019. Our gross margin rate declined 13.3% from the deleveraging and occupancy costs against a much lower sales base and a decrease of 7.3% in merchandise margins. We were more promotional this quarter to encourage customers to shop online and to mitigate a buildup of seasonal inventory. This increased promotional posture is the primary reason for the decline in merchandise margins. We also took a $700,000 charge this quarter to increase our inventory reserves as a result of more aggressive clearance strategies. Again, our intention is to move through as much of our spring product as possible, to be in a clean position at the end of Q2 to start receiving fall products. Now let me move on to…

As I close up the call today, I want to quickly thank the Board, our partners and our investors, who have provided support and insight along the way as we steer through the business challenges. Second and more importantly, although I've already discussed the pandemic, I also want to address the disturbing issue of social injustice that we are facing as a nation and in which we have been reminded in recent days. The extent of how volatile the times have become is hard to believe. The issue of racial equality and social injustice, which have been raised in the nation's conscience, underlines the seriousness of this issue, which impacted us all as a nation. At DXL, we are committed to inclusion, acceptance and support in our business. As a business, we have a diversity and inclusion initiative oriented around unconscious bias. But we need to continue to ask ourselves as a company, are we doing enough? Are we committed enough? As a company, we are committed to address the challenges of bias and injustice. And together we need to overcome these issues. Inside DXL, we will ask the question again, but also commit to push harder in the program we have for diversity and inclusion for associates and our guests. And now we will take questions.

Thank you. [Operator Instructions] Our first question comes from Eric Beder with SCC Research. Please go ahead.

Good morning.

Good morning.

Thank you for the color. Going forward, what would you be thinking about in terms of the mix between kind of private label and branded product? And how do you kind of look upon that as a marketing asset or non-asset here?

Yes, it's a great question. This is Harvey. Hey. Basically, we believe that the private label product is still critically important and the penetration in our mix will not materially change. That being said, we clearly have continued to see an escalation in the penetration of the branded goods and the collections we're offering and the customers desire to buy more of those. So the reality is we will continue to shift and most appropriately respond to the trends of the business. But I think that what we've seen in our recent, let's say, 18 months is that the shifts are small and the magnitude has ebbed and flowed. Our private label certainly has really elevated in some respects in certain key categories in the COVID in the first quarter issues that we've experienced and that makes what -- would make obvious sense, things like underwear, basic loungewear, active wear and things of that nature. And then the flipside is some of our non-branded items continue to decline, be it tailored clothing or what have you, and you can see those same trends in the branded part of our mix, but the branded part of our mix has less penetration in brands, i.e. the shoulder garments and things of that nature.

Right. When you look at this new world, obviously online has become -- it was always important to you, it's become even more important to you. How is the function of what this -- a, how many stores you need and what is the function of the store going to change going forward?

The reality is we continue to believe that it's not for us to determine the way consumers shop. And the reality is consumers want to have experiences in stores. I think it's quite interesting to understand and see the different retailers experiences right now as consumers demonstrate in some businesses a desire to get back in the stores and have experiences. And so our belief continues to be that our store experience is critically important to the mix. But the question you really are asking, I think, is how will that change in terms of the store experience, not just for the customer, but in terms of really the mix. And what we've seen and we've talked about pretty directly is the level of our stores capacity to create fulfillment. Our BOPAC program, which has shifted from our BOPUS program, although the reality is the percentage of consumers coming to us to buy online and pick up a curb is growing. In the scheme of life, we don't know that it'll be the most meaningful part. And clearly, the other end of the continuum is the level of fulfillment our stores can do. We kept 30 stores open approximately during the pandemic so far until we started to reopen all stores and those stores were meaningfully important for fulfillment. They're really like 30 mini warehouses. And our ability to leverage our assortment now across the chain is exposing the customer to a much greater breadth of offer and giving us much greater fluidity and the ability to deliver much quicker to customers, because basically you have a last mile store in every city as opposed to a warehouse in Canton. And it's giving us a greater ability to provide breadth of offer that is well beyond what is continuing in the DC. Probably equally important, if not more so, is that last mile and the ability to quickly get it to our customer or let them choose to come into the store, whether it's curbside or in the store itself. So the store function, we believe, is critically important and part of the experience not just for fulfillment, but for the customer. And in reality, the fulfillment element has really ramped in the period that we just experienced.

Right. And last question I see now you are selling masks also retail wise. Do you plan on selling those in the stores? And do you think that -- how is that business doing?

You know, we initially pivoted our alterations in tailoring department literally to make masks for the community. And our initial intent was to do that as a service to the community and literally give them out for free because we thought we had the capacity to do that. Through that process, it's pretty incredible. The development work we did around masks, the attempt to get it through FDA, the recognition that N95 was too big a leap for us to get too quickly. But in that process, we developed a triple layer mask that actually was vapor -- capable of blocking the micron element within that inner liner to actually provide a level of protection. And so we've gone out. We've actually now sold governmental offered -- governmental entities, the masks to literally state governments. We've sold Fortune 100 companies and we're bringing it online. We've been chasing it pretty hard in spite of the fact that we are ahead of it. We've been chasing it pretty hard and it's sold out the first delivery in our online business. We are also going to put it, as you ask in our stores and let the customer tell us how important it is. What we believed it initially, though, was more of a commendation to support the communities and the reality of the situation we all face has turned to this some level of the business model. We -- in this case particularly, we haven't reached for the brass ring in margin. What we're really trying to do is continue to provide a service to both customers and businesses and we'll see how it ebbs and flows, if you will. And our belief is that it will be meaningful in the stores. Our largest part of the delivery is yet ahead of us in terms of what will really ramp in terms of unit that will be in the store at the end of June. And when that happens, they will go in stores and we will let the customer tell us how important it is to the future of the business. We never consider it to be game changing for us, but in reality it is -- it will be more than a blip on the radar screen. With 2.5 million masks sold, we have orders that are potentially pending for another 2.5 million. And the customer will book quickly on what we're bringing into the -- to the business in terms of online and more importantly, in stores and we'll see how fast it ramps in a more meaningful way.

Great. Good luck for the rest of the year.

Thanks a lot for the question.

Thank you. Our next question will come from Glenn Krevlin. Please go ahead.

Good morning. A couple of different questions. The first is coming into the year, Harvey, you had a lot of initiatives on the direct-to-consumer side to get some software implementation, some different tests going on. Where are we on that just in terms of is that project continued? You’ve tried certain things this quarter, maybe you can give us an update there. That's my first one. My second one is on the Amazon wholesale program has it been expanded in any way in terms of number of items, SKUs, inventory? And then lastly, I would like some sense of lease liabilities that expire over the next year or two? And how you're thinking about the real estate portfolio and the expirations that you have coming up?

Yes, I can take all three of those and then I'll turn it over to Peter, if he has any additional comments. On the high level marketing initiatives, there is no question that the direction we embarked on really throughout 2019 and we got traction in 2019 fourth quarter and alluded to acceleration at some level in February are still the priorities. Whether it's the CRM system itself, whether it be the platform for personalization and talking to customers uniquely and relative to what they want, which we referenced in the call itself. Whether it would be the digital marketing element and reducing TV. I'm sure you probably didn't miss it, although you may have, because not everyone might not be tracking the business at the level that we are. But we were not on the draft this year, and the draft still was a pretty interesting media for people to watch. But TV and blunt level marketing, given the pandemic, didn't make sense to us. And we've alluded to pulling back on TV and really applying our marketing expense built around our platform to drive the greatest productivity, but more importantly, be the most relevant to consumers. In the pandemic, what we've seen is consumers searching and much more aggressively for specific things and the ability to focus what we market around what consumers want is most capable digitally. You can see that in our email program. You can see that in our loyalty program. You can see that in our communication of what we actually are selling. So the answer is emphatically, yes. We have -- that being said, there are elements which have slowed down based on staff not being completely available and dynamics of companies and partners we are in business with, the dynamics have in…

Just one follow-up. So you're fully on the new CRM platform, Harvey, the one that I think you talked about last year being implemented?

No, we are not fully on it. Not only we are not fully on it, we are using it. But what has been the biggest setback for us in the marketing pivot to the number of segments that we could go after and we have identified and the actual implementation of marketing against those segments. So I'll give you a specific, for instance. It wouldn't be remarkable to believe that our Ralph Lauren business and the specific collections part of the business and the specific sportswear that -- what I might define as a fashion, has not been as strong as the flipside of basic T-shirts from Ralph Lauren or for that matter, loungewear and accessories. And so our ability to market based on those dynamics has been waylaid because we're not marketing fashion clothing right now or we haven't been in the Q1 wear underwear and T-shirts and literally loungewear and active wear have been critically more important. And so as a result of that, we haven’t been marketing to those segments at that level because not every business had relevance in the last 90 days. And as a result of that, we don't have the learning that we had hoped to have coming out of Q1, which we talked about really at the end of Q4.

Right. Thank you.

Ladies and gentlemen, that does conclude today's question-and-answer session, as well as today's conference call. Thank you for your participation. You may now disconnect and have a wonderful day.