Destination XL Group, Inc. (DXLG) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Second Quarter 2020 Destination XL Group, Incorporated Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to your speaker Nitza McKee at ICR. Please go ahead.

Thank you and good morning, everyone. Thank you for joining us on Destination XL Group's second quarter fiscal 2020 earnings call. On our call today is 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, market to its customers to encourage shopping in-store and online and maintain sufficient liquidity to meet its working capital needs 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 risk 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 to everyone on the call today. I hope you are all healthy, safe, and well. These are very challenging times for us all. Before I share some brief comments on our second quarter results, I want to start today's call with a quick acknowledgement. Earlier this month, three of our long standing directors retired from our board. I would like to extend a heartfelt thank you to our former Board Chair, John Kyees, and directors Ward Mooney and Seymour Holtzman for their service and support over the years. All three contributed to our business in different ways, but like everything else in life, nothing is forever. Their personal passion for the business, for our team, and their most recent support during the COVID-19 pandemic are greatly appreciated. We wish them all the best for their continued success and wellness. I also want to give a big shout out to all of our associates who continue to operate at an unparalleled level of perseverance, and focus during these unprecedented times. These are the folks who have gone to battle with us during difficult times in the past and these are the same folks that are fiercely taking on today's challenges. We are so incredibly proud of our teams from the DC and call center to the stores and corporate office and the culture that we have created here at DXL. These days, there are more things that keep me up at night, but the team we have is not one of them. We have great people who are the backbone of our continued optimism for the future of DXL. Also want to open with two other important topics. First, our ongoing and continued efforts to combat the challenges of social unrest and racial divide. In 2017, DXL implemented our own program to address these issues, which we call normalizing the brand. In the last few months, our heightened awareness has led us to form a new council across the organization reimbursed our training team in further addressing unconscious bias and we remain committed in this regard to not just be a part of the conversation, but a part of the solution. Second, at DXL we have joined in larger consortium of companies supporting time to vote. Workers shouldn't have to choose between earning a paycheck and voting. Time to vote is a non-partisan movement led by the business community to contribute to the cultural shift needed to increase voter participation in our country's elections. This is a business led push to lift the nation's traditionally low voter turnout in our unique American democratic process to elect their representation. We're encouraging every DXL associate to have their voice heard and we are making a commitment to those who are scheduled at work on [indiscernible] we will give them paid time off to get to the polls and vote if they are not using vote by mail options. Now, for today's call, I intend to cover three main topics: first, to review what we've accomplished over the past 90 days; second, discuss the state of our business, as well as the current state of the industry; and finally, I will address what we have defined as the critical imperatives to win in the fall season and into next year. Everything we have done over the last 90 days has been executed as a pragmatic and thoughtful balancing act. Our retail operational disciplines are well regimented. We have developed a plan and executed against this and we believe we have a solid foundation built on this retail driven discipline. Every decision we have made has been anchored to driving current outcomes, while also protecting the long-term viability of our company. Our focus on cash has been relentless. As a management team, we are living and breathing with incredible attention to the smallest details to ensure we are managing our cash, our liquidity, and our credit to the best of our ability. As you know, in late February, we took swift action to cancel inventory on order and work throughout the second quarter to work existing inventory down to convert it to cash. Given the need for even greater value to our customer base and the cold reality of high unemployment across the country, we started the quarter Uber promotionally, with cash at management continuing to be a primary focus to enhance our liquidity. We have been extremely communicative and transparent with our vendor community, successfully securing extended payment terms for merchandise receipts with our vendor suppliers. We've also been very active with our landlord to communicate our challenges and strengthen our partnerships within the leasing community. We are very grateful that most of our landlords have been open to listening and to the challenges presented by COVID-19 and we're willing to make short-term accommodations to assist us with managing cash flow. In both regards, I want to extend a heartfelt thank you and praise for all of our vendors and landlords. The difficulties have been no easier for them than they have been for us as we all struggle through the pandemic. In response to the lower levels or traffic, we have made the difficult decision in the second quarter to initiate a reduction in force of approximately 430 employees, primarily in our stores. This action is aligned with right sizing our store rosters to the current lower traffic levels we're experiencing and which we expect to continue for the foreseeable future. This is in addition to the reduction we completed in the first quarter, which was primarily related to corporate associates. It is of the utmost important that we are an employer of choice and a company people want to work for and come to every day. We are doing everything we can to protect our staff and do the right thing. We initially place many of our employees on furlough until we could not do it any longer. It is very important to me and to our culture that we are building a company which our associates can be proud. Unfortunately, sometimes circumstances are at our control and we are forced to make difficult decisions to achieve the best path to long-term viability. We do not take these decisions lightly as we knew they would result in irrefutable trade-offs. We are the only omni-channel retailer who serves big and tall customers comprehensively. Our robust direct-to-consumer e-commerce site and the consumer’s clear shift to online shopping is something we have leveraged immeasurably. Not only do we offer him a great assortment of both designer brands and private label merchandise, but that offer is available on both our digital platform and throughout our brick-and-mortar footprint. As some of our customers are reluctant to venture into stores, we have leaned into contact free shopping even more from e-commerce to now BOPAC and BOPUS. We will continue to make these difficult decisions and [fight for] every customer so that we can continue to exceed his expectations wherever he chooses to shop with us. Now for an update on where we are in the business, as well as the current state of the industry. Let me start with digital, our most current business and most important at the moment, our direct sales channel, anchored by dxl.com grew rapidly throughout all of the second quarter. Our e-commerce website grew 69% in the second quarter. Our direct channel not only includes sales from dxl.com, but also online marketplaces and sales initiatives in-store that fulfilled online via our universe technology. Lack of traffic to the stores drove universe well below prior year levels. Universe sales as you likely recall originate in-store as our sales associates are trained to offer product extensions that may not be available in that particular store that are available on the website. Given the decline in-store traffic, universe sales have been hit hard. In contrast, our direct fulfillment by stores remains materially higher during the second quarter. BOPAC, buy online and pick up a curb and BOPUS continue to be momentum drivers and this is an area that we will continue to develop both in terms of functionality and user experience. Today, we offer BOPAC and BOPUS in 311 store locations. We will look to optimize these omni experiences over the coming months taking a test and learn approach as we look to elevate the customer experience, while driving increased penetration and shopper loyalty. Now moving on to an update on stores. Over a 10-week period beginning on April 28, we gradually reopened our store portfolio with all 245 DXL Stores and 72 casual mail stores open for business by the end of June. We were fortunate to reopen our stores sooner than originally anticipated. Overall store sales improved from May to June and July as States began to lift restrictions and warm weather and Father's Day sales brought customers into our stores. In fact, the progress has been steady with reopen stores performing at roughly 63% of prior year levels for the quarter, and we achieve that with reduced hours of operations. Performance by state has varied widely, and states impacted by a resurgence of the virus have brought down the average. Although it is early in the quarter, the third quarter, our stores are tracking to about 65% of prior year sales. And although we feel good about the progress we are seeing, like other retailers, we are experiencing somewhat of a plateau at this time given the hotspots in larger states. The brick-and-mortar retail experience is drastically different during COVID-19. Customer visits are focused and he is looking to make his visit quick and efficient. Customer service and store operational practices will continue to adapt and evolve to his behavior. Home Office teams supporting stores must be quick to adapt to trends, consumer habits, and customer and employee feedback to this ever changing environment. The primary evolution we are pursuing in our store experience today is three-pronged, all of equal importance and priority with the number one foundation, safety, and hygiene for both our associates and customers. We had new processes and procedures to ensure a clean, safe and healthy environment for in-store guests and field employees. Today's three-pronged approach for store experience is markedly different than before. Before our store experience was exclusively around direct interactions with our guests, and it was a very high touch experience. Today, there remains an actual experience, but it's not the same. It's socially distance and while still engaging, it engages from afar and with retails best practices implemented for safety and hygiene for both our associates and the customer. Secondly, given the change in the direct level of high touch interaction, our stores act as the perfect box, and the store presentation acts even more as a silent salesperson, and is as visually appealing to inspire the guests to see and experience the incredible assortment our merchants have created. And the third-pronged shipped from store. The level of fulfillment our stores are now doing is materially higher than before, and although stores are in fact in many warehouses able to ship direct-to-customers as they were before. This has become even more critically important in leveraging the consumer demand and the last mile on delivery. Let me now briefly touch on topics of gross margin, promotions, and inventory. Peter will provide additional detail, but I'm pleased to report that our second quarter gross margin although below last year, was head of our revised internal expectations. In April and May, we were running with a highly promotional posture. Our promotional offers were stronger than we've offered in the last 10 years. The purpose of that posture was to keep goods flowing to customers and to keep cash coming into our company. As we move past Father's Day, in June and then further into July, we scaled back our promotions and saw a drop in our mark down rate, but we were able to still maintain sales momentum. As we sold through inventory, we also saw our customer sensitivity to promotions was diminishing. And that created an opportunity to improve our margins without jeopardizing sales. We know we will still have to be promotional, and while we hope to return to levels approximating last year, the fact of the matter is, we are still hunting for the best balancing promotion, margin, conversion, and of course traffic. One example where we made great progress is that our coupon based promotions. In July, approximately 36% of our DXL.com orders were made with a coupon and that compares to 56% last July. Moving to inventories, we have managed inventories very conservatively and are down just over 20% from last year at the end of the second quarter, reflecting our aggressive strategy to cancel or not place merchandise orders in Q1. We've been selling down our product and have slowed replenishment as we are being mindful of not overextending our assortment and having to clear through unsold merchandise in the fall season. This is certainly another strategic balancing act as we do not want to jeopardize sales by having accepted out of stock positions. The challenge is as fall approaches, we must ensure we balance the sales demand with the risk on the order and availability of inventory. Given the sales dynamics at retail, as well with as with our wholesale partners, there is not a perfect scenario. In some cases, our wholesalers cut back on production. In other cases, there are logistical delays in shipping and the supply chain as business ramps up. Such that is challenging to receive the right product, in the right place, at the right time. It seems like a never ending yoyo up, down; up, down. If it were not for operational discipline and rigor to move the assortments forward, given the myriad of issues, I suspect we would have had even greater challenges. Now, I will spend a few moments discussing what we're seeing in terms of consumer buying habits. Not surprisingly, in the second quarter, we saw a greater shift in business to casual sportswear and loungewear, while the tailored clothing business continues to remain very challenging. The good news is we have been shifting our merchandising mix away from tailored clothing over the past several years, which now accounts for only 7% of our overall assortment mix. In the second quarter, we saw strength in our higher margin private label sportswear categories such as knits, casual shorts, and sports shirts. While the bulk of the second quarter business was driven by core basics, we began to see a shift in late June and into July into fashion colors and prints, which bodes well as we enter the fall selling season. In our designer sportswear, it was – our sportswear business was led by Polo, Reebok, and Adidas. Top items were tech tops and shorts that offered technical benefits such as wicking and anti-microbial fabrics, which are beneficial to the guest in the warmer months and working from home. In defining our critical [imperatives win] in the fall season, we anticipate that our guests will continue to work from home. And as a result, we lean into the acceleration we experience in casual sportswear and loungewear. Our merchandize strategy for 2021 will focus even more on categories that are rooted in comfort, functionality, and versatility to accommodate the new work from home lifestyle, as well as continuing to create more impactful and curated assortments to further engage the guests, while limiting inventory liability. As we've communicated before marketing remains the most critical imperatives. Our strategic intent is for marketing to be able to engage and interact with our customers and consumers in more relevant ways to drive behavioral change. We will do this with our continued focus on gaining a more thorough understanding of our customer through our analytics practice and digital capabilities which are growing. This will enable us to speak with customers in ways that are more visible, more relevant, and help truly differentiate ourselves from competitors. The primary initiative through Q3 is to create success in the holiday season. Based on our understanding of the customer and our marketing initiatives, we have created a series of [if, then bets], as inputs to help us build the optimal media and marketing mix for the fast approaching holiday season. With our test, learn, and optimized headset, we will continue to challenge ourselves to evaluate and accelerate sustainable growth drivers driven digitally. This is paramount to our vision to becoming the ultimate destination for big and tall consumers with an intense focus on the customer and their shifting consumer habits. The onset of COVID-19 shifted our focus to finding the balance between being operational with being strategic. Managing for the present became key to deliver customer messaging and execution across marketing initiatives to drive the best business outcomes through these unprecedented times. We've also leveraged this time to strategically test and validate premises on customer segmentation. Our segmentation efforts have started to show promise and we're driving wider related initiatives. We've also taken meaningful and deliberate steps to further accelerate our digital roadmap and drive digital innovation and collaboration centered on the customer experience across all buying channels. This collective appreciation of our customer’s needs is helping us to manage the current state of the business, while simultaneously laying the foundation for building the future of DXL. Dramatic changes in retail, plus the [consumer landscape] and digital acceleration have presented us with what we believe is our single greatest opportunity in years. Our ability to capitalize and create inflection for all things digital, and specifically our direct business is crucial to driving long-term overall growth for the entire business. We have developed, tested, and validated our thesis on segmentation and relevance in Q2. We are now moving to the implementation phase and plan to build marketing programs to drive higher brand engagement through relevance for the rest of 2020 and into 2021. We have begun measuring the true causation of our marketing outcomes rather than being driven by initiatives correlation to outcomes. This focus on incremental impact creates an ability for marketing to be more directly a consequence for our results in a somewhat uncertain near-term. As we look forward to this and next year, it continues to be less than any silver bullet and more about balanced approach in our marketing media mix and digital orientation. A balance in our ability to be as relevant as possible operationally to produce the optimal outcome of top line sales, gross margin dollars, and gross margin rate, new to file customers incremental return on ad spend and the channel mix with a laser focus and rigor in the process and analytics framework we have now built. And lastly, a brief update on our wholesale business. As I mentioned in our Q1 call, we have launched a whole new wholesale line of business in designing and sourcing of PPE protective mask. We began selling the mask in the second quarter, and we generated sales of $4.1 million in masks. In addition to a great feedback from our retail customers, we have had incredibly strong compliments from our large corporate customers, who acknowledge that we have delivered a high quality mask at a very affordable price. Our pursuit of mask to fulfill an essential need has resulted in a new business channel for the communities that we do business that we expect will continue to grow over the coming quarters. Aligned with expected growth, we have hired a new wholesale account executive to help support and build-out this business opportunity. I look forward to updating you on our progress on our next call. As we entered the second half of the year, cautiously optimistic, we have been pleased to have seen the improving trends in our stores and the continued growth in our direct business in the second quarter. We remain keenly focused on balancing cash preservation, and the strategic decisions to maximize top line and margin opportunities for the balance of the year. As we look to next year, we are focused on continuing to accelerate our digital first, mobile first approach to everything we do while leveraging the insights we are gaining from our test and learn approach to merchandising and marketing. And now I will turn it over to Peter for an update on the financials, Peter?

Thank you, Harvey and good morning everyone. I like to provide you with a summary of our second quarter financial results, and then spend a few minutes highlighting some of the actions we have taken to protect the long-term viability of our company. Like Harvey said, I too remain cautiously optimistic. We believe the strategic decisions we have made throughout the pandemic will position us to emerge from the crisis well equipped to continue serving big and tall guys all across the country. With that, let's start with sales and margin. Total sales for the second quarter decreased 38% to 76.4 million, down from 123.2 million in the second quarter of last year. This decrease was due to having most of our stores closed throughout May and much of June and since reopening stores operating on limited hours. Nevertheless, our second quarter sales performance improved from the first quarter and surpassed our expectations as we were able to reopen our stores sooner than expected. As noted by the end of June, all store locations have been reopened. We continue to see a material increase in online shopping, and we were once again pleased that our direct business performed very well, with DXL.com sales up 69% over last year. We expect online shopping to be a growth channel through the remainder of fiscal 2020 making up for some of the store shortfall. Buy online pick up at curbside and buy online pick up in store are available in 311 stores and grew over 200% versus last year's volume. Our wholesale business contributed $5 million in sales during the second quarter as compared to 2.7 million in the prior year, driven primarily by the sale of 4.1 million in protective masks. Gross margin rate inclusive of occupancy costs was 28.1%, as compared to a gross margin rate of 44.3% for the second quarter a fiscal 2019. Our gross margin rate declined 5.1% from the deleveraging and occupancy costs against the lower sales base, and a decrease of 11.1% in merchandise margins. Although merchandise margins were down this quarter, they were better than we anticipated. We remained highly promotional during the first half of the quarter to prevent a build-up of seasonal merchandise, but we've significantly scaled back these promotions after Father's Day. Although promotion certainly played a role in driving online sales in May and June, we continue to see strong online growth in July after pulling back on these promotions, and have maintained the strategy entering the third quarter. In addition, due to the growth in our direct channel and free shipping promotions, shipping costs for the second quarter increased over the prior year. We expect this headwind to continue in the second half of the year, as all major national carriers recently announced shipping surcharges for peak volume this holiday season. Now let me move on to selling, general, and administrative expenses. For the second quarter of fiscal 2020, SG&A expense was 25.8 million versus the prior year second quarter at 47.5 million. This represents a significant 46% decline year-over-year. We took several steps to reduce our operating costs, while our stores were closed, including the furlough of both our store associates and certain corporate associates, a significant reduction in marketing costs, especially through the traditional non-digital channels, a temporary salary reduction of 10% to 20% for management, and the suspension of non-employee director compensation for the second quarter. As we reopen stores during the second quarter, our operating costs were aligned with the expected sales levels and associates were brought back on a staggered schedule. We continue to assess and rationalize our entire SG&A cost structure. Given the changes to our business, as a result of this pandemic, we have restructured various areas to ensure that we can operate most efficiently. This included the elimination of approximately 34 corporate positions in the first quarter of fiscal 2020 and an additional 430 store associates in the second quarter. With reduced sales and store traffic, our stores are operating with fewer hours and minimal staffing levels. And we do not see an opportunity at this time to bring back certain positions from furlough. We continue to expect overall store payroll costs to trend much lower than historical levels for the balance of fiscal 2020. As a reminder, we view SG&A expenses 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 15.8% of sales in the second quarter of this fiscal 2020, as compared to 23.9% of sales in the second quarter of last year. Corporate Support Costs, which include the distribution center in corporate overhead costs, represented 17.9% of sales in the second quarter of fiscal 2020 compared to 14.6% of sales in the second quarter of last year. Adjusted EBITDA was negative 4.3 million for the second quarter, compared to positive 7.1 million for the second quarter of fiscal 2019. Net loss for the second quarter was 10.7 million or $0.21 per diluted share, compared to flat earnings for the second quarter of fiscal 2019. On a non-GAAP basis, adjusted net loss for the second quarter was $0.15 per diluted share, as compared to adjusted flat earnings per diluted share for the second quarter of fiscal 2019. Now, I'd like to move on to cash flow and the balance sheet. Managing and maintaining – managing our liquidity and maintaining our financial flexibility continues to be our primary goal as we navigate through the pandemic. We talked last quarter about a few of the immediate steps we took at the outset of the pandemic, including amending our credit facility to increase our borrowing capacity, decreasing our payroll operating and capital costs to align with expected decreases in revenue, cancellation of purchase orders and negotiating extended payment terms with our merchandise vendors. These efforts continued in Q2 with even more tenacity. One of our more significant accomplishments this quarter was addressing our occupancy costs. Our real estate team was successful in negotiating concessions in the form of abatements and deferrals that will allow us to reduce our rent payments by approximately $10 million this year. We have also been very active with our branded vendors and our private label manufacturers to negotiate extended payment terms on fall receipts, which will be important as we continue to manage cash in the second half of the year. For the first six months of fiscal 2020, our free cash flow was a use of 11.1 million, compared to a use of 6.7 million for the first six months of fiscal 2019. With liquidity preservation, a primary financial goal, we have limited our capital spending to only that which was necessary for our immediate business needs. Our capital expenditures for the first six months of fiscal 2020 were 2.1 million as compared to 7.6 million for the same period last year. The spending was focused primarily on initiatives to drive growth in our direct-to-consumer business. You may recall that when the pandemic first struck in March, we took a defensive drawdown of $30 million on our revolving credit facility. With everything that has transpired since then, we're pleased to report that we had a cash balance of 20.4 million at the end of the second quarter. Our total debt which is comprised of our revolving credit facility in FILO term loan is 81.4 million. If we were to look at debt net of cash, our balance was $61 million at the end of the second quarter as compared to $58.7 million a year ago. This is also a good opportunity to remind everyone about the terms of our asset based loan. We have a $125 million credit facility, which does not mature until May of 2023. Our credit facility is secured by our inventory, credit card receivables, and IT. As we buy into fall merchandise in the coming months, our borrowing base will increase, which will allow us to accommodate new fall product. At the end of Q2, we have 12.4 million of excess availability in addition to the 20.4 million of cash. Speaking of inventory, our balance decreased approximately $23 million in the second quarter to 87.4 million as compared to 110.4 million at August 3, 2019. This decrease right sized our inventory position for our new sales forecasts and was accomplished primarily through the cancellation of open orders leading into the second quarter, which also prevented a buildup of spring seasonal product. With respect to the remainder of fiscal 2020, we will respond to business changes, but expect that our fall inventory buys will be below fiscal 2019 levels. Our objective is to maintain a healthy inventory position, which will include narrowing our assortment, while also continuing to manage clearance levels. Despite the challenges of the last few months, at the end of Q2, our clearance inventory levels were down 2.2 million from a year ago, in consistent at 11% of our total inventory, just shy of our long-term goal of 10%. As we continue to navigate through the pandemic, we will maintain a conservative approach to financial planning, with an assumption of slow improvement in sales trends at our reopen stores, and a continued acceleration in our direct business. We believe that the steps we've taken over the past two quarters to preserve liquidity and maintain our financial flexibility represent important and significant steps on our way to a recovery. We believe that our plan provides us with the necessary path to make it through the next 12 months. And as we move further along in fiscal 2020, we will have a more clear picture of what we can expect in fiscal 2021 and beyond. And with that, I'd like to turn it back over to Harvey for some closing thoughts.

Thank you, Peter. As we focus on the balance of 2020 and look to 2021, we are ever hopeful for the health of our nation, a vaccine, and over some time a return to normal. However long that actually is defined. For the moment, [indiscernible] to all, and for all a better fall season than spring has been. And now, we will take questions. Operator?

[Operator Instructions] And our first question comes from Eric Beder with SCC Research. Your line is open.

Good morning.

Good morning.

A few competitive questions. So, one of your biggest competitors have filed for bankruptcy. How have you, you know, how do you look upon that as an opportunity to move some of those customers over to you?

Eric, it's a great question. And obviously every opportunity to take share market is something that we're continuing to evaluate. Those businesses that have found more strikes in us are in more of a tailored clothing situation. So, while there is a casual elements of their business, and we absolutely hope and believe that our digital practice is allowing us to accelerate both our own sales and shared market, time will tell, but we do see that is a distinct opportunity potentially in the coming months with a casual part of our mix, and the [inherent strife] that they're experiencing.

Okay. When you look at the store returns there were about 60% plus of prior, is that including someone who buys online and you ship from store?

No. That does not include that Eric. That's included in our direct number.

Okay.

Well, it's actually Eric. Just so, you know, this, Harvey, it's a direct part of that I would say although we're excited about nearly 70% growth, our universe sales, which are store sales driven in the store, but actually allocated to the web and the direct side of the business are greatly challenged because of the traffic in the stores not being there. And so our opportunity to extend the assortment from the web, selling it in the store is limited by the traffic itself.

Got it? Okay. You know, when you look at the limited hours, do you believe how much of that do you believe is a way down on the stores or is, you know the new norm of 11 to 5 or 6 or 7, kind of where it should be just in terms of maximizing efficiency in terms of costs and other pieces?

Again, another really good question, which I would tell you that we're testing and trying to optimize, we originally opened at 12 to 6. What we saw was that customers are literally relatively speaking knocking on the door in some cases earlier. So, we opened earlier because the fact of the matter is our store associates are in the stores as early as 9 a.m., while they're shipping out of stores as the mini warehouses that they are, we are looking to again extend that on the other side, which is how we went from 6 to 7 to accommodate anyone that might need to come in if they're in fact working a full day. What we've seen is, to your point, the new normal is a relatively compressed sales environment while we have seen sales grow into the 11 o'clock hour, we haven't seen the level of sales really growing much into the 6 to 7 hour. So, we will continue to evaluate that, but as I've said, everything is a balancing act, and it's balancing our associate’s exposure being out. The hours we have, the payroll we have against the sales, and we will continue to look at whether or not hours should be extended to support our customers, and do so accordingly.

Okay, and last question, what historically period is when you need the most capital, and how has that changed in terms of relative needs for prior periods for this year and going forward?

Sure. So Eric, I'll answer that one. The, you know, it's typically at the beginning of the spring season, and the beginning of the fall season is when we have the biggest use of cash and we take our inventory in two cycles per year. So that's typically where it is. It's right now. We're taking in an awful lot of fall merchandise this month in August, and that will continue into September and October, but then once we get through the holiday that's when we tend to be in our most cash rich position and you see a greater pay down on our revolver as we get into January. So, I don't think that's going to change much this year. You know, what we're going to continue to do is keep working with our vendors, our merchandise vendors. Harvey talked a little bit about, you know, how important it is that we just stay very close with them to make sure that we can get all of our receipts in, so that we're ready when the customer does come in, you know, this fall season.

Great. Good luck for the remainder of the year and next year.

Thank you.

Thank you. Our next question comes from Alex Silverman with AWM Investments. Your line is open.

Hey, good morning.

Good morning.

I struggled a little bit with the – operating at 63% of last year versus operating at 65% of last year. What was the difference there?

Really, we were seeing what I would say is continued acceleration in our store trends. And the finite difference between 60 and 65 is that we seem to have plateaued a bit with the hotspots and there are bright lines, as you probably can imagine, between California, Georgia, Illinois, Texas, Arizona, where those markets have actually gone backwards in their performance, and they are affecting the total whereas we have other markets surprisingly, as an example, Michigan, which were operating in the low double digit declines, which would be characterized as 85%, 87%, 88% of last year. And so that is the characterization when you aggregate it all together, you know, we're not making a great deal of progress from what the 63% said the other way would be negative 30 and change, we're still negative 30 and change at the moment.

So was 63%, where you were for the quarter and 65% is where you are today?

That is correct and the 65% is the first three plus weeks of August. So, we've made slight improvement in August from what the second quarter was.

And, and as you…please go ahead.

Excuse me, and as you might imagine, it's obvious we have an expectation that as Peter said, we will continue to see slow improvement. We are encouraged by the reduction in infection rates and really not flat-lining yet, but some level of that. And then equally so the level of infection not turning into something more challenging and the ability to treat that with a faster course for remediation of those that are affected with the virus.

As people start to move back to the office, which is slow, but seemingly happening, are you seeing any improvement or can you tell whether your consumer is in the store because they need clothes to return to the office?

Yeah, I would definitely say, we've seen a reduction for lack of better ways; say this is a double negative. In the negative trend, the tailored clothing. So as you might imagine, tailored clothing and things like that were like literally negative 96%. It's gone from negative 96%, you know, negative 70. And now we're in the negative 50s, if you will. So, it’s better, but our overall businesses in the 30s. So, it's still 40% worse or 20 points of comp worse than our overall business.

Great, thank you very much. That's very helpful.

Thank you. And our next question comes from the line of [indiscernible]. Your line is open.

Hey, Harvey, first question is, in terms of kind of a longer-term opportunity set here, and your strategy, has anything changed? And, you know, I guess the first thing that comes to mind is, you know, the value and size of kind of the store portfolio.

Well, I'm going to go from the reverse order, although you just asked if anything's changed and then segue to the store portfolio. Actually, what's changed in a positive way is that our initiatives and strategic intent literally since I've walked in the door to the Excel now a year and a half ago is unfortunately, and I say unfortunately, because the COVID environment has created that and we certainly wouldn't have wished for the COVID environment, but it has further strengthened our conviction in the digital initiatives and acceleration of the roadmap that we have been pursuing. I've talked about the app before. The app is producing three to four times the volume of what it was before. And we've leaned into the app as an example. Some of the segmentation and cohort marketing we've done, we've seen test and control examples of as we brought on the Salesforce email program and the campaign management program. We've seen definitive elements of success in the – against the control. So, we are leaning in as hard and fast as we can go to that initiative because the customer regardless of where they shop to your point about stores is starting with a digital experience, even if they're going to the store. So, it may start on their mobile device. And they started on a mobile device looking for a store. They may purchase on a store, and we may end up in a BOPAC environment and literally, let's say six months ago, there was no buy online pick at curbside. Today, we are in double-digit penetration of rate in terms of BOPUS and BOPAC and that is literally a factor of probably nine times that, you know, a BOPUS for us used to be a couple of points. Today we're you know, experiencing every couple, two, three days of 10%, 12% penetration for those elements in our mix, not every day, but it's definitely important. And then in terms of the store portfolio, we definitely believe there's an opportunity to prune the store portfolio. We've gone through a very extensive profit process with both our landlords and internally evaluating the formal contribution. I would say, unlike other experiences I've had in the retail brick-and-mortar environment, our four wall contribution of most of our stores has historically been a positive outcome with the COVID environment and the sales that is more challenging, but we are not looking to accelerate store closings. We believe that given what we know today, that there's natural explorations that would allow us to close a meaningful part of the mix over time in the next three years that makes sense for the business. And remember those stores all act as mini warehouses and last direct two mile shipping points as well. So, we're getting leverage out of this store that historically was [four-wall] positive contributors.

Got it. That's helpful. And maybe this is for Peter. In terms of liquidity, can you talk about, and this kind of goes off the last callers question, can you talk about, you know, when you reach your lowest point, liquidity wise, and you know, kind of what gives you or what the puts and takes are that give you confidence that you have enough liquidity for the next 12 months?

Sure, I'd be happy too. So, this is really one of the things that we have been focused on non-stop since the pandemic started. And we've really gotten very, very detailed and very granular with how we're managing cash on a week-to-week basis and we've projected out for the next 52 weeks of how to get through the ebbs and flows and I would say where it's the most challenging, it's these times right now. It'll be in August and into September, as we've brought in or we're in the process of bringing in all of our inventory for the fall, but the majority of that inventory won't sell until November and December. So, you know, it's always been very cyclical for us. Like many other retailers, I don't think that's changing this year. The only thing that's changing is because of the first half of the year in the store closures and the impact that that's had on sales. We're just having to be much more mindful and precise in how we manage that cash. And I think we've been doing a pretty fair job of doing it. I would, you know, encourage you to take a look at our balance sheet, our cash, or our debt net of cash is actually in a pretty good situation right now. We're at about where we were at this time a year ago. So, we're just going to continue to manage it very, very carefully, and stay on this path for the next 52 weeks.

And what sort of…

It’s Harvey; I just wanted to double down on one thing Peter just said, because I think it's really important that you hear this. We as a management team have been Uber aggressive at kind of downside scenario planning, and we have, we really have two plans. One is the downside scenario with assumptions. And one is the management plan. We're navigating pretty close to the management and so we feel really good about that, but in the scenario that that we've spoken about a little bit, whether it be the pandemic or what have you in terms of the future, we have the confidence in the liquidity conversation that you're trying to tease out a little bit from the downside scenario planning with things like our borrowing base, which for us is a really important component and the inventory and our vendor support of shipping. So, we have meaningful opportunities to leverage really our credit facility, but more importantly, we have a downside scenario, which we've been very hard on ourselves. And the most important thing that I use the word relentless on is cash preservation and understanding what that downside scenario could mean to it and gives Peter and I greater confidence in liquidity.

Got it. And I guess to that point, are you considering any other additional sources of capital? I had noticed you filed the shelf, maybe a few months back?

Yeah, that's right. We did file a shelf registration back at the beginning of the second quarter, I believe it was. And so we are not planning to do a share issuance right now, we don't think that that's in the best interest of the company or of our shareholders, but that is out there if we decide to exercise that. But yeah, that is out there.

Okay. Thank you very much. Good luck guys.

Thank you.

Thank you. And our next question comes from [Paul Johnson], as a Private Investor. Your line is open.

Yes. Good morning. Can you tell us a little bit about the competitive landscape, obviously in the tailored area, we have tailor brands filing, which I imagine is a positive, but in the sportswear area or other than tailored brands, for your, obviously JC Penney was a big force they've filed as well. Obviously, both of them may restructure so hard to know how that all play out, but who are you seeing as sort of the number two and number three competitors in the XL area, sportswear and tailored at this point?

You know, another great question, and I'll try to answer that. Peter can weigh in, if he has a different perspective in addition to what our comments are. The reality is, what we think about, when we think about competitors, with few exceptions there are limited direct competitors. Most men's apparel retailers trade on the edges of our business, whether it's JC Penney, Men’s Wearhouse, Macy's, there are most competitors that are in the upper end of their size range, which literally is the lower end of our size range, and not the average. So, what I'm talking about is, is what we've historically referred to as end of the rack and 38 and 40, whereas our average size is, you know, mid-40s for a waist size for lack of a better way to say it. We believe there is opportunity to – for lack of a better way say conquest and to take advantage through the direct search environment of both non-branded search and shopping search, which our customers that would not necessarily shop with us today because they're not shopping by brand, but they're starting in the digital environment to basically take the opportunity to leverage that searching on the digital platform to acquire those customers. So without naming competitors there, you already named a number. There are competitors that are clearly in the casual space, and competitors that are in the – that I would say the tailored clothing space. Those that are in the casual space are typically lower in price point and not as high touch. Those are in the tailored space are typically higher in price point and in higher touch, but when you add them all together, there's absolutely a market share gain. And we believe that the digital platform allows us to get at that quickest. We are using geo targeted elements where our research and market information helps us understand the specific store closings. We're looking at store closings within a five mile radius of our store and then conquesting geographically the opportunity to really go after those consumers. That's one example of how we're going at it, but we definitely believe there's an opportunity there. And the unfortunate reality for them, which I wouldn't wish bad luck on anyone, but the unfortunate reality for them is when companies [go 11] and what have you, there stripes, and that stripe gives us an opportunity where their attention is not always focused on some of the things that ours is at the level it is at the moment.

That's very helpful. Thank you. And can you give us – just give us an update on your wholesale business with Amazon?

Yeah, our wholesale business with Amazon, I was wondering whether anyone was going to ask about that, is holding its own. It's actually ahead of our overall company's results. As you might imagine, digital player doing well, it's, you know, our performance overall, the results we articulated are obviously not positive the last year. Amazon is still positive, but the level of increase has definitely subsided from what it was. We have great expectations. We have launched a second brand, which I think there's a few styles online, but you'll see that come online and fall with them. And we are hopeful that as the pandemic hopefully subsides at any level, and new normal happens, that digital platform that we're pursuing that obviously Amazon is among other leaders will continue to provide an opportunity to leverage not just the mass business, but more importantly the core of what we do, which was big and tall sizes in core apparel, which is more casual driven, which is what we're leaning into with them.

Great. And then just finally, with regard to the debt, you mentioned of the 80 million, or can you just give us sort of the scheduling of the debt because I know some of it is out in May of 2023, I think I just want to understand the relative terms.

Sure. So the credit facility does not mature until May of 2023. So, it's an asset based loan, which fluctuates with our borrowing days. So, the more assets that we have, the more availability that we have. And there's different step downs in advance rate as we move out, but I guess the takeaway is that we're not in a situation where we need to go out and secure financing in the next 12 months or even 24 months. You know, we've got three of the biggest banks in the world behind us that are in the Banking Group. I think we're very, very transparent and communicative with them. And we're very, very happy that they've been supporting us. I think the fact that we were able to renegotiate the terms of our deal in the first quarter, I believe it was, says a lot to the relationship that we have with our Banking Group. So, we've been very happy with it, but that's a quick overview.

Appreciate it. Thank you.

Thank you.

Thank you. And I'm not showing any further questions at this time.

Thank you, operator. I wish everyone the greatest of safety and health and good wellness over the fall season and thank you for your time. We'll talk to you again in 90 days.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a great day.