Q2 2020 Destination XL Group Inc Earnings Call
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At this time, all participants are listen only mode. After the speaker presentation. There will be question and answer session last question. During this session. Please press star one of your telephone if you require any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker needs and Mickey.
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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 Cantor, and our Chief Financial Officer, Peter strategies.
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 Web site at Investor Dot the XL dotcom 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 cobot 19 pandemic honest business and results in fiscal 2020 and to manage through the pandemic, including its efforts to restructure and reduce cost 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 as 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 Cantor Harvey.
Thank you need so and good morning to everyone on the cold today.
I hope you oral healthy safe and well.
These are very challenging times for example.
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 longstanding directors retired from aboard.
I would like just extending heartfelt. Thank you to our former board Chair, John Keys, and Directors Award Mooney and see more hopeless.
Further service and support over the years.
All three contributed to our business in different ways like.
Like everything else in life nothing is forever.
Their personal passion for the business.
Our team and their most recent support during the cold in 19 pandemic are greatly appreciate it.
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.
Her love level of perseverance.
The focus during these unprecedented times.
These are the folks have gone to battle with us during difficult times in the past. These are the same folks that's fiercely kicking on today's challenges.
We are so incredibly proud Ortiz from the DC and call center to the stores and corporate office and the culture that we have created Kureski excel.
These days there are more things that keeps me up at night, but the team we have is not one of them.
We agreed people for the back to one of our continued optimism for the future do excel.
I also want to older with two other important topics first our ongoing and continued efforts to combat the challenges of social unrest racial device.
2017 dig self implemented our own program to address these issues, which we call normalizing the brand.
The last few months or heightened awareness has let us to form a new council across the organization.
Reimbursed or training team in further addressing unconscious bias and we remain committed in this regard to not just be a part of the conversation, but part of the solution.
Second I'd Excel, we have joined in larger consortium of companies supporting tying to both.
Workers shouldn't have to choose between hurting 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 are encouraging every de XL says it to have their voice heard and we are making commitment to those who are schedule at work.
Although we will give them paid time off to get to the polls and vote.
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 can discuss the set of our business as well as the current state of the industry.
Finally, I will address what we had defined as a critical imperatives to win in the fall season and into next year.
[noise] everything we had 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 to plan and executed against this and we believe we have a solid foundation.
Built on this retail driven discipline.
[noise] every decision we have made has been anchor to driving career outcomes will 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 do deals to ensure we are managing our cash.
Our liquidity and our credit to the best of our building.
As you know in late February we took swift action to cancel inventory on order and worked through out the second quarter, two work existing inventory down to convert it to cash.
Given the need for even greater value to our customer base and the coal reality its height, one that across the country.
Started the quarter Luber promotionally.
Cash management, continuing to be a primary focus to enhance our liquidity, we've been extremely communicative and transparent with our vendor community successfully security extended payment terms for merchandise receipts for their vendor suppliers.
We've also been very active with our landlord to communicate our challenges and strengthen our partnerships within the leasing humidity.
We are very grateful that most of our landlords have been open to listen they entered the challenges presented by Cobot 19, and we're willing to make short term accommodations to assist us with managing cash flow.
In both regard I want just extending heartfelt. Thank you and praise for all of our vendors and landlords.
The difficulties have been no easier for them.
They had been for us as we all struggling through a pandemic.
In response to the lower level store traffic, we've 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 a likely the rightsizing 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.
Is the most important that we aren't employer of choice and a company people want to work for income to every day.
We are doing everything we can't you 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.
Very important to me into our culture that we are building company, which our associates can be proud.
Unfortunately, sometimes circumstances are out our control and we're 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 tradeoffs.
We are the only omni channel retailer, who served as big and tall customers comprehensively.
Our robust direct to consumer E commerce site, and the consumers clear shift to online shopping.
Something we have leveraged measurably.
Not only do we offered 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 leaned into context free shopping even more from E Commerce to now Bowl pack and BOPUS.
We will continue to make these difficult decisions in place for every customer. So that we can continue to exceed his expectations where ever he chooses shop with us.
Now for an update on where we are in the business as well as the current state of the industry.
Let we let me start with digital or most current business and most important at the moment, our direct sales shadow anchored by de XL Dot com grew rapidly throughout all of the second quarter.
Our ecommerce website grew 69% in the second quarter, our direct channel not only grew sales from gig sell dot com.
Also online marketplaces, and sales and that should in store.
Filled 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 that are 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.
Boback buy online pick up and curve 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 both packing bolt pack 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 well driving increased penetration and that shopper loyalty.
Now moving onto an update on stores.
Over 10 week period, beginning on April 28, we gradually reopened our store portfolio with all 245, DXL stores and 72 casual male stores open for business by the end of June.
We were fortunate to reopen our stores sooner than originally anticipated.
For all store sales improved from May to June and July as states again to lift restrictions and warm weather and father's day sales are brought customers into our stores.
In fact, the progress has been steady with reopen stores performing at roughly 63% appraiser levels for the quarter and we achieved that.
Reduced hours of operations.
Performance by state has varied widely and steep impacted by a resurgence of the virus have brought down the average.
Although it is early in the quarter third quarter, our stores are tracking to about 65% afraid your 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 hot spots in larger states.
The brick and mortar retail experiences drastically different during cold good night.
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 evolved to speak Hager home office teams supporting stores must be quick to adapt to trends consumer habits customer and employee feedback to this ever changing environment.
The primary evolution, we're pursuing in our store experience today is three pronged all equal importance and priority with the number one foundation safety and hygiene for both our associates and customers.
We have new processes and procedures to ensure a clean safe and healthy environment for in store guests and field employees.
Todays 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 well still engaging in 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 high touch interaction our stores Act and 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 an experience incredible assortment, our merchants and to create it.
In the third Prague ship from store.
Level of filling that our stores are now doing is materially higher than before and although stores are in fact, many warehouses able to ship director customers as they were before.
Has become even more critically important and leveraging the consumer demand and the last mile delivery.
Let me now briefly touch on topics that 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 ahead of our Ria NYSE internal expectations.
In April in May we were running with a highly promotional posture promotional offers are stronger than we've offered in the last 10 years.
The purpose of that posture was to keep good slowing 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 markdown 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 the opportunity to improve margins without jeopardizing sales.
We know we will still have to be promotional and what we hope to return to levels approximating last year. The fact that matter is we are still hunting for the best balance between promotion margin conversion and of course traffic.
One example, where we made great progress is that our coupon based promotions.
July approximately 36% of our DXL Dot 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 plays merchandise orders in Q1.
We've been selling down our product and have slowed replenishment as we're being mindful not over extending our assortment having to clear through unfilled merchandise in the fall season.
This is certainly another strategic balancing act as we do not want to jeopardize sales, but having excess out of stock positions.
The challenge is as fall approaches.
Sure, we balanced sales demand with the risk in the on the order and availability of inventory.
Given the sales in that mix at retail as well with as with our wholesale partners. There is not a perfect scenario.
Some cases, our wholesalers cut back on production and.
In other cases, there are logistic and delays in shipping and the supply chain as business ramps up.
Such that it's 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 wouldn't 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 quarter, we saw a greater shift business to casual sportswear and loungewear well 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 in categories such as nets.
As you will shorts and sport shirts.
Well the bulk of the second quarter drip business was driven by core basics, we began to see a shift in late June into July fashion colors, and Prince which bodes well as we enter the fall selling season.
And then designer sportswear. It was our sportswear business was led by Polo Reebok Adidas.
By Desertec tops and shorts that offered technical benefits such as wicking antimicrobial fabrics, which are beneficial to the guest in the warmer months and working from home.
In defining our critical imperatives when in the fall season, we anticipate that our guest will continue to work from home and as a result will lean into the acceleration we experienced in casual sportswear and loungewear.
Our merchandise strategy for 2021 will focus even more on categories that are rooted in comfort.
Optionality and versatility to accommodate the new work from home lifestyle as well is continuing to create more impactful and curated assortment to further engage the guest well limiting inventory liability.
As it communicated before marketing remain the most critical imperative.
Our strategic intent is from marketing to be able to engage in interact with our customers and consumers in more relevant ways to drive behavioral change.
We'll do this with our continued focus on gaining a more thorough understanding of our customer there were 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, it's great success during the holiday season.
Based on our understanding of the customer and our marketing initiatives. We we have created a series of if then bets as inputs to help us build the optimal media and marketing mix.
The fast approaching holiday season.
With our test learn and optimize headsets, we will continue to challenge ourselves to evaluate and accelerate sustainable growth drivers dip driven digitally.
It is Paramount tour vision to becoming the ultimate destination to big and tall consumers with an intense focus on the customer and the shaving there.
Shifting consumer habits.
The onset of Cobot 19 shifted our focus is finding the balance between operational with being strategic.
Managing for the President became key to deliver customer messaging and execution across marketing initiatives to drive the best business outcomes through these unprecedented times.
We've also leverage this time to strategically test and validate premises on customer segmentation.
Our segmentation efforts have started to show promise and we're driving whiter related initiatives.
We've also taking 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 customers' needs is helping us to that as the current state of the business, while simultaneously laying the foundation for building a future Dx, though.
Dramatic changes in retail plus the consumer landscape and digital acceleration I 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're now moving to the implementation phase and plan to build marketing programs to drive higher brand engagement through relevance for the rest of Twentytwenty 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 Empaque creates an ability for marketing to be more directly a consequence for our results in the somewhat uncertain near term.
As we look forward to this and next year. It continues to be less about any silver bullet and more about balanced approach marketing media mix digital orientation.
A balance in our ability to be as relevant as possible operationally to produce the optimal outcome of topline sales gross margin dollars and gross margin rate new to file customers incremental return on assets, then and the channel mix with a laser focus and rigor in the process and though.
Analytics framework, we had no built.
And lastly, a brief update on our wholesale business.
I mentioned on our Q1 call we have launched a whole new wholesale line of business in designing and sourcing of P.P. protective mass we began filling the mass in the second quarter, and we generated sales of $4.1 million in math.
In addition, a great feedback from our retail customers, we have it incredibly strong complements from our large corporate customers who've knowledge that we have delivered a high quality mask, a very affordable price.
Our pursuit of mass to fulfilling 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 the year cautiously optimistic we had 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 building cash preservation and the strategic decisions to maximize topline.
And margin opportunities for the balance of the year.
As we look to next year, we're focused on continued to accelerate our digital first mobile first approach to everything we do.
While leveraging the insights we are gaining from or test and learn approach to merchandising and marketing.
And now I'll turn it over to Peter for an update on the financials Peter.
Thank you RV and good morning, everyone.
I'd 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 to 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 said, 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 unlimited 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 had been reopened.
We continued to see a material increase in online shopping.
And we were once again pleased that our direct business performed very well with the XL dotcom 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 in grew over 200% versus last year's volume.
Our wholesale business contributed $5 million and sales during the second quarter as compared to 2.7 million in the prior year, driven primarily by the sale of 4.1 million and 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 fiscal 2019.
Our gross margin rate declined 5.1% from the de leveraging 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 remain highly promotional during the first half of the quarter to prevent a buildup of seasonal merchandise.
We significantly scaled back these promotions after father's day.
Okay promotion certainly played a role in driving online sales in May and June we continued to see strong on loan growth in July after pulling back on these promotions and have maintained this strategy entering the third quarter.
In addition, due to the Greek and our direct channel and free shipping promotions shipping cost for the second quarter increased over the prior year.
We expect this headwinds 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 fiscal 2020, SGN 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, both our store associates in certain corporate associates a.
A significant reduction in marketing cost, especially threeg, a traditional non digital channels.
A temporary salary reduction of 10% to 20% for management.
And the suspension of Nonemployee director compensation for the second quarter.
As we reopened 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 SGN 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 fiscal 2020 and include 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 cost to try and much lower than historical levels for the balance of fiscal 2020.
As a reminder, we view SGN expenses through two primary cost centers customer facing cost in corporate support costs.
Some are facing costs, which include store payroll marketing and other store operating costs represented 15.8% of sales in the second quarter fiscal 2020, as compared to 23.9% of sales on the second quarter last year.
Corporate support costs, which include the distribution center in corporate overhead costs represented 17.9% of sales in the second quarter 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 fiscal 2019.
Net loss for the second quarter was 10.7 million or 21 cents per diluted share compared to flat earnings for the second quarter fiscal 2019.
On a non-GAAP basis, adjusted net loss for the second quarter was 15 cents per diluted share as compared to adjusted spot earnings per diluted share for the second quarter fiscal 2019.
I'd like to move on to cash flow in the balance sheet.
Managing in maintaining managing our liquidity and maintaining our financial flexibility continues to be our primary goal as we navigate through the pin them.
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 the more so 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 in 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.
[noise] with liquidity preservation, a primary financial goal, we have limited our capital spending to only about 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 rent 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 and file low 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 won a 125 million dollar credit facility, which does not mature until may of 2023.
Our credit facility is secured by our inventory credit card receivables and IP.
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 30, 22019 2019.
This decrease rightsize, our inventory position for our new sales forecast 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 inconsistent 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.
Our financial flexibility represent important in 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 m. beyond.
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.
Axiom and over some time a return to normal.
However, long that actually is defined.
For the moment gutsy to all and for all a better full season than spring has beds and now we'll take questions operator.
As a reminder to ask a question you need to press star one on your telephone.
Your question press the pound.
Once again, that's star then one to ask a question.
And your first question comes from Eric Theater with SCC Research. Your line is open.
Good morning.
Good morning.
Good question. So one of your biggest competitors are filed for bankruptcy.
How I view is that enough how do you look on 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 on us are in more of a tailored clothing situations. So while there is a casual elements of their business and we absolutely.
Hope and believe that our digital practices is allowing us to accelerate both our own sales and share of market time will tell.
But but we do see that is a distinct opportunity potentially in the coming months with the casual part of our mix and the inherent strikes that they're experiencing.
Okay. When you look at the store returns right at about 60 plus percent of prior is that including someone who buys online and you ship from store.
You know that does not include that Eric that's included in our direct number.
Okay.
Actually it's actually Eric just so you know this hearted it's a direct part of the 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 art.
Greatly challenge 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 you've read is a way down on the stores or is the know the new norm of 11 to five or six or seven kind of where it should be just in terms of maximizing efficiency in terms of costs other pieces.
Yes, again, another really good question, which I would tell you that we're testing I'm trying to optimize we originally opened at 12 to six.
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 or in the stores as early as nine am while they're shipping out of stores as a mini warehouses that they are.
We are looking to again extend that on the other side, which is how we went from six to seven two at a comedy 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 in the 11 o'clock hour, we haven't seen the level of sales really growing much into the 67. Our so we will continue to evaluate that but as I've said everything is a balancing.
Act and its balancing our associates exposure being out are the hours, we have the payroll we have against the sales and we will continue to look at whether or not ours should be extended to support our customers and do so accordingly.
Okay and last question, what historically period, just when you need the most capital and how has that changed in terms of relative needs. Prior prior periods for this year and going forward.
Sure. So so Eric I'll I'll answer that one the.
It's typically at the beginning of the spring season in 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 this month in August and that will continue into September and October.
But then once we get through the holiday.
Thats 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 thats 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.
How important it is that we just say very close with them to make sure that we can get all of our receipts and.
So that we're ready when the customer does come in you know this this fall season.
Great. Good luck for the remainder of the year next.
Thank you.
Thank you. Our next question comes from Alex Silverman with eight.
Your line is open.
Hey, good morning.
Good morning.
Well I struggled a little bit with the operating at 63% of last year versus operating 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 in 16 60 to 65 is that we seem to have plateaued a bit with the hot spots and there are bright lines as you probably can imagine between California.
Georgia, Illinois.
Texas, Arizona, where those markets have actually gone backwards and their performance and they are affecting the total whereas we have other markets. Surprisingly is an example, Michigan which were operating in the low double digit declines which would be characterized as 85 to 80 788.
<unk> percent of last year, and and so that that is the characterization when you aggregate. It all together, we're not making a great deal of progress from what the 63% said the other way would be negative 30.
In change, we're still negative 30 and change at the moment.
So was was 63% where you were for the quarter and 65% is where you are today.
That is correct and 65% is the first three plus weeks of August.
So we've made slight improvement in August from what the quarter second quarter was.
And as you and.
See please go ahead.
I was just quickly and as you might imagine it's obvious we havent expectation that as Peter said, we will continue to see slow improvement. We are encouraged by the reduction in infection rates and really not flatlining, yet, but some some level of that and then equally so the level in fact.
Not turning into something more challenging.
Only to treat that with the faster course for remediation of those that are affected with the virus.
I just.
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 he's in the store because they need close to return to the office.
Yeah, I would definitely say, we've seen Erie a reduction for like a better way said is that double negative in the in the negative trend the tailored clothing. So as you might imagine tailored clothing and things like that weren't like literally negative 96%, it's gone from negative 96%.
Negative 70, and now we're in the negative 50 is if you will.
So okay, better, but our overall businesses in the 30, 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 Roth.
Right.
Yes.
Hey, Harvey.
First question is.
In terms of kind of longer term opportunity set here and your strategy has anything changed and anchor personally comes to mind as.
The value and size of kind of the store portfolio.
Well I'm going to go up from the reverse order. Although you just asked if anything's changed and then segue to the store portfolio I'm 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 XL now a year and a half ago has unfortunately.
And I say unfortunately, because it the cobot environment has created that is and we certainly want to wish for the corporate environment, but it is further strained our conviction in the digital initiatives an acceleration of the roadmap that we had been pursuing.
I've talked about the App before the App is producing.
Three to four times as the volume of what it was before and we leaned into the App as an example, some of the segmentation and co word marketing we've done we've seen tested control examples of as we brought on Salesforce email program and the campaign management program, we've seen definitive.
Element of success in the against the control. So we're leaning in as it's 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 the mobile device and they started into mobile device looking for a store. They may purchase on the store and we may end up in a bold pack environment and literally let's say six months ago. There was no buy online pick up at curbside today, we are in double digit penetration of late in terms of BOPUS and bold pack and that is low.
Literally a factor of probably nine times that BOPUS you for us used to be a couple of point today. We're experiencing every every couple of two three days of 10, 12% penetration for those elements that are VIX not every day, but it's definitely important and then in terms of the store portfolio, we definitely believe there's an opportunity.
Crew in the store portfolio, we've gone through a very extensive profit process with our both our landlords and internally and evaluating the four wall contribution I would say unlike other experience it 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 kogan environment.
And the sales that is more challenging, but we're not looking to accelerate store closings. We believe that given what we know today, there's natural expirations 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 is many warehouses and last direct somebody else shipping points as well. So we're getting leverage out of the store that historically, what's for four wall positive contribution contributors.
Got it that's helpful and maybe this is for for Peter in terms of liquidity can you talk about and kinda talk off the last caller's question can you talk about when you reach are lowest point liquidity wise and kind of what gives you are what the puts and takes our 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 the things that we had been focused on.
Nonstop since the pandemic started and we've really gotten very very detailed them very granular with how we're managing cash on a week to week basis and Weve projected out from the next 52 weeks of how to get through the ebbs and flows.
And I would say, where it's it's the most challenging.
It's it's these times right now it will be.
In August it into September as we brought in or we're bringing in the process of bringing in all of our inventory for the fall, but the majority of that inventory wants won't sell until November and December. So you know it's it.
It's been very cyclical for us.
Like many other retailers I don't think thats changing this year. The only thing that's changing is because of the first half of the year in the store closures in the impact that that's had on sales were just having to be much more mindful and plus sites in how we manage manage that fashion I think we've been doing a pay.
It is fair job of doing it I would.
We encourage you can take a look at our balance sheet, our cash 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 Robby.
Hey, sorry, 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 Hoover aggressive at that kind of downside scenario planning and we have we really had to plans one of 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 this 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 anvil.
Story in 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 to ourselves and the most important thing that I use the word relentless on his cash preservation and understanding what the downside scenario.
I mean to it and gives Peter and I greater confidence and liquidity.
Got it and I get to that point are you considering any other.
Additional sources of capital I noticed you filed a 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 iron ore of our shareholders, but that is out there if we.
We decide to exercise that.
But yes that is out there.
Okay. Thank you very much good luck guys.
Thank you.
Next question comes from Paul Johnson.
As a private investor your line is open.
Yes. Good morning can you talk a little bit about the competitive landscape.
Obviously in the tailored area.
Pillar brands filing, which I imagine, it's a positive but in the sportswear area or other than tailored brands pre years, obviously JC Penney was a big force they filed as well [noise].
Obviously, both then they restructure so hard to know how about all play out, but but who are you seeing is sort of a number two and number three competitors and 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 and if he has a different perspective in addition to.
Comments are the reality is what we think about when we think about competitors with few exceptions. There are limited direct competitors, most mens apparel retailers trade on the edges of our business, whether its JC Penney men's wearhouse Macy's.
There are most competitors that are in the up the upper end of their size range, which literally as the lower end of our size range 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 the mid fortys for away size for like a better way to said we.
We believe there is opportunity to for like a better way say conquests and to take advantage through the direct search environment of both Nonbranded search and shopping search, which our customers that would not necessarily shop with us today, because they're not sure shopping by brand, but there should starting in the digital and.
Hi are meant 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 tailored clothing space those.
Is it in the casual space.
Typically lower in price points and not as high touch those are in the tailored space are typically higher in price pointed at a higher touch, but when you add them. All together there is 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.
We definitely believe there's an opportunity there and the unfortunate reality for them, which I 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 their attention is not always focused on some of 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.
Yes, our wholesale business with Amazon I was wondering whether anyone is going to ask about that.
It's holding its own it's actually ahead of our overall companies results as you might imagine digital player doing well.
You know our performance overall the results. We articulated are obviously not positive last year Amazon is still positive, but the level of the increase is definitely subsided from what it was we have great expectations. We have we have launched a second brand, which I think there's a few styled online, but you'll see that come online in fall with.
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 math business, but more importantly, the core of what we do which is big and tall sizes.
Then 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.
Mentioned, the 80 million or can you just give us sort of the scheduling of it that because I know some of that is out in may of 2023, I think I just want to understand the relative terms.
Sure. So the credit facility does does not mature until may of 2023. So.
It's an asset based loan, which fluctuates with our borrowing base. So the more assets that we have the more availability that we have and there's there's different.
Step downs in advance rate as we move out, but but I guess the takeaway is that.
We're not in the situation, where we need to go out and secure financing in the next 12 months or even 24 months.
We've got three of the biggest banks in the world behind Us that are in this in the banking group.
I think we're very very transparent and communicate communicative with them.
And we're very very happy that they've been been supporting US I think the fact that we were able to renegotiate.
The terms of art our deal in the that's 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 that's a quick overview.
Appreciate it thank you.
Thank you.
Any further questions at this time.
Thank you operator, I wish everyone that the greatest of safety health and good good wellness over the full season and thank you for your time, we'll talk to 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.
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