Q1 2021 Destination XL Group Inc Earnings Call
Ladies and gentlemen, this is the operator today's conference will begin at approximately 3 minutes until that time your lines will again be placed on music hold thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Q1 'twenty 'twenty 1 destination XL Group, Inc. Earnings Conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.
I ask a question. During this session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded.
You require further assistance. Please press star Zero I would now like to turn the conference over to your speaker today.
You may begin.
Thank you Angie and good morning, everyone. Thank you for joining us on destination XL group's first quarter fiscal 2021 earnings call on our call today is our president and Chief Executive Officer, Harvey Kanter at our Chief Financial Officer of Peter Stratton. During today's call, we will discuss of 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 day at the XL Dot com for an explanation and reconciliation of such measures.
Today's discussion also contains certain forward looking statements concerning the company's updated sales and earnings guidance and other expectations for fiscal 2021, 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 and for.
Asian regarding risks and uncertainties as detailed in the company's filings at the Securities and Exchange Commission I would now like to turn the call over to our CEO of Harvey Kanter Harvey.
Thank you Shelly and good morning, everyone.
It's my pleasure to speak with you today about D XL and the solid progress we were making at our business financially in terms of sales and profit as well as in regards to our ongoing strategic transformation.
On our fourth quarter earnings call at March I shared with you My perspective that we were starting to see signs of a shift in consumer buying behavior and our optimism for greater recovery in fiscal 'twenty 1 was growing.
And starting todays call well I have several of opening comments I'd want to certainly lead off by saying sales in both of our stores and direct channels have continued to accelerate in our first quarter financial results have materially exceeded our internal expectations.
This has been a strong quarter for Dx all end of quarter. We believe is a step forward in a post pandemic world.
We were both fortunate and grateful that since we last spoke our teams and the re crafted operating model in place are working well to drive sales back at enhanced levels of profit as we sort of the big and tall consumer through our ongoing digital transformation.
Given our first quarters performance and what we believe is a chapter of greater growth from our initial expectations at the onset of the year, we are raising our guidance for fiscal 2020 one's annual performance, which Peter will cover in more detail later.
As I noted before I get into the first quarter of business details. There are a few topics that I wanted to cover off.
First I truly want to thank all of our employees in our stores and our guest engagement Center distribution center and in our corporate supporting departments for your unwavering commitment to our mission of empowering the big and tall men everywhere to look good and feel good and I actually wanted to pause for a second here.
And truly acknowledge not just think what the team has taken on their backs to accomplish on behalf of DSL.
Is it not from the dedication and commitment of the teams we have in our stores at our distribution center or call Center and corporate office. We most certainly would have not made at this far.
We strive to be an employer of choice and employer of choice for all of our associates, we strive to be at place that they not only are of paycheck, but believe and are engaged in who we are and our purpose and the culture that we so often speak about.
I started at the XL just over 2 years ago to say it has been a very challenging journey is an understatement, we all recognize but to continue to build upon what we at both accomplished at begun degree requires that we all double down on our efforts to do more be more and not just for our customers, but equally for Sofia 2 of them helped us to lose.
Good to see another day.
To be an employer of choice to be an employer of choice of means they're happier create better outcomes for ourselves and in turn our customers end today as we embark on growing levels of recovery and hopefully good fortunes I want to be equally clear, we strive to be an employer of choice and together we are working harder to be just that.
Through ongoing efforts to provide greater growth and development to provide a culture that is enduring to better balance life and work and to be worthy of their of steam and you continue to pursue the shared purpose. We all have.
I am hopeful that our continued actions will set us apart both as an employer and as a retailer of creating improved results as we steer to bring our vision and mission to life and return to shareholders.
Our vision and mission of DSO as we endeavor to be a real market leader is to deliver our big and tall shopping experience at fits fits his body fits of style and fit his life to bring a breadth and depth at a level of exclusivity in the assortment of clothing that cannot be found anywhere else.
And to create an experience rooted in the value we place in our consumer and the respect we have for him and in our desire to build a trusted relationship creating a level of satisfaction and happiness that distills as few retailers have a community and belonging driven by our culture.
And the very employees, who interact with our guests every single day.
We are truly grateful and proud of what our team has accomplished over the past 18 months and the credit goes to all of you who answered the call day in and day out to serve and support our big and tall guys.
Second I want to recognize <unk> ongoing discussion to promote inclusion and diversity in the workplace.
A little over 3 weeks ago, I, along with <unk> made a commitment to the CEO action for diversity and inclusion coalition.
Through this organization <unk>.
XL has pledged to take of greater action to cultivate a workplace where at diverse perspectives and experience are welcomed and respected and where employees feel encouraged to discuss diversity and inclusion.
For the past 3 years, we have promoted these values through our own company initiative, which we call normalizing the brand, which helps us recognize and address unconscious bias.
But now we have taken another step on this journey by joining at coalition of nearly 2000, other Ceos and companies, who believe that together, we can effect positive change our commitment to the coalition is a natural extension of our own internal culture, and our prioritization for diversity and inclusion.
As we continue to evolve.
And third I wanted to give a warm welcome to Elaine Rubin, who joined our board on April 14th.
With over 25 years of digital experience at a lane of the E Commerce pioneer with digital insight and expertise of direct to consumer business and consumer marketing.
Elaine is the founder and President of digital profit network and her extensive experience coupled with DHL strategic digital transformation, which is well underway leads us exponentially to greater opportunity to further accelerate our business.
I have personally known of lane for over 10 years and I'm thrilled to average joined our board of directors at.
And now with that said, let's talk about our business I am planning to cover 2 topics today first I wanted to talk to you about our first quarter performance and what we're seeing and hearing from our customers and second I wanted to talk to you about our priorities for the remainder of 2021 and how we see our company evolving at a post pandemic world as we lean.
Into 2022.
I am very pleased to announce that for the first time in 8 years DSL as reported meaningful net income for the first quarter.
Since 2019 was our last normalized year from a financial standpoint, we will be making our comparisons year over year to 2019 results.
Our first quarter sales were 100 at 11.5 million compared to $113 million in the first quarter of 2019.
Our adjusted EBITDA for the quarter was $13.7 million compared to $4.8 million in the first quarter of <unk> 19, and finally, our net income was $8.7 million compared to a net loss of $3.1 million in the first quarter of 19 <unk>.
These results exceeded our expectations and are a direct outcome of the leverage we've created as we re crafted our operations and drove sales greater than internally expected.
We've held a firm belief that our customers of the return as the pandemic began to subside, but we really didnt know when that would actually happen.
Our plan for the year was constructed on the thesis that business would return gradually and over the year, but clearly we have seen that dramatic acceleration in the first quarter 2 of level consistent with 2019.
Again this has been a truly remarkable start to fiscal 2021 and gives us incredible optimism with price.
Our prospects for the balance of the year.
Let me expand a bit on what's been happening with our customer as many of you know our greatest challenge in 2020 was store traffic.
For part of the year of stores were closed and once they reopened they came in end demand for new clothing accelerated initially from a very sluggish position throughout the pandemic customers were telling us I love your store, but I really don't have anywhere to go and I am staying home. They don't need anything from you right now we started to see.
That sentiment shift after vaccines were being administered and pandemic restrictions, we're starting to scale back in different parts of the country.
Suddenly many of our customers who are of engineering out of the house again.
He of socializing he is resuming activities enjoyed pre pandemic.
That creates a need shop for new clothes.
There was certainly a tailwind at some degree of pent up demand for clothing being relieved in the first quarters of results.
We were expecting this to happen at some point, but not so soon and certainly not so dramatically.
Another tailwind that at some level of impact on consumer demand, we're stimulus checks at starting hitting bank accounts in mid March.
While it's impossible to quantify how much of the business is acceleration was due to the stimulus cannot be ignored.
We heard more than once from our customers when posing the question what brought you in today the answer was stimulus and the direct reference to stimulus checks urban dictionary or perhaps a new Webster definition. The stimulus checks clearly we're driving for consumer is getting back out of the shop.
Fortunately our sales trends are continuing to surpassed 2019 at levels and even now 10 weeks past when the last round of stimulus checks were being deposited.
Finally, we cannot ignore the fact that warm spring weather arrived early and much of the U S. In April and continued into May.
We have known for years that the changing seasons are often of catalyst for our customers to come in and shop.
Oftentimes our customers will begin changing from as winter wardrobe to as warm weather clothes and realize some of these may not fit or its just time to replace us close the call.
Confluence of these 3 factors all coming together creates an environment of ripe for shopping.
And we are happy that <unk> has been there to serve his needs.
In the month of February our comparable store sales were down -33%, but rebounded to over 3% positive at March and April as compared to 2019 means.
Meanwhile, on the direct side of the business overall business continues to improve sales on our <unk> website were up 55, 8% to first quarter of 2019 with gains in traffic gains in conversion and gains in average order value.
And both channel as there was a clear acceleration in March and April and that momentum has continued right into may.
Graphically, we've seen our strongest performance in the first quarter from the southeast South Central and Midwest parts of the country our business on the coats Kos has trailed behind the middle of the country by approximately 800 basis points, which is similar to what we saw in the fourth quarter of 2020.
While traffic at stores has not fully recovered at fiscal 2019, we are seeing more visits with intent to buy which is being realized as I noted through strong growth in conversion and strong growth of $1 per transaction.
Now, let me shift to a quick update on our merchandising strategies, we continue to see casual sportswear active and loungewear drive meaningful business, which was led by polo Nautica and remark. This is particularly encouraging because it comes at a time when we are leaning in to more full price messaging at less.
Well, it's on promote fit comfort functionality and versatility of our essential features expected by our customer and embedded at the key categories that are driving our spring season.
Right.
Please go ahead.
Yeah.
As we've progressed through the quarter.
Most of it.
We attribute to the rescheduling of events such as weddings that we're obviously at put on hold during the pandemic.
This demand for tailored clothing is not game changing it is meaningful and for certain better than we expected.
Moving to inventories, we have manage inventory conservatively and we are down 21, 3% from first COVID-19.
We have been working very hard to maintain our supply chain and logistics through our global sourcing organization.
1 of the challenges that emerged in the second half of 2020 and continues today are supply chain disruptions from a shortage of containers and vessels available for delivery of overseas project, which I'm sure you've heard often.
Our spring receipts were largely unaffected by delays, but the cost of freight has been escalating.
We are also seeing increasing costs for certain raw materials, particularly in cotton, which is being exacerbated by the humanitarian crisis in the Xinjiang Province in China right.
Right now we are sourcing less than 5% of merchandise from China and expect to be out of China sourcing lies entirely by the end of the year.
We also continue to have a heightened awareness and concern regarding force labor and ethical manufacturing through our world class sourcing organization.
We remember of Phoenix, 1 of the world's leading online platform for companies to manage and improve working conditions and global supply chain and we are actively partnering with several of the brands and retailers to continue to proactively create the transparent and ethical supply chain.
With regards to occupancy costs, we continue to engage with landlords to negotiate leases that are no longer at market rates.
The pace of negotiations has slowed dramatically compared to 2020, but we are pleased with the progress we've made so far.
In the first half of 2020, we negotiate of approximately $10 million of rent abatements and Deferments. In addition, we restructured at 115 individuals store at leases more than 1 third of our chain.
Since the beginning of 2020, we are expected to deliver over $16.1 million of savings over the life of the lease including $6 million expected specifically in fiscal 2021, we continue to push hard to re lease costs with these landlords, where our rents are out of line with sales.
Now, let me shift to the second topic I wanted to discuss today, specifically, how we see the XL in a post pandemic world and what our priorities are for the remainder of 2021 as we lean into 2022.
First I wanted to talk about our promotional strategy. Our overall promotional strategy has been shifting for the better part of 9 months from sales discounts and coupons to more full price messaging with a specific focus on differentiated product full of features and benefits.
2 exclusive products and unique selling propositions.
Promotions were fewer more targeted and overall far more efficient in Q1 than in prior years.
Promotions were made available to a much smaller more targeted audience through our developing segmentation and personalization capabilities with ensuing offers not being public meaning not on the website not on the app and not in stores promotions were built around lapsed customers or increasing frequency.
But not generalized and communicated broadly in any of our marketing.
This strategy drove significant savings in markdown dollars and created of increased gross margin rate and specifically improves our brand's positioning.
This is a change we expect to maintain in terms of the promotional posture further into 2021.
Last year during the pandemic, we were forced to incur day promotions as you expect to drive traffic to our site and encouraged by <unk>.
This year, we have taken a much different approach by focusing our marketing dollars on key product differentiation and our uniquely curated and exclusive assortments.
We know there is a place for promotions, but as we move forward in 2021, we do not expect to return to levels of approximating 2019, let alone what we're forced to execute during the pandemic toughest days as we drove liquidity outcomes.
Next let me share with you, how we're thinking about our evolving brand positioning and the addressable market.
We have immense learnings coming out of 2020, and we leveraged a lot of insights to drive our Q1.2021 performance as we have discussed at <unk> Dot Com business grew by 55, 8% in Q1.2019, not only driven by existing customers returning to the XL.
They came out of <unk> and started to socialize, but driven by significant growth in new customers at.
As a business, we acquired 35, 7% more new customers in Q1.2021, then at the same period in 2019.
A large part of the new to file growth is attributed to our enhanced digital marketing capabilities to target prospects in a target market, that's growing and converting them efficiently to drive results.
Driving positive outcomes with customers across channels continues to be our top priority and we have been making great progress on this.
Our approach has shifted from wanting to drive customers to the stores, which of the web 2 driving customers deep XL and being there for them based on how they choose to engage and experience the XL whether in our stores on our app or on our website.
Our most loyal customers, who had been a focus of our marketing efforts for the past 6 months have shown positive signs of returning to stores with some of our segmentation initiatives truly paying off.
We discussed our test and learn strategy in our last earnings call from learnings from which not only helped refine our short term promotional cadence in Q4.2020 in Q1.2021 sort of also meaningfully influence our long term marketing at brand strategy to create market share and mindshare.
With our customer.
And with new guests alike.
We seek to create at more enduring and comprehensive relationship that is stickier with consumers and creates greater advocacy for DSL more broadly across the retail landscape and in general business.
Speaking of market share based on research we have done we believe the total addressable market for core merchandise, we sell is north of $10 billion.
All while all along we've continued to reposition of the <unk> brand, we have pivoted from pandemic driven actions that included more of fund tightly managing our cash liquidity and credit tourists perspective, clearly on the offense driven around approach to acquire customers the opportunity to grow market share coming out of.
Of the pandemic.
We have conceptualized as a team and clearly articulated our vision for the business, bringing this to life now and we will continue to do so throughout 2021 to further strengthen our defendable position and our moat as we look to create greater inflection in 2022 and beyond.
We referred to this evolving positioning at everything we do today and believe it is the positions competitive stance that makes us the leading big and tall men's apparel retailer with the greatest possible potential for growth in consumer mind share yet of loan market share.
We're continuing to evolve how we engage consumers with more relevant and personalized messages to our different customer segments across all touch points. We believe the goal of not creating not only creating short term behavioral change, but also driving measurable long term loyalty as judged by NPS scores net promoter.
Motor scores, specifically, which will result in growing and even greater advocacy at being stickier for the <unk> XL brand with consumers.
And finally, let me give you an update on wholesale in total our wholesale business, which is primarily driven by Amazon generated sales of $3.1 million for the first quarter compared to 2.2.
$2.4 million in the first quarter of 2019.
While there are some challenges of wholesale projections receipt flow of in stock levels. We continue to work to find a path for our wholesale business at works for DSL and works for Amazon. We are also continuing to search for new opportunities to grow the overall wholesale business. Thank you and now let me turn it over Peter for an update Peter.
<unk>.
Thank you Harvey and good morning, everyone I'm very excited to speak with you today about our first quarter results as Harvey discussed the turnaround in our sales trends that began in March occurred sooner and more dramatically than we had expected.
Along with the increase in sales, we pulled back on promotions and leveraged the many cost reductions that we implemented over the past year, which drove improvements in earnings cash flow and our balance sheet.
Accordingly, we are increasing our full year sales and earnings guidance, which I will review with you after I discuss at the first quarter results.
Due to the significant impact that COVID-19 had on our first quarter 2020 results I will also compare our results against Q1 of 2019 for better comparability.
So let's start with sales.
Total sales for the first quarter were $111.5 million as compared to $57.2 million in the first quarter of fiscal 2020 at $113 million in the first quarter of fiscal 2019.
On a comparable basis total sales increased 3.7% over first quarter 2019.
Stores were down -6.7% for the quarter to 2019 levels and improved rapidly from -33, 1% in February of 2 over plus 3% in both March and April.
Harvey spoke about some of the tailwind that we believe the stores benefited from this quarter.
And there was a strong correlation to store performance vaccine distribution and relaxing of state specific COVID-19 restrictions.
While it is uncertain how long each of these tail winds will last we are pleased to see similar trends continuing in may.
Our direct business continued to build and was up 47% over 2019, primarily driven by the <unk> Dot Com website, which was up 55, 8%.
We're especially pleased by the high number of new to file customers that have found us through the web.
Also worth noting is that even as our store business rebounded in March and April our website sales also accelerated so we did not just experience of migration of direct shoppers back to stores, but an overall lift across all channels.
Our gross margin rate inclusive of occupancy costs was 45, 6% as compared to a gross margin rate of 23, 1% for the first quarter of fiscal 2020, and 43, 7% for the first quarter of fiscal 2019.
The 190 basis point improvement over 2019 was primarily driven by of $2.6 million decrease in store occupancy costs as a result of closing unproductive stores and our ongoing rent reduction initiatives.
Even more exciting is the shift in promotional posture that Harvey talked about.
Repositioning our brand to be more full price and less reliant on discounts and coupons will continue to benefit us long term through improved margins and elevation of our brand image with both customers and suppliers.
Now, let me move on to selling general and administrative expenses.
As a percentage of sales SG&A expense for the first quarter of fiscal 2021 were 33, 3% as compared to $56.1 per cent for the first quarter of fiscal 2020, and 39, 5% for the first quarter of fiscal 2019.
The 33, 3% rate is far lower than our historical expense rate and is the result of the cost reduction actions that we implemented in fiscal 2020.
These actions were intended to not only preserve liquidity, but to lower our operating cost structure long term.
Most of you will remember that these reductions included reduced store hours and staffing models.
Reductions in marketing costs, especially through broad based non digital channels.
A 29% reduction in corporate head count.
And elimination of services travel and discretionary spending.
Yes.
We are being very diligent about preserving as many fixed cost reductions as possible. Despite the fact that certain variable costs will increase as our business accelerates.
We will continue to invest in our store associates and store hours to ensure that they are properly trained to provide an exceptional DSL guest experience, but we expect expect store cost to remain significantly below historical levels.
Customer facing costs were 17, 9% of sales in Q1 as compared to 22, 6% in the first quarter of 2019.
Corporate support costs, which include the distribution center and corporate overhead costs represented 15, 4 percentage of sales in the first quarter compared to 16, 9% of sales in the first quarter of fiscal 2019.
On a dollar basis SG&A costs were down $7.5 million compared to 2 years ago.
Adjusted EBITDA was $13.7 million for the first quarter compared to a loss of $18.9 million in the first quarter of 2020 and earnings of $4.8 million for the first quarter of fiscal 2019.
Net income for the first quarter was $8.7 million or <unk> 14 per diluted share compared with a net loss of $41.7 million or a loss of 82 cents per diluted share.
For the first quarter of fiscal 2020 at a net loss of $3.1 million or a loss of <unk> <unk> per diluted share for the first quarter of fiscal 2019.
This is the strongest first quarter net income per share that we have delivered in the last 20 plus years.
Next I'll turn to cash flow and the balance sheet.
We spent the past year with a relentless focus on preserving and enhancing liquidity.
In February we completed a registered direct offering for 11.1 million shares of our common stock through which we raised $5 million.
Also in March we entered into a new $17.5 million phyllo term loan the proceeds of which were used to pay off our existing $15 million silo.
Our new file has a higher advance rate and will provide us with additional borrowing capacity of $5 million to $10 million going forward.
Both the stock offering and the new term loan provided additional flexibility to liquidity in.
In addition, our revolving credit facility, which supports our seasonal inventory purchases remains in place until may of 2023.
Free cash flow for the first quarter, which does not include the financing transactions I, just mentioned improved significantly to proceeds of $7 million as compared to a use of $18.4 million in fiscal 2020 and of use of $22 million for the first quarter of fiscal 2019.
Most of this improvement is due to our improved profitability as well as improved inventory turn.
With our liquidity position fortified we have returned to our historical practice of utilizing our daily cash inflows to pay down our revolving credit facility.
As a result, you will see we have a relatively low cash balance on our Q1 balance sheet, but also a much lower debt balance.
For a more consistent comparison, we look at debt net of cash which decreased to $44.3 million at the end of the first quarter from $68.2 million at the end of Q1, 2020, and $72.3 million at the end of Q1.2019.
That's an improvement of nearly $30 million from 2019 to 2021.
Our revolving credit facility had $51.1 million of excess availability at the end of the quarter.
We are very pleased with these improvements to our financial position lower debt increased availability and positive free cash flow.
We expect to continue using free cash flow generated in fiscal 2021 to pay down debt.
And just a couple of quick notes on inventory.
Our inventory balance decreased to $88.4 million at May 1.2021, as compared to $108.3 million at May <unk> 2020 at $112.3 million at May 4th 2019.
Of course last year's inventory was impacted by the unexpected store closures, but we do believe our current inventory levels are more representative of the improved inventory turnover, we should expect going forward.
Since the first quarter of last year, we have been managing our inventory conservatively narrowing our assortment, while driving meaningfully greater levels of exclusivity with national brands and at the same time working to me and our supply chain and logistics capabilities at.
At the end of Q1, our clearance inventory represented 10, 1% of our total inventory, which is in line with our long term goals.
We continue to monitor supply chain disruptions across the globe that could delay inventory receipts in the second half of the year at this time, we don't foresee any sales jeopardy from supply chain disruption, but it is a risk at all retailers are managing as consumption continues to outpace production across a variety of industries.
I also want to address a topic that is top of mind for some of our shareholders and that is whether we plan to return to a national stock exchange such as NASDAQ.
As many of you know we elected to voluntarily delist from NASDAQ in December 2020.
At the time, we did not meet the minimum listing standards and chose to list our stock with the OTC <unk> market.
Currently we do not have any plans to apply for re listing on Nasdaq.
We are aware of the required listing standards for new applicants, which include a minimum share price of $4 per share.
As we do not satisfy that requirement today, we are focusing on executing our business strategy, but we'll continue to monitor if there are any changes to the listing requirements.
Lastly, I would like to share with you our updated sales and earnings guidance for fiscal 2021.
Let me start by saying that we continue to live in a rapidly changing world during a very uncertain time.
The impact of COVID-19 continues to be felt in both North America and throughout the world and there remains there remain at risk of new variance or a fifth wave of increased infections globally.
However, based on the business trends, we experienced in the first quarter end our early reads into the second quarter. We believe it is appropriate to increase our financial guidance today.
Our revised guidance for fiscal 2021 is as follows sales of approximately 415 million to 435 million at.
Adjusted EBITDA of approximately 20 million to $30 million.
Positive free cash flow.
This guidance reflects a level of caution in our outlook for the rest of the year, but we are very pleased by our first quarter results. It is satisfying to see the hard work that our stores DC GEC and corporate associates have put in over the past year.
Start to materialize through our financial results.
We're glad that our customer is starting to feel comfortable socializing and gathering outside the house again and are thankful to be here to be able to support him wherever and whenever he chooses to shop with us.
With that said I would like to turn it back over to Harvey for some closing thoughts.
Thank you Peter as you heard her so we hope both in my remarks, and Peter's we are quite optimistic and energized we have an incredible team we strive to be worthy of their of steam our customers' end to create meaningful returns for shareholders.
We believe we have weathered the worst of the storm and challenges and we believe we have come through at a solid financial position and most of all we believe we of our strategy to lever to leverage the recovery and to engage consumers and what we do best creating memorable experiences for big and tall guys to look good and feel good.
We do that by offering the most extensive and uniquely curated assortment from value price essentials to luxury brands and exclusive designers both online in store.
Megan.
Sort of being understood of customer the be all and end of place to shop.
Browse.
Excuse me and interact interacting with their friends and our associates and that is something that cannot be bought it has to be earned and with that we'll take questions.
If you would like to ask an audio question. Please press star 1 on your telephone keypad again at Star 1 to ask an audio question.
First question comes from the line of Eric Bader.
Cc research.
Good morning, congratulations on a strong start to the year.
Good morning, Thank you.
When you look at some of the gains you have here I know we're trying to.
Segregate how much of it of stimulus how much of it is it are you seeing shifts in terms of sizing at.
There are pieces at leads you to believe that even a wider group is looking at your products.
Yeah, we've been doing a lot of analysis.
I don't know if at the way they're at his phrase, but the Covid 15 kind of like the freshman 15, and the belief that some level of the amount of time people of stayed at home.
Of change sizes, and we're seeing what I would call. It is not material, but small shifts in percentages. So 1.2% to 3% movement from a let's say of size 48, 2 of 49% or 52, so small movement up but I would characterize it as material.
Okay.
When you look going forward.
The stores of the amount of store personnel are we going to see adjustments kind of of our increases in the store personnel and potentially at the home office now too.
Support this level of growth.
Yeah for sure relative to variable expense and variable payroll in our stores, we have taken to stabs at increasing payroll commensurate with the revenue we have.
Try to be very respectful of maintaining social distancing and the way we've talked about our business and I'll remind you the way we've talked about our businesses 3 priorities for our stores first is to engage the consumer of meaningful ways, but to maintain social distancing at it makes sense.
To create the store experience and really visual merchandising that allows the store to basically sell itself because of social distancing at the practice that we have in place and third is the ability to ship from stores with each store being of mini warehouse and we are leveraging the inventory through that when you add 3 of those.
The 1 that is most changing is the velocity of sales and in that case, we are adding payroll as it makes sense, but we are still trying to maintain some level of social distancing in those elements and specifically not layering up the store with a lot of more sales associates and payroll which would cause.
Crowding of the store.
Great and 1 more question and you actually bought at up a little bit ship from store is enables you. How is it enables you to lower inventory and how has it helped in the overall sales process the ability for people to pick up and for you to have us as a ship from store directly to the customer.
Yes, Eric It has been something which has been in place pre COVID-19 and.
I think what we've seen is a shift in terms of the consumer sentiment to buy online pickup in store or buy online pick up at curbside and each store has had the capacity and shipped product. The biggest change I think we're seeing is buy online pickup and curbside or in store, where the customer is actually coming in and we're seeing more.
Cheerfully greater levels of incremental purchases. In addition to double digit revenue coming from buy online pickup at store curbside and we're seeing the growth of that if.
If you will the add on sale as they come in and they forgot something or literally want to shop and browse at a different level of historically historically it was very low single digits as a percentage of revenue and today, it's running at very low, but still double digits compared to single digits from before.
Great. Good luck for the rest of the year.
Thanks, so much.
Yes.
Your next question comes from the line of Alex Silverman with AWS investments.
Hey, good morning, and congratulations.
Good morning, Hey, Thanks, so much really appreciate it.
3 quick questions first.
What are your.
The $4.15 to $4.35, yeah, what kind of assumptions are you using for store comps to get to those numbers and what kind of assumptions are you using for direct growth.
Sure. So so Alex I'll take that 1 the assumption for the store comps is that there is still going to be slightly negative.
But very close to where they werent and slightly negative to 2019, but very close to where.
Where they were in 2019, but we do expect to see continued growth in comps indirect which as.
As we mentioned in Q1 outpaced stores significantly and we expect that that will continue for the rest of the year.
Great.
Hi.
Are you finding that the the shopper that's coming in is buying 1 type of product online now that he is coming in and of different product in the store.
No, we're not seeing materially different.
The biggest thing we believe and we continue to see elements of this is where the customer comes into the store is typically shopping or interacting with our associates and when they understand a brand they really like and the sizing they have a greater comfort level of shopping online when we see of customer that is uniquely.
Only shopping online theyre more spot on and specifically purchasing at a item and obviously the trifecta is when they do both in our best customer the richest lifetime value. We continue to see is the customer that crosses channels between the app, which is our richest customer by far the browser experience.
And the store, but relative to specific product I would not say, there's anything material, we have yet seen debt they are buying online versus in store.
At the material.
Got it that's helpful. And then my last question is did you find yourself in out of stocks in any broad way.
You know in some of your stronger geographies with certain items.
We see as we mentioned a material difference in the comps on the coasts versus the middle of the country, but obviously, we have a great inventory of practice and between our ability to ship from stores to support the net and the ability to move inventory around based on the D. C. We have no out of stocks that I would.
<unk> acknowledged of any kind that are material.
That's a pretty amazing of you were able to keep up with.
Surprisingly above plan so congratulations on that.
Our goal is to continue to evaluate turnover performance, but our hope is that we will actually see and then growing level of turnover in the mix and more productive use of inventory.
Got it thanks, guys appreciate it.
Thank you.
Your next question comes from the line of Mike Baker with D. A Davidson.
Hey, Thanks, guys.
Just 2 of 3 from me 1.
Really following up on that last point, I mean pretty strong sales here of course on very low inventory and cutting promotions.
As demand comes back do you start to maybe a lead into those a little bit I get we want to be efficient with the inventory and the promotions, but it seems to me as if there is an opportunity to maybe start to be a little bit more aggressive to drive even more sales.
Well quite honestly, we are going to hang on the evolution of the positioning as long as possible and I would define as long as possible forever. If we can drive sales with a different brand positioning and we truly believe that if you think about the 3 elements we spoke about.
And our proprietary fit which you really can't get elsewhere. We don't just great product, we actually developed proprietary fits for every size secondarily the experience of the assortment, which is exclusive in many cases and certainly unique in most cases and then last 1 all of these the experience we're creating in our hope.
Is by bringing marketing to life in different ways and much more confidently in the words, we use and the creative we execute in all of the variables, we've talked about through segmentation and personalization that we will actually not return even remotely to the level of promotion, we've had historically and we're actually okay selling less.
Unit strategically and a higher average ticket the belief is that if we if we live by the great mix, we have an experience we're creating unlike traditional retail at which I think is not a secret to anybody there's always been a race to the bottom at promotion, we won't return to that level of promotion and then specifically accomplishing greater.
Level of sales if we if we pulled that off which we do really believe we can we will continue to push on inventory. The good news is that our inventory management team has really gone very aggressively at and allowed us in fall to accelerate our revenue of the customer comes in and we're managing the risk and reward of those 2 variables.
<unk>.
Okay.
It makes sense for perhaps a follow up to that that would be.
The implied EBITDA margin in your guidance for this year at just under 6% at.
As you sort of do more with less of it.
Is it too early to talk about the art of the parcel of what could that be over time.
Yeah I think.
When we put out the guidance for this year, where as I mentioned, we're trying to be.
Cautious with it we think that the 20 to 30 is absolutely something that that's achievable, but it's just really hard to tell.
What's going to happen in the second half of the year and I think we're going to be in a great position with with inventory, we've certainly got customers coming to our website coming to our stores and if we can hang on to that through the end of the year. Then yes, there should be there could be upside to that to that EBITDA number, but there's still I think at water.
The rest of passed under the bridge.
Yes, I think I want to double down on that because I think that 1 of the things that Peter just said and I hope you recognize the cautious optimism. We have we have multiple variables that we're literally as of that saying goes flying the plane, while we build it and this brand's repositioning which really has been the better part of 9 months and its evolution from away from <unk>.
Motion is a big debt and so theres a lot of variables that come into that our ability to drive revenue grow our margins et cetera, et cetera, and then inventory. So I think we're being pretty prudent and pragmatic with what we provided this guidance end and pretty pretty thoughtful about the risk that's inherent in our results.
Okay. It makes sense 2 more quick ones, if I could not to hog the phone line here, but I'm intrigued by the coast being so far behind the rest of the country I presume, that's just because of the timing of reopening and so.
Do we think those ramp up over time to look more like the middle part of the country and then related to that have you seen any slowdown in the middle part of the country as they move past that perhaps initial surge with the reopening.
So yes, Mike your understanding is correct, we saw that surge in the middle part of the country and it is just continued since beginning of March when we first started seeing at the <unk>.
We believe had been just a little bit slower.
2 to respond and we link that very much to the.
Tighter restrictions and maybe less comfort comfort with going out and resuming life like some parts of the middle of the country.
I've found but we do expect that the coasts of will catch up.
Okay, and so importantly in there you said at the middle part of the country isn't seeing a slowdown which is good.
1 more of a little 1 here and this is just math and maybe I got it wrong, but if you look at your gross margins and then versus of 2 years ago and subtract out the occupants of they're up 190 basis points I think the occupancy saved 230, or so basis points without them part of the merchandize margins are down versus 2 years ago or something I'm missing something in my math.
Out there.
Yeah, no. The merchandize margins are down just a little bit and it's primarily due to the shifting mix.
That we're doing more business in direct end.
<unk> got some at some added shipping costs. So it's not a huge amount I think we had put it in the press release that it was 30 basis points.
But that's what the the.
The differences at the change in direct sales penetration.
Okay, all right I appreciate all the time of the call Tonight. Thank you.
Thank you.
Your next question comes from the line of Rousey serve it with R Y S advisors.
Harvey really really masterful leadership over the course of the last year. Thank you on behalf of shareholders.
Hey that very kind of you I will tell you, let's be really clear we are.
Thousands of a couple of thousand people doing heroically, good work and their commitment to our customer is pretty amazing so.
Really appreciate the comments, but at my hats off to our group and our employee population of I'm, just 1 of the team, helping helping them get through this.
Absolutely and you know.
It was great to hear the comments about winning winning new customers. What what can you tell us about that that new customer end.
What had been your learnings there how are those customers defer than kind of your existing customers and then I have a follow up as well.
Yes, I would say at a very high level.
<unk> seem to be materially different I think what we're experiencing is at some level of kind of may of 2 elements..1 the customer that might have shopped at another retailer and I won't go through the names, but that might be under more pressure and it might not have the in stocks or the assortments and theyre looking elsewhere and the way, we're really winning there.
Through our digital strategies, where the marketing team is really pushing hard on.
On being where the customer is looking at.
Not a secret that nearly 90% of consumers start their shopping process today, regardless of channel shopping online and then when they're doing that they're either searching for a specific product or big and tall of apparel and we are popping up there in meaningful ways and regardless of whether it's for store or web, that's where the customer shop today.
I think a lot more customers what we see is a perfect example, where direct putting in DSL dot com that business is not is not weak, but it's not as strong as search and search for us implies at a customer might have shopped elsewhere and is now looking to obviously come to us because they haven't found what they want or.
The ability to buy it at another retailer so relative to how we're getting that customer I think at the combination of both our digital transformation strategies as well as some of the address other retailers have had and relative to what they are buying we're not actually seeing a materially different acts.
The outcome in terms of the assortment, we are seeing some of our private label brands, which are greater value brands.
Penetrating pretty pretty meaningfully and the expectations of lot of the other retailers that I would referred to might not be carrying Ralph of Rins Psycho Bunny vineyard vines at what we would call collections that are somewhat more of fluently oriented versus harbor Bay in Oak Hill and value brands that are part of our mix.
Got it okay and I guess.
You think about this business over the next few years, let's say.
I mean, what.
What aspects of the business of what portions of the business do you ultimately think will create the most shareholder value and at what I'm getting at is it is at acquiring new customers at selling more of existing customers as it is at the merchandising mix is at resizing of the store fleet.
What's really going to move the needle from you guys over the next few years.
I would say other than your last comment of resizing, the store fleet, which will not materially moved the business. That's a different conversation I would say, yes, yes, and yes. So our belief is that there is no silver bullet. There is a lot of heavy lifting that we've been doing as we go through this digital transformative process at the.
It's the experience of creating the store, it's how we market ourselves to customers in a broad way and then of very specific way relative to the segmentation of the personalization to create productivity and there is no silver bullet I think the greatest excitement. We have is the ability to demonstrate what I talked to.
Which is where we're there to create the fit the lifestyle and the relationship with consumers to be an incredible brand and business not just a grant of a retailer not just the big and tall company, but actually being a really sticky retailer they create belonging community for a customer that is underserved who we greatly.
Respect, it's our only business, it's not a business at the sideline at all we do.
Got it well. Thank you. Thank you very much Harvey and congrats yet again.
Thanks again I appreciate the comments.
Your next question comes from the line of Seymour Hausmann luxury suites.
Thanks.
Congratulations on a incredible quarter instead of a 1 quick question for you guys.
Yeah.
So.
I was curious you had mentioned that you were at closing unproductive stores and was wondering where you guys wherever you are and where that's looking like in terms of retail locations.
Sure I'll take that 1 so.
We are continuing to close unproductive stores, but every store is evaluated on a 1 for 1 basis so each store in.
After the 4 wall economics of each store needs to be able to carry their own weight. So.
I think we started the year at 314 stores were down to 300 at just over 300 today, we will close a few more stores. This year end, there's some something like 150 stores that.
At lease expirations or kick outs over the next 2 years obviously.
Many many great stores within that 150 number but there are some debt.
We'll have to take a real hard look at and the bottom line is at each store and you'd see you'd be able to carry of total weight.
And if the stores cannot be productive then.
We're going to think really hard about should those stores to be closed.
Awesome. Thank you.
I appreciate all of hardware guys at.
Thank you.
Your next question comes from the line of Jackson with Goldman <unk> private investor.
Good morning, Thanks for taking my call end.
Congratulations from a phenomenal quarter keep up the good work hard work.
Thank you.
Okay. My question pertains to any buyout of the workers or mergers.
DSO.
With an approach that of pumps.
Currently.
Out of the company and the last of the let's say 12 to 18 months.
So.
I'll take that 1.
Sure.
We're not engaged in any conversations about that.
Okay, but have you ever been approached in the past 12 to 18 months is it possible that a company approach to you.
That's exactly my question, then maybe obviously it didn't happen yet, but my question pertains to.
Has any company or maybe a big big.
Buyout of firm.
Private equity approach you guys of the purchasing of the entire company.
Gesture of that we appreciate that question, but it's just not something we would ever touch base on and comment on.
Understood. Thanks, again, 1 more follow up regarding the NASDAQ re listing so you say that the NASDAQ requires of $4 of consistent $4 share price of <unk>.
For a re listen.
Correct Thats, 1 of the listing requirements as of $4 share price.
<unk>.
I had mentioned in the comments, we had moved to the OTC <unk>.
We're actually quite happy there right now.
Yeah.
With with where the stock is right now we're just we're not thinking about it because we're not we're not close to that $4 share price. Okay. How long of those 4 level of share price has to be maintained for NASDAQ tend to obtain debt application or accepted.
Yes, that's at a good question I'm not sure exactly but you know at.
It might be like you have to have a 30 day 30 days above $4.
Okay, I don't know exactly what it is okay and if the share price of DSL G was at $4 for a consistent 30 days or more of the company will consider re listing of at that point.
No I'm not necessarily saying that I guess all of them, saying is that.
We've been happy where we are.
It's kind of of meat point because of the $4 requirement, but it's something that we're watching and we will consider.
And have discussions with our board and the future of as to whether we want to do that.
Thank you very modest continued success amazing amazing at a great day. Thank you.
Operator, we have 1 last question I believe and then we'll wrap this yes.
Yes. Your final question comes from the line of Seymour Hausmann private investor.
Hi, Harvey framework.
Hey, good morning seemed more of how are you happy around at call.
Thanks, Great.
Great job. Thank you.
Somebody told me that.
With the endemic at 40% of adults of gained like something like 29 pounds or something like that is did you ever hear a number like that.
We've definitely seen some published data that debt adults have gained weight that was my reference to the Covid 15, I don't think we've seen the magnitude that you are referring to and look at what we've seen in our results is a small movement in nearly every size up by a couple of points, but again not material.
Okay. Good sales.
Peter.
Favoring growth, okay, great alright, thanks, guys great job.
Take care of at any Morgan. Thank you so much operator, I think we're done.
Pleasure bye.
This concludes today's conference call you may now disconnect.
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Okay.
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