Q4 2021 Destination XL Group Inc Earnings Call

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Good day and thank you for standing by. Welcome to the destination excel group fourth quarter 2021 earnings conference call. At this time, all participants are in allisten only mode. After the speaker's presentation, there will be a question and-answer session. To ask a question during this session, you will need to press star one on your telephone. Please be advised to. Today's conference may be recorded. If you require any further assistance, please press starin zero. I would now like to hand the conference over to your host today, shely mocus, Director of financial reporting. Please go ahead.

Thank you, Michelle. Good morning everyone. Thank you for joining us on destination XL group's fourth quarter fiscal 2021 earnings call. On our call today is our President and Chief Executive Officer, Harvey Cantor, and our Chief Financial Officer, Peter Stratton. During today's call, we will discuss some non-GAAP metrics to provide investors with useful information about our financial performance. Please refer to our earningsrelease, which was filed this morning and is available on our Investor questations website at investors DXL com, for an explanation and reconciliation of such measures. Today's discussion also contains certain forward-looking statements concerning the company's sales and nings guidance and other expectations for fiscal 2020.

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 including, but not limited to, the cris in Ukraine, supply chain disruption, labor availability and disruption from COVID-19. Information regarding risks and uncertainties is detailed in the company's filings with the Securities and Exchange Commission. I would now like to turn the call over to our CEO , Harvey canter Harvey. Thank you Shelley, and good morning everyone. It is truly appro privilegge to seek with you today about both our results for 2021 as well as our objectives and momentum for 2022. Before I speak about where we are heading, I want to take a few moments and acknowledge where we've been. At the onset of the pandemic in 2020, DXL was in survival mode and we took both meaningful and sometimes difficult actions to ensure that we would live to fight another day.

During that time, we also began to set the table, So to speak, to build towards long-term success. In the first quarter of 2021, signs of hope emerged. Consumer demand and traffic returned, as well as a willingness to reengage with apparel and life outside of the home.

At that time, emergence from lockdown, stimulus checks and pent-up demand created a confluence of tailwinds. Growing demand provided opportunity to leverage our initiatives to drive greater forward progress.

This included more extensive consumer research to continue our repositioning of the DXL brand around the very core of who we are and what we can be reiterating an unrelenting drive to deliver differentiate experience built solely for the big andall consumer, coupled with a transformative digital strategy to create deeper, more meaningful engagements with DXL, supported to marketing technology and merchandising initiatives.

Combining this renewed positioning and bottom line-based discipline from 2020 survival mode, we went from playing previously defense to profitably going on offense in 2021.

And reduced reliance on discount and price promotions emerged, allowing for improved merchandise margins.

Also the continued restructuring of our lease portfolio and SGNA costs improved our operating platform.

Altogether. These developments create contributed to an unprecedented financial outcome. In 2021, we exceed half a billion dollars in sales. For the first time in our company's history, we delivered 76 point $9 million of adjusted EBITDA, which is more than three X what we delivered in 2019, our last normalized year prior to the pandemic.

And we generated over $70 million of free cash flow, which allowed us to retire long-term debt, pay off our revolver and extend our credit facility until 2026 on more favorable terms.

While 2021 was a historic year for DXL, we still have much work to do and much opportunity ahead.

The U's men's big and all market is highly fragmented. There are many retailers who gabble in big and tall, offering a piecemeil product here and there to a traditionally underserved customer.

We are changing in that narrative. At dxcel, big antal isn't a section, it's the entire store and it is all we do.

We believe that the total addressable mend's big until market is in excess of $10 billion and we currently hold 5% of that market going forward, we believe that we can grow that market share profitably by shifting further away from discounting and into greater differentiation.

Our newest research corroborated once again the three key pillars that differentiate DXL from all of our competition.

The first and most foundational is fit. We consistently hear from bigatall customers that fit is the single most important factor in their purchase journey and we believe our proprietary fit and fit expertise is a strategic asset.

As one customer recently told us, we know that big L sizing is much more than just pumping air into a size medium, which is why we have dedicated teams focus solely on the development of precise specifications to deliver a unique, ownable and authentic fit that looks, field and moves great for the big andall consumer.

Second is our assortment. We offer a thoughtfully curated assortment of designer collections and private label brands, including many exclusive brands and styles that can only be found at DXL.

This delivers a product array that stands in stark contrast to the aforementioned piecemail approach of other players in the space.

Lastly, is the significant signature DXL experience.

Whether in the store or online, we create spaces that are built solely for big and all customers. With the Xcel, he can set aside all of his wardrobe needs, feel valued and respected throughout his shopping experience and emerge looking great and feeling even better, and all in one place. The customer, our guest, is at the heart of everything we do. We get him, we respect him, we strive to further his confidence and we want him to be just as inspired by dxcel as we are by him.

While the customer is at the heart of all that we do, So are our employees. I want to sincerely extend my gratitude to all of our employees for their continued commitment and dedication to being part of a critical mission to serve our big and tall customers.

The stresses and challenges that our employees have overcome each and every day are key. Reason like DXL is emerging from the pandemic unsolved footing, and this must be acknowledged. Like many companies, we are managing through a very lean labor market and the daily challenges asked of our employees can be overwhelming.

I couldn't be more proud of our team for their passion and their commitment that they continue to show for our customer and to DXL.

To all of our employees in the stores, to our employees in the distribution center and the guest engagement center and in the corporate office, Thank you. Thank you for all your hard work, the support and your dedication to DXL's customers.

I often talk about becoming an employer of choice, and my hope is that this is evidence not just in words, but through our actions.

We truly appreciate you and we strive to be a culture, a company and a team deserving of your immense passion and commitment to DXL's mission.

I also want to send extend a warm oum to our newest Director, MS Carmen basaza, whose experience and expertise, gathered over 30 years in retail, will be a tremendous asset to our Board.

Carmen has built a career working growth oriin companies, including Walmart, Asian and Fanatics. I'm very excited to have Caron's perspective and her insights as we continue to grow dxcel and once again welcome her to the team.

Now that I provide some preliminary context to this past year, I want to provide additional color on 2000 and twenty-one's performance, including both excesses and learnings.

I also want to share some of our plans for 2022 and how we are going to continue to build momentum on top of a record-breaking year.

We have made tremendous progress recrafting the operating platform, building a stronger balance sheet, deeping our relationship with the customers through acquisition and retention.

We are leaning into the repositioning and successes accomplished last year to build towards a longer-term outlook of what our next three years can look like. I'm thrilled with the Xcel' prospects for 2022 and the future and look forward to sharing more details with you today and throughout the year.

'll now shift to talking about Q4 results.

As 2019 was our last normalized year from a financial comparison standpoint, we will be making most of our year-over-year comparisons for Q4 2021 and the full year using 2019 as the baseline.

Sales in the fourth quarter were in line with expectations, which included a comp sale increase of nine point 4%, with stores flat and direct up 33 point 1% again. This is compared to fiscal two thousand and nineteen.

Relative to our performance in the second and third quarters, we anticipated a slowdown in sales in the fourth quarter for three specific reasons.

First we spent much of the summer telling customers to shop early this holiday season to mitigate potential supply chain challenges. In the third and fourth quarter we experienced strong results in September and October which we believe is partially attributable to pulling forward fourth quarter demandsecond, with winter approaching, we were concerned about a resurgence in the pandemic and we certainly experienced that unfortunate reality.

Third we made a strategic decision to run our business essentially promotional fruit with only two very short public tests of offers during the single most important promotional and transactional time of the year for almost all retailers.

This was a marked departure from previous discount-driven holiday approaches. We only offered private promotions at lower discount levels to drive retention and reengag lapsed customers, without any public open offers for Black Friday or Thanksgiving weekend.

We feel that this strategy paid off, as we were able to maintain a very high-gross margin rate in Q4, while remaining faithful to our vision of repositioning the DXL brand around differentiation as opposed to discounting.

As it relates to inventory levels. The sharp acceleration in our business in 2021, coupled with lingering supply chain disruptions, made chasing inventory a challenge, and a challenge that never led up throughout the year.

This impact was directly visible in our clearance inventory levels which typically approximate 10% of our total inventory over half of that nearly at only 6% and.

Despite all these challenges, we still delivered a positive fourth quarter comp of nine point 4%, of which we are very proud.

Comp sales in November were up 17 point 4%, December was up 7- eight and January slowed to one point 8%. We believe the biggest driver of the slowdown in mid-December and January was the omacron variant, which we have thankfully seen subside.

I'm encouraged for two twent and thousandy-two, not just because of the waning cot variance, but by actions taken in multiple key areas during 2021 and early trends in 2022, including new customer acquisition, inventory assortment and gross margin.

New to file or our new customer acquisition is a key metric that we follow religiously and has significantly rebounded in the last six weeks as the fourth quarter moved into a rearview mirror.

Compared to twentythousand and 19, 20 and 21 Q1 through Q3. New Tu file acquisition rates were 36 point 2%, 28 point 6% and 35 point 3% respectively.

In Q4, the new two file rate felt at 13 point 3%. While still positive, we believe the decrease is attributable to attributable to the aforementioned reasons, consistent with Q4 comp sales slowdown.

While we are still early in the fiscal year, we did see our new two -file rate jump back up to 43 point 3% for the month of February when compared to 2020. the strength of this metric for February is the fruit of our focused efforts that prioritizes new customer acquisition.

Business since the start of the year has been very strong which again, while still early, is certainly encouraging.

Inventory continued to be a key priority for us as we continue to manage through various supply chain issues. We've spoken at length and given examples on prior calls about inventory challenges.

What I want you to hear today, for me, is that we believe our current flow of inventory is sufficient to support our sales growth goals.

When compared to 2019, our inventory levels are down 20%. However, in 2019 we were both overassorted and over inventory. While part of this decline is a result of delay in shipments, a key part is also very deliberate.

We have been pushing to improve our inventory turnover for years and I'm happy to report that improvement occurred in 2021.

While we are proactively anticipating and contingency planning for challenges 2020, with securing vessels, the cost of containers, driver shortages and increased fuel expenses, we continue to work backwards toward improved inventory positions and turnover compared to prior years. Now let me share some commentary regarding our merchandise assortment.

We continue to see strong sales performance across all product categories. Our current merchise assortment- approximately 52% private label and 48% designer collections- and our sales presentation for the fourth quarter was relatively consistent to that inventory composition.

Tailored clothing accounted for 15 point 3% of the Q4 business, compared to 18 point 4% in the third quarter.

This continues to be an area we are aggressively seeking to improve our stock position with additional upside seene in the greater return of heading into offices. Spring season events and occasions this year.

In sports, we the top-selling brands in our storm continen to see slightly higher selling velocity, including Ralph Loren, notutica and rebok.

In the spring 22 season, Nautica sports were and Vineyard Vides officially joined gxcel's growing exclusive brand portfolio, further reinforcing us as the destination for desirable big and tall designer brands.

Adding to this growing brand for portfolio exclusivity are four quarterly collections by Polo route lot, which are also totly exclusive to DXL and the digantile consumer.

As we are focusing our efforts around DXL's inventory and assortments, I want to also address our wholesale business.

For fiscal 2021 wholesale revenues were five point four million as compared to 12 point five million in fiscal 2000 and nineteenand.

Our wholesale business has been primarily driven by our relationship with Amazon.

Based on several factors, including volatility in the global supply chain, increasing lead times, lower margins and a shifting dynamics of the business, the company and Amazon have agreed to end the wholesale relationship.

With the Amazon wholesale partnership ending, we still believe that our expertise in sourcing and our expertise in fit make us a great partner for anyone seeking to source big into TAL products on a wholesale basis, and we will consider future opportunities if and when they are presented to us.

I want to transition to perhaps the most notable story and learnings from Q4: our gross margin performance.

This quarter was admittedly a big test for us. We purposely and strategically went into Q4 with virtually no publicly available price-led discount promotions. No promotions on Black Friday, not on Cyber Monday and not in the first two weeks of December . To confirm our approm ran a small discount-driven promotional test during the third week of December , which did not provide incremental traffic, further proving that our customer is motivated by differentiation, that we offer more than purely priceed.

Armed with that, reinforce knowledge. We continue to prioritize differentiation over discounting, focusing on fit, focusing on exclusive assortment and focusing on the DXL branded experience over coupons in the customer journey, and no longer participating in the race to the bottom driven by price.

The results of this approach in Q4 were staggering in a good way. Compared to Q4 2019, DXL delivered a 680 basis point improvement in gross margin.

Could we have driven sales volume with promotions? Perhaps, But given our AB testing, incrementality appears minimal and only at the expense of greater markdowns and lower gross margins.

Our accomplishments this year may very well be the trifect of repositioning of the brand: to be less relyant on promotions, driving higher gross margins, while simultaneously achieving scale and top line sales and excess of half billion dollars.

In a few minutes, I will turn it over to Peter, who will walk you through the rest of the financials, but now I'd like to turn my remarks to discuss our plan for 2022 and how we intend to drive further growth, coming off a record-breaking year.

I've already discussed the ongoing strategy to curate and focus our merchandise assortment, So now let me talk about marketing and technology, followed by real estate and finally, the heart of everything we do: our customer.

Within marketing technology. There are three key initiatives that we are planning to pursue in 2022. much like all we do, they are rooted in our customer and engaging in with a relevant, personalized way that add value and foster mutually and official long-term relationships.

We continue to evolve further away from solely targeting customers' wallet through discounts.

To appealing to his heart and his mind as a place that values, respects and powers and, most importantly, fits him, no matter his size, his style or his life. First up is the reengineered loyalty program.

Representing another demonstrative departure from old ways of thinking. To put it bluntly, our current loyalty program is basic at best and overdue for a overhaul. It is solely a transaction-based program with limited differentiation between tiers and rewards, without any incendius for any behavior, except for purchases.

We see this as a key opportunity for 2022, not to only fuel greater retention, but also drive greater engagement and evangeization.

The new program which is lated to launch in Q2 features rewards for engagement based behavior such as describing subscribing to our e-mail list visiting a store engaging with us in social media lighting a review making an additional purchase and more. This creates a meaningful incentive for customers to more deeply engage with dxcel with the program also featuring compelling rewards and meaning of the meaningful differentiation among the program's tiers to recognize our most loyal and valuable customers second.

Second is an initiative focus solely on increasing relevancy and personalization at the customer level. We will be launching a new customer data platform, or CDP, that will demonstrably raise our capabilities towards building and acting against customer profiles via machine learning and deeper data modeling.

As the single repository for multiple sources of data, the CDP will unlock greater targeting and predictive modeling capabilities that do not exist today within our current technology infrastructure. Not only will the CDP and enhance modeling, drive better decisions through and with analytics, it will also fuel downstream channel level action, enabling informed messaging against specific behaviors, propensities and consumer segments. The third element is focused on reaching out to and engaging with the customer on their own terms.

As communication preferences evolve, So too must our CRM contact strategies.

In 2022, we are planning to launch an smf text messaging marketing platform to create an additional complementary touchpoint alongside our existing email, mobile app and direct mail channels.

As mobile devices continue to proliferate pockets. smms allows for further opportunities to com at e-mail Inbox fatigue seeing increased adoption rates among retailers. As a way to more visibly engag consumers with differentiated messaging among the channels.

Similarly, we will also be further refining the DXL mobile app throughout the year, including integrations within our new loyalty program.

For several years, marketing spend has directly primarily been roest-driven attributable channels, such as paid, digital and CRM.

With our aligned repositioning and defined differentiators, we are at a pivot point. We must capitalize on opportunities to both socialize and commercialize our story across a greater continum of channels to engage with both prospective and, I think, existing customers.

You may have seen some of that investment firsthand in brand messaging on connected TV and streaming platforms, as well as gradual testing with influeners in the social space and amplified public Relations outreach, resulting in appearances in various trade and lifestyle publication.

For fiscal 2022, we are increasing our ad spend from four point- 7% of sales in 2021 to 6% of sales in 2022- and investment, indicative of our belief in both the brand repositioning and the opportunity to further gain total addressable market share, fueled by further customer acquisition and retention.

Shifting for marketing. I'd now like to talk to you about stores. Many of you are aware of the intense store development campaign launched 12 years ago, when we introduced the DXL concept and set about converting our legacy casual mail stores.

With the onset of the pandemic over the past few years our store development projects were put on whole. But I am very pleased to announce that we are relaunching them for 2020 -two and.

While the store development relaunches far less aggressive than what we occurred 12 years ago there are a number of opportunities that exist across the portfolio. Today we operate 235 DXL stores and 54 casual mail stores. We believe there are three distinct categories of opportunity in regard to store development first.

Are our casual mail stores that should be converted in place to a DXL store or relocated to a new nearby real estate and rebranded as a DXL.

Second our gigo stores that should be relocated due to attractive opportunities compared to the existing store.

Whether be relocating to a better center, a better area of the market or to a right-sized store footprint. Most of our dxel stores are thankfully, in strategically right locations, but some have opportunities for improvement.

Third we believe there are market gaps in our store portfolio where white space opportunities exist for additional DXL stores.

Included in this opportunity would be closing some casual mail stores that no longer fill a strategic role in the portfolio.

We have developed a preliminary store development plan over the next three to five years and, to provide you an estimate of scale, we believe we could potentially open up to 50 new stores.

This net new estimate of 50 stores accounts for some planned natural lease expirations within the portfolio, but is also indicative of our view of the size of brick-and-mortar opportunity.

We will provide additional details as they become clear, but we are excited about the opportunities that we believe exists through growing our store portfolio and store count and the result that they can yieldthroughout the call. You've heard me ver to our customers as the heart of our business.

Since home is where the heart is, I'm going to bring it home. And now talk about our customer.

Over the past few months we have expanding our. We have been expanding upon the customer research and our repositioning journey which I'll remind. You began back in 2019 and which we pivoted back to once again in earnest in Q1 of 2021 and.

The recent projects have been rooted in seeking a deeper understanding of our customer, going beyond the purely quantitative to more qualitative research to arrive at the why.

We have always known that our customer prioritizes comfort and fit, which was further reinforced by the recent research.

I believe that as we as a brand have a greater opportunity to further amplify that messaging and to project those core brand attributes within our creative executions.

As a brand, we're at a moment of great opportunity. We can and will demonstrably evolve our messaging, doing so in a way that engages and activates customers deeper than ever before. We know who we are, we know what we do, we know who we do it for and why it is important, and those are stories that need to be told.

We have an outstanding associates and fit expert working in our stores who communicate that story very well, but we need to bring the story to light across all touch points within the customer journey, whether be on the website, our mobile app or marketing communications.

We distinctly know that fit, sizing and comfort are key priorities for our guests, but they can inherently also be key points of friction.

Leveraging and clearly communicating our bigi andileall fit expertise and the consistency developed within our own product offerings can alleviate these problems.

There are many more insights like this. one further reveal from our extensive research and I'm excited to continue to learn more about our customers' needs and how the brand of DXL can best serve the big inteall community.

In closing I'll summarize: as a team we have accomplished and conceptualize and clearly articulated our vision for the business and the opportunities that lie ahead.

We must further strengthen our defendable differentiation, or our remote, as we have previously referred to it.

In the not to distantpass, we were discount driven of the company whose main point of communication was solely around price competition. Today we, leading with our redefined positioning and our competitive differentiation of it fit exclusively assortment and the D XL branded experience, all of which ledter up to make D XL both the leading men's big and tall apparel retailer today, as well as the one with the greatest runway potential for growth in consumer mind share tomorrow. And I will now turn it over to Peter for an update on financials Peter.

Thank you Harvey, and good morning everyone. I'm going to spend a few minutes today on our fourth quarter and full year financial results. Then I'd like to share some thoughts about the stock repurchase program we announced today and how we're thinking about capital allocation.

Finally I'll close with some comments on our full year guidance and expectations for 2020 -two.

I'll limit my comments to comparisons to 2019, as that was our last normalized year, but I would encourage you to review our 10 -k, which will be filed later today for a discussion and reconciliation of our full year results. So let's begin with sales.

Total sales for the fourth quarter were 133 point five million, up from 131 point two million in 2019. on a comparable basis, sales in the fourth quarter increased nine point 4% as compared to 2019.

Comp growth by month was 17 point 4% for November , seven point 8% for December and one point 8% for January .

I am happy to report that the sales slowdown in January seems to have been short lived and through the first six weeks of 2022 we are back up to plus 20 point 1% in comp growth versus 2019 levels.

This is very encouraging in light of the macro level uncertainties that we are carefully monitoring and have factored into our outlook for fiscal 2020. -two and.

Our gross margin rate, inclusive of occupancy costs, was 49 point 8% for the fourth quarter, as compared to a gross margin rate of 43% for the fourth quarter of fiscal two thousand and nineteen.

The 680 basis point improvement over 2019 was a combination of 410 basis points of improved merchandise margins in 270 basis points of occupancy leverage.

The improvement in merchandise margin was a result of full price selling and very low markdown rates, a consistent theme for us this past year.

Markdowns for us are primarily comprised of two factors.

Promotions in clearance.

We maintained a very low promotional posture throughout the quarter, even during Black Friday and Cyber Monday.

Our clearance inventory also remained very low and made up a smaller percentage of our total sales, especially in January , when clearance levels are normally higher.

Customer buying behaviors have proven to be quite resilient, even as we pulled back on toupons and promotions, which we expect to continue as part of our ongoing strategy.

Partially offsetting the benefits from lower markdowns were higher freight costs throughout the supply chain, which added a little less than 100 basis points to our cost of goods for the full year.

We expect that we will continue to experience elevated freight costs throughout the coming year and have also continueed to see an increase in raw material price increases.

Altogether, we expect the impact on 2022 gross margin rates to be upwards of 200 basis points.

After factoring in freight markdowns and merchandise cost increases partially offset by occupancy leverage.

Store occupancy costs for the fourth quarter decreased by three point three million as compared to 2019, as a result of closing unproductive stores and rent reductions we have negotiated since the beginning of the pandemic.

We have talked about this now for the past two years, but the savings are real and ongoing.

Between closing unproductive stores and reducing rents in markets where we were overpriced. We reduced occupancy costs by 12 point five million or 17 point 7% as compared to 2019 we.

Now let me move on to selling general and administrative costs as a percentage of sales. gn expenses for the fourth quarter of fiscal 2021 were 39%, as compared to 35 point 4% for the fourth quarter of fiscal two thousand and nineteen and.

On a dollar basis, SGNA costs increased by five point six million from 2019 levels.

This increase was primarily driven by higher incentive-based accruals, which tend to be backloaded to the fourth quarter as the company exceed its full year performance metrics on both annual incentive plans and long-term incentive plans.

On a full year basis, as gna costs were down significantly at just 34 point 2% of sales as compared to 38 point 1% in two thousand and nineteen and.

The full year decrease reflects the various cost savings initiatives and reductions in payroll and related costs that we implemented in 2020 and largely maintained through 2021 as sales recovered.

Adjusted EBITDA was 14 point three million for the fourth quarter, compared to nine point nine million for the fourth quarter of fiscal two thousand and nineteen.

For the full year, adjusted EBITDA was 76 point nine million as compared to 23 point five million in two thousand and nineteen.

Net income for the fourth quarter was nine point nine million, or 14 cents per diluted share, compared with net income of two point four million for the fourth quarter of fiscal two thousand and nineteen.

For the full year, net income was 56 point seven million, or 83 cents per diluted share, compared to a net loss of seven point eight million in two thousand and nineteen.

Next I'll turn to cash flow in the balance sheet.

Free cash flow, which we define as cash flow from operations left capital expenditures, was proceeds of 70 point three million, as compared to a use of five point five million in fiscal 22 thousand and proceeds of two point four million in fiscal 2000 and nineteenthe significant improvement is primarily due to our improved earnings.

As we talked about last quarter, this free cash flow enabled us to pay off all of our outstanding debt and we have ended the year debt-free for the first time since two thousand and twelve.

Our cash balance at the end of the year was 15 point five million, as compared to a debt balance, net of cash, of 55 point four million at the end of 2020 and 49 point eight million at the end of two thousand and nineteen and.

We also have 68 point $9 million of excess availability, and our credit facility offers favorable rates and is locked in place until October of 2020. -six.

I am also pleased to announce that the Board of Directors has authorized a $15 million share repurchase program.

I want to be very clear with regard to how we think about capital allocation.

Our number one priority is to continue to pursue investments in customer growth initiatives that will allow us to take a greater share of market.

We are not taking our foot off the gas when it comes to investing in the business.

At the same time, we believe our stock is undervalued. The repurchase program will give us flexibility to return shareholder value when the stock price is compelling.

Given our current liquidity, projected excess cash balance in substantial debt capacity, we believe this modest buyback, which is approximately 5% of our market cap, at the $15 million maximum amount authorized, can provide another layer to create shareholder value alongside our strategic initiatives designed to grow our market share.

Finally I'd like to share with you our financial outlook for 2022, which we issued this morningwe experienced a remarkable recovery and growth in sales for fiscal 2021.

We certainly expect to grow our top line in fiscal 2022, but we also recognize that our business benefited from some level of pent-up demand in fiscal stimulus policy last year.

In addition, the continuing uncertainty with respect to the cris in Ukraine, supply chain disruption, labor availability and disruption from COVID-19 may also impact our business in fiscal 2020 -two.

In light of this uncertainty, we are taking a cautious approach to offoring a sales range in which we feel confident.

Accordingly, we are guiding to sales of 510 million to 530 million and an adjusted EBITDA margin in excess of 10%.

This concludes our prepared remarks. We appreciate your attendance on our call today and we look forward to a successful year in fiscal 2022. And now we will take your questions.

Thank you. If you have a question at this time, please press star than one on your touchstone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key and our first question comes from the line of Mike Baker with da Davidson. Your line is open. Please go ahead.

Hey thanks first I wanted to ask just a bigger picture question. You know with the margins having now you know more than fully recovered. It seems to me. If you're back to playingoffense can you talk about to give some guidance in twentthousand 22. But I'm more thinking longer term what are your initiatives or what's your view on market share. How big can it get. What's a normal or reasonable annual growth rate for the top line to think about you know beyond 2000 andthousand and 22 which I understand is impacted by you strange comparisons just how should we think about your market share gain and how big you can get over you some period of time but.

Might think this Harvey thinks for the question, the way we would characterize. That is important to understand contextually. We're not providing long term guidance, but the characterization. So, that being said, the way we think about our business is that our direct digital business to the consumer. We believe taking share market means that we will grow faster than average and according to which metric you look at- whether it's 12 or 14 or 16% - there's some number around that would be the overall direct to consumer growth rates that people expect and we believe our business online should grow faster than that in our stores. You could make the same characterization that somewhere 1- 2%, most retailers would probably be at least moderately happy with that growth rate of continuing to comp, and we believe we should grow in excess of that to whether that's.

three or 4% as a baseline growth rate. We would expect that to take share of market, we will grow and excess of the average growth rate of what moderate retail growth rate would be as an expectation. So if you think about our business on a 60, 40 or 70, 30 relative to reference point, in that context you can kind of triangulate in and expect that we will grow six seven 8%, something along that lines as a baseline growth rate and we believe that is a baseline growth rate. We have other initiatives, which over the course of the year we will share more broadly, that talk about a greater opportunity to take share of market as well as actually approach other markets through other means to further accelerate on top of the baseline and hopefully that at this point is sufficient for perspective.

Yes thanks, that that's a great perspective. 1: more just clarification. I want to ask Peter about the gross margin comments. So I think you said down 200 basis points for 2002, thousand Y two on the grossmargin, then offset by some initiative. So, excuse me, for 2022, can think about our offset by leverage, right? Can we think about thousandand twent-two gross margin down, but down something less than 200 basis points? Is that a sort of reasonable places to start for 2022 gross margin outlook.

Yes So some great question. So the 200 basis points is where I would say we would start at and I think that's based on. It's really is a number of things. It's increased freight cost, which we are certainly seeing a lot of conversation right now about fuel source surrecharges and cost of fuel. There's product cost inflation that we're dealing with. There's another issue we talked a little bit about where our clearance levels were last year and we are going to have. We would go back to a more normalized clearance level which is higher markdowns.

And then there'll be some level of promotions. We talked about revamping the loyalty program and other customer acquisition tactics. So the 200 basis points is sort of where I would start at. That was sort of net of all the pieces together, including the occupancy leverage.

Okay if I could fall one more on that. Just, you said you know normalized clearenance and promotions. I presume that means you know far less than you were historically. So what is normalized mean and are you seeing other? You know, within apparel and broadly speakingso ever talk about being you know getting back to more promotions next year- that that's sort of a conmon refrainme among retailers, apparelel and otherwise. Are you starting to see it yet? Or is this just you know what I want to? I like.

Yes it Harvey. I would not characterize our expectations the way you characterize perhaps, what might be more broadly expected. We have worked really hard to engage a consumer in ways that are not around price. We've tested numerous times at this point engaging the consumer based on some form of discount and when the day is done, we do not see incrementality and any incrementality we see as offset by deterioration in margin and we believe, based on the initiatives I've outlined today and others that are in que, that we will have promotion really drawn around seasonal liquidation.

Product choices that when the days done didn't work at the level we expected. In just clearing goods and ongoing clearance, we do not expect to- quote unquote- normalize in a backwards-looking way heightened level of promotion or discounting at any level at this point in time. That's a great clarification. Thank you for that.

Thank you and again, if you have a question at this time, please press star than one and our next question: cution Al line of Jeremy Hamblin with Craig Helen capital group. Your line is open. Please go ahead.

Thanks and congrats on an amazing year and a strong update. Let me ask about the store development and I think the comments around potential for 50 new locations in terms of thinking about 22, in terms of your ending store count at 290 locations.

Are you thinking about store count actually up for 22? What's your CapEx needs for the year?

And then I guess let's just start with that in terms of kind of some new stores in addition to whatever your closures would be.

Sure thanks for the question Jeremy let me start with that one So with regard to store count this year I actually expect that our store count will be slightly down this year and I say that because although we are very much.

Off of the races with store development. The lead times on opening a new store are typically 12 months out, So we are spending a lot of time right now particularly using- really using- data analytics. We've engaged a top flight real estate Advisory firm who's helping us leverage data and analytics to figure out what this store development plan should look like. It is a little bit further out.

So that's how I would think about stores for this year. And sorry, what was the second part of your question?

The CapEx guidance that all would have. But exactly another good point So. But the last two years are CapEx. It's been around 4, five $6 million. If you were to look back to 2019, I think we were 13 million. I would say that we're probably going to be more like 10 to 12 million. This year again, we are starting to invest in building stores out, but we're not necessarily going to have as many open as we would like by the end of this year, but it's definitely something that will be in process this year.

Okay and then a related question: based on where your sales guidance, that 5, 10 tofive 30 million for the year, you ended at roughly $82 million in inventory for the year. So, Harvey Peter, in terms of thinking about your store count at the end of the year, which is going to be down just slightly, your sales plan for the year- would you expect your absolute dollars of inventory at the end of 22 to be up slightly? I know that in particular taillor clothing, that you are not where you want to be on your inventory levels, but are we thinking something like 90 million in inventorytories to end the year as a target or how are you thinking about that?

Yes definitely inventories will be up a little bit. I think 90 million that's probably on the high side. Maybe it's 85 million to 90, but we are definitely still working to get back into a better invento position in certain categories- and you called out tailored clothing is a great example. We've seen such a resurgence and tailored clothing over the last six months. So yes, inventories will be up slightly, but I wouldn't say it's overninety million, I would sayit's than 90.

Okay and then, just coming back to the point, So I think under those levers you would, you would create pretty significant free cash flow for the year, probably well in excess of 55 or $60 million just based on those figures. So in terms of thinking about, I totally understand investing in customer acquisition, but that would build a tremendous amount of cash on your balance sheet as well. Do you feel like if, but say, there's share, the share price were to languish in the current level? Do you feel like there's some reception to getting maybe a little more aggressive as part of your capital allocation plan, should shares stay in kind of a current range?

Yes for sure. I mean, the reason we put the share repurchase program in place was to give us that flexibility. But I do want to stress that our first preference on using cash it's for all of the items that we just talked about: its marketing and technology, its stores, its infrastructure, and so we talked about in marketing and technology. We talked about a loyalty program, upgrades to the website in the app and smms and the CDP. I think we are getting aggressive there and even on the justthe.

Marketing expense side. Harvey had mentioned in his comments that we're going to be spending 6% of sales on marketing cost this year as opposed to four point 7% - last year, So that's a meaningful increase. We talked a little bit about the capital that we're investing in stores, and then the third area that I would point to is infrastructure. So it's looking at distribution and fulfillment, network optimization logistics, and then there's an entire layer on it: upgrades, software enhancement. I think there's plenty of opportunities for us to be investing cash in growth and making sure that we're positioning the business for a long term success. So I think all of those initiatives, coupled with the flexibility to buy back- buy back shares when the price is under valued, when we believe it's undervalued- I think is the strategy we're going to, we're going to pursue. Peter, do you want to comment a little bit on gerremany's characterization of free cash flow and maybe touched on that in terms of comparison of what he noted?

Yes So thanks Harvey, for that. So with we did not specifically give a guidance number for free cash this year, but there's two major pieces I guess that I would call out. When you're thinking about the difference between EBITDA in free cash, because we did give some direction on EBITDA of greater than 10%, we mentioned that gross margin could be down a couple- 100 basis points- and I just mentioned that marketing is going to be higher by another- call it 130 basis points.

So when you're reconciling EBITDA to free cash flow, the two pieces that I would call out are: 1- we just talked about inventory- that we are going to be investing a little bit more in inventory. Secondly, I would just mention the CapEx. That if they're spending 10, $11 million on CapEx, that's also going to contribute to the difference between where we are landing on ebitdtime, where we end up landending on free cash flow.

Understood appreciate that. I also wanted to just get some clarification here on the quarter today trends. I think I just want to make sure was versus 2019, but I think you had indicated that same-store sales up roughly 2, 20% versus 2019 levels. Now your store count is down T lve about 12 point a half, 13% versus Q1 of 2019 and you RE getting rid of the wholesale business which I think contributed about two and a half million dollars in Q1. So would that kind of have projected in- let's call it a maybe 115 to 100 and twent Y million dollar range for Q1.

Yes I mean that feels about right. I think we definitely said the trend so far year-to-date, that comps are up 20%. I'm really happy with that, considering that from November to December and January we were seeing downward pressure on the comps and we highlighted a number of reasons for why that is. But I also think that we have a lot of reasons to be optimistic this year and we're certainly seeing it in the first six weeks of the year.

That's great. Last one for me, Harvey. So as you have, you know, clearly kind of stepped to the forefront of this category 'veyou've.

Struck some really nice new exclusive deals. Are you getting more inbound interest from some other brands in terms of thinking about potentially exclusive relationships after you kind of locked in D your Vines and Nautica? Is that generating potentially more interest?

It's a great question. On one level, I want to say in a moderate way, yes.

But also the challenge which I don't know that people truly appreciate is the big inteall consumer. And for a prietary spec or just literally, the spec is not something everyone wants to go after it. It's a smaller piece of the market and it takes a lot of energy around building a spec and then unique factory sourcing. It's not something you can just build a traditional production line. Most of the factory ES that our private label product are in have dedicated big il lines that they're not literally a dedicated big inteall factory and so you. It goes back to our global sourcing initiative and how much we talk about that world class element of what we do and it underlines the challenge for a traditional average size retail brand to go into the big inteall business. It's a great question. It's not as easy as one would expect understood. Thanks for taking my questions. Best's wishes this yearthanks so much, Thank you.

Operator I believe that for the end of the calls quest today, I don't see anything else in the queue, So for those that were in attendance today, I want to thank you very much for your continued interest in DXL and wish you a happy and healthy- hopefully safe- 2022, and we look forward to talking with you again in about 90 days. That this concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you for calling me wordward con for siv number.