Q2 2025 Destination XL Group Inc Earnings Call

Okay.

Good day everyone.

And welcome to the destination XL Group, Inc. Second quarter fiscal 2024 financial results Conference call.

Today's call is being recorded.

At this time I would like to turn the call over to Ms. Shelly.

Vice President of financial reporting and SCC compliance.

Please go ahead Shelly.

Shelly: Thank you operator, and good morning, everyone.

Thank you for joining us on destination XL group's second quarter fiscal 2024 earnings call.

Speaker Change: On our call today, our president and Chief Executive Officer, Harvey Kanter, and our Chief Financial Officer, Peter Stratton.

During today's call, we will discuss some non-GAAP metrics to provide investors with useful information about our financial performance. Please refer to our earnings release, which was filed this morning and is available on our Investor Relations website at Investor Day T X L Dot com for an explanation and reconciliation of such measures.

Today's discussion also contains certain forward looking statements concerning the company's sales and earnings guidance long range strategic plan and other expectations for fiscal 2024, such forward looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those assumptions mentioned today due to.

A variety of factors that affect the company.

Information regarding risks and uncertainties as detailed in the company's filings with the Securities and Exchange Commission I would now like to turn the call over to our CEO Harvey Kanter Harvey.

Thank you Shelly and good morning, everyone as always I appreciate your spending time with us today regarding our earnings release and communication of our quarterly results.

For today's agenda, there are three topics I will cover.

Speaker Change: First the current environment at our quarterly results.

Second an update on our strategic long term initiatives and third our expectations for the second half of the year.

Speaker Change: Let's start with the current environment.

Our customers appear to be still feeling the impact of inflationary pressures and macroeconomic uncertainty.

We're seeing customers gravitate towards lower priced goods and select promotions.

Signaling a consumer who is carefully choosing where and how we spend that money.

Spending on his family his immediate need not necessarily big and tall.

Our view is that he is not shopping as much for himself right now and that is being felt across the entire category.

We believe we are gaining share of wallet, but this share growth isn't an overall down environment for the category.

I expect many of you saw our press release, this morning, which details our financial results.

We mentioned on the last quarterly earnings call that sales performance a day with trending in line with our first quarter performance, which was negative low double digit comp.

Fortunately that trend persisted throughout the second quarter and our results reflect the continued softness in the big and tall consumer demand.

Let me now get into some specifics on the quarterly results.

Let's start with comparable sales, which declined 10, 9% for the second quarter.

Stores were down 10% all direct was down 12, 8% so not much variation in demand between the channels.

The progression in comp sales across the quarter was mixed and May we saw the combined comp sales declined 11, 8%.

June comp sales improved to negative eight.

Percent and in July comp sales fell back to negative 13, 8%.

We believe father's day wasn't occasion for him our big and tall guy such that the overall business improved.

Even if only for a brief period of time.

The story for Q2 is much the same as Q1.

Struggles continue to be traffic traffic and traffic did I say that enough.

Short issue is dominated by a lack of traffic while conversion is up and average trade size and average transaction value is holding its own.

Traffic has been constricting our growth now for the better part of a year and we do not believe this is unique to <unk>.

We believe the overall men's category is struggling and perhaps worse and big and tall.

In the digital space. The primary reason for our decline in sales was due to a decrease in conversion.

We have seen signs such as dwell time on page views significantly decreased year over year.

We believe this is an indication of a more discerning and promotional driven customer looking for a value and discounts perhaps the place we see the brightest line you clean stores indirect most is in this following in regard in stores. When it takes the time to drive to a store and comes in.

He usually purchases plain and simple.

He is purpose driven he has committed to purchasing for whatever reason on why we believe it is a different story traffic online is far greater than in stores meaningfully better but conversion is far lower.

We see them, putting items is basket or wish list and the never executing a transaction.

We believe he is cross shopping and looking for deals and we can see the lack of conversion and the effort. He has made to put items in his cart as an intuitive example of the ease of cross shopping for whatever he is looking for.

The commitment of five to six minutes on the site are putting something in their cart and then looking across retail at other retailers is the reality of the direct environment today.

While our Assortments are unique in our spirit across a meaningful collection is proprietary and unlike what he can buy elsewhere. We believe he is okay with trading down and as we have previously noted we can see this trade down in Adobe data.

As we reported last quarter Adobe noted the growth in the lowest priced quartile and a reduction in penetration from the upper priced quartile and a material and meaningful way.

Underlining our knowledge that men's is tough and I believe intuitively that big and tall is even tougher was the promotional posture of the second quarter.

The promotional retail posture, I'm general menswear retailers and retail brands selling big and tall became much more pronounced in the second quarter more specifically multiple core national brands began ratcheting up their promotion offers leading up to fathers day.

Our understanding is their business is soft and they are being challenged given the softer business to manage their inventories and as such they are turning to greater promotion or in some cases promotion, which they typically never do.

It is our brands are not retailers and their brands we sell.

This puts <unk> in a difficult position because these brands are very much the product we sell in our stores, which can now be found discounted all of the brands website.

This environment forced us to promote more than we intended which led to more markdowns, which were fortunately able to offset through improvements in shipping and loyalty costs.

That being said I do want to share a few comments on some of the elements. We believe we have control of the well despite the challenging environment around us.

Our inventory balance at the end of Q2 was $78 6 million as compared to $87 5 million last year or a decrease of over 10% at $8 9 million and in comparison in 2019, our inventory was down 23, 2%.

It is worth reiterating that our focus on controllable elements of our business such as inventory is a testament to our operating regiment.

Despite the weak sales demand our clearance penetration at 10, 4% remains in line with our long term target of 10% and only up slightly from nine 3% in the second quarter of 2023.

Much of the credit for keeping our inventory clean goes to our outstanding merchandising planning and allocation and global sourcing teams at EXL.

Despite the decline in sales demand our teams have reacted to this situation and together aggressively and that is what we have on order.

By recasting, our receipt flow and managing our roster of exceptional vendors, we've been able to avoid any buildup in excess inventory and in fact, we expect to finish the year with materially less inventory than we had on hand last year.

Shifting over to the assortment business was down in our <unk> in virtually every category again, the reality of lower than expected traffic in stores, a lower than expected conversion online.

Speaker Change: We also observed more customer migration from higher priced brands to more entry level brands such as hardware day.

The combination of lower traffic and then more of that traffic shifting of lower price points is compounding the sales challenge.

That's where it continues to be accounting for approximately 77% tailored clothing accounts for 19% and footwear accounts for 4% as a reminder, our current merchandise assortment is a balance of private brands and national brands and in Q2, we did experience a shift into our private brands.

The second topic I want to update you on is around our strategic long term initiatives, including the brand campaign, new stores distribution alliances and the new web platform as well as a few updates on operating elements with the <unk>.

Suing to evolve and improve our results all around.

In terms of our strategic initiatives first is our brand advertising campaign, which we experienced meaningful learnings from in the brand tests, leading up to fathers day.

Let me now recap for you the learnings we had from a brand campaign that we launched in May but first I wanted to clarify exactly what we did.

The brand campaign tests with a six week market match test in Boston, Detroit and St. Louis.

We invested in linear TV connected television online video social media and radio with accompanying brand assets being deployed on the homepage and email and through digital banners.

We then compare to our results in each market to our sister markets and the overall chain.

Overall, our three test markets outperformed the control markets and traffic and sessions and in customer acquisition.

This was a positive outcome, we had hoped for in the test gave us confidence that the brand campaign can create more awareness that will drive greater traffic and bring new customers to <unk>.

The lift in revenue was less than that of traffic a scenario we expected.

It is not like a light switch while traffic popped customers did not come in and buy and historical rates and conversion and DPT, but in time, we believe this ramp and like a flywheel will begin to spend first on its own and then over time, it's been faster, but for certain we know that revenue is.

Indicators, so we need time.

Let me give you a few specifics if you will on the metrics online sessions were plus 30% versus control markets.

User sessions were plus 60% and store traffic improved between five and 10% as compared to the control markets.

We also acquired new creative and media learnings, which will allow us to be more efficient in 2025, and finally in our most recent brand tracker. The work done post campaign. We also saw a lift in brand perception metrics within the test markets with increases tied to fit.

Tied to comfort quality and sizing and the Assortments fashions offered.

Despite these encouraging signs we are pivoting the remaining brand investment in the second half of 2024 to address specific challenges, which we expect will deliver a more immediate return.

Well the brand campaign Directionally display the results that we had hoped for and expected reproducing the learnings and another three market test will not materially produced sales and that does not work given the context right now.

So given this and the cognizance of the sales pressure on the business, we are pivoting to strategies and tactics, which we believe can have a more immediate impact for Paul.

These would fall under the headers are areas, we can control conceptually think promotion advertising spend inventory pricing or marketing or areas, we do not control, but yet we believe we can navigate in some way.

I think working with national brands promoting their product reasons to buy something discretionary versus spending on travel experiences or women's or kids apparel.

Some combination of these will take greater marketing dollars greater promotional dollars or loyalty expenses and we believe this shift back we'll makes sense short term.

Once we feel confident in the timing and the macro environment is on more solid footing scaling to a national campaign from a regional campaign will lower costs and increase overall returns.

Now subject to of our strategic long term initiatives are white space store openings in terms of store openings in the development programs in May we opened our second waste a store in this year in thousand Oaks, California, and we still expect to open a total of eight new white space stores in fiscal 2024 <unk>.

In total at the end of the second quarter, we had five white space stores up and running including the three stores opened last year. All five stores are performing albeit less than our initial pro forma but we attribute at least a portion of this lower performance.

The same issues that the rest of the store portfolio is suffering from traffic or lack thereof.

We believe this initiative is like in the movie field of Dreams. If you build it he will come but it's a waiting game just like in the movie.

The new white space stores are driving higher levels of new to file and the customer reaction has been overwhelmingly positive.

Also relocated our store in the Chelsea neighborhood of Manhattan.

Many of you may remember that our loan store in Manhattan was located in below ground retail space. It was exceedingly difficult to drive traffic and awareness.

10 years in this space, our lease was expiring and we seized an opportunity to relocate one blocks out on the same street to a beautiful ground level open floor plan with soaring interior and lots of windows to the sidewalks and I'm thrilled with the new store, which opened in late June and early indications suggest that.

This is going to be a major improvement over the old Chelsea location.

The next topic I want to update you on is our distribution alliance in collaboration with Nordstrom. After two years of discussing planning and negotiating we are now living.

And on the Nordstrom's marketplace site initial sales are encouraging as customers are finding us organically and we will formally more formally launched in September this collaboration with nordstrom's and marketing to their broad customer base of who we are and what is our product offering.

We are currently offering 30 brands and over 800 styles and casual sportswear and tailored clothing and in the coming months, we will be adding more brands and over 1000 styles.

It is still very early in the venture and we are not yet prepared to put a number on what this collaboration could mean to our business, but we are very happy with the results, thus far and look forward to seeing how the business can grow over the second half of this year.

As outlined in our previous calls our strategic marketing priorities remained focused around growing the XL brand awareness, which I've just covered developing imperative operating capabilities and our website platform continuing to build a better foundation of key growth drivers think loyalty, which I'll give you an update on in a minute and.

Deepening our customer intelligence.

Segmentation.

As you know we are currently working on re platforming our website.

The first phase of this project went live on May 30, which addressed our homepage and static content pages a much larger second release is going to deploy in Q3, which will address headers improved search functionality and product detail pages and basket.

The final release will happen post holiday and address the all important functionality of checkout.

We are already seeing significant improvements in latency times and the overall speed of transactions. The new web site is powered by Commerce tools and we think this project is going to be a huge win for easing the friction in our E Commerce business.

In loyalty, we made updates to the program in April 2024, with the goal of balancing loyalty expense, while maximizing customer value.

Overall, the expenses meaningfully less than before and those consumers taking advantage of the program are meaningfully engaged at a higher level.

The program itself is just not seen by consumers as compelling enough beyond our most important platinum customer.

Given us myopic and limited consumer level of engagement. We're in the final stages of development for an improved loyalty program and are working with a new provider and we are well underway and rolling it out and improve program for fiscal year 2025.

The new program is expected to drive key customer behaviors, including top customer retention improved <unk>.

And frequency and positive incremental ROI customer.

Speaker Change: Customers will enjoy multiple new benefits that will be driven from a test and learn approach that gives them a voice in determining purchased outside of the core offering.

Additionally, the new program will provide greater personalization to allow customers to tailor the program to their own shopping preferences.

Awards will come with greater flexibility as well.

Beyond the customer facing components of the program. We have also improved the foundational elements that will lead to better financials. The new program has been built with robust economic modeling at its core to drive the intended outcomes.

Financial model is also expected to deliver measurable improvement versus the current program, while maintaining an acceptable expense ratio.

Considerable progress has also need to provide better customer instrumentation that will ride deeper customer intelligence and produce actionable insights.

And in alliance with an external part provider, we have identified a solution for customer segmentation and realized an actual understanding of key customer cohorts based on behaviors.

<unk> and demographics and the objective of this customer segmentation work was to identify naturally occurring customer segments and how they differ based on underlying needs attitudes behaviors and beliefs, including gift yours to develop and deploy more personalized and resident experiences that will drive.

<unk> increased traffic and lifetime value from key audiences across the customer lifecycle.

This segment will be prioritized based on their economic potential and their receptivity towards the EXL.

While there is still a work in progress to be done we are well on our way to tapping into this next level understanding which will drive an unheralded level of personalization and our future marketing efforts.

Third and lastly, I want to talk to you about our plans and expectations for the second half of the year on our last earnings call. We leaned into the long range growth initiatives, we were executing which are intended to drive revenue and scale for our top line.

The two biggest drivers of that plan are the brand advertising campaign and new store development.

Both of these initiatives require upfront financial investments with deferred financial returns.

As stores mature and when the advertising campaign achieves greater awareness and trial than sales and profit materialize.

We knew this plan was going to be difficult in the current environment that being said the consumer insight work, we have done over the last 18 24 months points to the need for catalysts to achieve growth.

The alternative which is to do the same thing expecting a different result, as Albert Einstein is often quoted is insanity.

The initiatives. We are pursuing are in fact, not doing the same thing and we do expect to get better results and the outcomes from these two initiatives.

I stress fact basis often for both initiatives.

General unaided awareness in single digits, and nearly half the consumers, saying, they do not shop with us because no stores near them that fit all of the great merchandise and the <unk> XL experience will be of no matter unless they know who <unk> XL is and where we are located in.

And that being near to that.

Given that as you know we have executed against both of these initiatives. We believe that we could execute our plans and still deliver a minimum EBITDA margin rate of 7%.

What we did not expect was our business to fall as sharply as it did in the first quarter and then continue into the second quarter and that reality is eroding our EBITDA margin rate.

We believe that the sales environment will improve but given the first two quarters and the knowledge that our guy is perhaps re prioritizing his bed.

Improvement will not likely be a light switch and sales will take time to return to productive enough levels to support the heightened level of planned investment spend we have envisioned.

We have determined that it would be prudent to slow down on both the next leg of the brand campaign and our capital investments concerning new stores.

To ensure I'm not understood and what I am stating, let me be clear we are not abandoning our growth initiatives just slowing down the road. We are still incredibly enthusiastic about our long term prospects, we are being pragmatic and focusing greater and rebalancing spending.

In the short term on tactics that we expect will enhance our results in the second half of the year and until such time, when the big and tall consumer sentiment improved and he is ready to shop.

Now having somewhat covered the initiatives in the second half I want to transition to pure operations and running the business.

The business has achieved historic results coming out of the pandemic and our result, despite the downward cycle remain at the higher end <unk> historical performance given.

Given the downward cycle. Our primary focus is managing the elements that are within our control and making sound decisions as we execute our fundamentals.

We know that we have a customer who loves our brand you can see that in our net promoter score which is consistently in the mid seventy's and rival some of the most enduring brands in retail.

But we also have a customer with a big long purchase cycle and in times of financial difficulty or stress that cycle gets longer we operate in a cyclical business that we can control when those cycles start and finish but our operating discipline and foundational regimen will provide leverage to EBITDA margins when.

Sales momentum returns.

Our company is positioned as a moderate to upper moderate retailer, bringing to market a unique fit.

Unique assortment and experience and while our competitors predominantly compete on price and promotion that is not our sweet spot.

Must stay competitive in price, but it is not our calling card.

And what we're trying to do right now is bridged the gap between cycle.

There are reasons for us to be optimistic interest rates are going to start coming down in September we're going to have a new administration in Washington, and kind of January and there have been recent reports that U S consumer and the labor market are both looking resilient.

So we do have great enthusiasm for whats to come but we must acknowledge the financial challenges we see today.

The harsh reality is we are now guiding 2024 to a sales range of $470 million to $490 million with an EBITDA margin rate of approximately 6%.

Our focus is on our balance sheet and delivering positive free cash flow for the year, all the while trying to restore a level of momentum back in sales.

To achieve these results we are going to redeploy our brand campaign dollars into other areas that we believe will shore up second half traffic challenges and we are cutting back on our capital spending.

Put another way, we want to fish when the fish are biting and this just isn't happening in the current environment.

So we will bide our time, we will protect our brand.

We'll be ready when we see the beginning of a new upward cycle and our customer returning to shop.

I'm now going to ask Peter to run through the second quarter finances, before I come back and have some closing thoughts Peter.

Thank you Harvey and good morning, everyone.

Net sales for the second quarter were $124 8 million as compared to $140 million in the second quarter of last year. This.

This amounts to a 10, 9% decrease on both a total sales and comparable sales basis.

I believe this result is directly tied to the ongoing macroeconomic challenges that big and tall customers are facing which are causing them to stretch their time between shopping trips.

Our revised sales outlook for the year of $470 to $490 million represents approximately a negative 10% to negative 6% comp.

We do not know when the current downward economic cycle that we're in will reverse but our performance has been tracking steadily through the first six months of the year.

With two year comp stacks and the negative 10% to negative 12% range.

Our sales range is built on an expectation that we will not see a material change in trend between now and year end and we will maintain that double digit negative two year stack comps are expected to improve in the second half of the year as we start to lap the severe negative comp declines we saw starting last.

Year in Q3.

So on a structural basis, the comps should improve in the second half assuming our two year stack remains constant.

Next I'll speak about margins first merchandise margin.

I am pleased with the fact that our merchandise margin for the second quarter was flat to last year we.

We achieved this despite the increase in promotional activity around us as Harvey discussed.

We were able to offset these increased markdowns with reductions in shipping costs loyalty program expenses and marketplace commissions.

In terms of gross margin inclusive of occupancy costs. Our gross margin was 48, 2% for the second quarter as compared to 53% in the second quarter of last year.

The 210 basis point decrease was entirely attributable to an increase in store occupancy rates as a percentage of our net sales.

This deleveraging was primarily due to the $15 million lower sales base.

Speaker Change: A lesser factor was an increase in occupancy costs on a dollar basis same store lease renewals and lease extension at increased rates.

At this point the majority of the pandemic era rent abatements, and deferments renegotiated have expired and reverted back to higher market rates.

For the full year, we expect our gross margin erosion to be in the range of 60 to 110 basis points due primarily to the occupancy deleverage I spoke about.

I believe our inventory position is a key strength of our balance sheet in terms of the freshness of our assortment, our improved turnover rates and our healthy clearance levels.

<unk> management continues to be a critical element of providing the best big and tall shopping experience available.

Moving to selling general and administrative expenses or SG&A expense as a percentage of sales increased to 43% as compared to 33, 9% in the second quarter of last year.

On a dollar basis SG&A expenses increased by $6 2 million.

$3 9 million of this increase was related to marketing costs. The majority of which was for the brand campaign.

The payback period for the campaign will extend into the future, but the expenses incurred now.

The balance of the SG&A increase was related to other operating expenses to support our long range growth initiatives and an increase in healthcare benefit costs.

Marketing costs as a percentage of sales increased to eight 8% for this year's second quarter as compared to 5% last year.

For the full year, we expect to spend about 7% of our sales on marketing costs up from five 9% last year.

We remain focused on executing the day to day business with a high level of operating discipline, which include strict controls over expense management.

Speaker Change: EBITA for the quarter came in at five 2% as compared to 16, 4% in the second quarter of last year.

The decrease from last year was primarily due to the deleverage on lower sales as well as the brand advertising spend.

For the full year, we expect an EBITDA margin rate of approximately 6%.

I'll finish up with some comments on liquidity.

We continue to feel very good about the overall strength of our balance sheet, which has held up well through our business challenges.

Finished the quarter with cash and short term investments of $63 2 million as compared to $62 8 million a year ago with no outstanding debt and either period and availability of $69 9 million under our revolving credit facility.

We are keeping most of our excess cash in short term U S government Treasury bills, which are earning interest at over 5%.

For the six months year to date, our free cash flow, which we define as cash flow from operating activities less capital expenditures was $3 2 million as compared to $21 6 million in the first six months of last year.

The decrease from last year was primarily the result of our deferred decreased operating income as well as an increase in capital expenditures related to our store openings.

We are pleased to have a positive free cash flow halfway through the year and our goal is to remain free cash flow positive in the face of our grid business challenges.

We plan to accomplish this through prudent capital allocation requiring minimum ROIC hurdles.

We are pulling back on the pace of new stores and plan to open 10 stores next year instead of 15.

We continue to believe we could open approximately 50 net new stores over the next five years.

And now I'd like to turn the call back over to Harvey for some closing comments.

So hopefully it's now clear DSL will stay the course, and we will weather the storm the operating regiment, we haven't placed in the foundational extensions on the legwork. We have worked on will pay us back meaningfully as an uptick in the cycle returns.

And lastly, as I wrap up before we take questions I wanted to thank the DSO team that I work with everyday.

Work and dedication in the stores and the distribution center and the corporate office and the guest engagement center provide a level of optimism for the opportunity yet ahead.

The passion and commitment our team has for our underserved consumers is our reason for being our purpose and why we do what we do.

It is because of the great team and culture that we've created that I wanted to get up every morning, and keep moving on this journey.

Thank you for all your hard work and the commitment in our pursuit of surface big and tall men and making DSL the place where they can choose their style and to where what they want and.

Speaker Change: And operator with that we'll now take questions.

To ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Please standby, while we compile the Q&A roster.

Our first question comes from Jerry.

Jeremy Hamblin with Craig Hallum Capital Group Your line is open.

Thanks for taking the question.

I wanted to start by asking about some of your recent collaboration so getting a sense of progress on the Nordstrom collaboration in the marketplace.

And also I think.

You were working on your rollout of tuck it I think maybe 50 of your stores here.

By the fall, but wanted to get a sense of progress that you're making.

On those.

Speaker Change: Those two.

Strategic initiatives, yes, Jeremy Thanks, Harvey Kanter I'll answer both of those on the collaboration and alliance because we feel really good about where we are if you are on nordstroms app or within their email exchange you would have probably received on Monday, the very first marketing element of the collaboration with nordstroms.

Speaker Change: <unk>.

Their app within their App notification of the programming featuring <unk> literally is the first marketing communication of the partnership there marketplaces in early innings and their marketing of key vendors or key collaborator of partners like US is very early and we do have great expectations as we've said where we are.

Not at a point, where we think we should communicate the size of the prize, but initially it for half the assortment being online. We're very excited about it and we are being presented as the retailer literally supporting their big and tall consumer because their assortment relative to what we're bringing to the mix is much much smaller relative to what we're bringing to market.

We feel really good about where it's going and time will tell but it's a it's a journey we've committed to do for multiple years, it's not something that's in an hour kind of thing and relevant to Untuck and you are correct. We are extending the stores, we will ultimately get to a 100 stores.

And we are in the final contractual elements of bringing on at least one if not two more versions of untucked for spring of 2025, So I think what.

Long and the short of that as we see other brands recognizing the challenges inventory mesquite SKU management things of that nature and are coming to us and saying, we'd love to extend our product brands to the big and tall consumer, but we're not sure. It's within our four wall so to speak and we're reaping hopefully the benefits that over the next several years.

<unk>, where we continue to bring in you will see we will announce probably November it maybe February its corner, what the timing is at least one if not two more collaborations like untuck it and the point the point there I think thats important to us as we're bringing to the market much better product more product, but we're also bringing to market a product that is very well known.

It's not a secret.

Really big wonderful marketer and their brand and what they offer is compelling and now we're extending that and the big and tall category. So other brands are doing the same thing and inside our product. It does literally say fit by the XL and that's a testament to our ability to have a proprietary fit that's relevant from their view and their view.

Speaker Change: Is that we do it better than they could so thats, where we are.

Thanks for the questions.

Sure just and then I wanted to follow up and ask.

What do you think that you're learning from your customer you noted in the release that you have seen some gravitation to.

Kind of the lower lower value brands.

I would say if you look across apparel retail.

There really has been a mixture of results from some companies seem quite strong results.

And others that have not.

But in terms of the Dx sell customer.

Do you do you sense this is a.

Fight over the value equation.

Speaker Change: To drive better traffic.

Is there demand for.

Maybe more branded product, but maybe lower unbranded product or is there anything you feel like you need to adjust in terms of the assortment within the stores and online.

It's a great question some perspective I want to share we think and.

Would say that we at least have more than anecdotal evidence that the overall mens business is soft and without naming names. There was one of the national retailers are reported 48 hours ago and their reference was home and women's in beauty in kids and didn't even murmur about mens and so we believe that's more.

That anecdotal that theyre not talking about that is because the men's business is soft and we think that and at some level. We know our shopping cycle of our core men's customer is less frequent than the shopping cycle of women's or kids purchases and so inherently we have a customer that doesn't shop as frequently and given the environment, whether it's gas.

Prices, even though they're down 40 versus last year, theres still expensive and mortgage rates are still 6% and change and given those variables and the fact that our customer literally doesn't have a high frequency of shopping hey, we think he is just shopping less so.

You believe that or support that or not thats. The first line and then the second element of that as he is shopping less he is being challenged by discretionary income and so the reality is yes, we've seen him trading down into Harbor Bay and other low priced offerings. We've we've also seen other replication of data where the.

Consumer overall appears to be trading down and in that reference that Adobe is very purposeful because again, it's not our data it's not anecdotal data that says that.

Product and price points, lower or penetrating greater than the products and price points higher and then the ship. So between both of those we think that there is more than anecdotal perspective about the customers not just not shopping and then ultimately in answer to your question.

We don't know how long that will last but we also recognize that it's not about value, it's about price points and how far they can stretch their dollars. So we are absolutely with purpose augmenting our assortment and you will see an example of that is hagar, which is in the core business. Today champion has been extended and we have other brands, we're bringing on.

Online and Theyre not poor brands are not inferior brands or just lower price point brands because inherently when you think about our business. We've talked about this before routes where and polo Ralph around one of our most premier brands one of the one of the ones. We're most proud of and it's not inexpensive brands and so it's not about value for the brand thats about the exact.

The point that the price point of Ralph rent is more than the price point of other brands and so inherently were not expensive, but our price points are higher and so we are very cognizant of purpose to bring our price points down and not try to be all things to all people, but on a bell curve to have more of an offer at opening price.

Points and for lack of a rather say a barrier to entry a price point of routes and rent can be addressed by the augmentation of a few select brands that give an entry price point. Another example that is carhartt carhartt in the category is very expensive, but there are other work where brands you will see quickly in our mix of late fall.

Spring, whereas that same categorical business, but at a lower price point and so ultimately, we'll hopefully evolved to the point, where we have entry price points for that customer that doesn't want to spend as much maybe on carhartt or relative to Ralph Iran, and can access our proprietary fit or the influence of our pit and the way we.

Interact and the experience he has in the guided ability to put outfits together that quite honestly no one else, but the XL can do.

Great. Thanks for all the color and best best wishes. Thanks, so much.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Our next question comes from Mike Baker with Davidson Your line is open.

Alright, guys. It keagan car com from Mike right now.

I just wanted to ask a question a little bit on that.

Speaker Change: The brand campaign and the advertising just for the rest of the year.

You talked about the national brands are promoting more and then kind of shifting away from your campaign. So I was just wondering like.

What are you going to do in terms of your spend to drive those immediate sales results are you going to try to match. The promotions of these national brands are you going to spend on more like broad media to drive awareness and traffic, what's what's going to drive the sales immediately.

Great question. There are three components of what we're going to do at a very high level first is just plain and simply our marketing spend will be increased and theres not a black and white silver bullet here. So our SCM practice is going to be augmented which is basically words that we will pay for.

I mean, there are other there are other elements of our what I would call brand advertising that can be executed to continuing to build awareness, but not at the level of what I would call national broadcast TV and so specifically things like cable TV streaming video, we can still do that just at a lower level. So we will continue to do that that's number one number two.

Relative to our loyalty program loyalty is one of the places where consumers at point blank told us they see value in the program. There are no exclusions in our loyalty program. So when you come and shop with us and you earn a loyalty points or loyalty certificates you can use that and when the day is done it's a denomination so it's $15 and it's a $15 discount.

Anything you want whether it's Ralph on rent or any other brand and quite honestly, that's not the way our typical promotions work, we exclude our national brands for most of the discounting we do and so that's the second element, where it will there'll be an enhanced programs within the loyalty program to offer the customer the ability to basically have a greater value and then last but not least to your point.

National brands, where we are.

Never going to win at a pricing game and so our attempt is to be competitive, but it will not always be to match dollar for dollar we have to run our business in ways that are relevant and important to us.

All out that we wanted to acknowledge is that as the consumer again I referenced overall men's business as the consumer appears to be.

Challenged and other brands might national brands that we carry it or don't carry are promoting their brand in a way that is not either typical in terms of they don't normally promote or they don't promote as deep we're trying to navigate that but what we've seen is in some cases. It makes perfect sense to match dollar for dollar and we're winning in other cases quite honestly, we did it.

Father is de matched and we didn't see a win and so we know our customer is well priced is important and we need to be competitive if not our calling card and we have to figure out how to navigate that balancing kind of sort of multiple elements right. What what is it going to drive customers in where theyre going to see value, where theyre going to convert and purchase and.

Ultimately, where theyre going to create revenue if you think about the stores, we referenced it but it'll be really crystal clear stores still represent about 70% of our revenue when a customer comes into the store, we're seeing highest levels conversions we've seen.

Running year over year conversion then we're on a three year run of conversion growth and were seeing DPT hold its own so.

There is an element of them, we just can't get him to get off the couch and come into shop, because he doesn't see that as a priority, but the flipside of it is when he does come in we're selling a product at a at a decent DPT I E. It's not promotional it's not like we're upside down relative to our our selling price and we're converting at a higher level, so which would imply we have.

The right product and the right size and the right store location.

We just need more of that come in and so it's all about traffic in and Thats. The point, where I started we're going to spend more on advertising, whether it's SCM or streaming media or other things owned an unknown media to attempt to drive traffic, but at some point you got to recognize you're throwing good money after bad and that you're just not going to move some level of customers.

It's a balancing act how much we spend and absolutely believe we're going to get a return out of it.

Awesome and then just a follow up you talked about the monthly cadence of comps and you exited July weaker I was just wondering if youre still seeing that kind of trend in August or if things have picked up a little yeah. No. We feel I'm not going to say really good about where we are.

I will definitely tell you we're on the cusp of beer.

Being in the single digit decline so we've definitely seen a pickup it's mostly in the stores we've seen our traffic in the stores I'm not with a measurably improve but we've definitely seen it improved and with conversion DPT holding the same variables we've seen a.

Decline in the negative comp for lack of a better I would say, it's kind of a double negative but yes. The answer is we've seen our business improve and as Peter said, our expectation for fall is that we will see improvement I'll remind you I'm doing this from memory I think we are against some negative eight in Q3 and a negative <unk> 11 in Q4 and in spring where again.

And in Q1, a positive comps so as we start to see that two year stack our expectations. The one year performance will improve and that's built into our guidance.

Good.

Speaker Change: Thank you I'm showing no further questions at this time alright, so Daniel.

Thank you Daniel we appreciate you're helping us here to our investor base and shareholders. Thank you. So much for your commitment of your time. This morning, we hope to obviously report a better outcome in Q3 and continue to fight. The good fight have a great day have a nice labor day say save journeys to all of you.

This concludes today's conference call.

Thank you for participating you may now disconnect.

Okay.

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Yes.

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