Q3 2025 Destination XL Group Inc Earnings Call

Good day, everyone and welcome to the destination XL group's third 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 market.

Shelly Market: Vice President of financial reporting and the SEC compliance at Dx out. Please go ahead Shelly.

Speaker Change: Thank you operator, and good morning, everyone. Thank you for joining us on destination XL group's third quarter fiscal 2024 earnings call on our call today are 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 them.

Speaker Change: Busters 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 got the 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 2020 for 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.

Speaker Change: It affects the company and from Rich 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 Kanter Harvey.

Harvey Kanter: Thank you Shelly and good morning, everyone.

Harvey Kanter: I appreciate all of you joining us today.

Harvey Kanter: Let me start off by acknowledging that the adult business continues to be challenged in the third quarter that consumer spending headwinds, which resulted in lower traffic to our stores and lower conversion online.

Harvey Kanter: Despite these challenges we have maintained our disciplined operating regimen and we have avoided a material erosion in merchandise margin, while keeping our inventory position healthy and controlling our operating expenses.

Harvey Kanter: Now with that high level overview as noted let me set today is more detailed agenda for our review.

Harvey Kanter: There are three topics that I will cover in greater detail.

Harvey Kanter: First I'd like to update you on the current environment and our quarterly results second.

Harvey Kanter: I wanted to talk a bit about our expectations for the fourth quarter.

Third I'd like to update you on the progress, we're making against our long term strategic initiatives.

Harvey Kanter: Let me get started with the current environment.

Harvey Kanter: It's frustrating to be talking about the macro environment once again in Q3.

Harvey Kanter: But our customers are still holding very tight to their wallets.

Harvey Kanter: We continued to face consumer spending headwinds and it appears buying new clothes has just not been a priority for the big and tall consumer.

Harvey Kanter: Customers, who are coming in and choosing to spend their hard earned dollars with us are gravitating towards lower priced goods and select promotions.

To that end alright third quarter results reflect a continued shift towards more affordable value driven options.

Harvey Kanter: Both in store and in our direct channels customers had been moving away from better and best tiered higher price point brands and are gravitating towards moderate lower price point national brands, and our private brands such as Harbor Bay, our more entry level opening price point.

Harvey Kanter: Brands.

We had some modest success with a promotion during Columbus day weekend, but overall for the quarter, we havent seen a consumer who is carefully choosing where and how he spends his money.

Harvey Kanter: Our competitive research suggests that others in men's apparel are struggling as well, but we do believe based on data. We have seen that we are gaining share of wallet at least from other big until our retailers in the space and despite an overall down environment for the category.

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

Harvey Kanter: Our sales so far in November continued to pace, a low to mid teens negative comp.

Harvey Kanter: Unfortunately, the down cycle and negative trend that we've been speaking to all year is reflected in the continued softness in the big and tall consumer demand as our results show.

Harvey Kanter: Let me quickly go through a few specifics on the quarterly results.

Harvey Kanter: We will start with comparable sales, which declined 11, 3% for the quarter.

Harvey Kanter: Stores were down 99, while direct was down 14, 7%.

Harvey Kanter: So we are seeing a little better performance in stores and the worst performance indirect as compared to the second quarter.

Harvey Kanter: The progression of comp sales across the quarter was mixed in August we saw the combined comp sales decline of negative 10, 4%.

Harvey Kanter: In September comp sales fell back further say negative 12, 2%.

Harvey Kanter: October comp sales were negative 11 two.

Harvey Kanter: In stores. The story for Q3 is much the same as Q1 and Q2.

Harvey Kanter: Our struggle continues to be primarily related to a lack of traffic while conversion is up and average transaction value is holding its own.

Harvey Kanter: Declining traffic has been impacting our growth now for well over a year and we do not believe this is unique to the EXL.

We believe the overall men's category is struggling and our NGL, let's say it is worst and big and tall.

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

Harvey Kanter: We have seen some level of uptick in sales momentum for promotions, but not every promotion has worked and the results are inconsistent.

Harvey Kanter: We believe this is an indication of a more discerning and promotional driven customer and if we catch them at the time. He is looking for greater value and discounts we've seen an uptick.

Harvey Kanter: But this has not happened across the board when we have run promotions.

Harvey Kanter: We are strategically tested several different promotional formats as tactical tools to drive sales, which is the only met with limited success.

Harvey Kanter: For example.

Harvey Kanter: We used a test and control approach with a tiered offer which effectively means the more you spend the more you save.

We also tested a free $20 off <unk>.

Or with different spend threshold saw mixed results.

Harvey Kanter: Ultimately, we know that the market continues to be challenged and our view is that we are still in the grips of a downward cycle and the lower price points and enhanced value are critically important.

Harvey Kanter: We were encouraged this past weekend with the cold snap and a promotion around sweaters and outerwear, where the consumer responded.

Harvey Kanter: We will continue to evaluate selective promotion, which we believe can leverage elastic demand and be executing well on the fundamentals controlling what we control.

Harvey Kanter: We will be ready to meet the customer when the current downcycle breaks and it comes back to shop once again.

Harvey Kanter: I do want to highlight elements that we believe we control and have controlled well despite the challenging environment around us.

Harvey Kanter: Our inventory balance at the end of Q3 was $89 $1 million as compared to $99 $9 million last year or a decrease of over 10%.

Harvey Kanter: Despite the weak sales demand our clearance penetration at nine 2% remains in line with our long term target of 10% and is down slightly from nine 7% in the third quarter of 2023.

Harvey Kanter: Obviously, our sales results are far less than we planned at the beginning of the year, but I'm very proud of our team's resilience to strategically manage the flow of receipts and manage slower moving inventory with selected markdowns to avoid any buildup in our excess inventory.

Harvey Kanter: We still expect to finish the year with less inventory that we had on hand last year and our inventory turns have continued to improve once again in 2024 as compared to 2023.

Harvey Kanter: Shifting over to the assortment business was down in virtually every category both stores and direct channels saw a stronger performance in entry level price brands, our sales mix between private label and designer collections of it up over a full percentage point in favor of our private brands and lower price points, we have struggled.

Harvey Kanter: Bid competing with some of our national brands, who want their very own websites have offered Richard discounts and promotions.

Harvey Kanter: In fact in our response to this pressure we have introduced a new price match guarantee and program to ensure our prices remain competitive.

Harvey Kanter: From a category performance sportswear continues to account for approximately 76% tailored clothing, approximately 20% in footwear, 4%.

Harvey Kanter: I'm also happy to report that we opened two more stores in the third quarter with one in the Phoenix market in Mesa, Arizona and one in the Houston market in Sugar land, Texas.

Harvey Kanter: This now brings us to seven new stores opened since the beginning of last year with four more to be opened by the end of the fiscal year.

Harvey Kanter: Our primary objective with new stores is to address ease of access and as we've shared before 44% of our poll consumers don't shop with us because stores do not exist near them and 35% shop do not shop with us because theres no store can immediately close by.

Harvey Kanter: Performance in the new stores has been challenging and is similar to what we are seeing in our core business traffic has been less than we expected, but we do believe that will turn once again once we get to the other side of this downward cycle.

Harvey Kanter: Now I wanted to talk to you about our expectations for the fourth quarter.

Harvey Kanter: At the end of Q2, we guided the market to a sales range of $470 million to $490 million with an adjusted EBITDA margin of approximately 6% for the fiscal year.

Harvey Kanter: With business continuing to struggle in Q3 and no change in traffic get to emerge. We are now guiding to the lower end of our sales range with an adjusted EBITDA of approximately four 5%.

Harvey Kanter: We did not expect our business to fall off as sharply as it did this year and although our customer has reduced as apparel spend we have reasons to remain optimistic.

Harvey Kanter: Interest rates continue to come down the election is now behind us and a new administration as theyre trying to take over in Washington.

Harvey Kanter: Our business has struggled due to weak consumer sentiment and it feels like the sentiment may soon change.

Harvey Kanter: We have new initiatives include a new loyalty program launching soon and we have successfully transitioned to a new e-commerce platform.

Harvey Kanter: The only limit on what we can do for the entire online customer experience will be our own imagination and creativity to see what we can achieve.

Harvey Kanter: Let me now start to transition to the third topic I wanted to speak out today, which is our long term strategic plan.

Harvey Kanter: While there is no question that our sales performance has been disappointing and in response, we have had to make some decisions regarding the timing and speeding speed of these initiatives I do remain incredibly enthusiastic about the progress we have been able to make.

We have been talking for quite a while now about intensifying our marketing efforts, including the new brand campaign. We've also talked about fundamental improvements underway such as switching to a new E mail provider and launching a new loyalty program.

Harvey Kanter: I'd like to give you an update on our segmentation work, how we are using that data to make more informed decisions and lastly, I want to provide an update on our alliance with nordstrom's. So.

Harvey Kanter: Now I'll begin with the brand campaign.

Harvey Kanter: We do continue to see a lift from the father's day brand campaign, which we tested in three test markets that being Boston and St. Louis and Detroit.

Harvey Kanter: In the test markets web traffic metrics still look healthy versus the control group and after the campaign ended well.

Harvey Kanter: While we remain keenly aware of the need to increase brand awareness. It has become increasingly difficult to absorb the upfront brand investment required to build momentum while market conditions and consumer sentiment has deteriorated.

We have a long term ambition to deliver a brand awareness, but our short term returns on advertising spend or a row as have been challenging for this reason, we have decided not to move forward with the holiday portion of our brand test instead, we are focusing our limited marketing spend on proven more cost effective working marketing tactics and ideas.

Harvey Kanter: We will be launching a video campaign, albeit not across national broadcast media, but instead, primarily in social and the like we feel great about what it is and perhaps if we are lucky consumers will feel compelled to share and it will go viral so to speak that would be a huge win.

Harvey Kanter: We are looking for some leverage points versus direct placement, which is material implications and a long runway to achieve the kind of return we would require especially at this moment in time.

Harvey Kanter: We're also continuing to work on critical foundational elements are not that are non negotiable, including E mail and loyalty.

Harvey Kanter: I'm happy to report that the conversion to a new E mail provider has stabilized and we are seeing a slight return to growth in our file.

Harvey Kanter: We are aligned with our new loyalty provider and our platform and have further designs and evolve loyalty program to enhance and drive the strategic priorities of the program.

Harvey Kanter: We believe this will better set up <unk> for long term growth and success through a heightened level of loyalty to consumer engagement. The new program introduces best in class loyalty elements, such as more compelling benefits based on tier migrations spend not through points or loyalty currency.

Harvey Kanter: The New program also includes safeguards to control cost new customers are required to opt into the program, which gives us the ability to measure the performance of loyalty members versus non loyalty members gaining critical insight into the incremental <unk> of the program.

The new platform in program structure also allows for testing of holdouts for specific offers and promotions, which we can pilot and then scale is successful we are on track for a launch and go live at the beginning of the new fiscal year.

Harvey Kanter: Let me now switch to our work with customer segmentation. The objective of customer segmentation is to identify naturally occurring consumer segments and leverage that data to better understand how each segment based on underlying needs attitudes behaviors and beliefs can come to life.

Harvey Kanter: Our work has uncovered six distinct segments based on consumers' beliefs motivations and behaviors around engagement shopping style retailer price and value.

Harvey Kanter: We then utilize the segmentation to data to guide our communication with each different segment, which we believe will fuel meaningfully greater engagement, leading to heightened growth by fostering deeper more profound relationships with <unk> customers and prospects.

Harvey Kanter: The customer segmentation and now defined segment helps us to more be more deliberate and efficient and targeting as well as delivering more relevant and purposeful content to drive acquisition and retention through personalization.

Harvey Kanter: Examples include segments, such as trend Trailblazers, and sharp style seekers, who are the most stylish and fashion forward shopping frequently and placing high importance on the opinion of others.

Harvey Kanter: Another segment called Fashionably guided is looking for shopping help from our sales consultants.

Harvey Kanter: Other segment called comfort casual places comfort first and prefers to shop in line excuse me in stores versus online.

Harvey Kanter: It is critical that we understand the differences amongst our customer base. So we can lean into appropriate messaging not just to retain them, but enhance and grow their long term value and relationship with <unk>.

Harvey Kanter: We can better connected consumers and build stronger relationships by delivering content and messaging tailored to their needs through this deeper understanding of the customer.

Harvey Kanter: The last strategic update I want to touch based on is the website re platform.

Harvey Kanter: We now have 100% of our site traffic directed to the new platform via Commerce tools experience and we are consistently beating our legacy site metrics.

Harvey Kanter: The first phase, which went live in early June migrated our homepage and several other static content pages to a new platform with commerce tools.

Harvey Kanter: Two weeks ago. The second phase of the project went live this is a very significant milestone in our REIT platform as it represents the bulk of the website.

Harvey Kanter: It is all of our catalog pages all of our product detail pages and a new site search experience from a best in class vendor for retail search and merchandise functionality.

Harvey Kanter: We are all very excited about the potential of this new platform. It leans heavily on natural language processing and artificial intelligence to deliver better responses to customer search queries on our site.

Harvey Kanter: It also has the power to incorporate many more data vectors into product sortation and discovery such as regional item popularity variations in store inventory near the customer's location.

Harvey Kanter: The final phase of the re platform project, which is expected to be completed in early 2025 companies that covers the shopping cart or bag checkouts accounts and transition to our new loyalty platform.

Harvey Kanter: Just a few features that are arguably the most important parts of the online journey because they represent the places where customers' needs are trust us the most with their logging credentials with their personal information or credit card numbers and their loyalty certificates.

Harvey Kanter: This phase will also see us add on another best in class vendor to handle user authentication, bringing that part of the site experience up to the most modern standards.

Harvey Kanter: Our new online business with Nordstroms has continued to ramp up as we work to get more product live.

Harvey Kanter: Fresh fall merchandise has received from our vendors.

Harvey Kanter: An official marketing plan is developed collaboratively by the Nordstrom and EXL teams is key.

Harvey Kanter: Comprehensive marketing plan will guide our execution for the rest of 2024 and ramp into 2025 tactic.

Harvey Kanter: Tactics include E mail and seller pages personalized EXL brand content men's department landing pages programmatic marketing and in store training education for sales staff and their personal stylists. We now offer 37 brands at over 14 100 styles to choose from our assortment continues to expand with new arrival added.

Harvey Kanter: Daily as fresh inventory flows in and in the next month, we will be adding an additional 500 styles to the mix.

Harvey Kanter: Overall, the progress with <unk> marketplace has been slow and steady and we believe will continue to grow over the next few years.

Harvey Kanter: Lastly, I wanted to revisit one of the topics. We are frequently asked about and that is the adoption of the <unk>, one and other weight loss drugs.

Harvey Kanter: We continue to monitor G. L. P. One adoption as it is imperative. We stay ahead of the trends to mitigate any possible downside and more importantly, capitalize on any upside that may arise from greater penetration of these drugs in our segment.

Harvey Kanter: While we do not know the exact percentage of DSL customer using <unk> one drugs. It has been widely reported that as much as 8% of the US Population is currently actively on weight loss medications anecdotally, we hear in some stores at a small subset of our customers are curtailing their spending because there are no weight loss.

Harvey Kanter: Journey.

Harvey Kanter: However, we do not see any material migration in our data to suggest something more demonstrative is evolving.

Harvey Kanter: As we've stated before it is not at all uncommon for our customers to fluctuate their waistline, what we have seen for many customers is that when his weight fluctuate it often necessitates augmenting or even fully replacing his wardrobe.

Harvey Kanter: We have not observed aboard a discernible impact on our business, but this conversation continues to be something we are very careful and watching closely.

Harvey Kanter: We still have a thesis that over time <unk>, one drugs will drive change and <unk> will be ready to meet the needs of the big and tall customer when he is ready.

Speaker Change: And with that I'm now going to ask Peter to run through the third quarter financials before I come back for some closing thoughts Peter.

Peter Stratton: Thank you Harvey and good morning, everyone I'll share some more details on our third quarter financial performance and then provide an update on our capital allocation strategy.

Peter Stratton: Net sales for the third quarter were $107 5 million as compared to $119 2 million in the third quarter of last year.

The decrease in net sales was primarily due to an 11, 3% decrease in comparable sales, partially offset by an increase in non comparable sales from our new stores.

Peter Stratton: The third quarter decline was consistent with the trend we experienced in the first half of the year and continues to manifest primarily through lower traffic in our stores and lower conversion online.

Speaker Change: Let me discuss the underlying consumer fundamentals, which center around the ongoing macroeconomic challenges that big and tall customers are facing.

Speaker Change: We can see that our customers are stretching their time between shopping trips and continue to demonstrate price sensitivity.

Speaker Change: Our revised sales outlook for the year of approximately $470 million represents a comp sales assumption of approximately negative 10% for the year.

On a sequential basis. This represents a modest improvement in Q4 comp performance as we close out the year with an implied comp for Q4 in the negative mid single digits, but is consistent with Q3 on a two year stack.

Switching over to margin I am pleased to report that our merchandise margins held relatively flat for the quarter down only 20 basis points to last year.

Speaker Change: We have been able to offset increases in markdown rates on seasonal inventory with decreases in shipping costs, a decrease in loyalty program expenses and a slight shift in product mix selling to more private label brands.

Speaker Change: Despite this we cannot escape the sales shortfall in our gross margin inclusive of occupancy costs drove our rate to 45, 1% for Q3 as compared to a gross margin rate of 47, 5% for the third quarter of last year.

Speaker Change: The 240 basis point decrease was almost entirely due to an increase in store occupancy as a percentage of net sales.

Despite sales falling short of our expectations, we have been able to successfully mitigate a buildup of seasonal inventory and in fact have again lowered our inventory levels with total inventory down 10, 7% since the end of last year's third quarter.

Inventory management continues to be a critical element of providing the best big and tall shopping experience possible we.

Speaker Change: We feel like this is an area that has been managed well in response to the weak selling environment of 2024.

Speaker Change: As I just mentioned the bulk of the decrease in gross margin or 220 basis points was from occupancy deleverage, which was due primarily to the year over year decline of $12 million in sales.

A lesser factor was an increase in occupancy costs on a dollar basis from store lease renewals.

Speaker Change: Lease extensions at increased rates and new stores.

It is important to note that the majority of pandemic era rent abatements and deferments, we negotiated back in 2020 in 2021 have now expired and reverted back to higher market rates.

Speaker Change: This will continue to be a challenge, but we are actively engaging with landlords once again to see where we can drive savings for.

Speaker Change: For the full year, we expect our gross margin erosion to be in the range of 130 180 basis points, primarily due to this occupancy deleverage from a combination of escalating rents on weak sales performance.

Speaker Change: Moving on to selling general and administrative expenses or SG&A expense as a percentage of sales increased to 44, 1% as compared to 42% in the third quarter of last year.

Speaker Change: On a dollar basis SG&A expenses decreased by $600000.

Speaker Change: The decrease was primarily due to a $1 $4 million reduction in advertising costs, partially offset by increases in employee health care costs technology costs and professional services.

Speaker Change: Similar to occupancy costs, the deleverage in SG&A rate was driven by the lower sales base.

Speaker Change: We reduced our advertising costs as a percentage of sales to five 7% for this year's third quarter as compared to six 3% last year due in part to ROE as challenges when competing against pre election political spending.

Speaker Change: For the full year, we expect to spend about six 8% of our sales on advertising costs up from five 9% last year with.

Speaker Change: With that increased driven by the brand campaign costs incurred primarily in Q2.

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

Speaker Change: Adjusted EBITDA for the quarter came in at 1% of sales as compared to seven 3% in the third quarter of last year the.

Speaker Change: The decrease from last year was primarily due to the deleverage on lower sales.

Speaker Change: For the full year, we expect an adjusted EBITA margin rate of approximately four 5%.

Lastly, I'd like to provide an update on how we are thinking about capital allocation.

Speaker Change: Over the past few years <unk> has built up a formidable balance sheet punctuated with a significant cash and investment balance and no debt.

Speaker Change: While we appreciate the luxury of holding onto excess working capital and a downward economic cycle. We are also eager to put some of that capital to good use by driving returns for our shareholders.

Speaker Change: We made good progress on this during the third quarter.

Speaker Change: Our approach has been balanced between new store development and share repurchase both of which we believe will be accretive to our long term earnings per share.

Speaker Change: New stores provide a proven path to sales growth and customer acquisition and allow us to better leverage our operating model.

Speaker Change: Share repurchases are an effective way for us to return capital to shareholders, while reducing our outstanding share count.

Speaker Change: As Harvey mentioned, we opened two new <unk> stores in Q3, and our four more planned in Q4, which will bring us to eight in total for 2024.

Speaker Change: We have another eight planned for 2025, which is down from our most recent guidance of 10, but has allowed us to be more selective about which locations. We proceed with and to focus on those with the highest ROIC projections.

We also maintain an orientation to consistently deliver free cash flow.

Speaker Change: With fewer new stores in progress for next year, coupled with initiatives to drive lower store build out costs that hurdle to deliver free cash flow becomes more achievable.

During the quarter, we also repurchased three 6 million shares of our common stock for approximately $10 $2 million.

Speaker Change: We have $4 $8 million remaining under our board authorized repurchase program, which we plan to use before year end.

Speaker Change: After these investments we ended the quarter with $43 million of cash and investments, which remain primarily in short term U S Treasury bills.

Speaker Change: For the nine months year to date free cash flow before store development cost was $2 5 million.

Speaker Change: We will continue to look for ways to put our excess working capital to work balancing long term returns with short term fiscal responsibility.

Speaker Change: And ROIC C driven approach that prioritizes shareholder returns.

Harvey Kanter: Now I'd like to turn the call back over to Harvey for some closing thoughts.

Harvey Kanter: Thanks Peter.

Harvey Kanter: So hopefully that's clear and as I noted at the end of our prior earnings call DSL will stay the course, and we will weather the storm.

Harvey Kanter: The operating regiment, we have in place and the foundational extensions of Legwork. We have worked on will pay us back meaningfully.

Harvey Kanter: When an uptick in cycle returns.

Harvey Kanter: And lastly, as I wrap up before we take questions as I always do I want to thank the <unk> team that I worked for and with every day their hard work and dedication in the stores and the distribution center in the corporate office and the guest engagement center provide a level of optimism for the opportunity ahead.

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

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

Harvey Kanter: Thank you for all your hard work and your commitment in our pursuit of serving the big and tall man and making <unk>, the only place where they will ever want to choose to buy their styles and where what they want.

Speaker Change: And with that operator, we will now take questions.

Speaker Change: Thank you to ask a question at this time. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.

Speaker Change: Our first question is going to come from the line of Michael Baker with D. A Davidson. Your line is open. Please go ahead.

Michael Baker: Hi, hopefully you can hear me. So first I just want to start with a short term question I'm intrigued by the implied fourth quarter guidance you said.

Down mid single digits for the comp.

Michael Baker: Understanding that it's.

Michael Baker: Tougher comparison, but still that would be a nice improvement.

Speaker Change: Is that indicative of what you are seeing a couple of weeks into the quarter, it's gotten a little bit colder as you said elections over are you starting to see trends get better end to that range.

Hi, Mike This is Peter Thanks for that question.

So, yes, I mean, I don't want to read too much into the fourth quarter. Because we are only a couple of weeks in I would say that it has gotten a little bit better, but as you pointed out.

Speaker Change: Part of that guidance is built on the.

Speaker Change: The fact that our our comparable as against last year are significantly better in the fourth quarter than they were in the third.

Speaker Change: We were also expecting that we would see better growth in the third quarter, which didn't come as strongly as we had hoped but as we head into holiday.

I think we are optimistic about some of the things that we have planned and we.

Speaker Change: We are seeing a little bit.

Speaker Change: More momentum than we did in the first half of the wall. So part of it's structural part of it is a bet on improved consumer sentiment.

Speaker Change: The other thing I would share the other thing I would share with you as we acknowledged in our comments that we have been testing both strategic what we would define as strategic as well as some level of tactical understanding of promotion and looking for incremental <unk> and while I think that it's been inconsistent.

A few elements that seem to be working and we're trying to balance as you might imagine the level of promotion, which we have been relatively speaking allergic to and our repositioning and believing that the element of fit and the sensitivity and breadth or depth of offer including the experience.

Speaker Change: Has been our calling card that was sufficient but in the environment that requires more value. We have recognized the consumers need to have a better price opening price.

Speaker Change: Some level of promotion in the next and so we have what I hope to be strategically created an opportunity to create either higher levels of repeat and engagement with current customers or customers that don't know us either vis vis the marketplace at nordstroms today, which we're quite excited about our other elements on our <unk>.

Speaker Change: Direct business the opportunity in the balance of this fourth quarter to see what you just acknowledged which is appreciation of our comps and hopefully with Peter's comments about the year over year comparison on some of the things we're doing.

Speaker Change: At a minimum a change in our business and are more optimistic.

Speaker Change: Meaningful change in our business and obviously time will tell.

Speaker Change: Yes, sure fair enough and just to follow up on that.

Speaker Change: A little bit more promotional.

Speaker Change: Presumably.

Speaker Change: Thats embedded in your guidance.

Just to confirm that but also does this.

Speaker Change: Triggered by that comment about the national brands being a little bit more competitive on their own website.

Speaker Change: So is this in response to that you said you are getting a little bit more promotional because of that so if you could just talk about that dynamic how that relationship with the national brands works do they help you at all if theyre going to get more promotional does that become adversarial Im just just intrigued by that that whole dynamic.

Speaker Change: Yes, the two comments I would say for the most part our promotion is baked into our guidance and when I only say that obviously, we're trying to take advantage of things like the promotional outerwear business and sweater business that we did last week, which we acknowledged we've got our response to it really wasn't a response to the weather and inventory that has been slow.

That really warm temperatures and that was not.

Speaker Change: Plan, so to the extent that there is something like that in the next eight or 10 weeks that it is not baked in guidance, but most of the things that we anticipate are fully baked into guidance and then relative to the question on the brand I would say that it varies a lot by brands in some cases, we literally have with brands support better.

Speaker Change: Allowances or guaranteed margin in other cases, the brands are literally trying to navigate what I think many in retail are which is business that is softer and inventories which need to move out of their warehouses and through the customer and theyre trying not to have those inventories back up or in some cases also the comment that I made already about the recognition.

Speaker Change: The customer is just requiring greater value and lowering lower prices.

Speaker Change: When all said and done I think there's no one answer we have some brands that are meaningfully working with us some brands, which are promoting and we just have to match them. Hopefully you caught our guaranteed price strategy, which we've implanted I think it was on the 28th of October where it went live and it is our intent.

Speaker Change: Save the customer we will not be undersold, and you can buy anything from us with confidence and if it's a lower price elsewhere, who will match that price and that just underlines hopefully the value that is available and what the customer one.

Speaker Change: In many cases.

Speaker Change: They wanted in a size or color that not available elsewhere and.

Speaker Change: Based on our breadth and depth of assortment, it's more than likely they can actually get into the <unk>, but that <unk> in combination with a guaranteed price hopefully gives them greater confidence that any brand promoting.

More than likely we will have what they have and we will be at the same price.

Speaker Change: Yep fair enough makes sense, if I could ask one more just can you share the comment that you think so clearly you think this is industry wide not a share issue. In fact, I think you said you think you're gaining share.

Speaker Change: What data are evidence do you have on that maybe a little bit of concern that you could be losing share to more lower end offerings because it because you did acknowledge that part of your business. That's doing well. So I know there are competitors, who are more entry level more private label et cetera.

Speaker Change: You don't think you're losing share to those guys now.

Speaker Change: Yes, I think the way we would characterize it first of all without telling you which platform. There is a platform, which we are now paying for and it provides aggregated anonymous data and credit card information that we don't know that at a customer level, but that that provider in that platform can provide his perspective on <unk>.

Speaker Change: Retailers are big and tall and in those select that are purely big and tall.

Speaker Change: Big and tall as opposed to a walmart or Amazon or target or calls or any of those that have our menswear business and big and tall and that we cannot see that data at the at the level of tactical detail that we can see a few others and so that's where we're coming up with a perspective that we appear to be taking share and there is no question that at least in that data on that platform.

Speaker Change: It shows that we.

Are doing better and better as defined as less worse really in reality, but less worse for sure.

Speaker Change: The other element that I think is important to recognize is that our assortment good bad or indifferent for lack of a better way to say it is moderate to upper moderate. So when you think about Levi's thats really our opening price denim brand and from there it goes up and whether or not <unk>.

Speaker Change: Youre binds or polo, Ralph Radnor Psycho Bunny, our assortment is upper moderate and so we don't look at Walmart as a direct competitor sure sure Theres some level of minimal crossover, but while we talk about share we're talking about really share based on our customer who is relatively small $100000 income and buying.

Speaker Change: Our moderate brands and what we see in the platform that we're using.

Speaker Change: In that particular case share shift to us.

Speaker Change: And so that's how we've answered that question for you today and how we created our.

Speaker Change: And for lack of better way to say it.

Speaker Change: Makes sense. Thank you.

Thank you operator does not appear we have any other questions you can take one more crack at that and if not then we wish everyone, a happy and healthy Thanksgiving and a wonderful holiday season, and regroup actually at the end of March which is our next earnings call, but if theres any other questions. We're happy to do that.

Speaker Change: Again, if you would like to ask a question. Please press star one one.

Speaker Change: One moment for our next question.

Okay.

Speaker Change: Our next question comes from the line of William Forsberg with Craig Hallum Capital. Your line is open. Please go ahead.

Speaker Change: Good morning, guys I'm on for Jeremy This morning, but.

Speaker Change: So this is the second quarter now that we've seen this price sensitive consumer trading down to the mid and entry level price points versus those more upscale brands.

Speaker Change: I guess I'm wondering how the product margin for the lower price point and.

Speaker Change: Private label brands compared to that of the upscale names, maybe like polo or the vineyard vines and then if your ship planning on shifting any of the assortment mix to maybe capture more of this consumer shift.

Speaker Change: Okay.

Speaker Change: Yes, great question.

The two answers I guess first and foremost there's no question the lower price product for Dia Excel is primarily our private brands.

Speaker Change: Harbor Bay termination.

Speaker Change: Synergy those brands among others in our private brands offer our lower price point and our highest margins. So it actually is a good thing for us the same channel shift to those price points, we're able to address the customers needs at some level and actually profit from that margin that is better on private brands.

Speaker Change: In terms of the shift I would tell you that we have had lots of conversation about really the assortment.

Speaker Change: Materially went after a lower price point brands it would take.

Speaker Change: Obviously, a couple of two or three years, what we are trying to do is evolve and shift and so we have I'd say three or four key national brands, which we will launch in some cases, we might have them already like AGR is on the website and we have several other brands, which we are bringing online in the spring to further address lower price.

Speaker Change: Points those are National brands, Inc.

Speaker Change: Carhart, but a lower price point version of Carhartt, We love Carhart, but it's not a lower price point and it happens to actually be a moderates out a lot of our price point, but think about brands like that and then <unk>.

<unk> brand that might be lower in price point, and we will bring those in in spring to further augment the balance of our bell curve for lack of a better way to say it in shift down into lower price points, but it's really an assortment. In addition to move the bell curve down.

Speaker Change: Not like we're going to magically take our assortment at lowered the overall mix materially because obviously, we do have a very meaningful business and moderate upper moderate brands and to the degree that we're correct in our belief that this is a cycle when the cycle actually moves back in the economy approved mortgage rates go down.

And things of that nature help the consumer feel a greater level of discretionary spend in our business. We believe that they will return and want to buy these more upper moderate brands at a level that they have historically with us and so we're trying to make sure we balance our movement and actions with great thought as opposed to just knee jerk and.

Speaker Change: And change things that don't make sense for the positioning of the company.

Speaker Change: Great Thanks for that color.

Speaker Change: Kind of a follow up here I believe last quarter you had noted.

Speaker Change: <unk> brand awareness figure around like seven or 8%.

Speaker Change: In the prepared remarks, you had mentioned web traffic was looking healthy.

Speaker Change: I guess I'm curious if you had an updated awareness figure.

Speaker Change: For the third quarter.

Speaker Change: And then if you had any results from the Q2 AD campaign that were quantifiable at this time.

Speaker Change: Yes, so we do the brand campaign work twice a year and so the last brand awareness work brand campaign study was done in the second quarter. So we do not have another updated one for this quarter, we made literally and I don't think its material, but I will acknowledge we made a couple of point movement.

Speaker Change: In an awareness and a couple of point room in any of the awareness, we would not call that material the <unk>.

Speaker Change: Brand campaign, which we have acknowledged in our remarks, continuing to demonstrate greater traffic to the website and in the three and test market versus the control markets greater traffic to those stores.

Speaker Change: The challenges that traffic has to convert and its first awareness that its trial and then its conversion and then it's repeat and thats a longer runway and so the ROE as return on AD spend is challenging when youre investing really multiple millions of dollars in a campaign and youre not moving the business part up and so we pulled back on that is.

Speaker Change: Acknowledged in our remarks, but we believe that we will re immerse ourselves in it that being said and what you might be interested to learn and look beyond the lookout for.

We've done a video which lean.

Speaker Change: And to certain elements of pricing and the consumer in a way and it may or may not the greatest aspiration. It will become viral but it will be on streaming where we are not a national broadcast television, but on streaming media, where it will be picked up and we will continue to help us hopefully create awareness.

Speaker Change: Perhaps not at the level of a national brand campaign on NBC or CBS or what have you, but at least on streaming Youtube Hulu and things of that nature, social media that it will create hopefully a greater level of awareness and if we're so lucky to see it become viral that will further help us create greater levels of awareness and really when the data.

Speaker Change: That is literally what we really need to do create awareness for the business first and foremost and we believe over time that when the cycle returns, we will see our business uptick in a meaningful way.

Now I will certainly be on the lookout for that and then just.

Speaker Change: Lastly, here, noting the SG&A improvement on a dollar basis in the quarter.

Speaker Change: Looking towards Q4 are you expecting to extend any of the store hours.

Speaker Change: Recapture some of the start of the holiday shopping in the back half of Q4.

Speaker Change: We have been very very minimal increase in store hours, our employee base has fell in great favor literally great favor in us not extending store hours.

Speaker Change: Raised on the staff in the store, which we're running very light and the reality is what we've found is when we've extended we've tested extended hours were really just moving the business from the hours are open to the hours that we are extending too and not materially moving the customer and yet generating incremental SG&A that is not.

Speaker Change: <unk>.

Speaker Change: Leveraging but it's actually deleveraging and so the long and the short of that answer is no. There is not a material change in hours. When the day is done we have to be honest with ourselves and we are not the first place that people are going to run to a black Friday or shop at nine and 10 o'clock at night. So our hours are still relatively a 11% to five on Sundays now.

Speaker Change: And then 11% fixed and will go from seven to eight for a few days, but thats really the extent of the extension of ours.

Speaker Change: Great. Thanks for all the color that's all I've got.

Speaker Change: Hi.

Speaker Change: Okay, operator, it looks like we're done with Q&A you can take one more path, but if theres no. Other questions level again wish you all a happy and healthy holiday season, and wish you the very best.

Speaker Change: Okay.

I'm showing no further questions at this time Sir.

Speaker Change: Okay.

Speaker Change: Ladies and gentlemen, this does conclude today's conference call. Thank you for participating and you may now disconnect everyone have a great day.

Okay.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].