Q4 2025 Destination XL Group Inc Earnings Call
Good day, everyone and welcome to the destination XL Group, Inc. Fourth 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 makers, Vice President of financial reporting and FCC compliance at D. XL.
Speaker Change: Please go ahead Shelly.
Speaker Change: Thank you operator, and good morning, everyone. Thank you for joining us on destination XL group's fourth quarter fiscal 2024 earnings call on our call today, our President and Chief Executive Officer, Harvey Kanter, and our Chief Financial Officer, Peter Stratton.
Speaker Change: 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, DSO Dot com for an explanation and reconciliation of such measures.
Speaker Change: Today's discussion also contains certain forward looking statements concerning the company's long range strategic plan and expectations for comparable sales and other expectations for fiscal 2025.
Speaker Change: Such forward looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those assumptions mentioned today due to a variety of factors that affect the company and.
Speaker Change: 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.
Harvey Kanter: Thank you Shirley and good morning, everyone.
Harvey Kanter: Appreciate all of you joining us today for our fourth quarter 'twenty 'twenty four earnings call.
Harvey Kanter: I wanted to start by acknowledging the challenging fourth quarter results that we posted earlier today.
Harvey Kanter: Despite a few pockets of optimism and recovery in the overall retail space. The men's apparel sector has been challenged and in particular men's big and tall and we have felt that impact it filter down to our <unk> business.
Harvey Kanter: Sector headwinds, coupled with greater volatility have created heightened levels of consumer uncertainty, which we believe have resulted in lower traffic that is challenging our growth intentions.
Harvey Kanter: Many consumers have been selective about their spending and men's big and tall clothing has not shown the same resilience and the broader retail market.
Harvey Kanter: Despite the difficulties and difficult sales environment and tepid financial performance. There were some bright spots for Dx fell this past year that we can point to and provide some optimism.
Harvey Kanter: For those of you who follow our results each quarter, you are likely aware of the ongoing development and execution of our long range plan that we've been talking about for well over a year.
Harvey Kanter: In 2024, we began executing elements of our strategic plan in earnest with the belief that these initiatives were critical to driving growth and over time, a heightened pace for the rate of growth.
Harvey Kanter: We brought to market the brand awareness campaign by initiating the brand work and executing a three city Bachelor market test to test our ability to ultimately build greater brand awareness for DSL.
Harvey Kanter: We began to address the challenge of no store near me or no store conveniently near me and expanded our physical presence by opening seven new stores and converting eight others from casual male to <unk> offering our customers greater convenience and access to <unk> assortment and store experience we.
Harvey Kanter: Invested in enhancing the online experience by upgrading our legacy website to a new and improved E. Commerce platform. We believe the new website platform will drive incremental sales with higher conversion due to increase speeds optimized search capabilities and flexibility for testing and optum.
Harvey Kanter: <unk>.
Harvey Kanter: As we transition from our legacy loyalty program to the new <unk> rewards, which has been launched on our new and improved loyalty platform, creating a stronger foundation and improves the financials as well as the functionality of the program.
Harvey Kanter: The new program is based on customer spending migrating the best customers up to higher reward tiers. The new platform gives us more flexibility robust reporting and the ability to easily grow the program.
Harvey Kanter: And perhaps the most important bright spot that I want to reiterate and emphasize is DSL remains on firm financial footing our.
Harvey Kanter: Our balance sheet is solid with cash in the bank no debt and financial flexibility to withstand the cyclicality of this down market.
Harvey Kanter: I'm also pleased to report that despite the softness in top line, we maintained our merchandize margins, while simultaneously, adding back in selective promotions and controlling our expenses.
Harvey Kanter: This operating regiment and discipline enabled us to deliver yet another year of positive net earnings positive free cash flow and positive adjusted EBITDA margins of four 3%.
Harvey Kanter: And now a segue to our outlook for 2025 and beyond and what has set this up.
Harvey Kanter: We believe many of the actions taken in the latter half of 2024 have positioned us to capture a larger share of big and tall demand.
Harvey Kanter: With the slowdown in consumer spending we remain hyper focused on accelerating new customer acquisition to increase our file to offset lower revenue per customer.
Harvey Kanter: While we have more acquisition tools in place already we are bringing forward several additional elements, which are already in the pipeline for the coming weeks and months.
Harvey Kanter: In 2025, our strategic focus is to stabilize our business and drive the path back to growth.
Harvey Kanter: That means focusing on our customers carefully controlling our costs being prudent with how where and when we invest our capital.
Harvey Kanter: We must know.
Harvey Kanter: We must ultimately drive top line revenue, both the short term, where our tactics will focus on incentivizing customers by providing greater value and in the long term, where we intend to resume our brand marketing campaign and pursue more store openings once we see the beginning.
Harvey Kanter: The rebound and recovery in the big and tall sector.
Harvey Kanter: This balanced approach will influence the pace at which we pursue our strategic objectives. However, given the increased volatility of the market winning consumer sentiment and other macro uncertainties such as questions regarding implementation and impact of tariffs. We believe it is prudent not to issue guidance in there.
Harvey Kanter: Range of expected sales of EBITDA outcomes for the fiscal year.
Harvey Kanter: Our fortress balance sheet and strong liquidity position gives us the confidence to navigate the current market conditions and emerge stronger, but we think defining a range of expected outcomes for the year would be nearly speculative at this point through.
Harvey Kanter: Through the first six weeks of the year, our comps are down 12, 5%.
Harvey Kanter: These early results, we do believe that comparable sales will gradually improve over time from a low double digit negative in the first quarter to a single digit negative in the second quarter and a return to positive comp results in the second half of the year due to a combination of our strategic initiatives designed to capture a greater share.
Harvey Kanter: Demand modest improvement in macroeconomic trends and easier comp comparisons as we move through 2025.
Harvey Kanter: We believe that the strategic initiatives that I'll speak to in a moment, we will drive a meaningful improvement in comp performance for the year.
Harvey Kanter: This is not the first time, our company has faced a prolonged economic malaise and it likely won't be the last week.
Harvey Kanter: We believe that our actions this past year and our plans and specific initiatives for 2025, we will enable us to better serve the big and tall customer when he is ready to shop with us.
Harvey Kanter: With that high level voiceover now complete I plan to focus on just two areas for the remainder of the call first I will provide a more detailed review about our performance in Q4 and highlight a few specific areas, where we made progress against our strategic plan.
Harvey Kanter: Second I will outline priorities and the catalysts that we have either launched or in the process of launching in fiscal 2025.
Harvey Kanter: Let's start with a quick review of the fourth quarter and our comparable sales.
Harvey Kanter: Comparable sales declined eight 7% store sales were down six 7%, while direct was down 12, 7%. So we continue to see a little better performance in stores and a softer performance indirect as what is the trend all year.
Harvey Kanter: The progression in comp sales across the quarter was mixed in November we saw a combined comp sales declined to 11, 8% negative comp in December comp sales improved to a negative $4 four and in January comp sales fell back once again.
Decline of negative 13 three.
Harvey Kanter: As I previously mentioned the sales story for Q4 is much the same as it was and as we stated earlier in the year. The story in stores continues to be primarily related to a lack of traffic while conversion was up over last year and the average transaction value held its own.
Harvey Kanter: In the digital space. The primary reason for our decline in sales was due to a decrease in conversion.
Harvey Kanter: We did have some limited success over the holiday period with a loyalty points top off campaign in November intended to provide 1 million loyalty customers with greater buying power in the form of either a $5 $10 or $15 bonus certificate to surprise and delight.
Harvey Kanter: The sales results from the certificates exceeded our forecast and drove traffic to a much higher sales efficiency rate.
Harvey Kanter: And then followed up with a return to our historical Bogo offer for Black Friday, and a direct mail campaign with no purchase minimum and no brand exclusions also intended to arm customers with greater value and offset the current economic headwinds to.
Harvey Kanter: The combination of more aggressive offers and focusing circulation on those customers most likely to respond to contribute to respond contributed to the lift in sales for December and underlines our belief that to deliver on growing our topline revenue we must invest in the short term with continued surgical strategic promotion in the mix.
Harvey Kanter: In 2025 to continue to deliver greater buying power to customers.
Harvey Kanter: Another element that we controlled well despite the challenging environment around us is inventory.
Harvey Kanter: Our inventory balance at the end of Q4 was $75 5 million as compared to $81 million last year or a decrease of six 8%.
Harvey Kanter: Our clearance penetration of eight 6% remains in line with our long term target of below 10% and down slightly from nine 5% in the fourth quarter of 2023.
Harvey Kanter: Our buying strategy was deliberately cautious to mitigate inventory risk, but remains agile enough to quickly flex up to meet recovery in demand.
Harvey Kanter: Our team's tenacity and resilience to manage the flow of receipts and slower moving inventory against the declining sales backdrop is that win and something that has become a meaningfully greater core competence of the merchant and global sourcing teams.
Harvey Kanter: In addition to the wellhead and receipt management teams use of selected markdown to avoid any buildup in excess inventory, while still maintaining merchandize margins consistent with last year underlines. The overall discipline, we have in place.
Harvey Kanter: The next area I want to cover is new store openings.
Harvey Kanter: Our consumer research has clearly fine defined better access to stores as one of our more significant opportunities.
Harvey Kanter: 44% of big and tall consumers told us they do not sharpen DSL because there is no store near them and 35%. So there is no store conveniently near them.
Harvey Kanter: Fax serve as a compelling perspective to expand our store count.
Harvey Kanter: Given that broader perspective, we conducted further analysis to identify and prioritize specific white space markets across the U S and concluded that our our ideal store footprint could support an additional <unk> stores.
Harvey Kanter: We opened three way <unk> stores in 2023, and then another seven stores in 2024.
Harvey Kanter: Have identified and are currently in various stages of development and construction on eight more stores in 2025 with one that opened last month for more expected to open in the first half of the year and three more in the late summer or early fall.
Harvey Kanter: While we have made progress addressing ease of access to the <unk> brand for consumers performance in the new stores has been challenging.
Harvey Kanter: Similar to what we are witnessing in our existing store business. We believe the low awareness of our brand is creating short term challenge and successfully ramping traffic to the newly opened stores.
New stores do not see the levels of traffic. We initially expected, but we believe there is still much room to grow.
Harvey Kanter: We believe it is more appropriate to resume sort of development when we can support it with brand advertising and our brand awareness campaign.
Harvey Kanter: While opening new stores in a down cycle has been difficult in time and with more brand awareness. We still expect these stores will be able to achieve their potential.
Harvey Kanter: In doing so they will address the challenge our consumer brand tracking work had identified as an obstacle and barrier for big and tall consumers, who do not shop with EXL in our stores today.
Harvey Kanter: Another strategic initiative that was launched this past year with which we have a great conviction is around our alliance with Nordstrom.
Harvey Kanter: We went live on Nordstrom's online marketplace back in June of 2024.
Harvey Kanter: Now offer 37 brands and over 2200 styles to choose from and our assortment continues to expand with new arrivals added daily as fresh receipts flow in.
Harvey Kanter: Customers are primarily discovering our products through the nordstrom's website, and specifically through product site search, but for 2025 or more robust marketing plan supported by Nordstroms includes personalized content E mail campaigns and in store training to direct customers to our online presence.
Harvey Kanter: Yes.
Harvey Kanter: Key merchandise drivers of the business include polo as well as private label brands, such as Harbor Bay and Oak Hill.
Harvey Kanter: We are still in our first year in our nordson as results are less than 1% of sales we remain very optimistic about the greater potential for growth heading into 2025.
Harvey Kanter: Similar but different in our development of alliance as a soon to be launched collaboration with Travis Matthew.
Harvey Kanter: Similar to what we did with target and fit by the XL.
Harvey Kanter: Travis Matthew as a brand and collection that is inspired by southern California's laid back yet active lifestyle with each design driven to achieve the perfect balance between innovative design and superior style and now DSL will bring this exclusively to the dig into all consumer.
Harvey Kanter: The offer will maintain our fit by excel our unique sizing to provide superior comfort and sportswear are capable of fitting in while standing out. We are very excited about this launch which will happen before the end of the first quarter.
Harvey Kanter: And now I want to give you some color on several merchandising and marketing strategies that we believe can positively influence the <unk> business over time.
Harvey Kanter: These four key initiatives and projects for 2025 are aimed at enhancing our market position and delivering exceptional value to our customers I will talk you through each and they include the role of promotions and loyalty the.
Harvey Kanter: The re platform of our E Commerce operation.
Harvey Kanter: And our thoughts on opening price point product first is our use of promotion.
Harvey Kanter: Over the past few months, we've added a level of strategic promotions in the mix and we have seen the consumer respond however.
Harvey Kanter: It is also important to share that not all promotions are equal and we have gained valuable insights into how individual and uniquely different versions can positively influence both business performance and customer engagement.
Harvey Kanter: Building on our test and learn strategy from the second half of 2024, we are deploying a two pronged approach. The first pillar in our strategy is always on value. This includes everyday value driving initiatives targeted at specific customer cohorts.
Harvey Kanter: Be used when they are ready to shop.
Harvey Kanter: We have purposely trying to avoid storewide site wide promotions and instead are deploying strategic offers intended to increase customer acquisition.
Harvey Kanter: High frequency and visits and provide customers with a higher degree of assurances they are getting an incredible value when they shop at EXL.
Harvey Kanter: We introduced this week, a very first military first responders teacher and veterans program discount program that celebrates their service to our country and our communities and rewards them with a special offer.
Harvey Kanter: This has been an ongoing element of inbound consumer communication and request and that is something we are not only happy to do but honored to do as well for the men and the women who service all.
Harvey Kanter: Additionally, as you May recall, we introduced the price match guarantee program in early Q4, providing our customers with peace of mind that they will always get the best price of <unk>, which has led to a 12 point improvement in value perception. There was identified in our most recent brand tracker work.
Harvey Kanter: Most recently, we identified through proprietary research that with the increase in <unk> usage ill fitting clothing has presented even greater challenge that they can tell that additionally.
Harvey Kanter: Additionally, and sizes change we have found through research that an overwhelming majority of men seek to donate their old clothes.
Harvey Kanter: To capitalize on this trend we launched our fifth exchange by <unk>, which is a new program, which facilitates the in store charitable donation by our customers of clothing, which no longer fit them, but can help others in need.
Harvey Kanter: In return the customer receives a 20% discount on its purchase orders on that visit we believe it is a win win by accepting donations and providing customers with an incentive to choose <unk>.
Harvey Kanter: This feels like a big win it is early for the program, but out of the box. The reaction has been enthusiastic and we are seeing the average transaction value is more than our average by over 30%.
Harvey Kanter: The second pillar involves the surgical use of targeted promotions by leveraging our customer segmentation data.
Actionable.
Harvey Kanter: Insights from our DSL database have been reinforcing our knowledge of the segments, which has helped us to further define shopping behavior and do further craft unique tactical elements of promotion.
Harvey Kanter: This will enable us to deliver more personalized communication focus on specific brands and categories to those customers who want them.
Harvey Kanter: Third to increase repeat revenue, we will utilize new targeted offerings within our loyalty program to reward our best customers.
Harvey Kanter: We believe this strategy can deliver greater impact leveraging insights by customer type, while also incentivize a greater acquisition for the program.
Harvey Kanter: Furthermore, we are working on fast follower additions to our new loyalty program with the ability of the bank and stimulate instantly redeem points as well as exploring a paid tiered program as potential addition for 2025.
Harvey Kanter: Both of these additions further support meeting our customer where they are providing benefits that are tailored to their shopping preferences.
Harvey Kanter: Key to this program is to execute the vision, we will drive the efficacy in markdowns and responsibly driving erosion, where the returns are greatest.
Harvey Kanter: Do believe there is going to be some margin erosion from these additional promotions, but we are reviewing these market as a form of marketing expense to retain and acquire customers.
Harvey Kanter: Next I'd like to talk to you about a project that we've been working on for the better part of the past year and that is the E Commerce site re platform.
Harvey Kanter: We are nearing completion of our e-commerce conversion and the website is now running almost exclusively on commerce tools with migration efforts continuing through April.
Harvey Kanter: There are still some foundational elements that we can improve upon such as integration of site commerce and customer service as well as easier payment options with additional buy now pay later choices we.
Harvey Kanter: We are also working on steps to enable better site to store marketing and experienced perhaps the most exciting steps we will be deploying will be focused on making it easier to enjoy the shopping experience ultimately using gen AI to enable this.
Harvey Kanter: Going to evolve product search and discovery with increased personalization.
Harvey Kanter: And finally, we have plans to extend our fit map technology, which we are exclusively licensing from a third party until 2030 beyond stores and.
Harvey Kanter: Soon onto our digital platform.
Harvey Kanter: <unk> technology is a body scanning system that uses high performance ipads to captured 242 points of our customers body measurements in under two minutes to map and plot personal size profile.
Harvey Kanter: The 242 data points are analyzed using algorithms to provide recommended recommended sizes in both R&D and style private brands and currently 15 exclusive national designer collections, thus, removing the greatest pain point in the digital experience.
Harvey Kanter: The customer uses this technology.
Harvey Kanter: For the first time, he can confidently chop online no exact size across the portfolio of these brands. Our customers can also purchase custom shirts suits pants and tuxedos, all specifically tailored for their own body using our unique <unk> online.
Harvey Kanter: Configuration.
Harvey Kanter: This initiative drives higher average order value as well as LTV over the pre and post 12 month period, and the pre and post scan without greater inventory or inventory liability.
Harvey Kanter: <unk> offers a unique experience for our guests both in store and soon to be online or focus on understanding each individual's body type enables us to provide fifth solutions tailored to their one to one personal needs and.
Harvey Kanter: In 2024, we launched this fit in that technology and rolled it out to 25 stores.
Harvey Kanter: Associates in the stores has completed extensive training and are working towards our custom fit technologists certification.
Harvey Kanter: We plan to add it to 25 additional stores in 2025 with strategic locations identified and preparations now underway to execute the program.
Harvey Kanter: The last initiative I wanted to share with you today is our opening price point strategy.
Harvey Kanter: We have developed a more comprehensive opening price point assortment driven by strategic intent to lower barriers of entry and rooted in our consumer research brand tracking and real time shifts in buying behavior.
Harvey Kanter: Our goal is to enhance perceived value and lower the entry barrier by expanding our offering of merchandise lower opening price points relative to our assortment.
Harvey Kanter: <unk> messaging across all channels will support this assortment and we believe we will achieve a greater overall positive price value perception.
Harvey Kanter: For spring 2025, we have added Hager and Dickies Perry Ellis to our Assortments with broader Assortments of Lee and Wrangler and champion available online.
Harvey Kanter: Now before I turn it over to Peter to talk about financials I did want to talk about <unk>, one weight loss drugs and what we are doing to refine our point of view.
Harvey Kanter: In partnership with core side research, we conducted a primary research study to attempt to better understand impact a GOP drugs on the big and tall consumer and our business.
Harvey Kanter: Just on those findings we know these drugs are already and will continue to have an effect on apparel purchasing behavior.
Harvey Kanter: We are identifying strategic actions to try and capitalize on this opportunity.
Harvey Kanter: One of the key findings renewable of challenges and opportunities. We found that many weight loss drug users feel more confident with new body shape and are excited to try new styles and sizes.
Harvey Kanter: And he is inclined to shop more frequently to replace items as its size changes.
Harvey Kanter: <unk> our research does note that some customers reported they will delay purchases until they achieve their weight loss goals.
Harvey Kanter: <unk> found that respondents are more inclined to buy new quality shirts, and pants from an apparel retailer, but the most important response is that they are motivated most bikes at the correct fit and it is more of a factor as their body side changes and leaned into our strategic advantage.
Harvey Kanter: Evel to deliver fit options and expertise, which is superior to any other company. We believe the fit exchange program will help us to lean into an attempt to capture a greater share of the big and tall customer on their <unk> LTE, one weight loss journey and now I'm going to ask Peter to run you through the <unk>.
Speaker Change: Fourth quarter financials before I come back with some closing thoughts Peter.
Peter Stratton: Thank you Harvey and good morning, everyone. I appreciate all of you joining us on the call today I'm going to take a few minutes to provide you with some additional color on our fourth quarter and full year financial performance.
Peter Stratton: Let's start with sales for the fourth quarter, which came in at $119 2 million as compared to $137 1 million in the fourth quarter of fiscal 2023.
Peter Stratton: As a reminder, our fiscal calendar included an extra 50 <unk> week in 2023. So we are reporting on a 13 week Q4 2024 against a 14 week Q4 2023.
Peter Stratton: That 14th week added about $7 1 million of sales and $1 7 million of EBITDA to last year's fourth quarter results.
Peter Stratton: Comparable basis, adjusting to 13 weeks and for store openings and closings.
Peter Stratton: Our comp sales decreased by eight 7% for the quarter.
Peter Stratton: While there was some volatility with the calendar shift leading to a weaker November and stronger December our overall Q4 sales trends were not materially different to the rest of this past year.
Peter Stratton: Is hardly talked about we were able to drive some limited success in customer response through our Black Friday and related holiday offers but we then saw trends in January and February returned to the low double digit negative range. We believe our sales performance remains primarily a function of the challenging environment with ascend.
Peter Stratton: Apparel, and particularly in the men's big and tall sector.
While we have well thought out strategies in place and underdevelopment help combat. This we have not yet seen the tide turn a year for the year. Our net sales came in at the low end of our guidance at $467 million, which was a comp of minus 10, 6% to last year.
Peter Stratton: Moving past sales our financial statements include some wins and some challenges, which I'll highlight for you next.
Peter Stratton: I am pleased that we were able to expand our merchandize margins in the fourth quarter. Despite the strategic promotions that we added <unk>.
Peter Stratton: Merchandise margins increased by 50 basis points for the fourth quarter, and a 40 basis points for the full year due to a combination of a shift in product mix towards higher IMU private label product.
Peter Stratton: Reductions in outbound shipping costs and a decrease in loyalty program expense.
Peter Stratton: Secondly, this good news was able to offset the higher markdown rate from steeper promotions year over year.
Peter Stratton: Im also pleased with our year end inventory position.
Peter Stratton: Although sales for the year were far below plan. Our team worked diligently to adjust the receipt plan inventory flow and promotional cadence in a way that allowed us to decrease both our total inventory and clearance levels.
Peter Stratton: Now moving onto gross margin the decrease in sales resulted in the deleveraging of our occupancy costs as a percentage of sales.
Peter Stratton: Occupancy costs increased by 310 basis points as a percentage of sales for the fourth quarter.
Peter Stratton: The merchandise margin improvement I previously noted partially offset this but overall gross margin after occupancy was down 260 basis points.
Peter Stratton: For the fourth quarter of fiscal 2020 for gross margin inclusive of occupancy costs was 44, 4% as compared to 47% a year ago.
Peter Stratton: As we enter 2025, we are monitoring the emerging situation with tariffs.
Have minimal exposure in China, Mexico, and Canada collectively these three countries represent less than 5% of our own sourced product and we expect they will impact gross margin by less than 10 basis points in 2025.
Peter Stratton: However, our exposure could grow if tariffs become more widespread especially to other Asian countries, such as Vietnam, India and Bangladesh.
Peter Stratton: Furthermore, we are seeing very close with our national brand vendors to understand how they are navigating tariffs and what if any impact that will have on our pricing.
Peter Stratton: Information on this topic has been very fluid changing almost daily, but our sourcing team has been keeping a close eye on it and I have great confidence in their ability to help us navigate this situation.
Peter Stratton: Now moving on to SG&A SG&A.
Peter Stratton: SG&A expenses for the fourth quarter were 41, 7% of sales as compared to 38, 5% of sales in the prior year.
Peter Stratton: On a dollar basis SG&A decreased by $3 2 million for the quarter with most of the decrease coming from marketing cost and performance based incentive accruals as well as having one less week in the fiscal calendar.
Peter Stratton: Marketing costs as a percentage of sales decreased to six 2% for this year's fourth quarter as compared to six 9% last year.
Peter Stratton: We remain focused on running the business with a high level of operating discipline, which include strict controls over expense management.
Peter Stratton: Adjusted EBITDA for the fourth quarter came in at $4 2 million or three 5% of sales.
Peter Stratton: For the full year, our adjusted EBITDA was $19 9 million or four 3% of sales.
Peter Stratton: These earnings helped us to produce $29 6 million of operating cash flows which were sufficient to fund all of our capital expenditures for the year, including seven stores in <unk> markets <unk> locations eight conversions of legacy casual male stores to Dx al.
Peter Stratton: <unk> store Remodels and our project to launch of <unk> Dot Com website.
Peter Stratton: After all of these capital projects were completed our business was left with positive free cash flow of $1 9 million.
Peter Stratton: Our success in generating positive free cash flow in a down year as a credit to our operating discipline and commitment to responsible fiscal management.
Peter Stratton: Over the course of 2024, we also repurchased four 9 million shares of common stock at a cost of $13 $7 million. This brings our total shares repurchased over the past three years to $13 2 million or 21% of our share count.
Harvey Kanter: As Harvey already mentioned, our balance sheet remains a pillar of strength of our business and we ended fiscal 2024 with $48 $4 million of cash and investments no debt and $64 7 million of borrowing capacity available under our credit facility.
Peter Stratton: Im now going to turn it back over to Harvey for some closing thoughts.
Peter Stratton: So hopefully it'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.
Peter Stratton: We expect that the operating regiment, we have in place and the foundational extensions and the legwork. We have worked on will pay us back meaningfully as an uptick in cycle returns and.
Peter Stratton: And lastly, as I wrap up and before we take questions as I always do I want to thank the <unk> team that I work with everyday their hard work and their dedication in the stores and the distribution center and the corporate office and in the guest engagement center provide a level of optimism for the opportunity yet.
Peter Stratton: Ahead.
Peter Stratton: The passion and commitment of our team has for an underserved customers and consumer is our reason for being our purpose and why we do what we do.
Peter Stratton: It is because of the great team and the culture that we've created that I wanted to get up every morning, and keep moving on this journey.
Peter Stratton: Thank you all for your hard work and ongoing commitment in our pursuit of serving big and tall men and making DSL the place where they can choose their style and where what they want and.
Speaker Change: And with that operator, we will now take questions.
Peter Stratton: Thank you.
Peter Stratton: Ladies and gentlemen 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, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Michael Baker with D. A Davidson your line is now open.
Michael Baker: Okay, great. Thanks.
Peter Stratton: Couple of questions one.
Speaker Change: On the G. G. L. P. One study that you did which sounds really interesting anything learn anything about our customers, losing enough weight such that such that they drop out of your big and big and tall sizing.
Peter Stratton: Or or.
Peter Stratton: We get to a size, where they can shop elsewhere.
Harvey Kanter: Just wondering if you've learned anything about that yes, Mike it's Harvey.
Harvey Kanter: Question that there is learning that some customers are dropping out of our size range, but in terms of quantification no.
Harvey Kanter: This study was statistically significant of men on GOP drugs. The distribution of weight was known to us at some level, but the reality is knowing how many of them are literally dropping out or is not clear and equally I guess relevant is that some are becoming.
Harvey Kanter: The opportunity to shop elsewhere, because theyre down into the 38, 39, where we're not as competitive.
Harvey Kanter: So those are for lack of a better way to say it headwinds, but the flip side of it is there are tailwind as well. So I think at this point. We're just trying to continue to study. This we've used the research we had to inform some decisions like the accretion of the exchange program, which can't be under lined enough that 50% of men.
Harvey Kanter: Are donating their clothes and need a kind of a repository and we're providing access and an incentive to come to us, which I think we've had over a thousand consumers in about three and a half weeks take advantage of the program, which is actually pretty meaningful.
Harvey Kanter: Yes.
Harvey Kanter: It sounds like.
Harvey Kanter: <unk> program.
Harvey Kanter: Just follow up on that then.
Harvey Kanter: In the past you've talked about share.
Harvey Kanter: You have some good data on that can you talk about what what Youre seeing your results this quarter relative to competitors or market share or for the full year et cetera. In other words. If you are seeing this DLP one.
Harvey Kanter: Issue, both positive and negative or others in your space seeing something similar.
Harvey Kanter: Yes, I don't think unfortunately, you can make that connection good or bad or at any level because the data we have and the platforms. We're using are primarily things like credit card data, where we can understand at an aggregated anonymous way where business as our other businesses are on that platform and we can definitely see the men's business is.
Harvey Kanter: Our category is not performing exceptionally well in fact, many of our competitors are actually works hard to believe.
Harvey Kanter: Some level.
Harvey Kanter: Many competitors are just operating somewhere in the realm of where we are but unfortunately that data is just aggregated sales data of credit card information. It does not provide an opportunity to understand things like <unk> at any more finite level.
Harvey Kanter: Okay understood. Thank you.
Harvey Kanter: Thank you.
Harvey Kanter: Please standby for our next question.
Speaker Change: Our next question comes from the line of Jeremy Hamblin with Craig Hallum. Your line is open.
Jeremy Hamblin: Thanks for taking the questions.
Jeremy Hamblin: Wanted to start with talking about tariffs.
Jeremy Hamblin: And it's obviously been a big topic does your.
Jeremy Hamblin: So it sounds like the owned brands you have fairly limited exposure 10, 10 basis points to gross margin.
At this point.
Jeremy Hamblin: You've noted some shift in terms of where your customers spending and the types of brands, but where do you stand in terms of third party national brands as a percentage of mix today versus your own brands.
Jeremy Hamblin: And then as you look at those third party brands.
Jeremy Hamblin: We're hearing and seeing is that.
Jeremy Hamblin: Most are indicating they're going to need to take some price to account for those.
Jeremy Hamblin: Terrorists, but.
Jeremy Hamblin: Is that your expectation how have the negotiations gone thus far thus far as youre looking at 2025.
Jeremy Hamblin: Yeah. So Jeremy you asked three questions. One you asked about our private brands versus National brands and I would tell you that we've seen a small ships into our private brands, mostly driven by the price points and the greater value that those brands typically provide to the consumer.
Jeremy Hamblin: Not a lot, but there has been a small immaterial shifts towards our private brands, which we feel great about we have certain brands like <unk>, which is just an incredible brand that Italian piece goods really great quality and the customer is recognizing the value of their so that's exciting to us even though that's not by design the customers choosing to do that.
Jeremy Hamblin: Second element that you mentioned, which I think is an accurate statement as we have.
Jeremy Hamblin: Minimal exposure at this point, we think it's something like 710 basis points. It is as you are very well aware and I'm proud to be sure the entire marketplace across America is the volatility and gyrations.
Jeremy Hamblin: What will or won't happen is very hard to manage so as much as we are in contingency mode and attempting to steer in terms of expectations that tariffs are coming the reality is until they arrived we're not we're not executing something specific unless there is an opportunity. Furthermore, we have some level of concern that.
Jeremy Hamblin: They will reverse course, just as quickly as they are put in place and actions that we take might be disruptive to what will actually transpire. So we're trying to figure out how to navigate that and I'd say being agile enough to move quickly, but as you might appreciate it's not one lever if tariffs are put in place and costs go up we have everything from.
Jeremy Hamblin: Pre production to goods on the water to goods in the D. C. Two goods in the store and then the question is where and when do you actually affect price changes to the degree you do to offset potential tariffs or cost changes and then last one on lease I would tell you that our head merchant and our merchandising team has been obvious.
Jeremy Hamblin: As you would imagine incredibly actively engaged with national brands.
Jeremy Hamblin: Brand is a different perspectives the brands actually don't have one country of origin, so to speak and so they're trying to read the tea leaves and react and goods that we bought already that are long ago done we're not having a lot of conversation, but goods that are imminent and potentially going to be impacted we're obviously deeply.
Jeremy Hamblin: In conversation, but for the most part no action has been taken because nothing has been done for us to execute against E, where they're sourcing from which is not at the same level that we are in terms of country of origin.
Jeremy Hamblin: It's hard to navigate until a decision has been made and we haven't seen that impact yet in national brands doing anything specific.
Jeremy Hamblin: Just to clarify whats the portion of what's the part of your mix today, That's third party National brand.
Speaker Change: Hi, <unk>.
Peter Stratton: So Peter.
Peter Stratton: The breakdown to do 48, I think thats.
Speaker Change: Yes, that's about that's about right the private label.
Peter Stratton: Always right around 50 50.
Peter Stratton: But we haven't seen a meaningful shift if anything theres been a little bit of a shift towards private label is as you've mentioned.
Peter Stratton: And I would agree that that's in large part because customers been seeking out more value in our private labels are predominantly our opening price point.
Peter Stratton: Got it and then I wanted to come back to the commentary about you had some success with some promos that were run in December.
Speaker Change: <unk> indicated that it sounds like you might be a little bit more aggressive on that this year.
Speaker Change: In this environment, but wanted to get a sense for.
Speaker Change: Balancing that.
Speaker Change: Kind of challenging environment versus getting some benefit from the promos to traffic trends.
Speaker Change: What do you anticipate the potential impact to gross margin to be from an <unk>.
Speaker Change: <unk> 2025 from maybe a slightly more.
Speaker Change: Aggressive approach on mixing and promos along the way.
Speaker Change: Sure. So so Jeremy let me, let me take that one I think our.
Speaker Change: Orientation right now and it has how it has been all year. It is 100% focused on.
Speaker Change: Re energizing the customer driving traffic back to the stores.
Speaker Change: And.
Speaker Change: One of the things that our customer has been signaling to us as.
Speaker Change: As we've talked about all year its that he is under pressure.
Speaker Change: As the dollar is not being stretched as far as it used to and what can we do too.
Speaker Change: Motivate him to spend encourage them to spend more particularly about opening price point. So that's really the gist of where the increases and promotion are coming from.
Speaker Change: I think the other part of your question was about how do we think of what impact that might have on margins for next year I think.
Speaker Change: And large.
Speaker Change: The biggest impact on margins, it's going to be.
Speaker Change: Occupancy costs were occupancy costs are largely.
Speaker Change: Largely fixed and we've seen a lot of deleverage. This year as you think about next year.
Speaker Change: There may be some erosion in the merchandise margin. This year, we had a lot of mitigation of the markdowns from favorable shipping.
Speaker Change: Less loyalty so there should be maybe.
Speaker Change: Maybe.
Speaker Change: This is a long answer to a short question.
Speaker Change: But I think in merchandize margins, you're probably going to see some small erosion, but not not a lot.
Speaker Change: Less than a 100 basis points.
Speaker Change: Got it.
Speaker Change: And then.
Speaker Change: Wanted to come back to just understanding the new rewards program that youre launching here.
Speaker Change: And just get a sense for how youre going to kind of migrate the legacy program into this one.
Speaker Change: And how.
Speaker Change: From the perspective of how this may manifest with your customers and kind of through financials.
Speaker Change: Any additional color you can share on that.
Jeremy Hamblin: Jeremy It's Harvey.
Harvey Kanter: A couple of material truly material changes, which I'm really excited about in terms of loyalty program.
Harvey Kanter: We recognize what it was and I'll show that to make sure you do as well and the distinct change in what it is today historically when a customer made a purchase with us they automatically almost entered the loyalty program and when I say that they provided their contact information email address and we ask them for that information.
Harvey Kanter: I gave it to us and it was.
Harvey Kanter: Revenue for us to basically create a customer file but in reality. It is what it is the customer Didnt actively then engaged in the loyalty program. So our loyalty program was largely comprised by customers that were actually less engaged in the loyalty program itself and just providing an opportunity for us.
Harvey Kanter: With them and as a result of that the platinum and gold portion of our program and really the platinum portion of our program was a remarkably penetrated in comparison to other loyalty programs, where that customer typically wouldn't have the penetration of sales, they're our most productive customer, but they arent necessarily there are small group.
Harvey Kanter: With a lot of revenue in our case they were small group with the majority of the revenue the new program, which is I think a masterful changes on the part of the platform. We are using and what our head of marketing has brought forward is a program, where we only migrated the very best customer automatically so.
Harvey Kanter: A number of customers that were our best customers, we automatically move them to the new program and we gave them an incentive at introduction to join that program. The balance of customers that were in the old program that were not as productive with basically solicited them and gave them incentives, but it actually asked them to sign up for the program.
Harvey Kanter: And we have a forecast that is a meaningful reduction in the number of customers, but a meaningful increase in what we perceive to be those customers that want to be part of the program and we will then actively continue to go down a path.
Harvey Kanter: New engage them, but engage them because they signed up and they are active and what is really exciting to us is I think we're about double the level of sign ups that we anticipated I think were like 86% of our sign ups versus forecast and I think the period.
Harvey Kanter: Period of time that we expected was like 46% and those metrics are relative to how many customers that we have gone out to solicit within the file and said we've launched a new program Here's why it's important here's why it's relevant here's why we think you should join that we're doing that on a cadence to slowly build up the file and the point what.
Harvey Kanter: I just shared was about twice the number of customers that we've gone out and interact with has actively signed up and hopefully it's the outcome the.
Harvey Kanter: The outcome of that over a period of time will be those customers are meaningfully more productive across the file as opposed to a small percentage of the file.
Speaker Change: Got it thanks for the color last one for me is just on your new stores. So it sounds like not quite meeting the metrics that you expected when you made those investments.
Speaker Change: Can you provide a little bit more detail on what youre seeing.
Speaker Change: In terms of kind of year, one sales from those new stores or what the run rates look like and then also just from a cost perspective, what the.
Speaker Change: The average investment or cash outlay looks like.
Speaker Change: Here as you get those up and running yes, I'll touch on the first part and then probably turn it over to Peter for the second if that's okay. I think the view we have is we've opened 11 stores and.
Speaker Change: I say this.
Speaker Change: Not sarcastically or anything other than just factually, but we've opened 11 out of 11 stores and not one has met its expectations and I would tell you that there is no question two or three of the stores.
Speaker Change: Kind of sort of say, okay, well does this right is a vocation perfect.
Speaker Change: Is there a reason it's underperforming but not all of the 11 and then when you take our current comp.
Speaker Change: What we said was negative <unk> four.
Speaker Change: For the periods of date spring season, as an example, and you look at the stores. The performance, yes, there was slightly worse than negative 12, but theyre not like negative 50 there.
Speaker Change: Worst of negative 12 in the week the view, we have but when you actually cut them is that the performance short of the total average company as you can see elements in pockets of awareness. So those stores Theres one in Texas, one in California that not that long ago had a casual they are not that far away.
Speaker Change: C outperforming the majority and so there is from US and our perspective is there is an awareness opportunity that customers that have come in literally instead like Pasadena, California, Hey, Werent you used to download block in your call do you recall casual male that store is performing better than the average of the openings and so we believe that again, we have an awareness issue.
Speaker Change: We know as a company that awareness issue when you open a brand new story, where the store hasnt even at times got traffic drive by is not performing as well as those stores that had at some point some nearby store Houston is another example, where the sugar in store in Houston. There was a store that was not that far away casual male and in Houston is.
Speaker Change: One of our best markets, we already have seven stores there so their awareness in that market. So we see I'm not sure I'd call. It a really bright line, but we definitely see a point of demarcation in those stores that had awareness and our casual male nearby in somewhere in their history outperforming the stores that did it and overall, we see the business short of the <unk>.
Speaker Change: Average company performance relative to plan, but not materially that far short relative to our overall performance I E. A sector that is being challenged right now from and buy new clothes.
Speaker Change: And I'll just add in terms of cost for seven stores opened this year.
Speaker Change: Roughly upwards of $1 million I think as we think about the eight stores that were planning to open in 2025 that should come down a little bit mostly because we've been pretty aggressive with trying to engineer costs out.
Speaker Change: <unk>.
Speaker Change: The cost per store down.
Speaker Change: <unk>, what Harvey mentioned earlier about these stores just haven't been opening.
Speaker Change: As high as we initially expected.
Speaker Change: Jeremy one other point of clarification just to help you actually appreciate the store performance, our DPT, which is the average transaction value is at or in some cases slightly above the company average.
Speaker Change: T as well and our conversion for the most part where we believe the traffic as clean as opposed to people coming and saying what is the store and we don't sell nor.
Speaker Change: Normal traditional sized clothing, we're big and tall specifically.
Speaker Change: Those metrics are good are failing metric is traffic and thats. The one that is very much synonymous with the overall company's results just getting people to come out and shop in our stores and we believe that if traffic was more of what we expected given conversion DPT, even our new to file our new to file and those new sources.
Speaker Change: About triple the new to file of an average store. So we have some number of customers that don't know, who we are coming in but again.
Speaker Change: In aggregate total level traffic is the number one issue in those new stores.
Speaker Change: Got it thanks for the color and good luck this year.
Speaker Change: Hey, Thanks, operator, I don't believe we have any more questions in the queue. We really appreciate the interest in our business. We are excited about what's ahead and hopefully were able to successfully navigate the challenges between now and our initiatives coming online and we will talk to you all in 90 days and you have a happy and wonderful spring.
Speaker Change: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].