DXLG - NASDAQ

Good day, and thank you for standing by. Welcome to the Second Quarter 2022 Destination XL Group Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Shelly Mokas, Vice President of SEC and Financial Reporting. Please go ahead.

Thank you, Liz. Good morning, everyone. Thank you for joining us on Destination XL Group's second quarter fiscal 2022 earnings call. On our call today is our President and Chief Executive Officer, Harvey Kanter; and our Chief Financial Officer, Peter Stratton. During today's call, we will discuss some non-GAAP metrics to provide investors with useful information about our financial performance. Please refer to our earnings release, which was filed this morning and is available on our Investor Relations website at investor.dxl.com for an explanation and reconciliation of such measures. Today's discussion also contains certain forward-looking statements concerning the company's sales and earnings guidance and other expectations for fiscal 2022. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those assumptions mentioned today due to a variety of factors that affect the company. Information regarding risks and uncertainties 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?

Thank you, Shelly, and good morning, everyone. I appreciate the opportunity to speak with you all about our business and our outlook for the second half of 2022. My hope is that on today's call, you'll hear a message of consistency, consistency driven by a commitment to our strategic vision, consistency in executing our DXL brand repositioning and also consistency in the results that we are delivering despite the volatility and uncertainty that exist in today's market and retail landscape. As such, we are pleased with our performance in the second quarter. Sales and earnings surpassed our internal expectations Inventory is in line with forecast and more big and tall consumers are discovering DXL for the first time ever. To accomplish these results, we continue to drive the strategic initiatives we outlined at the onset of 2022, all of which ladder up to the company's mission, vision and the overall transformational journey we began back together in 2019. To put it simply, building awareness, creating trial and developing deeper relationships with the underserved community of big and tall men yields greater business results. The DXL story, why we exist, who we exist for and how distinctly differentiated our business has become is resonating with a growing number of big and tall men across the U.S., which leads us into today's remarks. On today's call, I want to share some specifics about our progress to date as well as provide some color and context to our approach for the second half of the year. We believe that our results announced earlier today provide clear evidence of continued progress against our goal to deliver a big and tall shopping experience that fits, fits his body, fits his style and fits his life. DXL's relentless focus on fit is further complemented by a depth and breadth of assortment and levels of exclusivity that cannot be found anywhere else. And all focused solely on the big and tall consumer and his experience. We believe we are a category of one and the opportunity to further grow into this is both exciting and compelling for our shareholders and for the greater investment community. Now let's move to an update on Q2 specifically. I'm pleased to report that we achieved a comparable sales growth rate of plus 6.1% in Q2 versus 2021 and an adjusted EBITDA margin of 17.9% and a net income of $0.85 per share, which includes a onetime tax benefit that we are recognizing in Q2 due to the release of our tax valuation allowance. It is important to note that the tax benefit is worth $0.53 per share. So if you do the math, to exclude the benefit, that works out to $0.32 per share. Higher average order values were a key driver of sales growth, which also provides further evidence of DXL's transformational journey leading directly to tangible results. This increase in average order value is attributable to three primary factors: first, the DXL brand repositioning; second, a shift in merchandise mix; and third, an inventory position. First, we continue to sell more products at full price with no public merchandise promotion. Almost 18 months ago, we began repositioning the DXL brand, shifting away from deep discount, away from hyper promotional strategy, to a more sustainable value proposition rooted in our key differentiators of fit, assortment and experience. This shift continues to resonate with customers as evidenced by our sustained sales comps and gross margin rates, which have exceeded our expectations this year. As a further example of this, on Father's Day, we celebrated dad. We did so with user-generated content with exclusive products that fit his body, his style and his life, and we drove comp growth with no public, on-site or broadly promoted discount pricing. Second, a shift in our merchandise mix to products with high opening price points - higher opening price points has helped grow our AOV. In contrast to the previous two years, we are seeing a renewed and increased penetration of tailored clothing such as suits and dress shirts and lower penetration of basic sportswear. We believe this shift in mix represents a level of catch-up, catch up whether it be return to the office, weddings or special events, and this will settle down in the mid-teens, but compared to Q2 2021, it was a bump up in terms of mix. As an aside but perhaps because it is relevant to acknowledge, we have taken some level of price increases, but we would not consider this a material reason for the growth of our average ticket. And finally, the third reason is historically low clearance inventory levels at DXL. Currently, our clearance inventory constitutes only 6.9% of the total assortment as compared to 8.9% in 2021 and 10.9% in 2019, which was our last normalized year pre-pandemic. In addition to the lower level of clearance inventory, we have also reduced our level of clearance discounting. For example, our maximum clearance discount is now 40% off the original price, whereas in the past, that discount level was 75% off, meaning that clearance is going out the door at shallower discounts. While we've seen flat traffic in Q2, which we believe is attributable to overall macroeconomic pullbacks in consumer confidence and discretionary spending, this is being offset and bolstered by increased average order values driven by DXL's brand, promotional repositioning, merchandise mix shifts and our lower clearance levels. This brings me to the topic that is on every retailer's mind right now. How is the consumer responding to the broader retail environment in terms of confidence and spending. As mentioned on previous calls, DXL spent most of fiscal 2020 playing defense, essentially fighting for our very survival. In 2021, we transitioned into a rapid recovery of both the brand and the consumer, despite finding supply chain disruption and depleted inventory levels. And now in 2022, after a strong first quarter, we followed that with a strong second quarter and our business is performing well despite the greater macro changes around us. Our comp for Q2 this year compared to the last normalized year of 2019 was 29.3%. The comps broken down by month were 32.6% for May, 27.8% for June and 27.6% for July. We believe the comparison to 2019 is most representative of the business' trajectory and given the impact of the pandemic on the past two years and the strength of last year's second quarter recovery. When compared to last year, our comps by month were plus 14% for May, plus 3.6% for June and plus 1.1% for July. These comp comparison challenges will continue in the second half of the year. And while we expect our year-on-year second half comps compared to 2021 to be in the mid-single digits when compared to 2019, we expect those comps to be north of 20%. Like everyone else, we have seen some pullback in consumer traffic and spending, but we are very upbeat and optimistic about our future. As another call back to DXL's brand and promotional repositioning, it is important to note that this comp growth is being achieved with strong gross margins which leads me to my next topic. One of the brightest spots in the quarter for DXL is our gross margins, which have been outperforming expectations this year. We entered fiscal '22 expecting we could experience a 200 basis point drop in gross margin compared to 2021. In Q1, we updated and paired that outlook back to 100 basis points. And today, we believe that our 2022 gross margin will be at least flat to last year, which was a historic year for DXL from a profitability standpoint. As mentioned earlier, these improved margins are attributable to our reduced reliance of promotions, our merchandise mix and lower clearance inventory exposure. Speaking of inventory. At DXL, we have taken both a proactive and pragmatic inventory stance. Inventory at quarter end was up approximately 32% - 30% to last year with a deliberate inventory build to replenish multiple categories that were depleted or less relevant last year during the pandemic such as tailored clothing. But for further context, when compared to 2019, our inventory levels are down approximately 13%, which is critically important to understand in terms of our purposeful build to support sales. As we progressed in building this inventory towards normalized levels, it is important to also note our inventory turnover. In comparison to 2021, our inventory turnover is up nearly 20%. And when compared to 2019, our inventory turnover is up nearly 40%. Both increased metrics are markers of efficiencies as well as indicators that we need the inventory levels we have, which are necessary element to drive and grow sales. While there are opportunities for further category optimizations or overall inventory receipt flow is better than last year and exceeding our planned sell-through. As we have been both proactive and pragmatic with inventory levels, we have also been purposeful, meaning we have been decisive and aggressive to be in stock. We want - we likewise want to ensure that we don't get called with too much inventory in the second quarter and the second half - excuse me, in the second half. Essentially, our stance is that we would rather be chasing inventory during an unexpected demand surge than having to heavily discount inventory and needing to liquidate. While this - with this approach, we believe that we are well positioned to maximize sales and minimize risk given the ongoing ambiguity and volatility in the economy with the consumer. In regards to merchandise assortment, we are seeing strong selling in our more formal sportswear categories with sport shirts and casual bottoms, seeing a higher penetration compared to last year and when more seasonal categories, such as swim and shorts saw higher prominence. Driven by suits and dress shirts, tailored clothing accounted for approximately 15% of our Q2 business compared to 13% last year, a further signal of its growth and recovery. Now shifting to the supply chain. Disruptions experienced in Q2 had less of an impact on inventory flows than last year, and we are operating with both an understanding of and mitigation strategies for elevated freight costs, long run loading time at ports as well as shortages of drivers and increased fuel surcharges. While these factors are not unique to DXL and we are seeing less disruption than last year, we were managing the supply chain with the same purposeful approach that we've enacted to address inventories. Now speaking to marketing initiatives and customer file index. I am very pleased to report that our active buyer zero to 12-month file customer accounts continued to grow to record levels for DXL each quarter thus far, driven by a combination of retention, reactivation and acquisition-focused strategies. As mentioned in earlier calls, we truly believe in the opportunity that is right in front of us, and we are committed to investing in marketing tactics to help drive that customer activation and acquisitions, particularly in the digital marketing and CRM spaces. As a company with nearly 300 dedicated big and tall brick-and-mortar stores, DXL is in a unique position within the retail marketplace. While in-store shopping has continued to see growth in Q2, we remain committed to meeting the consumer where he or she is. Our direct-to-consumer business continues to perform well. Today, our digital commerce is approximately 30% of overall retail business and stores make up the other 70%. We expect that digital commerce should reach 35% to 40% in the next three to five years. I also want to emphasize that our digital commerce business is profitable with contribution margins that are very similar to our store contributions. When engaging online on our mobile app, through our SMS text program that launched in May or building relationships with our in-store experts, we strive to make sure that every customer can experience the DXL difference, the unique combination of fit expertise and expertly curated and often exclusive assortment and an experience created for and solely focused on the big and tall brotherhood. These goals are not limited to our own channels. However, and as we bring the same passion for product and people to our marketplace businesses, including Amazon Marketplace and Target Plus as well as our soon-to-be launched assortment on the Walmart marketplace to ensure that consumers of all shopping preferences and price ranges have the opportunity to be introduced to the DXL brand and who we are, how our products and essential lines fit and what we stand for. I also want to update you on two 2022 marketing initiatives that were first referenced during our Q4 earnings call. Our new loyalty program and customer data platform or as it's known, CDP. As we speak today, our new loyalty program is in the final stages of testing, progressing according to plan for a Q3 launch. Revamping our loyalty program is something that has long been talked about, but is now coming to fruition in a new program that encourages and rewards deeper engagement with DXL beyond just shopping while simultaneously providing greater recognition for our top customers. We are excited to see this program come to life and believe it will have a meaningful impact on both customer retention and engagement. Building upon the concept of deeper engagement is the launch of a CDP in the back half of this year, which will enable greater personalization and segmentation across all CRM touch points, while also unlocking further actionable insights to fuel new customer acquisition and informed targeting. As the single source of truth and a repository of many sources of customer behavior data, the CDP will greatly enhance our current predictive modeling capabilities while simultaneously consolidating and optimizing our CRM stack. Lastly but certainly not least, I want to take a moment to again extend my incredible gratitude to all of our employees and their steadfast commitment to DXL in our stores, in our distribution center, in our guest engagement center and in our corporate office. Our mission at DXL is simple, help big and tall guys look and feel their best. And I continue to be incredibly proud of how our employees embrace this mission and everyday purpose. I frequently receive e-mails from customers about our employees who have gone above and beyond to serve them in the most unique and extraordinary circumstances, and those are the kind of e-mails that never get old. I know I make it a point of thanking our employees on every investor call, but it is from a true place of sincerity and gratitude and cannot be repeated enough. Our customers and our employees are the lifeblood of our business. And without them, there simply is no DXL. From the bottom of my heart, thank you. And now I will turn it over to Peter for an update on the financials. Peter?

Thank you, Harvey, and good morning, everyone. I'd like to give you some more color around our Q2 financial performance and our expectations for the rest of this year. Sales for the quarter were $144.6 million, up 4.4% from $138.6 million in the second quarter last year. On a comparable basis, adjusted for closed stores, sales grew by 6.1% with comparable store sales up 3.6% and our direct business up 12.7%. Relative to 2021 sales, the 6.1% growth in Q2 was a slowdown from our 19.5% pace in Q1. It is important to remember that we saw extremely strong sales performance in Q2 last year as pent-up demand, federal stimulus money and revenge buying fueled unprecedented growth. We expect growth to stay in the low to mid-single digits in Q3 since those strong comparables will persist through October before rising to high single digits in Q4. Regionally, all parts of the country performed above their pre-pandemic levels, but the biggest gains this quarter were in New England and Florida. While parts of the Midwest lagged. Our direct sales trends are driven primarily by our dxl.com website and mobile app, but we have expanded our presence and investment in marketplaces and sales in that channel have scaled even faster than our core business. Moving on to margin. Our gross margin rate, inclusive of occupancy costs, was 52.1% for the second quarter as compared to 51.7% a year ago. This 40 basis point improvement was the result of 50 basis points of improved occupancy leverage on higher sales, slightly offset by a 10 basis point decrease in merchandise margins. Merchandise margins included a significant 180 basis point increase in both inbound and outbound shipping costs, which have persisted since fourth quarter of last year. The supply and demand of containers has started to balance out, and we are not seeing the same shipping delays that we experienced last year. But we expect elevated fuel costs will continue to pressure our margin comparisons for the rest of this year. For Q2, we were able to offset nearly all of these freight costs with markdown savings. Clearance inventory levels were also very low throughout the quarter and ended at less than 7%. When we sum up all the different factors I just talked about, occupancy leverage, freight costs and markdowns, our expectation is that margin rates for the year will be approximately flat or better to last year, which was 49.5%. I just alluded to the fact that shipping delays eased up during this past quarter, which was a welcome change from the environment we were in much of the past year. It has allowed us to get back to better in-stock inventory levels, which is good for both our guests and our sales results. Total inventory ended the quarter at $96.7 million, up from $73.4 million a year ago. We are still well below our historic levels, which at Q2 2019 were $110.4 million. Inventory management has been a big focus for the business, and we're working to strike that balance between having the right product available at the right time while making sure we don't over extend ourselves. Inventory turnover is a key metric for us when looking at our inventory levels, and we're improving our trailing 12-month turns to up nearly 20% over a year ago and 40% over our 2019 rate. Let's look next at our selling, general and administrative expenses. SG&A expense was 34.2% of sales for the second quarter as compared to an abnormally low 30.1% of sales in second quarter 2021. On a dollar basis, expenses increased by $7.7 million, which was primarily due to investments in advertising, store and corporate payroll to support the business and performance incentive accruals. Advertising for the quarter increased by $2.7 million over last year and represented 5.4% of sales which is below our full year goal of 6.2% and still allows for increased investment in the second half of the year. We manage our advertising budget diligently to ensure we are striking the right balance between return on ad spend and customer file growth. With the exception of higher ad spend in Q4, the SG&A expense structure in place during Q2 is relatively in line with our expectations for the rest of the year. This brings us to adjusted EBITDA margin, which is another topic worthy of mention. In the second quarter of 2021, we delivered an unprecedented EBITDA margin for DXL at 21.5%. This year in Q2, we delivered an adjusted EBITDA margin of 17.9%. Last year's result was achieved due to the rapid recovery in the stimulus-fueled revenge spending coming out of the pandemic coupled with an extremely lean and unsustainable low cost base. This year, we are trending towards a more normalized EBITDA margin. We are still growing the business while also making specific investments, particularly in attracting and retaining talent as well as marketing initiatives to fuel the growth of our business. Before I turn to cash flow and capital allocation, I'd like to close out the P&L review with a brief discussion of taxes. Since 2013, we have maintained a full valuation allowance against our deferred tax assets, which includes significant net operating losses and other tax assets with potential future value to the company. The valuation allowance effectively removed the deferred tax assets from our balance sheet. Based on a number of factors, including the past six quarters of sustained profitability, our expectation to continue to generate taxable income and the sustained improvement we've seen in our business model and market position, we have released the valuation allowance on our federal tax assets and most of our state tax assets. As a result, you will see a significant favorable adjustment running through the P&L this quarter as a tax benefit. You will also see the deferred tax assets coming back onto the balance sheet with a corresponding increase in stockholders' equity. The release of the valuation allowance was worth $35.5 million or $0.53 per diluted share this quarter. If you do the math, our earnings per share for the second quarter, excluding the tax benefit, is $0.32 per diluted share as compared to $0.36 per diluted share last year. The release of the valuation allowance is a significant contribution to our balance sheet and these deferred tax assets are available to minimize our future cash tax payments. Turning to cash and capital allocation. We ended Q2 with a cash balance of $22.2 million and no debt. Through the first six months of 2022, we have generated $19.8 million of free cash flow, which we define as cash flow from operating activities less capital expenditures. Cash flow from operations was $23.8 million and was primarily generated by year-to-date adjusted EBITDA of $43.1 million, partially offset by a $15 million increase in inventory to get into better in-stock positions. Year-to-date, we have spent just $4.1 million on capital expenditures but we expect this to increase to $10 million to $12 million by year-end with investments in stores and IT projects to support our marketing and merchandising initiatives. We did not need to access our revolving credit facility this quarter, and we had excess availability of $85.1 million at the end of Q2. In the event that we needed in the future, our facility is in place until October 2026. Also during Q2, we continued to invest some of that free cash flow into our stock repurchase program. We repurchased 1.9 million shares of common stock this quarter at a cost of $7.8 million. This brings our year-to-date total to 2.9 million shares at a cost of $12.7 million and leaves approximately 2.3 million remaining under our $15 million board authorization. We believe this has been a prudent use of cash given our stock price to return equity to shareholders. I also want to say a few words about store development. Today, we have 284 stores and 31 of those stores are casual Male anchor stores. Many of those Casual Male stores will be relocated or converted in place to a DXL store over the next three to five years. We also believe there are pockets of the country, which we consider white space that should be served by a DXL store. The real estate market has strengthened considerably over the past year, and demand for quality sites is at a premium. We are currently evaluating different markets, and we are aiming to open or remodel at least five stores in 2023. Over the next three to five years, we are hopeful that there could be as many as 50 new stores but we still have work to do to understand the full opportunity in front of us. Lastly, I'd like to close with the announcement this morning that we are raising our sales guidance for fiscal 2022 to a range of $520 million to $540 million from our previous guidance of $510 million to $530 million. Our adjusted EBITDA has been very strong, and we expect to exceed our internal target of a 10% EBITDA margin. I'm now going to turn it back over to Harvey for some closing thoughts. Harvey?

Wrapping up today's comments, I want to offer some additional perspective and closing thoughts. Throughout 2022, DXL, like every other business really, has been operating alongside varying levels of ambiguity and consumer confidence. But despite this, DXL has performed well and delivered strong results in both Q1 and Q2. We fully knew and planned that second quarter year-on-year comps to 2021 would become more challenging. To once again reiterate, we expect our comp sales year-on-year results to be favorable. And given the macroeconomic uncertainties, we are prepared to be agile and executing the plan we have authored, leveraging constant dialogue and taking actions with a never-ending growth-oriented mindset. Over the past several years, we have created and embraced a test-and-learn culture, featuring ongoing testing to challenge long-held assumptions while more importantly, creating a level of optionality and preparedness to quickly react to market conditions. Despite these concerns or more appropriately because of these concerns, we will continue to invest in elements that we believe are critical for both the short and long-term health of our business and customer file and believe in executing against the defined strategies already underway. Whether these elements are our brand repositioning, marketplace expansion strategies, new loyalty and digital marketing programs, our store base or our talent, these informed decisions are all meant to yield business impacts and growth. We believe this balanced approach allows us to take informed risks that drive the business while simultaneously being mindful of all possible scenarios and outcomes. Getting back to DXL's very core, we know we solve the fit needs of big and tall men. It's why we exist. By fit needs, I don't just mean how the clothes fit but also fitting how he defines his style, how he expresses his personality, how he wants to shop and how he wants to live. This may sound ironic, but for us, it is much bigger than just selling clothing, which I hope has come across throughout today's call. Our foundation is strong. As a team, we have built a trusted business rooted in our proprietary fifth spec, our product construction and quality, our breadth of assortment and a material level of exclusivity and an in-store and online experience that focuses solely on an underserved customer to meet his needs and exceed his expectations. We have only just begun to tell our story. And while we have made meaningful progress over the past several years, significantly greater opportunity lies yet ahead. As we further refine our positioning, our messaging and our story, it is crucial that the customer remains at the core and that our efforts resonate with him. While today's efforts are primarily focused on today's consumer, we are parallel passing longer-range plans to extend our reach beyond today's business and into new revenue streams, new channels and new consumers as well. We have created both stability and momentum, two elements that were not a certainty as recently as two years ago, and we intend to build upon both leveraging initiatives of today to pave the road for the important work and greater opportunities for growth that we see yet ahead. And now we will take questions.

[Operator Instructions] Our first question comes from the line of Mike Baker with D.A. Davidson. Your line is now open.

Okay. Hi, guys. So yes, I think the strength of the quarter speaks for itself and your comments. So congratulations on that. What I guess I wanted to ask, you keep talking about normalized margins this year or more normal than last year. But I guess my question is more color if you could on what that means. I mean your margins are clearly going to be a lot higher than they were historically. I guess that they'll be down from the abnormally high 15.2% last year. But you said you increased your guidance to above - greater than 12% before. Now presumably, it's more greater than - sorry, 10%. Now it's more greater than 10%, but if you could help us a little bit, what does that mean? Is it 12%? Is it 11%? Is it 13%? Just what's the right long-term margin here?

Mike. This is Peter. So just with a comment on last year versus this year in terms of margin. So yes, last year, we were coming out of the pandemic with I think the words that we used were an unsustainably low cost base, and we had what I would call an unexpected surge in business last year. With those two elements combined, they led to abnormally high margins. This year, we're starting to get back to what I would consider more normalized. This quarter, we were at a 17.9% margin. Last quarter, it was 13.5%. So for the rest of the year, we are still being cautiously optimistic for where the rest of the year is going to lie. And the change to guidance that we're announcing today is an increase in the sales range taking that to $520 million to $540 million. With regard to EBITDA margin, we've said historically that we want to be able to build sustainable margins in excess of 10%. That's what our goal was at the beginning of the year, and that's what it continues to be this year. So we're not taking that - we're not putting a ceiling on that or putting a range on that. We're still calling that as greater than 10%. And we feel really good about where the business is going. But at this point, we've decided not to narrow that onto a specific range, but we do feel as this year develops, it's becoming more normalized than what you would see in 2021.

Okay. Fair enough. If I could sort of maybe come at it a different way. Is there a reason to believe that the SG&A dollars will be higher than maybe we didn't necessarily guide to that, but maybe what we were thinking last quarter? In other words, as the sales ramping up, do you leverage all that? Or is there a need to add back in wages or hiring people or whatever the case may be? I think your marketing budget - Well, actually, let me ask this, your marketing budget staying at 6.2% which if your sales is higher that means the marketing budget and dollars is going up as well, right?

That's right. So the marketing budget is absolutely going up. I think one of the comments that I made in the prepared remarks is that the SG&A structure for the rest of the year, we think will be consistent with what we've seen in Q2. So I would think of that in terms of dollars. Now I think you will also see that we have a cyclical business where Q2 and Q4 are always our strongest quarters for sales with the lead up to the summer and Father's Day and then holiday, whereas Q3 and Q1 are typically lower. So I would expect some deleverage in Q3 simply because we're going to have less sales, but the SG&A structure should be similar in the second half to what we saw in the first half with the exception of marketing, which as you noted, yes, that's going to be more in the 6.2% range is what we are thinking, and it was 5.4% in Q3. It doesn't sound like - so , maybe we can go on to the next question.

Our next question comes from the line of Noah [indiscernible] with FactSet. Noah, your line is now open. Noah, you may be on mute.

Why don't we -, operator, why don't we go to the next call, there may be either a problem with the system or maybe or Noah has dropped off.

Our next question comes from the line of [P. Johnson]. Your line is now open.

Yes, Good morning. Can you hear me?.

Yes, we can. Thank you so much.

Yes. Congrats on the good results. Can you talk a little bit about some of the business at some of the major retailers like Amazon like Walmart and Target. Obviously, there was a lot in the press from both Walmart and Target about having too much inventory. Can one assume that too much inventory, including apparel being a major category did not include DXL items? Is that a fair assumption?

Yes. So just to be clear, we are on their marketplace. And we are the ones that own the inventory, and we are the one shipping the inventory. So that - the question you asked has nothing to do with our business specifically.

Got it. So it's - and the same thing with Amazon?

Yes. All of our marketplace business is owned, shipped and directed by us.

Understood. And then just in terms of the competitive landscape, who else is out there doing what you do? There don't seem to be any publicly traded companies, but for example, is Amazon or Target or Walmart, do they do their own private label, big and tall, which competes directly with you? Is that one of the bigger forces out there? Or is that less of an issue?

There is no single entity that does what we do. Our reference to being a category of one in the business that we represent, and you have to appreciate we represent opening price points to design your brands like Polo, Ralph Lauren, Vineyard Vines, Lacoste. The offer we bring to market, which is mostly exclusive is the middle upper market price points, and no one does what we do with the breadth of offer, the store count, the online offer, the app and ultimately, the experience we're creating, no one does that whatsoever. There are other folks that are - we would call ankle biters, for lack of a better way to say it, no disrespect, but their core business is not what we do. They extend their menswear business in ways that is not as compelling, is not comprehensive, is not unique in their fit and they offer some selection often in stocks that are lacking and often breadth of offer that is less than desirable by our customer. So a long way of saying, we believe we compete with a number of people, but no one does what we do exclusively for the big and tall consumers.

That's great. And then just in terms of the formal wear and the business were coming back a little bit more. Is there an opportunity to have more of a presence in traditional department store retailers like Macy's or Dillards or the like in material clothing department?

That's an interesting question. I really can't comment on it at this point in time other than to say I think that the tailored clothing business represents a unique opportunity. Our proprietary fit runs across every element of the business. So whether it's a dress shirt, a sport coat or a suit, our unique proprietary fit is the execution we bring to market and that may be something that others seek to emulate in some way and a potential opportunity for partnerships. But today, as I've said, we are the single entity that does what we do, and no one else is doing that. And in tailored clothing, which represents mid-double digits for us, it's a meaningful part of our business, and it's coming back a little bit potentially because of all the events and weddings and what have you.

We have a question from the line of Mike Baker with D.A. Davidson. Your line is now open.

Mike, are you there?

Yes. I'm sorry. I don't know why it was sort of going in and out. First of all, I got dropped before and then I just didn't hear who she said for the name. But yes, I'm here if you can hear me, hopefully.

We can hear you. Welcome back.

Don't know what happened there. One other question, just a small question I wanted to ask. But I think, Peter, in the commentary, you said - you said 3Q comps in the mid - in the low to mid-single-digit range. I believe the press release says low single-digit range. I just wanted to clarify that small, but I think important description.

Yes. So what we were trying to communicate is - when - because last year was so choppy, we are up against really, really big comps in Q2 and Q3. So one of the ways that we look at the business is we're looking at 2022 against 2019 because that was really our last normalized year. And if you smooth out some of the choppiness of the last two years, we would see our comps being in the greater than 20% was what we had said. But when you're looking at it relative to last year, yes, it's that Q3 should be a little bit lower than Q4. In Q4, we said was going to be in the high single digits versus low to mid in Q3.

Okay. Well, again, not to harp on it, but low to mid in Q3 press release, I think, right here says low. So that's fine. Close enough. I just wanted to clarify it. And then one more, if I could. I'm just curious, so the comp was driven all by AOV, as you talked about. And so traffic flat, I think you had said, is that traffic - is that transaction count? Or do actually sort of measure in-store traffic? I think you do. And if you do, what's the conversion? Is the ticket flat and the traffic flat just that conversion is similar? Or is there anything to call out in terms of conversion?

Mike, before I answer that question, I want to circle back to the press release. In the press release, what we wrote specifically is we are off to another solid start in Q3 with an August month-to-date comp increase in the mid-single digits. And we said we would emulate basic - we are emulating Q2's performance, which was 6% plus. So that's kind of where we are. And to the point is we expect mid-single digits and for the year in terms of the second half. Just want to be really clear. Your question on traffic now?

Well, traffic versus transaction count, in other words, conversion.

Yes. So traffic has actually come back. It has definitely been more challenging in Q2. But as we move through the quarter and into August, we have seen traffic come back. We've obviously referenced that the average transaction value is up, conversion is solid, but with traffic down, transactions is a little lighter than we would have anticipated. And conversely, the average order value is a little bit richer than we would have anticipated.

We have a question from the line of Noah [indiscernible] with FactSet. Noah, your line is now open.

Noah, are you there. Operator, I'm not sure why but folks seem to be having a challenge with it. We don't see any other calls - questions in the queue.

Yes, I'm showing no further questions in queue at this time.

Okay. Great. Well, I would like to thank everyone for participating in today's call. We are quite excited about the quarter. We think it's a solid performance. It stacks on top of Q1, and we look forward to the second half of the year. Despite the volatility and ambiguity, we feel optimistic and look forward to rejoining with you again in about 90 days for our third quarter earnings call. Thank you so much, and have a wonderful safe day.