DXLG - NASDAQ

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 Mokas, Vice President of Financial Reporting and SEC Compliance at DXL. Please go ahead, Shelly.

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 are our President and Chief Executive Officer, Harvey Kanter; and our Chief Financial Officer, Peter Stratton. During today's call, we will discuss some non-GAAP metrics to provide 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 long-range strategic plan and expectations for comparable sales and other expectations for fiscal 2025. 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 all of you joining us today for our fourth quarter 2024 earnings call. I want to start by acknowledging the challenging fourth quarter results that we posted earlier today. 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 to filter down to our DXL business. 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. Many consumers have been selective about their spending, and men's big and tall clothing has not shown the same resilience as the broader retail market. Despite the difficulties and difficult sales environment and tepid financial performance, there were some bright spots for DXL this past year that we can point to and provide some optimism. 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. 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. We brought to market the brand awareness campaign by initiating the brand work and executing a three-city matched market test to test our ability to ultimately build greater brand awareness for DXL. 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 DXL, offering our customers greater convenience and access to DXL's assortment and store experience. We 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 increased speeds, optimized search capabilities and flexibility for testing and optimization. As we transition from our legacy loyalty program to the new DXL Rewards, which has been launched on a new and improved loyalty platform, creating a stronger foundation and improves the financials as well as the functionality of the program. 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. And perhaps the most important bright spot that I want to reiterate and emphasize is DXL remains on firm financial footing. Our balance sheet is solid with cash in the bank, no debt and financial flexibility to withstand the cyclicality of this down market. I'm also pleased to report that despite the softness in top-line, we maintained our merchandise margins while simultaneously adding back in selective promotions and controlling our expenses. This operating regimen and discipline enabled us to deliver yet another year of positive net earnings, positive free cash flow, and positive adjusted EBITDA margins of 4.3%. And now, a segue to our outlook for 2025 and beyond and what has set this up. 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. 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. 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. In 2025, our strategic focus is to stabilize our business and drive the path back to growth. That means focusing on our customers, carefully controlling our costs, being prudent with how, where and when we invest our capital. We must know, we must ultimately drive top-line revenue in 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 of the rebound and recovery in the big and tall sector. This balanced approach will influence the pace at which we pursue our strategic objectives. However, given the increased volatility of the market, waning consumer sentiment and other macro uncertainties such as questions regarding implementation and impact of tariffs, we believe it is prudent not to issue guidance and a range of expected sales and EBITDA outcomes for the fiscal year. Our fortress balance sheet and strong liquidity position give 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 merely speculative at this point. Through the first six weeks for the year, our comps are down 12.5%. Despite these early results, we do believe the 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 of demand, modest improvement in macroeconomic trends and easier comp comparisons as we move through 2025. We believe the strategic initiatives that I'll speak to in a moment will drive a meaningful improvement in comp performance for the year. This is not the first time our company has faced a prolonged economic malaise and it likely won't be the last. We believe that our actions this past year and our plans and specific initiatives for 2025 will enable us to better serve the big and tall customer when he is ready to shop with us. 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 view about our performance in Q4 and highlight a few specific areas where we made progress against our strategic plan. And second, I'll outline priorities and the catalysts that we have either launched or in the process of launching in fiscal 2025. So, let's start with a quick review of the fourth quarter in our comparable sales. Comparable sales declined 8.7%. Store sales were down 6.7%, while direct was down 12.7%. So, we continue to see a little better performance in stores and a softer performance in direct as was the trend all year. The progression in comp sales across the quarter was mixed. In November, we saw a combined comp sales decline to 11.8% negative comp. In December, comp sales improved to a negative 4.4%. And in January, comp sales fell back once again to a decline of negative 13.3%. As I previously mentioned, the sales story for Q4 is much the same as it was and as we cited 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. In the digital space, the primary reason for our decline in sales was due to a decrease in conversion. We do have some limited success over the holiday period with a loyalty point 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. The sales result from the certificates exceeded our forecast and drove traffic to a much higher sales efficiency rate. We 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. The combination of more aggressive offers and focusing circulation on those customers most likely to respond contributed to the lift in sales for December and underlines our belief that to deliver on growing our top-line revenue, we must invest in the short-term with continued surgical strategic promotion in the mix in 2025 to continue to deliver greater buying power to customers. Another element that we controlled well despite the challenging environment around us is inventory. Our inventory balance at the end of Q4 was $75.5 million as compared to $81 million last year or a decrease of 6.8%. Our clearance penetration of 8.6% remains in line with our long-term target of below 10% and down slightly from 9.5% in the fourth quarter of 2023. Our buying strategy was deliberately cautious to mitigate inventory risk but remains agile enough to quickly flex up to meet recovery in demand. Our team's tenacity and resilience to manage the flow of receipts and slower moving inventory against the declining sales backdrop is a win and something that has become a meaningfully greater core competence of the merchant and global sourcing teams. In addition to the well-honed receipt management, the team's use of selective markdowns to avoid any buildup in excess inventory, while still maintaining merchandise margins consistent with last year, underlines the overall discipline we have in place. The next area I want to cover is new store openings. Our consumer research has clearly defined better access to stores as one of our more significant opportunities. 44% of big and tall consumers told us they do not shop at DXL because there is no store near them and 35% said there is no store conveniently near them. Those facts serve as a compelling perspective to expand our store count. Given that broader perspective, we conducted further analysis to identify and prioritize specific white space markets across the U.S. and concluded that our ideal store footprint could support an additional 50 DXL stores. We opened three white space stores in 2023 and another seven stores in 2024. We have identified and are currently in various stages of development and construction on eight more stores in 2025 with one that opened last month, four more expected to open in the first half of the year and three more in the late summer or early fall. While we have made progress addressing ease of access to the DXL brand for consumers, performance in the new stores has been challenging. Similar to what we are witnessing in our existing store business, we believe the low awareness of our brand is creating short-term challenge in successfully ramping traffic to the newly opened stores. New stores do not see the levels of traffic we initially expected, but we believe there's still much room to grow. We believe it is more appropriate to resume store development when we can support it with brand advertising and a brand awareness campaign. While opening the 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. In doing so, they will address the challenge our consumer brand tracking work had identified as an obstacle and barrier for consumers who do not shop with DXL in our stores today. Another strategic initiative that was launched this past year with which we have a great conviction is around our alliance with Nordstrom. We went live on Nordstrom's online marketplace back in June of 2024. We now offer 37 brands and over 2,200 styles to choose from, and our assortment continues to expand with new arrivals added daily as fresh receipts flow in. Customers are primarily discovering our product through the Nordstrom website and specifically through product site search. But for 2025, a more robust marketing plan supported by Nordstrom's includes personalized content, e-mail campaigns and in-store training to direct customers to our online presence. Key merchandise drivers of the business include Polo as well as private label brands such as Harbor Bay and Oak Hill. While we are still in our first year and our Nordstrom's results are less than 1% of sales, we remain very optimistic about the greater potential for growth heading into 2025. Similar, but different in our development of alliances is a soon-to-be launched collaboration with TravisMathew, similar to what we did with UNTUCKit and Fit by DXL. TravisMathew is a brand and collection that is inspired by Southern California's laidback yet active lifestyle, with each design driven to achieve the perfect balance between innovative design and superior style. And now DXL will bring this exclusively to the big and tall consumer. The offer will maintain our Fit by DXL, our unique sizing to provide superior comfort and sportswear capable of fitting in while standing out. We are very excited about this launch, which will happen before the end of the first quarter. And now, I want to give you some color on several merchandising and marketing strategies that we believe can positively influence DXL's business over time. 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 re-platform of our e-commerce operation, our exclusive FitMAP technology and our thoughts on opening price point product. First is our use of promotion. We believe in order to garner a greater share of the big and tall market, we must find ways in the near term to deliver greater value in order to attract new customers and retain a greater share of our existing customers. Over the past few months, we've added a level of strategic promotions to the mix, and we have seen the consumer respond. However, it is also important to share that not all promotions are equal, and we have gained valuable insights into how individual and uniquely different promotions can positively influence both business performance and customer engagement. 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 that can be used when they are ready to shop. We are purposely trying to avoid store-wide site-wide promotion and instead are deploying strategic offers intended to increase customer acquisition, drive frequency and visits, and provide customers with a higher degree of assurances they are getting an incredible value when they shop at DXL. 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. This has been an ongoing element of inbound consumer communication and requests and is something we are not only happy to do, but honored to do as well for the men and the women who service all. 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 at DXL, which has led to a 12-point improvement in value perception that was identified in our most recent brand tracker work. Most recently, we identified through proprietary research that with the increase in GLP-1 usage, ill-fitting clothing is presenting even greater challenge to the big and tall men. Additionally, as sizes change, we have found through research that an overwhelming majority of men seek to donate their old clothes. To capitalize on this trend, we launched the Fit Exchange by DXL, which is a new program, which facilitates the in-store charitable donation by our customers of clothing, which no longer fits them, but can help others in need. In return, the customer receives a 20% discount on his purchase on that visit. We believe it is a win-win by accepting donations and providing customers with an incentive to choose DXL. 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%. The second pillar involves the surgical use of targeted promotions by leveraging our customer segmentation data. Actionable insights from our DXL database have been reinforcing our knowledge of the segments, which has helped us to further define shopping behavior and to further craft unique tactical elements of promotion. This will enable us to deliver more personalized communication focused on specific brands and categories to those customers who want them. Third, to increase repeat revenue, we will utilize new targeted offers within our loyalty program to reward our best customers. We believe this strategy can deliver greater impact, leveraging insights by customer type while also incentivizing greater acquisition for the program. Furthermore, we are working on fast follow additions to our new loyalty program with the ability to bank and instantly redeem points as well as exploring a paid tiered program as potential addition for 2025. Both of these additions further support meeting our customer where they are providing benefits that are tailored to their shopping preferences. The key to this program is to execute the vision while driving efficacy in markdowns and responsibly driving promotion where the returns are greatest. We do believe there is going to be some margin erosion from these additional promotions, but we are viewing these margins as a form of marketing expense to retain and acquire customers. 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. 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. 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 are also working on steps to enable better site-to-store marketing and experience. 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. We are going to evolve product search and discovery with increased personalization. And finally, we have plans to extend our FitMAP technology, which we are exclusively licensing from a third-party until 2030, beyond stores, and soon onto our digital platform. FitMAP technology is a body scanning system that uses high-performance iPads to capture 242 points of a customer's body measurements in under two minutes to map and plot his personal size profile. The 242 data points are analyzed using algorithms to provide recommended sizes in both our DXL private brands and currently 15 exclusive national designer collections, thus removing the greatest pain point in the digital experience. When a customer uses this technology for the first time, he can confidently shop online, knowing the 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 a unique 3D online configurator. 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. FitMAP offers a unique experience for our guests, both in-store and soon to be online. Our focus on understanding each individual's body type enables us to provide fit solutions tailored to their one-to-one personal needs. In 2024, we launched this FitMAP technology and rolled it out to 25 stores. Associates in these stores have completed extensive training and are working towards their custom and fit technologist certification. We plan to add it to 25 additional stores in 2025 with strategic locations identified and preparations now underway to execute the program. The last initiative I want to share with you today is our opening price point strategy. 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. Our goal is to enhance perceived value and lower the entry barrier by expanding our offering of merchandise at lower opening price points relative to our assortment. Marketing messaging across all channels will support this assortment, and we believe we will achieve a greater overall positive price value perception. For spring 2025, we have added Haggar and Dickies, Perry Ellis to our assortment with broad assortments of Lee and Wrangler and Champion available online. Now, before I turn it over to Peter to talk about financials, I did want to talk about GLP-1 weight loss drugs and what we are doing to refine our point of view. In partnership with Coresight Research, we conducted a primary research study to attempt to better understand the impact of GLP drugs on the big and tall consumer and our business. Based on those findings, we know these drugs are already and will continue to have an effect on apparel purchasing behavior, and we are identifying strategic actions to try and capitalize on this opportunity. One of the key findings reveal both challenges and opportunities, we found that many weight loss drug users feel more confident with new body shapes and are excited to try new styles and sizes, and he is inclined to shop more frequently to replace items as his size changes. Conversely, our research does note that some customers reported they will delay purchases until they achieve their weight loss goal. We 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 by fit, the correct fit, and it is more of a factor as their body size changes and leans into our strategic advantage of being able 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 and attempt to capture a greater share of the big and tall customer on their GLP-1 weight loss journey. And now, I'm going to ask Peter to run you through the fourth quarter financials before I come back with some closing thoughts. Peter?

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. 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. As a reminder, our fiscal calendar included an extra 53rd week in 2023, so we are reporting on a 13-week Q4 2024 against a 14-week Q4 2023. That 14th week added about $7.1 million of sales and $1.7 million of EBITDA to last year's fourth quarter results. On a comparable basis, adjusting to 13 weeks and for store openings and closings, our comp sales decreased by 8.7% for the quarter. 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. As Harvey 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 return to the low double-digit negative range. We believe our sales performance remains primarily a function of the challenging environment within men's apparel, particularly in the men's big and tall sector. While we have well-thoughtout strategies in place and under development to help combat this, we have not yet seen the tide turn here. 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. Moving past sales, our financial statements include some wins and some challenges, which I'll highlight for you next. I'm pleased that we were able to expand our merchandise margins in the fourth quarter despite the strategic promotions that we added. Merchandise margins increased by 50 basis points for the fourth quarter and 40 basis points for the full year due to a combination of a shift in product mix towards higher IMU private label products, reductions in outbound shipping costs and a decrease in loyalty program expense. Collectively, this good news was able to offset the higher markdown rate from steeper promotions year-over-year. I am also pleased with our year-end inventory position. 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. Now, moving on to gross margin. The decrease in sales resulted in the deleveraging of our occupancy costs as a percentage of sales. Occupancy costs increased by 310 basis points as a percentage of sales for the fourth quarter. The merchandise margin improvement I previously noted partially offset this, but overall gross margin after occupancy was down 260 basis points. For the fourth quarter of fiscal 2024, gross margin, inclusive of occupancy costs, was 44.4% as compared to 47% a year ago. As we enter 2025, we are monitoring the emerging situation with tariffs, and we 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. However, our exposure could grow if tariffs become more widespread, especially in other Asian countries such as Vietnam, India and Bangladesh. Furthermore, we are staying 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. 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. Now, moving on to SG&A. SG&A expenses for the fourth quarter were 41.7% of sales as compared to 38.5% of sales in the prior year. On a dollar basis, SG&A decreased by $3.2 million for the quarter, with most of the decrease coming from marketing costs and performance-based incentive accruals as well as having one less week in the fiscal calendar. Marketing costs as a percentage of sales decreased to 6.2% for this year's fourth quarter as compared to 6.9% last year. We remain focused on running the business with a high level of operating discipline, which includes strict controls over expense management. Adjusted EBITDA for the fourth quarter came in at $4.2 million or 3.5% of sales. And for the full year, our adjusted EBITDA was $19.9 million or 4.3% of sales. 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 new DXL markets, two DXL new locations, eight conversions of legacy Casual Male stores to DXL, five DXL store remodels and our project to launch a new dxl.com website. After all of these capital projects were completed, our business was left with a positive free cash flow of $1.9 million. Our success in generating positive free cash flow in a down year is a credit to our operating discipline and commitment to responsible fiscal management. Over the course of 2024, we also repurchased 4.9 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. 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. I'm now going to turn it back over to Harvey for some closing thoughts. Harvey?

So, hopefully, it's clear, and as I noted at the end of our prior earnings call, DXL will stay the course, and we will weather the storm. We expect that the operating regimen we have in place and the foundational extensions and legwork we have worked on will pay us back meaningfully as an uptick in cycle returns. And lastly, as I wrap up and before we take questions, as I always do, I want to thank the DXL team that I work with every day. Their hard work and their dedication in the stores, in the distribution center, in the corporate office and in the guest engagement center provide a level of optimism for the opportunity yet ahead. The passion and commitment our team has for our underserved customers and consumers is our reason for being, our purpose and why we do what we do. It is because of the great team and the culture that we've created that I want to get up every morning and keep moving on this journey. Thank you all for your hard work and ongoing commitment to our pursuit of serving big and tall men and making DXL the place where they can choose their style and wear what they want. And with that, operator, we will now take questions.

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

Okay. Great. Thanks. A couple of questions. One, on the GLP-1 study that you did, which sounds really interesting, anything -- did you learn anything about, are customers losing enough weight such that they drop out of your big and tall sizing or get to a size where they can shop elsewhere? Just wondering if you learned anything about that.

Yeah, Mike, it's Harvey. There's no question that there is learning that some customers are dropping out of our size range. But in terms of quantification, no. Our study was statistically significant of men on GLP 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 are, is not clear. And equally, I guess, relevant is that some are becoming -- having the opportunity to shop elsewhere because they're down into the 38, 39 where we're not as competitive. And so, those are, for lack of a better way to say it, headwinds. But the flip side is there are tailwinds 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 creation of the exchange program, which can't be underlined enough that 50% of men are donating their clothes and need kind of a repository, and we're providing access and an incentive to come to us, which I think we've had over 1,000 consumers in about 3.5 weeks take advantage of the program, which is actually pretty meaningful.

Yeah. No, that sounds like a great program. Can I just follow up on that then? In the past, you've talked about share and you have some good data on that. Can you talk about what you're seeing your results this quarter relative to competitors or market share or for the full year, et cetera? In other words, if you're seeing this GLP-1 issue, both positive and negative, are others in your space seeing something similar?

Yeah. 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 in an aggregated anonymous way where businesses are -- other businesses are on that platform. And we can definitely see the men's business, as a category, is not performing exceptionally well. In fact, many of our competitors are actually worse hard to believe, I guess, at some level. And 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 GLP at any more finite level.

Okay. Understood. Thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Jeremy Hamblin with Craig-Hallum. Your line is open.

Thanks for taking the questions. I want to start with talking about tariffs, and it's obviously been a big topic du jour. So, it sounds like the owned brands, you have fairly limited exposure, 10 basis points to gross margin. At this point, 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? And then, as you look at those third-party brands, what we're hearing and seeing is that most are indicating they're going to need to take some price to account for those tariffs. But is that your expectation? How have the negotiations gone thus far as you're looking at 2025?

Yeah. So, Jeremy, you asked kind of three questions. One, you asked about our private brands versus national brands. And I would tell you that we've seen a small shift into our private brands, mostly driven by the price points and the greater value that those brands typically provide to the consumer. It's not a lot, but there has been a small immaterial shift towards our private brands, which we feel great about. We have certain brands like Oak Hill, which is just an incredible brand of Italian piece goods, really great quality and the customer is recognizing the value there. So, that's exciting to us. Even though that's not by design, the customer is choosing to do that. The second element that you mentioned, which I think is an accurate statement is we have minimal exposure at this point. We think it's something like 7 basis points to 10 basis points. It is, as you are very well aware, and I'm probably sure the entire marketplace across America is that volatility and gyrations of 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 arrive, we're not executing something specific unless there's an opportunity. And furthermore, we have some level of concern that they will reverse course just as quickly as they're 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 preproduction to goods on the water to goods in the DC to 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 but not least, I would tell you that our head merchant and our merchandising team has been, obviously, as you would imagine, incredibly actively engaged with national brands. Every brand has a different perspective. 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 deepening in conversation. But for the most part, no action has been taken because nothing has been done for us to execute against, i.e., where they're sourcing from, which is not at the same level that we are in terms of country of origin. It's just hard to navigate until a decision has been made, and we haven't seen an impact yet in national brands doing anything specific.

Just to clarify, what's the portion of -- what's the part of your mix today that's third-party national brand?

It's high 40%s. So, Peter, the breakdown, 50% to 48%, I think that's...

Yeah, that's about right, Harvey. The private label, it's always right around 50-50, but we haven't seen a meaningful shift. If anything, there's been a little bit of a shift towards private label, as you've mentioned. And I would agree that's in large part because customers have been seeking out more value and our private labels are predominantly our opening price point.

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. And you indicated that it sounds like you might be a little bit more aggressive on that this year in this environment. But I wanted to get a sense for balancing that kind of challenging environment versus getting some benefit from the promos to traffic trends. What do you anticipate the potential impact to gross margin to be from -- in 2025 from maybe a slightly more aggressive approach on mixing in promos along the way?

Sure. So, Jeremy, let me take that one. I think our orientation right now and has how it's been all year, it is 100% focused on reenergizing the customer, driving traffic back to the stores. And one of the things that our customer has been signaling to us, as we've talked about all year, it's that he's under pressure. His dollar is not being stretched as far as it used to. And what can we do to motivate him to spend, encourage him to spend more, particularly at that opening price point. So that's really the gist of where the increases in promotion are coming from. 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 by and large, the biggest impact on margins is it's going to be, it's occupancy costs where occupancy costs are largely fixed, and we've seen a lot of deleverage this year. As you think about next year, there may be some erosion in the merchandise margin. This year, we had a lot of mitigation of the markdowns from favorable shipping, less loyalty. So, there should be -- maybe this is a long answer to a short question, but I think in merchandise margins, you're probably going to see some small erosion, but not a lot, less than 100 basis points.

Got it. And then, wanted to come back to just understanding the new rewards program that you're launching here and just get a sense for how you're going to kind of migrate the legacy program into this one and how -- from the perspective of how this may manifest with your customers and kind of through financials, any additional color you can share on that?

Jeremy, it's Harvey. What is a couple of material -- truly material changes which I'm really excited about in terms of the loyalty program that we recognize what it was, and I'll share 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, e-mail address, and we asked them for that information and they gave it to us, and it was an avenue for us to basically create a customer file. But in reality, and it is what it is, the customer didn't actively then engage 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 to communicate 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 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 aren't necessarily, they're a small group with a lot of revenue. In our case, they were a small group with the majority of the revenue. The new program, which is, I think, a masterful change on the part of the platform we're using and what our Head of Marketing has brought forward is a program where we only migrated the very best customer automatically. So, there's a number of customers that were our best customers, and we automatically moved them to the new program, and we gave them an incentive and introduction to join that program. The balance of customers that were in the old program that were not as productive, we basically solicited them and gave them incentives, but it actually asked them to sign up for the program. 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 of attempting to 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 we're like 86% of our sign-ups versus forecast and I think the 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, and we're doing that on a cadence to slowly build up the file. And the point of what I just shared was about twice the number of customers that we've gone out and interacted with have actively signed up. And hopefully, 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.

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. Can you provide a little bit more detail on what you're seeing 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 average investment or cash outlay looks like here as you get those up and running?

Yeah. 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 I say this not sarcastically or anything other than just factually, but we've opened 11 out of 11 stores and not one has met its expectation. And I would tell you that there's no question, two or three of the stores, you could kind of sort of say, okay, well, is this right? Is this location perfect? Is there a reason it's underperforming, but not all 11. And then, when you take our current comp of what we said was negative 12% for the period-to-date spring season as an example, and you look at the stores, the performance, yes, they're slightly worse than negative 12%, but they're not like negative 50%. They're something worse than negative 12% and the view we have and when you actually cut them is that the performance short of the total average company is you can see elements and pockets of awareness, so those stores, there's one in Texas, there's one in California that not that long ago had a Casual Male not that far away. We see outperforming the majority. And so, there's, from us and our perspective is there's an awareness opportunity that customers that have come in literally and said like Pasadena, California, "Hey, weren't you used to down the block and you called me a Cold Casual Male," that store is performing better than the average of the openings. And so, we believe that, again, we have an awareness issue we know as a company, that awareness issue when you open a brand-new store where the store hasn't even had time to 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 Land store in Houston, there was a store that was not that far away, Casual Male. And in Houston, it's one of our best markets. We already have seven stores there. So, the 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/or Casual Male nearby in somewhere in their history, outperforming the stores that didn't. And overall, we see the business short of the 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 by new close.

And I'll just add in terms of cost for seven stores opened this year, roughly upwards of $1 million. I think as we think about the eight stores that we're planning to open in 2025, that should come down a little bit, mostly because we've been pretty aggressive with trying to engineer cost out and get the cost per store down considering what Harvey mentioned earlier about these stores just haven't been opening as high as we initially expected.

Hey, 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, our UPT as well. And our conversion for the most part, where we believe the traffic is clean as opposed to people coming in and saying, what is the store where yeah, we don't sell normal traditional-sized clothing, we're big and tall specifically. Those metrics are good. Our failing metric is traffic. And that's 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 in those new stores is about triple the new-to-file of an average store. So, we have some number of customers. I don't know who we are coming in. But again, at an aggregate total level, traffic is the number one issue in those new stores.

Got it. Thanks for the color and good luck this year.

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 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.