David Levin - President, Chief Executive Officer Peter Stratton - Executive Vice President, Chief Financial Officer Tom Filandro - Managing Director, ICR.

Bernard Sosnick - Madison Global Chris Krueger - Lake Street Capital Markets.

Good day ladies and gentlemen and welcome to the second quarter 2018 Destination XL Group Incorporated Earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time.

If anyone should require assistance during the conference, you may press star then zero on your touchtone telephone. I would now like to introduce your host for today’s conference, Tom Filandro, Managing Director at ICR. Please begin..

Thank you, Norma, and good morning everyone. Thank you for joining us on Destination XL Group’s second quarter fiscal 2018 earnings call. On our call today is David Levin, our President and Chief Executive Officer, and Peter Stratton, our Executive Vice President and Chief Financial Officer.

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.destinationXL.com for an explanation and reconciliation of such measures.

Today’s discussion also contains certain forward-looking statements concerning the company’s operations, performance and financial condition, including sales, profitability, EBITDA, adjusted EBITDA, gross margin, marketing costs, capital expenditures, earnings per share, free cash flow, store openings and closings, the corporate restructuring and related costs and savings, and the company’s ability to execute on its strategic plan.

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.

Now I would like to turn the call over to our President and CEO, David Levin.

David?.

one, managing our cost structure; two, focusing on our core customer; three, improving our return on investment on our marketing and digital initiatives; and finally, enhancing our in-store experience.

As we discussed on our first quarter call, right-sizing our cost structure represents a significant first step on our path to improving profitability, and I’m pleased to say that we are well on our way. In the second quarter, we successfully reduced our corporate workforce by 15%.

In addition, we created a smaller, more focused executive team by reducing the number of direct reports to the CEO from eight to six. The streamlined corporate structure allows for more efficient and improved coordination and communication across our core business units, resulting in a greater focus on key business drivers.

We’ve already begun to see the benefits in this new structure in the second quarter and expect continued benefits as the year unfolds. It is important to reiterate that our restructuring targeted non-customer-facing costs such as corporate overhead, travel, benefits, and non-essential projects.

These planned cost reduction actions are on track to yield $10.3 million of annualized savings, and as we previously stated for fiscal 2018, we expect to realize savings of approximately $5.6 million. The second step of our plan is to become laser focused on our core customer.

We’ve just finished the customer segmentation study to understand the different segments and customers in the big and tall marketplace. We have identified a segment we are calling the fit and style segment which makes up 14% of the market but represents 40% of all spending.

He’s a guy who cares about fit but he also cares about style, and he loves the products, brands, and shopping experience that DXL offers, and his yearly apparel purchases are three times that of a typical big and tall customer. Our new focus on this high value customer is a powerful tool for us to grow our business quickly and efficiently.

Going forward, we’ll continue to use mass market communication like television and radio to build our awareness with all big and tall customers, and in addition to mass market communication we’ll also be mining internal and external customer data to find this high value customer and engage with him in the digital space with targeted personalized communication that brings him into our franchise.

From a merchandising standpoint, this new customer focus will also allow us to ensure that we are serving up the right products at the right time to engage this high value customer. Our third step is to create a better ROI on our marketing and digital investments.

Our new spring campaign, Built to Fit, Built XL strongly resonates with customers, as evidenced by higher site traffic, increased sales, and higher levels of brand awareness. The media campaign will restart in November with the same creative strategy we know is successful.

We also connected the brand more visibly through aspirational XL athletes, and this strategy of leaning into sports and athletes will accelerate in the fall via an expanded influencer program.

Since the hiring of our CMO and in conjunction with our cost restructuring, we have centralized ecommerce, customer analytics, digital marketing and brand marketing under one department.

The consolidation of these critical functions is designed to heighten our focus on elevating the customer experience and increasing our level of customer engagement across both our online and offline touch points.

It also allows us to accelerate our data-centric initiatives, including expanded CRM efforts, new web analytics programs, and marketing mix modeling work. In particular, we have signed an agreement with a leading marketing optimization vendor in the retail space.

This work will allow us to analyze our marketing mix continually to ensure we are maximizing ROI on all marketing spends. Our last major strategic pillar is enhancing the in-store experience.

With 231 DXL stores, 98 Casual Male stores, and five Rochester stores, our brick and mortar store portfolio covers every major metropolitan market in the continental United States. Our store experience drives loyalty and customer retention.

In today’s retail landscape, operating stores successfully requires offering a truly integrated omnichannel level of service, allowing customers to shop in whichever way they want to shop.

We have supported our omnichannel strategy with improved points of sale technology, making it easier and faster for our associates to access and sell inventory that resides outside of our stores’ four walls.

I’m pleased to report that our associates continue to do an excellent job of utilizing our web portal and have embraced what we call our Save the Sale initiative, which has resulted in accelerated growth of our universe for web portal sales.

Save the Sale was introduced during the first quarter and leverages the new technology available to purchase in-store items combined with online orders for items not present in the store in one seamless transaction at the counter. We look forward to further fine-tuning and leveraging this new technology as the year unfolds.

With that, I will now pass the call over to our CFO, Peter Stratton, who will review our financial performance.

Peter?.

sales of $462 million to $472 million with the total company comparable sales increase of approximately 1% to 3%; gross margin rate of approximately 44.5%; net loss on a GAAP basis of $13.2 million to $18.2 million or $0.27 to $0.37 per diluted share; EBITDA adjusted for the restructuring charge and the CEO transition costs of $20 million to $25 million; capital expenditures of approximately $11.4 million; and cash flow from operating activities of $20.5 million to $26.5 million, including tenant allowances, resulting in positive free cash flow of approximately $9.1 million to $15.1 million.

This concludes our prepared remarks, and we will now open the call for questions..

[Operator instructions] Our first question comes from Bernard Sosnick of Madison Global. Your line is open..

Good morning. Congratulations for a lot of progress..

Thanks Bernie..

I’d like to ask about the end of rack customer - you didn’t speak about that specifically, you always did in the past.

What does that represent in terms of sales?.

When we started the end of the rack project, and for those who don’t know what that means, it’s really guys who are 42-inch waist to 46-inch waist, where before we started DXL, it was about 25% of our sales but about 60% of the market. Today, that number has done up dramatically - it’s closing in on 50% of our sales.

In the high 40s are in that--actually, it’s about 45% are in that end of rack zone, so we’ve made a lot of progress on it, and now we’re just refining it further as we find a certain customer of ours who is really driven by fit and style.

He does tend to fall into a little more of the middle of the rack than the end of the rack for us, but his buying power is dramatically stronger and we’re very excited about it.

We also saw, and probably true of a lot of retailers, our top 5% of our customers represent almost 30% of our sales, and we’re really focusing in on our better customers because they’re easier to draw into multiple visits to our stores, and that’s really important to us because our average customer only shops us 2.2 times a year..

Thank you, you anticipated my next question, which was the differentiation between the two, the fit customer and end of rack. Just in terms of detail, Peter, you mentioned $1.9 million regarding sales difference in the calendar shift.

Was that a negative $1.9 million for the second quarter?.

Yes, so let me just clarify it. It really only has an effect on total sales increase quarter over quarter; and you’re right, the dollar shift that I mentioned was worth $1.9 million.

Our comp sales are still being reported on comparable week, so the comp number is not impacted; however, it does affect total sales, so for Q2 we’re essentially adding a lower volume first week of August and eliminating a higher volume first week of May.

Yes, it is a negative impact, but in Q3, it will have the opposite effect - we’ll be adding a higher volume first week of November and eliminating a lower volume first week of August..

Okay.

How much is that shift, do you think, in the third quarter?.

We haven’t identified that yet, but we’ll be announcing it on the third quarter call. .

All right. Thanks very much, appreciate it..

Thank you, Bernie..

Thank you. Our next question comes from Chris Krueger of Lake Street Capital Markets. Your line is open..

Good morning, nice quarter..

Good morning..

Can you talk about your same store sales - were they pretty consistent throughout the quarter or did they start stronger or weaker? How did that go, and can you comment how they’ve gone in August so far?.

We don’t give guidance for third quarter, but we did see within the quarter an acceleration as we moved through the quarter, and all we can say about Q3 is we’re optimistic. We feel pretty good about the way the business is trending right now. Traffic is definitely getting better. .

Okay, and then after you launch your new website, are there any extra marketing efforts or anything to try to accelerate your ecommerce business as you head into the fourth quarter and into next year?.

Once we launch and it’s working well, we’ll be marketing the fact to our existing customers that we have--you know, it’s a brand-new website, it’s faster, it’s cleaner. We’re very excited about this.

This has been in development for quite some time and it’s a real nice overhaul, and we know how important speed is, we know how important being clean and being able to click through as fast as you can, so--yes. The site will be up in a few weeks and we encourage everybody to go to the site.

You’re going to see something that looks dramatically improved from where we were in the last several years..

Okay. And then Peter, if I look at interest expense, it was a little bit higher than I had modeled.

Looking out to the next couple of quarters, do you have a range we should probably try to keep that in?.

Yes, so the reason it looked a little bit higher this quarter, Chris, was because when we refinanced the credit facility, we had to write off some of the unamortized costs from the previous facility, so that charge all took place in Q2, but we’re still trending to that $3 million-ish number in interest expense for the year..

Okay.

Last, anything new on the competition front, any new guys emerging or going away?.

Nothing that we’ve seen in the fiscal year so far. .

All right, that’s all I have. Thanks..

Thanks Chris. .

Thank you. Our next question comes from Bernard Sosnick of Madison Global Partners. Your line is open..

Yes, thank you. With regard to the launch of the website, technology has improved and launching is less problematic than in the past, but at times, retailers have had difficulties during launches - re-launches, I should say.

Do you have a contingency plan?.

Our contingency plan is we’ll operate off the old site, so until it’s really clear, it’s basically a hand-off, been tested and goes right to the new site, and if the new site isn’t up to expectations, we can continue to run on the old site. They’re running parallel..

Okay, good. Thanks..

Thank you. At this time, we have no further questions. I would like to turn the call back over to Mr. David Levin for closing comments..

Thank you all for joining us on the call. We’re getting quite excited here about the back half of the year. We think there’s great opportunities, so stay tuned and we’ll be talking to you on the next webcast with third quarter results. Thank you..

Ladies and gentlemen, thank you for your participation in today’s conference. You may disconnect. Have a wonderful day..