Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 Destination XL Group, Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions].

I will now like to hand the conference over to your speaker for today, Shelly Mokas. You may begin..

Thank you Towanda and good morning everyone. Thank you for joining us on Destination XL Group's fourth quarter fiscal 2020 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 now 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 outlook for fiscal 2021, the continuing impact of the COVID-19 pandemic on its business in fiscal 2021, expected leverage from reduced operating costs, savings in the restructuring of its store leases, expectations regarding store closures, expectations regarding improved customer demand and gradual sales improvement, the impact of direct sales on results in fiscal 2021 and marketing efforts to encourage shopping in-store and online.

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. It is my pleasure to speak with you today about DXL and the progress we are making in the business as we leave 2020 behind and look forward to a brighter future in 2021.

As I have shared with you on our quarterly call this past year, we have been thoughtful and decisive in our approach to managing through the challenges of 2020.

We are encouraged by some of the early signs we are seeing in the first seven weeks of 2021, given the decisions made in the positioning of the company for a longer term recovery and for our future growth.

Most importantly and before I begin my remarks in regards to our business, I want to again recognize our associate and their tremendous level of commitment and sacrifice to keep our business moving forward through what has been quite possibly the most difficult period in our company's history.

It cannot be said enough, if it were not for them, we might not be here. To our associates and our guest engagement center associates, thank you for continuing to serve our guests and for helping him look his best when he needed us.

To our distribution associates, thank you for keeping our product flowing uninterrupted despite all the logistical and health and safety challenges this year. To our corporate associates, thank you. Thank you for continuing to evolve and innovate our business while we are adapting to a new network, a new work-from-home dynamic.

I am so proud of what our team has accomplished this year and the credit goes to all of you who have answered the call day-in and day-out to serve and support our big and tall guys. Now for today's agenda, I want to update you on three different topics. First, I want to share what we are seeing in our business today.

We are only seven weeks into the new year and we have had some exciting developments that I want to talk. Second, I want to update you on specific strategies we are pursuing across the business and how we expect those strategies will position the company for the longer term recovery and for our future growth.

And finally, Peter is going to take you through our financial results for the fourth quarter and full year before we open it up to questions. So let's get started with an update on where we are today with our business. One of our greatest challenges this past year has been store traffic.

We have talked to our customers this year and the common theme we kept hearing was, I love your store but I really don't have anywhere to go and I am staying home. I don't need anything from you right now. We know that many of our customers were just not going out like last year and they have in the past.

He was not attending large gatherings such as sporting events and family get-togethers. He hasn't been traveling or taking vacations or visiting bars and restaurants.

In other words, his lifestyle has been affected to a degree that his need or really lack thereof for new clothes has been impacted and his buying behavior in 2020, more or less, have been erased.

Because so many of our guests haven't shopped much this past year, our belief is that there is a level of pent-up demand for apparel that was created in 2020 and which we think will be relieved to 2021. We believe that we are starting to see some of that pent-up demand satisfied now.

In the month of November, December and January, our comparable store sales were down minus 41%, minus 36% and minus 34% respectively. In February, our comparable store sales were down 33% to fiscal 2019 and for the first two weeks of March, our comparable store sales have improved to minus 16%. Over the last six days we have been nearly flat to 2019.

This puts us at a comparable store sales decline of minus 27% for the first six weeks of the year. I tell you all of this not to create hype but to give you a sense of our true optimism. We believe we are starting to see a shift in consumer buying which we are attributing to a few different factors.

First, we are starting to see some of our loyal customers return for more than just underwear and activewear and work-from-home apparel, perhaps the only real thing they did need.

For the first time in a long time, when they have come in, we have seen a greater level of fashion selling and from our older more affluent customer a heightened spending level. It appears to be coming back quickly but time will tell.

We have heard stories from our associates that customers visiting the store who are proudly announcing they have had their vaccines and they were eager to get out and shop. As vaccines become more widely administered and restrictions on socializing and gathering are eased, we think more and more of our customers will be shopping.

Geographically, we have seen our strongest performance in the last six weeks in the Southeast, South Central and Midwest parts of the country. Our business on the Coast have trailed behind the middle of the country by approximately 500 basis points.

Even our stores in areas like Texas that were hard hit by the snow and freezing temperatures only a few weeks ago have quickly once again recovered from what was a weather event. Finally, it's worth noting, particularly in the last two weeks, that we have seen warm weather across the country which is often the catalyst for our customer to shop.

It's still very early in the year and we certainly have a long way to go but the early signals that we are seeing in 2021 are pointing towards a recovery in stores as the restrictions around gathering are eased and our customer feels more comfortable venturing out from his home.

We remain cautiously optimistic and we are monitoring to see if the pent-up demand will wane or carry into summer and even the fall and winter months ahead. We do recognize that the savings rate of the U.S. consumer is up measurably and another round of stimulus checks is beginning to hit banks now.

Given this conversation, the roaring twenties and celebratory times ahead maybe very real. Like you, we are excited about the prospects but do not want to get ahead of ourselves in expectations. Time will tell and we will of course formally update you on our Q1 earnings call.

Another recent development that I want to talk about involves two separate and distinct transactions that we executed subsequent to fiscal year-end 2020. First, I hope most of you saw that we initiated a registered direct offering of common stock on February 9.

Peter will cover the specific details of the offering in his remarks but I think it is worthwhile for me to note that this transaction generated $5 million of additional liquidity for our business before closing costs. For the past three quarters, I have talked about how our focus on cash has been relentless.

We have been living and breathing with incredible attention to the smallest details to ensure we are managing our cash and maintaining liquidity. Each day, we are making decisions to drive the outcomes that will protect the long term viability of our company and this transaction represents another marker towards our ability to enhance liquidity.

Second and certainly more recently, just a couple days ago on March 16, we closed on a transaction to refinance our FILO term loan. This transaction was not a condition of the registered direct offering nor was it necessitated by our existing bank group.

This was an opportunity for us to further enhance our liquidity based on the strength of our balance sheet and our outlook for continued recovery in 2021. The new FILO will generate between $5 million and $10 million of incremental excess availability depending on our inventory balance each month which primarily secures the debt.

Again, this is another marker we believe will shift the conversation about DXL away from solvency risk and back towards our ability to execute our strategic plan for growth.

As we have all along or at least believe so, we have taken every measure possible to ensure there is a future and with investor interest and credit opportunities we looked at both of these as a measure of insurance, if you will, in the event of a greater level of volatility.

The FILO was quite advantageous and interest in the business from an outside investment with a registered direct offering speaks to the upside others see and that really is what I love talking about most, the future and the brightening outlook for DXL.

What we are doing to create a memorable experience for big and tall guys to look and feel their best, we do that by offering the most extensive and uniquely curated assortment from value price essentials to luxury brands and exclusive designers, both online and in-store.

So now let me shift into what we are doing across functionaries to execute our strategic plan for greater growth. Let's start with digital. Our direct business, anchored by DXL.com, continue to grow throughout the fourth quarter and made up over 40% of total retail sales.

DXL.com specifically grew at nearly 29% and with their ability to create a superior UX and improved merchandising for our customers, this growth was partially driven by our conversion rate which improved 23% year-over-year for Q4.

As we have discussed before, our direct channel not only includes sales from DXL.com but also sales from online marketplaces and sales initiated in-store but fulfilled online via our universe technology. Lower traffic to the stores drove universe well below prior year level.

Universe sales, as you likely recall, originate in-store as our sales associates are trained to offer product extensions that may not be available in that particular store but are available on the web. Given the decline in store traffic, universe sales have been hit hard.

In contrast, our direct fulfillment by stores remained materially higher during the fourth quarter. In the fourth quarter, our stores fulfilled $12.9 million worth of e-commerce demand which compares to only $10 million in the fourth quarter of last year, or an increase of 29%.

BOPAC, buy online, pick up at curb and BOPIS, buy online, pickup in store continue to be momentum drivers with four times the level of orders being picked up via BOPAC and BOPIS versus 2019. This is an area we will continue to develop, both in terms of functionality and user experience. Today, we offer BOPAC and BOPIS in 304 store locations.

We will look to optimize these omnichannel experiences over the coming months, taking a test and learn approach as we look to elevate the customer experience while driving increased growth and shopper loyalty. As I have said before, DXL is well-positioned to benefit from consumers who are shifting their buying behavior online.

We have a flexible off-mall store base, a large and growing digital platform and a compelling and differentiated omnichannel capability which we reach not only our existing customers but new consumers as well. As we have noted before, our omnichannel customer is by far more productive than a digital-only or store-only customer.

We also have a mobile app that grew 212% in Q4 driven by tech improvements and our focus in 2021 will continue to be delivering a differentiated user experience from the web through such features as scanning, personalization and a simplified checkout. Next, let me share with you some thoughts on our marketing and digital strategies.

The single biggest challenge facing DXL continues to be our ability to drive meaningful traffic into our stores which, for anyone, in retail has been an uphill road. Equally important is our continuing need to drive the growth in traffic on our website.

While we continue to make progress in new to file and reactivate customers, successfully engaging our best, higher spending customers and most loyal guests across channels is a significant priority for 2021. We have such a great appreciation for our top customer concerns and understanding of their shopping behaviors.

We are reinforcing relevant and personalized messaging for these loyalists in conjunction with appropriate CRM driven targeted media outreach. The challenge remains significant and must be solved in order for us to make meaningful strides.

Our objective was to leverage customer behavior by leaning into the testing and learning results we delivered in Q3 for spend allocation, promotions and other traffic driving mechanisms. We continue to learn more in Q4 and now look to even greater leverage in spring of 2021.

We have developed weekly reporting and actionable key performance indicators to better understand the databases files health and customer sales trends so we will be able to continue to act decisively. We have also optimized our email infrastructure to support customer file growth and greater segmentation.

Finally, we tested direct mail promotions with control groups to better understand causation versus correlation for greater holiday success and the omnichannel gross margin impact.

We tested and measured to create incremental outcomes across campaigns, learning and changing marketing to support a more optimized targeting and promotional strategy for Q4 and into 2021. Now let me shift to a quick update on merchandising strategies.

In Q4, casual sportswear and loungewear continued to drive the business while tailored clothing remained extremely challenged, Comfort, functionality and versatility are essential features expected by our customer and are embedded in the key categories that will drive the spring sales growth.

Also worthy of mentioning is that we have been seeing an uptick in recent weeks in tailored clothing, specifically sport coats and dress shirts. It may not yet be material but an uptick at any level is encouraging. That being said, we still believe that customer will continue to gravitate to categories such as knits, shorts, activewear and denim.

There is a heightened focus on these categories and the key brands that will drive meaningful, meaningfully drive the business.

We are also working on speed to market initiatives such as exploring opportunities with vendor-managed inventory or VMI as it's referred to and working with our factories to hold undyed materials for production, greige fabric, as it's referred to and the key items that have given us a greater ability to react and respond to drive the business as well as create elasticity in our inventory.

Now, let me briefly touch on topics of gross margin, promotions and inventory. Peter will provide additional detail, but I am pleased to report that our fourth quarter gross margin, although below last year, was ahead of our revised internal expectations.

As we move through 2020 with more control over inventories, we became much more targeted with our promotions and saw a corresponding drop in our marked up rate. We are increasingly oriented specific consumer behaviors and the segments and as a result we are driving unique promotions that positively impact gross margin dollars.

We know there is a place for promotion but we expect to return to levels approximating 2019 and move forward in 2021. Now moving to inventories. We have managed inventories conservatively and are down 17% from last year's fourth quarter. We have been working very hard to maintain our supply chain and logistics capabilities.

One of the challenges that emerged in the third quarter and continues today is the shortage of vessels available for delivery of overseas products. Our spring receipts, which are landing now, have been mostly on time but the cost of freight has been escalating and we will continue to monitor for any greater disruption in the supply chain.

We are also seeing increased costs for certain raw materials, particularly in cotton which is exasperated by the humanitarian crisis in the Xinjiang province. We continue to have a heightened awareness and concern regarding forced labor and ethical manufacturing. We are working with our world-class sourcing team.

We are a member of FedEx and we are actively partnered with several other brands and retailers to continue to proactively create a transparency and ethical supply chain. Another area we have made tremendous progress in this year was right-sizing the company's occupancy costs.

We have been very active with our landlords to communicate our challenges and strengthen our partnerships with the leasing community. We are incredibly grateful that most of our landlords have been open to having dialogue about occupancy and they have restructured leases with us.

In the first half of 2020, we negotiated approximately $10 million of rent abatement and deferrals. In addition, we have restructured 91 individual store leases, nearly one-third of the chain which are expected to deliver over $13.5 million of savings over the life of the leases, including $5.2 million of expected savings in fiscal 2021.

We continue to push hard to reduce lease costs with those landlords where our rents are out of line with our sales. And finally, let me give you an update on our wholesale. We continue to chase the wholesale business with our in-stock position with Amazon Essentials and Goodthreads and have experienced a slowdown in the market demand for masks.

In total, our wholesale business, which is primarily with Amazon, came in at $4.5 million for the quarter which was flat to last year.

While there have been challenges in projections and the ensuing receipt flow impacted in-stock levels, the good news is we are selling nearly everything we can deliver and we believe there is even greater upside potential with Amazon. We also continue to search for other opportunities to the overall wholesale business.

For the full year, wholesale revenues increased $4.1 million to $16.6 million. And now, I would like to turn it over to Peter for an update on the financials.

Peter?.

Thank you Harvey and good morning everyone. There are a few topics I am looking forward to sharing today. I will start with a summary of our fourth quarter and full year financial results. Then I will cover some of the recent steps we have taken to strengthen our cash position.

And I will close with our full year financial guidance and expectations for 2021. So let's begin with sales. Total sales for the fourth quarter decreased 23.7% to $100.1 million, down from $131.2 million in the fourth quarter of last year. On a comparable basis, sales in the fourth quarter were down 23.4% to last year.

Our stores which were down 37.3% from the prior year fourth quarter improved over the course of November, December and January and have continued to accelerate in the new year. Our direct business continued its strong performance throughout the fourth quarter led by DXL.com which was up 28.7% over last year.

Features like buy online, pick up at curbside and buy online, pick up in store continue to grow at a faster rate than the core website as our customers see convenience and optionality in their shopping experience. The sale penetration in our direct channel was 41.4%, up from 27.4% a year ago.

Our wholesale business contributed $4.5 million in sales during the fourth quarter, flat to last year. Gross margin rate, inclusive of occupancy costs, was 39% as compared to a gross margin rate of 43% for the fourth quarter of fiscal 2019.

The 400 basis point decrease in rate was comprised of a 230 basis point decrease in merchandise margins and a 170 basis point deleveraging and occupancy costs against a lower sales base. Shipping costs increased year-over-year due to growth in online sales, free shipping promotions and volume-based shipping surcharges.

Although our gross margin rate was down compared to last year, it has improved as we have progressed through the pandemic. Our promotions in the fourth quarter were more targeted to specific customers, brands and channels which allowed us to improve margin rates and keep our inventory fresh.

I am very happy with our inventory position which is down 17% to last year at $85 million as compared to $102.4 million a year ago. Throughout this year, we have made a conscious effort to reduce receipts by slowing replenishment and narrowing our merchandise assortment to right-size inventory levels with our projected sales volumes.

Our clearance inventory is actually down $1.4 million from last year and comprises 10.4% of our inventory mix, in line with our target. We have also made great progress in our ongoing efforts to reduce store occupancy costs. On a dollar basis, occupancy costs for the fourth quarter were down 13.8% versus a year ago.

As Harvey mentioned, in the first half of the year we secured $10 million in rental abatements and departments related to months in which our stores were shut down due to the pandemic. In the fourth quarter, we focused on restructuring leases on a go forward basis to right-size our occupancy costs as a percentage of store sales.

To-date, we have negotiated 91 lease amendments which will be worth over $13.5 million over the lease terms with $5.2 million in savings in fiscal 2021. Now let's move on to selling, general and administrative expenses.

For the fourth quarter of fiscal 2020, SG&A expenses were $38.3 million or 38.3% of sales versus the prior year fourth quarter at $46.5 million or 35.4% of sales.

This $8.1 million year-over-year decrease is primarily the result of the steps we took earlier this year including adjusting store hours and staffing models to account for new customer traffic patterns.

In total, we eliminated 1,078 store roles or 54% of our of our headcount, significantly reducing our marketing costs, especially in traditional non-digital channels, eliminating 101 corporate positions or 29% of our corporate headcount and finally reducing certain support services, travel and any discretionary spending.

While these decisions were difficult, the cost savings which have resulted will continue to benefit us in fiscal 2021 and beyond. The assessment of SG&A is an ongoing process but we believe our cost structure is now set up for success and offers us the opportunity for significant operating leverage.

As we move forward, we will continue to manage variable expenses like advertising and store hours on a percent of sales basis to maximize our opportunities as sales recover. We continue to view SG&A expenses through two primary cost centers, customer facing cost and corporate support costs.

Customer facing costs, which include store payroll, marketing and other store operating costs, represented 20.2% of sales for fiscal 2020 as compared to 22.6% of sales last year. Corporate support costs, which include the distribution center and corporate overhead costs, represented 20.3% of sales in fiscal 2020 compared to 15.5% of sales last year.

Adjusted EBITDA was $700,000 for the quarter compared to $9.9 million for the fourth quarter of fiscal 2019.

For the full year, our adjusted EBITDA was negative $24.2 million compared to a positive $23.5 million and reflects the significant impact that COVID had on our operating results, especially during the period of time when our stores were temporarily closed.

Net loss for the fourth quarter was $5.1 million or $0.10 per diluted share, as compared to net income for the fourth quarter last year of $2.4 million or $0.5 per diluted share. For the full year, our net loss was $64.5 million or $1.26 per diluted share as compared to a net loss of $7.8 million or $0.16 per diluted share last year.

Included in the full year net loss amount is a non-cash charge for store impairment as a result of COVID of $14.8 million, most of which was taken back in the fourth quarter.

On a non-GAAP basis, adjusted net loss for the fourth quarter was $0.8 per diluted share as compared to adjusted net income of $0.5 per diluted share for the fourth quarter of fiscal 2019. And for the full year, adjusted net loss was $0.72 per diluted share as compared to $0.06. Now I would like to move on to cash flow and liquidity.

We have talked many times before about the significant steps we took in 2020 to preserve liquidity. By reducing both capital and operating expenses, adjusting inventory levels to match our new sales trends and restructuring our store leases, we were able to limit our use of free cash flow in fiscal 2022 to just $5.5 million.

Considering our sales decreased over $150 million from the prior year, this is the result of which we are very proud. We ended the year with $19 million in cash. Our total debt, which is comprised of our revolving credit facility and FILO term loan, was $74.4 million.

If we look at debt, net of cash, our balance was $55.4 million at the end of 2020 as compared to $49.8 million a year ago. We have $11.5 million of excess availability under our revolving credit facility in addition to cash on hand. As we move into 2021, we are continuing to monitor and enhance our liquidity and will use free cash flow to retire debt.

The reductions in cost structure that we implemented in 2020 will remain in place as our revenues increase. We are not planning to open any new stores or rebrand any of our existing Casual Male XL stores in fiscal 2021 and are instead limiting our capital expenditures to only those necessary to meet our current business objectives.

As Harvey mentioned, last month we completed a registered direct offering for 11.1 million shares of our common stock through which we raised $5 million before offering costs. Also, earlier this week we entered into a new $17.5 million FILO term loan which replaced our existing $15 million FILO loan.

Our advance rate on inventory under the old FILO were set to amortize down to 5% in May of 2021. Our new FILO has an inventory advance rate of 15% and will provide us with an additional borrowing capacity of $5 million to $10 million in fiscal 2021. I also want to note that there was no prepayment penalty on retiring the existing FILO.

We elected refinance the FILO because we saw an opportunity to improve our borrowing capacity by adding another lender to our banking group. Both the registered direct offering and the new term loan provide increased stability and additional flexibility as we execute our strategic plans in fiscal 2021.

Lastly, we our $125 million revolving credit facility, which is primarily supported by our inventory and adjust up and down throughout the year to support our seasonal inventory purchases, remains in place until May of 2023. I would like to close with our financial outlook for 2021.

Our financial plans include sales of $385 million to $402 million, adjusted EBITDA of $11 million to $18 million and positive free cash flow. We believe the demand for apparel will gradually improve throughout this year as the distribution of vaccines helps to create a level of comfort that gets our guys out of the house and socializing again.

Our financial projections assume that vaccines are widely available and administered by the end of the spring. This sales range equates to a comparable sales decrease of 10.8% to 14.8% as compared to 2019 levels with comparable stores down 23.8% to 27.8% and our direct to consumer business up 26.9% to 30.7%.

We expect the direct channel will comprise about 35% of our fiscal 2021 sales. Although we expect total sales will still be below 2019 level, the significant cost reductions we took this past year are expected to benefit both our EBITDA and cash flow result in 2021.

The reductions in corporate and store headcount, services and discretionary spending will remain in place throughout this year and our store rent reduction efforts will also continue.

The additional liquidity provided by our recent debt and equity transactions gives us more flexibility to adjust and respond to any new opportunities that arise as our country and our customers emerge from the pandemic. We are excited to see what 2021 has in store for DXL and look forward to sharing updates with you as we proceed throughout the year.

With that, I would like to turn it back over to Harvey for some closing thoughts..

Thank you Peter. As you heard or so we hope, both in my remarks and Peters, we remain quite optimistic. We believe we have weathered the worst of the storm and challenges.

We believe we have come through in a solid financial position and most of all we believe we have a strategy to leverage the recovery to engage consumers in what we do best, creating memorable experiences for big and tall guys to look and feel their best and drive growth back.

We do that by offering the most extensive and uniquely curated assortment from value price essentials to luxury brands and exclusive designers, both online and in-store giving the underserved consumer the be-all, end-all place to shop and interact, interacting with their friends and our associates and that is something that cannot be bought, it has to be earned.

And now we will take questions, operator..

[Operator Instructions]. Our first question comes from the line of Eric Beder with SCC Research. Your line is open..

Good morning. Congratulations..

Good morning..

You guys, as usual, provide a lot of color here.

Would you talk a little bit, I know it was mentioned about brands and how you are shifting around the brands, how should we think about that as that evolves throughout this year and how are you strategically looking at what brands to emphasize or deemphasize?.

Eric, it's a great question. And as we have, I think, previously communicated, we are materially reducing the brands in our mix and that is to more fine tune really the products that the customer wants.

The other thing, I think, that is equally exciting, maybe even more so, is, as we do that we become more important to those brands that obviously stay in the mix and we are able to drive even greater level of exclusivity, either in spring or in fall as those brands actually transition out of other retailers that are either in more stress or just not productive enough to continue to sell to.

The categories that more than likely you would expect us to say would be those that are casual driven, work-from-home driven but there is still an element, certainly, of tailored clothing and what we call socializing clothing.

And in spite of maintaining a breadth of offer, it is still being narrowed in both in the brands that are bought off market as well as a reduction in brands that are private label. We are reducing our private label brands from nine to five.

And I would say, at a high level over the last two years we will reduce our brands by about 50% in terms of those brands at a market.

And in both cases, then you can understand that we are really driving into those brands that are most productive and that the consumers really expect from us and in many cases we are the only place they can buy it, literally in the big and tall sizing..

Makes a lot of sense. When you look at the online business, obviously it has the incremental cost of having to be shipped.

How do you and what's the campaign to get people who buy online, pick up in store more so you can save and get the fruits of both and get the higher margin than you would get from just shipping directly, shipping just online?.

Yes. Another really great question from the standpoint of the cost, right. So we look at shipping as almost a version of occupancy, but obviously at a greatly reduced version of occupancy. But to the to the point you specifically asked, we are doing several different things.

One, we are making it simpler to buy online, pick up in curb or buy online, pick up in store. Number two, we have done some level of test and control to understand incrementality by offering incentives. And while the incentives are at some level of discount, they are very minimal.

But to offer the customer the opportunity to come pick it up and they are basically offsetting the shipping costs, so it's somewhat neutral but we do know that when a customer enters a store to buy online, pick up in store specifically, that in many cases they are one of our best customers and they are interacting with other sales associates and we are seeing incrementally in ticket because they came to the store.

And that is obviously really important to us in addition to offsetting the reality of shipping costs to the extent there is no incentive.

So we are pursuing a number of different things but ultimately trying to incent the customer and make the experience simpler so that they can access goods quicker and in many cases you might imagine as fashion becomes more and more important and the reality is they are going to go out, they don't want to wait a day or two or three for shipments.

They want to easily just come to the store and pick it up and go out..

Great. And final question. You have given a lot of granularity on the sales the last few weeks. I really appreciate that.

When you look at states like Florida, which has pretty much opened up, are you seeing improvements there even more than what you are seeing in terms of the general overall numbers?.

Yes. We talked about a 500 basis point change in geography at a high level.

At a micro level, I would tell you we have seen as much at times of 20 points differential in those states that have been much more at ease with, hard to believe that you could say at east, but at ease with COVID versus those states either have been more challenged or less at ease with higher stringency in terms of masks and what have you.

And so, yes, we are seeing in select states and probably more the Southeast than anything and directly in comparison to the coast, California specifically and New York and that area in the Northeast where there's been greater challenge.

But yes, we are seeing distinctly different trends but overall the macros that I referred to are really moving the customer and it will be interesting to see how this evolves over the weeks and months ahead..

Well, guys, congrats and good luck as we get back to normal..

Eric, thanks so much for your interest..

[Operator Instructions]. Our next question comes from the line of Alex Silverman with AWM Investments. Your line is open..

Hi. Good morning..

Good morning Alex..

So a bunch of my questions were already asked, but a couple of small follow-ups. So you gave the cadence of the last few months, even last few weeks or last few days. I assume that's companywide.

Have you seen a comparable increase or improvement in foot traffic?.

Not at the same level but we definitely see a material change in foot traffic. But the reality is, we are seeing conversion at pretty incredible levels. And as you might imagine intuitively, the customers that either are getting stimulus checks or there is ease in mask wearing and what have you, they are coming in with a purchase intent.

And so we are absolutely seeing increasing conversion. The other thing, although not as high and the conversion is double digit growth but not as high as DPT which is the average order value. We are seeing low single digit increases in the purchase value of the transaction.

So we have seen a reduction in the decline of traffic and an increase in conversion and increase in ticket. That's the composition of the transaction in store. Online, similarly conversion is up. Actually one of the things that is exciting is paid users up by nearly 20% which means they are looking at more product.

Again, I think it implies purchase intent. And we are seeing the ticket up slightly. So that in combination with heightened levels of traffic online and I would tell you meaningfully heightened levels of traffic online, which again goes back to just kind of an easing of expectations around the need to stay-at-home and potentially go out.

But again, it creates some of the optimism we spoke to today..

Got it. That's very helpful.

Really last question for me is, how do you think about inventory? Do you think it's at the right level? Do you think you overshot in order to ring out to clean up inventory? How should we think about that?.

Yes. I think the reality is, we are watching it literally daily. And as we mentioned multiple times before, are pretty actively engaged in making decisions quickly and trying to understand where we are.

And so I think the expectation is, if business continues to ramp and we are obviously hopeful that that will be, I think we will be quickly evolving our perspective. And as I mentioned in my comments, the shipping and logistics challenges as well as the cost of shipping and logistics are going to push us pretty hard. So we will not wait.

We have been really good at managing inventory, both up and down. And to the extent that we see things happening, we will move pretty darn quickly..

Got it. Very helpful. Thank you very much..

Well, listen, thanks so much for your interest. Operator, that looks like the end of the call. If there's nothing else, we can call this today and I want to just thank everyone for their support and ongoing interest in DXL and the exciting opportunities hopefully yet ahead..

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect..