Good day, and thank you for standing by. Welcome to the Destination XL Group Third Quarter 2021 Earnings Call. All participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Shelly Mokas, Director of SEC Financial Reporting. Please go ahead..

Thank you, Shannon, and good morning, everyone. Thank you for joining us on Destination XL Group's third quarter fiscal 2021 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 some useful information about our financial performance. Please refer to our earnings release, which was filed Wednesday afternoon 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 updated sales and earnings guidance and other expectations for fiscal 2021.

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, including, but not limited to, supply chain disruption, labor availability and disruption from COVID-19.

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, Shelley, and good morning to everyone. I look forward to speaking with you today about the progress we are making in our business this year, our third quarter results, which we announced on Wednesday and the greater opportunities as we close out this year and the holiday season.

My hope is you hear repetition, consistency and reminders in our messaging, in our tone and in our optimism for the work at hand. As the saying goes, reputation is the mother of all learning.

And my hope is from our reputation, we better understand the results from our ongoing transformation as well as the range of possible growth year ahead, but also the risk, given the volatility this holiday season.

In just 4 short months from now, it will mark 3 years since we began this transformation journey, and we still the same vision, the same mission and the same strategy. The team is executing well and with a perseverance and tenacity that is inspiring to me and producing meaningful results.

Given the pandemic's 20-month detour, the year-to-date performance is all that much more energizing. It was approximately 8 months ago in March that we first started to see signs of the recovery in our business.

It is exciting to see how quickly the results have begun to leverage the top line sales, the operating platform reset and the drop to the bottom line. In the second quarter, the acceleration in sales continued to build, and we began to see that our business was not only recovering but accelerating.

I'm pleased to report that, once again, our quarterly results have exceeded our expectations and that of consensus as well. We are incredibly happy with our performance in the third quarter, and we see this performance is somewhat remarkable, given the ongoing challenges in the supply chain and with labor shortages.

Despite these challenges that we are grappling with daily, the consumer is responding to our initiatives and at a level that continues to demonstrate the traction in the brand's repositioning.

While we remain very optimistic for a strong quarter -- fourth quarter specifically, the brand's highly personal historical set in the fourth quarter will now undergo its greatest test.

Without sharing broadly and publicly our promotional plans, it should be clear from our actions that we intend to continue to engage the consumer in a very different way.

I will cover this in more detail later in my comments, but our change in promotional plans, in combination with the risk and volatility in the supply chain consistently caused us to be conservative in our outlook despite the success of this year's performance to date. This abundance of caution should not really surprise anyone.

Since I've been here as CEO, our intent has always been confident in our guidance. We have been transparent, detailed and thorough in what we believe and why.

Given the challenges in our philosophical orientation and acknowledging the variables we control versus those that we do not control, we are doing as we have always done and offering our outlook and expectations. Now before I talk about the business results and our outlook, I want to cover 2 other things. First, Wednesday's release.

We published our third quarter earnings press release on Wednesday after the market closed, which is earlier than we normally would as we knew this was an important quarter and wanted to make sure everyone had enough time with this information.

We're also curious to see if we may see greater attendance on today's earnings call if we issue the release. And second, I want to extend my gratitude to all of our employees for being a critical part of our mission and serving our Big + Tall customers who grow more in dear to us every quarter.

Here again, it's not a secret that the workload, mental stress and just never-ending push has certainly been challenging for all of our associates, but it is literally each and every one of them that you, we and most importantly, our customers are indebted to.

Like many companies, we are managing through a very lean labor market and daily challenges never before experienced. At times, we've struggled with maintaining appropriate staffing levels, filling open positions and balancing the workload on our people.

But despite all this, I couldn't be more proud of the team of associates for their passion and their commitment they have for our customer and to DXL. It's inspiring truly like the energize their body, they just keep going and going and going giving more of themselves every day.

Despite working from home and the labor challenges in our stores and the resultant stress that this creates, we look to and are continuing to build a culture of trust, culture of transparency, empowerment and empathy because these continue to be the most challenging times in most every way.

To all of our associates in the stores, in the distribution center, in the guest engagement center and in the corporate office, thank you. Thank you for all your hard work. Thank you for the support and your dedication to DXL's consumer. From the very bottom of my heart, thank you.

Now on to the details and 3 different topics I want to cover with you today. First, I wanted to review our third quarter results. At a high level, we saw quite strong sales growth in the third quarter across stores, online and on our app.

In addition, our promotional cadence was very light and tight, which means more product is going out the door at full price. This translates to a higher AOV, lower markdowns and higher gross margins. We are controlling our operating costs and driving operating leverage.

Second, I want to talk to you about how we are managing short-term challenges across the entire supply chain from inventory to labor. While we are pleased with our results through Q3, our inventory levels are down about 32% to Q3 2019.

We need to land inventory received in Q4 to maintain momentum and achieve our minimum presentation levels through the post-holiday season. And finally, I want to talk to you about marketing, our #1 long-term priority, which is customer acquisition, trial and repeat and in that order.

Ultimately, we know the outcome of this will be driving revenue growth and taking market share. But those are outcomes, which will happen because new customers try us, and we achieve greater lifetime value across our entire customer file.

Our strategies also continue to look at product offerings as well as technology to simplify the shopping experience and engage the consumer in a more profoundly, deeper, richer and more meaningful relationship with DXL.

Making appropriate investments in marketing and in digital customer engagement is the leading edge to customer acquisition, trial and repeat. What follows is the even greater demonstration of this through the continued building of the moat, as we have explained on previous calls.

My elevator pitch remains the same in regards to our ongoing brand repositioning.

Our vision and mission at DXL is to be the market leader, to deliver a Big + Tall shopping experience that fits its body, fits its style and fit its life, bringing a breadth and depth and level of exclusivity and an assortment of curated clothing that cannot be found anywhere else, period, and to create an experience rooted in the values of the place in the consumer and the respect we have for him and in our desire to build a trusted relationship, creating a level of satisfaction and happiness that distills as few any other retailers have a community of belonging and driven by our culture and employees who interact with our guests every single day.

So now let me start by reviewing our Q3 results. I'm very pleased to announce that our overall comp sales rate for the third quarter as compared to 2019 accelerated to 22.9%, which is up from 21.6% in the second quarter.

As 2019 was our last normalized year from a financial comparison standpoint, we will be making most of our year-over-year reference comparisons to our Q3 2019 results. Comp sales growth in stores was 12.9% and comp sales growth in direct was 56.5% as compared to 2019.

In total, third quarter sales were $121.5 million compared to $106.6 million, and our adjusted EBITDA for the quarter was $19 million compared to $1.7 million in the third quarter of 2019. Year-to-date, this brings our adjusted EBITDA to $62.5 million as compared to $13.6 million to 3 quarters in 2019. It is truly remarkable how far we've come.

These results are a direct outcome of the increased leverage we achieved on sales that exceeded expectations, any of us likely had given the known challenges we have been facing. In stores, our comp sales remained in double digits similar to Q2. In August, our store comp rate was 15.5%. In September, it was 15.1%. And in October, it drifted to 8.3%.

We continue to see a very purpose shopper in our stores, evidenced by growth in both our conversation rates and dollars per transaction. Our new-to-file growth rate increased 34% in the third quarter as compared to the third quarter of 2019.

This is an improvement from the second quarter when our new developed customer growth increased 28.5% and just off first quarter's new to file customer growth rate of 35.7%.

Consistent with our performance in the second quarter as our store sales increased, our direct business not only maintained its momentum in the third quarter but slightly accelerated. Our direct comps for Q3 were up 56.5%, which compares to a growth rate of 52.2% in the second quarter.

By month, our comp growth rate 63.6% in August, 52.7% in September and 54.9% in October. Again, these comps are all against 2019. Our direct growth shows the sustainability of our digital transformation, and we believe is a testament to our ability to stand out as a digital-first brand.

Direct was just under 30% of total retail sales in Q3 as compared to 21.9% in Q3 2019, and we expect our direct penetration for the full year to be approximately 30% as compared to annual penetration in 2019 of 23.1%. Our direct growth was driven by a combination of improvements in web traffic, in conversion and basket size.

We believe that our new-to-file growth indicates our digital marketing investments and the optimization of our digital infrastructure are driving significant inflection in new to DXL customers.

Although October results sequentially slowed, we believe this is almost exclusively a function of inventory challenges, and we do believe that if we can achieve better inventory positioning, this slowing down will reverse itself.

We will talk about supply chain challenges in just a moment, but, needless to say, it feels like hand-to-hand daily combat. Finally, with respect to off-site sales originating on third-party marketplaces, predominantly driven by Amazon, results were exceptionally strong.

We also just launched on target.com marketplace in October, and we expect it will take a few months to ramp up to a meaningful assortment. Now let me shift gears a bit and talk about merchandise assortment and our inventory. We continue to see a strong sales performance across all product categories.

Our merchandise assortment is 55% private label and 45% designer collections, and our sales penetration for the third quarter was relatively consistent with inventory composition.

Tailored clothing started to build in the second quarter, and that trend has continued through the third quarter, actually even accelerated despite the growing inventory challenges. Tailored clothing drove 18.4% of the Q3 business as compared to 13.1% in the second quarter with the biggest gains coming from suits and dress shirts.

Pairing, casual and tailored clothing continues to be a trend as customers return to work, but remain oriented to looking relaxed and casual. In sportswear, the top-selling brands in our assortment continue to see higher selling velocity, and these include Polo, Nautica, Vineyard Vines and Reebok, among others.

The 1 constant challenge throughout the quarter was the disruption that seems to be impacting each phase of the supply chain. Ocean and airfreight continue to be problematic, causing delays and share price increases. At DXL, we bring in all of our private label overseas shipments through the port of New York, New Jersey.

We don't have any private label coming through Long Beach, but we know some of the delays from our domestic vendors is being impacted at Long Beach as well. Port congestion is a major problem, which has motivated us to fly in goods, but even then reductions in international flights has caused capacity constraints and price increases.

Trucking companies are facing a shortage of drivers and inbound worker staffing issues, which further backs up the network. I think sharing 1 example will help you better understand the reality of the situation, which is dynamic, ever moving and anything but transparent. And there I stay as opaque as anything could be.

We recently aired in private label goods that it had an ETA of 10/18 for arriving into JFK Airport. As of 11/01, the goods having arrived at JFK still had not been located despite daily calls asking, where are my goods? On 11/2, 2 weeks later, we finally received word, the airline has located the product in the lot.

The trucking company was then able to pick up the shipment and goods arrived in our DC on 11/5. We airfreighted product. We did not know where this product was for nearly 2 weeks. And once located, it took 3 days to load and travel 200 miles. Incredibly difficult, as you might imagine.

Despite the challenges in getting goods to port, and ultimately to the sales, so the saying turn and burn comes to mind. We are stocking shelves, and we are selling what we stock. Inventory turnover is up 33% from our historical performance. Our global sourcing team.

Our global sourcing team has been successful in mitigating risk all year in procuring fabrics to support our production needs. Today, that global sourcing team has to first divide at the factory level. But still, we are heavily penetrated in Southeast Asia, including Vietnam, Cambodia, Bangladesh and, to a lesser extent, China.

Our sourcing team has platformed over 3 million yards of fabric and yarn on key item programs with our vendors to secure greater availability to allude -- offset price and speed to market, which should allow us to fulfill our orders through fall of 2022 and into 2023. This will also allow us to shorten our lead times and protect the gross margins.

With cotton prices up over 40% in every country we source from experiencing inflation, we are trying to navigate what is clearly not normal. Part of the way we are battling these challenges is by diversifying our supply chain to incorporate greater speed and flexibility.

We have initiated incontvertical manufacturing and are producing now at Jordan, in India, in Mexico, and we expect to shift some production to Central America. With regard to labor, we are certainly seeing challenges, but we believe we have fared well enough in the current environment.

In the stores, we are seeing an elevated level of open or unfulfilled positions. Traditionally, our unfulfilled position rate has been about 10%. But for the third quarter, it was closer to 20%.

We believe we have been more than competitive compensation where our store workers receive a base wage and a commission as well as a sales bonus eligibility with so many of our stores exceeding their plans by achieving their incentive compensation and materially impacting their overall compensation.

In the distribution center, we have a strong group of year-round associates, and we've been able to recruit and bring in seasonal associates for the pending holiday season. Finally, let's talk about marketing. Our enthusiasm for we've already accomplished this year is incredibly energizing.

We are continuing to lean into our brand positioning that builds around our proprietary fit and curated largely exclusive assortment of private label and national brands and an experience built around the respect and the value for the Big + Tall consumer who trusts us.

This strategy has allowed us to shift away from a value proposition that is driven by price, highly promotional and discount driven to a proposition that is grounded in comfort, grounded in fit, an uniquely curated offer and an experience the can't be replicated by other retailers, period.

Our confidence in our long-term view is building with the knowledge that we don't need to be hyper promotional. Just like we were in the second quarter, we were essentially non-promotional in the third quarter with the only limited promotions targeted for unique consumer segment.

While this reduced promotional posture has done for us is to further enhance the brand's positioning of DXL not as a discounter, not as a coupon store, but as a brand that understands and honors big and guys better than anyone else in the market. And that brings me to what really is our #1 long-term priority, taking market share.

And today, that means somewhat of a transition. While lifetime value is it starts with customer acquisition and trial and then shifts to repeat and repeat again and in that order. As we battled through the pandemic, our focus was predominantly fixated on our existing customer base.

It's a lot easier and more efficient to focus on consumers you have already. Customer retention has always been a goal for us. But today, we are striving to achieve a better balance between retention and acquisition.

We are working hard to evolve our singular mindset and having an attributable driven working spend to a comprehensive brand-building spend that drives upper funnel, messaging and greater awareness.

And as I said many times in the past, we believe that our fit, our assortment and our experiences are the differentiators that separate DXL from any other men's store selling big and tall. Today, we spend a significant amount of our marketing dollars on attributable channels such as paid digital and CRM.

We are also at a point where we have defined and aligned on our brand's repositioning, and we now must seize the opportunities to socialize to materialize across multiple other channels. And I'm happy to say we have identified a number of other opportunities.

Hopefully, today, you should have already been seeing our increased investment in connected TV and streaming; more important, brand messaging and content. And as we move forward, we're slowly starting to partner with influencers and testing influencer outreach. We are becoming more active in public relations outreach.

And in this regard, you have seen us featured in certain industry, trade and life cycle -- life style magazines and publications. Over the past 20 months, we have worked to create a significantly greater understanding of the customer, driven mostly by quantitative understanding of behaviors, segments and demographics.

We're using third-party vendors, which allow us to walk in the shoes of our customer. This helps us to engage with customers in ways that are more personalized to a style, to its persona and to his aspirations, but there is much more work to do in this area.

And in Q4 and into 2022, we are acquiring a deeper and more complete understanding of our customer by investing further in qualitative research and analysis.

We will be conducting interviews, focus groups, surveys and other interactive research to refine our thoughts about what makes big and tall guys tick, what are his needs, what are his wants and what are his pain points? Why he shops? Where he shops or her? We are also doing a better job at gathering 360-degree feedback from our guest engagement center, from our stores and our web teams.

What are his perceptions of DXL or his shopping experience and how can we improve? We have conceptualized as a team and clearly articulated our vision for the business, bringing this to life now and will continue to do so through 2022 and beyond to further strengthen our defendable position, our moat, as we have referred to it.

We lead with our positioning in everything we do today and believe it is this positions competitive staff that makes us the leading big and tall men's apparel retailer with the greatest potential for growth in the consumers' mindshare.

My hope, in my comments today, you have heard the reputation, the consistency and been reminded in our messaging that as I have said before, the work we are talking about was laid back in Q2 2019. And finally, let me give you an update on wholesale.

Just as we discussed in our mainline business, we have experienced supply chain challenges in wholesale, too. In total, our wholesale business, which is primarily with Amazon, generated sales of $900,000 for the quarter compared to $2.9 million in the third quarter of '19.

We continue to work through the challenges like supply chain issues that are highly publicized towards improving on hand and building a business together and determining ways to move forward.

The impact of the supply chain issues on our wholesale business in forecasting and then procuring has been a major force in the business' slowdown and the impact we have felt here in wholesale is greater than with respect to our core sales and inventory. And now, I would like to turn the call over to Peter for an update on financials.

Peter?.

marketing, technology and stores. Harvey has talked pretty extensively about marketing and technology, but let me just add a few thoughts on stores. First of all, we are going to be selective on where to invest with stores.

We are not planning a broad-based campaign to resurrect the rollout of DXL stores, but we do believe there are some gaps in our store portfolio, which we may choose to address. Ultimately, we are looking at how stores complement and dovetail with our direct business and whether there are selected opportunities to grow market share further.

As Harvey talked about before, it has been a constant battle to secure enough inventory this year with customer demand stronger than we had expected in the ongoing global supply chain disruptions.

Our inventory balance at October 30, 2021, was $82.3 million as compared to $94.9 million at October 31, 2020, and $120.2 million at November 2, 2019, or down 30% to 2019 levels. Consequently, inventory turnover is up to over 2x as compared to our historical levels of around 1.5x.

Clearance levels are also at record lows and represented just 6.4% of our inventory at October 30, 2021, as compared to 11.8% at October 31, 2020, and 10% at November 2, 2019. The flow of product from our vendors in the third quarter has certainly been slower than expected.

However, our checks on specific shipments in the pipeline today has given us confidence in our revised outlook, which is what I'd like to share with you next. Our results for the third quarter exceeded our internal expectations, and as a result, we have raised our full year guidance.

While we are optimistic for a strong fourth quarter, we are taking a cautious and conservative approach in light of the supply chain issues and inventory situation. For the full year, we expect sales to range from $500 million to $510 million with e-commerce penetration of approximately 30%.

We expect adjusted EBITDA to range from $70 million to $75 million, and net income for the full year is expected to be $0.72 to $0.80 per share. Finally, free cash flow is expected to be in excess of $55 million.

The high end of our sales guidance of $510 million would imply a fourth quarter comp sales rate to 2019 in the low double-digits and the gross margin rate in the high 40% range. At the end -- at the high end, $75 million of adjusted EBITDA on $510 million of sales is nearly a 15% adjusted EBITDA margin.

We believe this is a unique year and long term, we are working to sustain an EBITDA margin of 10% or greater. There is still much work to be done, and we will continue to drive shareholder value, growing DXL into the premier shopping experience for all big and tall men.

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

Thanks, Peter. As you've hopefully heard now, we are truly pleased with what we have accomplished, and we recognize the far greater potential that lies here ahead.

We remain conservative in our projections and cautiously optimistic that our actions to navigate the supply chain and labor issues will allow us to have the product and staffing levels we need to execute our strategic plan. We are in the most solid financial position in our company's history.

And most of all, we believe we have a strategy to engage consumers on what we do best, creating memorable experiences for big and tall guys to look and feel their best.

We do that by offering the most extensive and uniquely created assortment from value price essentials to luxury brands, exclusive designers online, on our app and in our stores, giving an underserved consumer the be all and all place to browse, shop and interact.

And finally, we know we have an incredibly -- incredible employee base that is passionate and committed to our customers and our purpose, and this gives us the confidence that we will continue to make inroads into gaining share of market. And with that, operator, we'll take questions..

[Operator Instructions]. Our first question comes from Michael Baker with D.A. Davidson..

So I think we get the idea of conservative but cautiously optimistic. But I just wanted to -- I hate to be myopically focused on really short-term stuff.

But Harvey, you said something along the lines of you think November can rebound until your guidance is low double digits for the fourth quarter, that would be a rebound, I think, from what you saw in October. You said November can rebound, if you get product in.

I guess the question is, when do you know if you can get the product in? When does it become too late? And I guess, square that with Peter's comments that checks give you confidence.

When does that we actually got the stuff?.

Mike, it's a great question, and I'll tell you 2 things. One, at a high level, our first 2.5 weeks of November are very much aligned to Q3. So we feel like that's a good reference point for us to believe that we can get back to where we are and we're receiving goods.

But the reason I highlighted that 1 very specific example and hopefully, it didn't pass over people's understanding, it's day to day. When you airfreight goods in, you're expecting that they will come in on a plane on day and move through the pipeline the next day. The reality is 2 weeks to get goods airfreighted in.

And so every single day, we are chasing goods, Given the fact that we're 32% behind inventory, our turn is up over 33%, we are, in fact, selling what we bring in. It's almost like cross-stocking it.

And so the answer to the question is every single day that, that happens well, we continue to believe that there's even greater and greater likelihood we’ll outperform. But any given day that doesn't happen in the way it's supposed to and once they start stacking up, and we can't catch up, then we fall back to a more conservative outcome.

So I'm not trying to be Pollyanna. It's just the reality of the situation. I believe we'll get this done, but there is risk. And that's what we wanted to be clear and confident with what we gave the group as our end of year guidance..

Yes, that's fair. And then just to clarify, November back to third quarter levels or in line with third quarter, not necessarily better than October..

My reference point was that, yes, in fact, our stores have accelerated back to overall in the first 2.5 weeks, what was the quarter's performance as of October, and our total company comp is about where Q3 ended. There is -- but unfortunately, there's a lot of water that is going to have to pass under the bridge.

So we're just trying not to get ahead of our skis..

Understood. Makes sense. One more question, if I could. Just on all that marketing, you talked about the top of funnel. I guess there's a quantitative and qualitative question here.

From a qualitative standpoint, I think one of the changes you've made is in the past, I think there was a lot of sort of, what do you call, like buckshot marketing rather than shock on a lot of just that bigger brand building....

National broadcast TV..

Yes, exactly. Thank you for helping me articulate that. You moved away from that.

Now it sounds like are you moving -- or give us some sense like you're not moving towards what you were doing in the past that wasn't working? And then can you quantify, do we expect marketing dollars to go up by X percent over the next couple of years? Or what's the spend that we're looking at there?.

Yes. The 2 specific things I'll tell you, and I gave you a couple of examples, but when you're on streaming TV across Hulu and YouTube as examples, our ability to target our customer is exponentially greater than when you're doing blunt level TV marketing on a national broadcast basis. So that is creating an efficiency to get to our consumer.

That being said, we're also pushing streaming among other venues more broadly. And to answer your question, we expect we will push up the percentage of added sales. So from -- upper 4% and change to somewhere North of 5% and South of 6%, and we'll continue to talk about how much we should spend.

But if we're going after a larger share of market, the most important way to accomplish that is first the part of the mind share of consumers, creating greater awareness for the brand in your target consumer group, and then, as I said, acquisition turns to trial, trial turns to purchase, and then we're going to go after repeat, repeat, repeat.

And so there is top of funnel shift, but it's shifted into targetable marketing spend that should be more productive than, as you said, shotgun approach..

Our next question comes from Jeremy Hamblin with Craig-Hallum Capital Group..

I wanted to just get into the inventory a little bit deeper.

Can you call out are there particular categories where you are struggling more to acquire inventory, men's suits, other, which it sounds like it's been very strong or other pieces of your tailored clothing? Any insight you can share on that? And then the kind of follow-up question is, how does the seasonal mix look typically in Q4 and kind of your current trend rates on product margin versus what you have in other quarters? Is there any kind of seasonality on product mix?.

Yes, it's Harvey. I'll take that. So first of all, it's less about inventory in terms of what we own and more about revenue. And when I say that, our tailored clothing, suits and dress shirts 2 prime examples have just exceeded our expectations.

And so now we are chasing goods at a heightened level, our inventories actually were pretty well positioned, but the business has just continued to accelerate.

Now that said, one of the greatest things about our global sourcing team and just their capabilities that I find rather remarkable, they have been able to shift really raw materials from, I think, it was Ethiopia. I think it was but don't quote me on that, into Mexico.

And the Mexican producer that we work with had capacity to produce, if they could get the fabric, they've then been able to produce goods and goods that were literally headed into the distribution center at the end of December are now shipping Tuesday.

So when I talk about agility, speed to market and the dynamics we're doing and even amping the question from Mike before, D.A. Davidson, these are just perfect examples of how fluid the movement of inventory is and our actions are chasing goods.

But certainly, back to the core question, I would say tailored clothing overall is not as strongly positioned as we would hope for. And conversely, Ralph Lauren, Nautica, Vineyard Vines, which I called out, have been remarkable at their ability to get us ATS in addition to our typical in order.

And what our expectation is, as the weather moves, and we're seeing that very much right now where it's getting a little colder, outerwear business has kicked in with things like Columbia or North Face, our sweater business has kicked in. And so we feel relatively speaking, well positioned, and we just have to keep receiving goods.

Normally, I wouldn't say that. But when you're down 32% of inventory and you're turning 33% faster, it's pretty much like a grocery store. And I use that as an analogy more than anything else, but we just have to keep goods flowing..

That's great color. Okay. Turning to another kind of Q4 question. So store hours have continued at this 10 a.m. to 7 p.m., reduced hours from a couple of years ago. As we get really into the thickest part of the holiday season, given the inventory position, are you going to maintain the 10 p.m.

to 7 p.m.? Are you going to go to holiday hours in December? And then kind of as a follow-up question, totally understand the marketing investment, but what type of ability do you have if -- to your point about risk and unpredictability, what type of ability do you have to pull back on marketing if it doesn't make sense because you don't have adequate inventories? Or has that money kind of been spent and invested already?.

You asked 2 different questions. One, store hours, we are not extending store hours. We have had incredibly robust conversations in multiple time about this. And when the day is done, we actually went out to stores, ask the store managers, ask the RSMs and the regional VPs and really engage them.

And we all believe, in totality, literally across every part of the business, that our customers get online, as we've always talked about, and they Google big and tall and specifically, if they're already a customer of ours, they Google DXL, they look at our store hours and they decide when to shop based on that information.

And that is part of digital transformation, what I always talk about digital, that's the impact even on stores of digital marketing. And we believe that customers have grown used to our hours. We know that there are a lot of challenges for families and for people shopping, and we're equally concerned and have empathy about our associates.

With lighter levels of folks in the stores we are very much cognizant of not pushing them even harder and extending them in terms of the hours. So the long and the short of it is, we do not intend to open more hours. We are comfortable that the hours we're doing and the customers' recognition of that will allow us to do our business.

And then the second question you asked was marketing. And in terms of marketing, I would actually go the other way and ask the question, what is our agility to spend even more and lean in even harder to those things that work. I certainly appreciate the question about inventory.

And if inventories were bad, we would certainly potentially pull in marketing, but I would tell you that we're looking at ways, especially in Q4, especially given our competitive set, which we believe is better in stocks and better positioning.

And if you haven't walked a store, I think what you'd see is that our stores look relatively full, We are lighter in the back rooms, but not on the selling floor.

And I think the question really is, where can we lean into marketing when we're getting investments and how fast can we do that?.

Yes. The stores look good on our stores walk for sure. Last one for me and then I could turn it over. In terms of one thing you didn't talk about a ton here you've been pretty excited about a new exclusive brand relationship for '22. I think the term you've used as a Top 5 brand.

Is there any more color you can provide around that, not necessarily the brand itself, but is it for XXL and above? When will you expect product for that to be in stores? And do you have to make room on the floors yet to take other brands out? What kind of percent of the mix could it be?.

Yes, Jeremy, I think you've actually might have misunderstood what we've said. The top 5 brand is a top 5 brand of ours today. It's 1 of our top 5 selling brands.

What I'm really excited about is based on the success of the brand's repositioning really as a regular priced company, engaging ways with -- engaging consumers in what I would call brand-centric ways as opposed to coupon and discounting, this brand nationally and actually globally distributed is pulling the brand out of other retail distribution.

And we, and along with them, will be the only retailer selling it. And so just to be very clear, we sell it today. It's revenue for DXL as 1 of the top 5 revenue brands, and we expect it will sell tremendously more as consumers have only 2 outlets to buy from in Big + Tall, which is us and the brand itself.

And I'm specifically only referring to Big + Tall. In normal sizes or non-Big + Tall sizes, it will continue to be distributed across other retail entities..

That's helpful.

So XXL on above is where the exclusivity comes in?.

Yes. And that we will announce that in next year. Honestly, it's done, but it's just not something until next year we want to announce a partnership with the brand..

Our next question comes from Mike Baker with D.A. Davidson..

Yes, double dip and figure I'd come back with 1 more. Why not? It's a Friday. The store count comments, Peter, that you made are interesting. We get asked a lot about what's the right store count. I think at 1 point -- and correct me if I'm wrong about this, I have my notes that you had said 275 for year-end.

That seems a little low because I don't think it will get there. So I guess can you talk about what's the right long-term store count now? It sounds like you might even open some stores, which I guess your sales are really strong, does make some sense. But I think that's an interesting comment.

And then is there any opportunity for rebranding or remodeling.

You still have some of these older Casual Male stores, what are you doing with those? Do those eventually become DXLG stores or DXL stores?.

Yes. Great question, Mike. Thank you. So the 275 store count, no, that we will not be at 275 at the end of this year, but it's possible we could be there at the end of next year.

This is actually something that we're looking at very, very carefully because, as I said, there's a couple of different parts of the store equation that we're trying to figure out and where to prioritize.

One, as I alluded to, is gaps in the portfolio where we could be in a market that's highly populated, highly dense and we don't have enough stores and maybe we want to go from 1 store to 2 stores. I think those opportunities are modest. I don't think it's across the country, but there are some opportunities there.

And then you also talked about the casual male stores and what ultimately happens with the casual male stores. As I mentioned, we've got an awful lot of those stores that come up for lease expiration and renewal over the next couple of years. So we'll be looking at them on a case-by-case basis. In some cases, they will be getting remodeled.

In other cases, we'll be looking at do we want to relocate. So I think overall, the message is the store count is going to come down, but not at a precipitous rate.

Where we eventually end up, I could see us at about 275, but it's a very fluid and dynamic question that, as I said, we'll continue to evaluate each store on its own merit and make choices as to what we do with each store as those come up for renewal..

One thing I wanted to just double down on that, as I've often talked pretty publicly that we -- when I joined, we didn't have a digital muscle, so to speak. I always say that it did at atrophy, we just didn't have one. And I talked a lot about data and analytics and the digital practice that we have brought to market via our who all do.

And one of the things we're really working hard at is looking at our Internet-based metrics, distribution of customers by geography, revenue per capita against geography and looking for either white space or fill-in opportunities.

So to Peter's point, a lot of our potential for store openings will be driven by the recognition that the consumer is in the driver's seat. And if they're shopping online, and we have opportunities in markets, there will be greater opportunities to consider store openings where those are.

Now as Peter said, I don't think it will be heroic store counts, but it does allude to the opportunity to both grow markets in stores -- with stores that are not fully penetrated yet..

Makes sense. Very clear. One more and maybe 60 seconds to last, if you are willing to give this data, maybe not. But you gave us the comps by month by direct and in stores, we can do some math based on the percentages to come up with an estimate of total comp by month, but if you add it, it might make everyone's life easier..

Peter..

Yes. So sorry, Mike.

So I'm not quite sure what comp are you looking for?.

So total company -- the number -- the monthly numbers you gave, as I understand it, were store comp and direct comp, but you can also have a total company comp that’s sort of weighted on….

For sure. I think we did mention that in there somewhere. For Q3, the total comp was 22.9..

Sure. Sure. No, I meant the monthlies. You gave the monthlies by each segment. But I don't recall -- I don't know if you gave the monthlies in total, maybe did and I missed it..

Got it. Okay. So for August, it was 25.9. September, it was 23.8. And for October, it was 19.2. 19.2%..

Just I would caution you that -- we absolutely, as I said before, we believe that the trailing level was as inventories didn't grow enough, they maintained where they were, they grew some, but they just didn't grow enough. And our expectation is we are now seeing an acceleration of receipts.

And if that continues, that creates the expectation we'll be back to where we are. And we have time for one last….

So I was just going to say, going from 25 to 19, there's no shame in that. Like that's a pretty strong trend throughout the quarter..

Well, we appreciate that. I think we have time for one last question, and then we have to wrap..

Our last question comes from Jeremy Hamblin with Craig-Hallum Capital Group..

You guys have done a remarkable job of reshaping the balance sheet. You also have a huge run at NOL, about $300 million and given your relatively low CapEx needs. By our projection, you're going to have like almost $200 million in cash by 2023, that's like 40% of your market cap.

What do you do on a go-forward basis? I know it's probably -- it's not a problem the company has been used to, but with all that cash, how do you think about capital allocation is their thought that -- some of that can go back to shareholders via buybacks or special dividends, et cetera? Or are there other investment opportunities? Obviously, you're not going to build out a ton of stores even if you add some new ones that you would look at....

Jeremy, it's Harvey. I'm going to handle that really quickly at a high level. First and foremost, there's no question it's technology-driven, and it's customer-facing technology.

The example I give often is that we continue to look at digital sizing and digital showrooms and digital in terms of a showroom in terms of not a store front, but how do we interact with consumers. Technology will allow them to make a decision about what size they need or even made the measure.

That still is not at a point where it's, in our view, commercial enough, but it's an example of digital technology to enhance the consumers' relationship with us. The second big investment would be technology driven around infrastructure. And the third one would be in extending our business.

So things like infrastructure to get speed to market and delivery. We have 1 distribution center on the East Coast. We're evaluating their need for that. After that, we would look at other elements that would potentially be more direct return to shareholders, which any great Board or any great company will continue to look at.

But those are all good decisions that are forthcoming and by no means are they at a point where we're able to articulate in detail what we are planning to do..

And with that, unfortunately, we are a couple of minutes over. And I thank everyone for their interest. I wish everyone a safe, healthy and Happy Thanksgiving. Hopefully, an opportunity to be with your family and the same for Christmas and the holiday season in front of us. Be well, stay safe, and we look forward to talking to you at the end of Q4..

This concludes today's conference call. Thank you for participating. You may now disconnect..