Release Date: May 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Destination XL Group Inc (DXLG, Financial) launched a new brand advertising campaign for the first time since 2017, aiming to increase brand awareness and drive traffic.
- The company opened new stores in Coon Rapids, Minnesota, and Thousand Oaks, California, with plans to open more throughout the year, addressing gaps in their store footprint.
- DXLG is transitioning to a new and improved e-commerce platform, expected to enhance customer experience and operational capabilities.
- The collaboration with Nordstrom allows DXLG to reach new customers through Nordstrom's digital marketplace, potentially expanding their market reach.
- Despite sales challenges, DXLG maintained strong merchandise margins and careful expense management, contributing to a fortress balance sheet with no outstanding debt.
Negative Points
- First quarter sales performance was disappointing, with a comparable sales decrease of 11.3%, primarily due to lower traffic levels and conversion rates.
- The company faces ongoing macroeconomic challenges, including inflation, which is impacting consumer discretionary spending on apparel.
- DXLG's store traffic accounted for approximately 90% of the comp sales decline, indicating significant challenges in attracting in-store customers.
- The number of new whitespace stores and the timeline for their development is behind plans, with fewer stores opened than initially expected.
- The shift in consumer behavior towards lower-priced goods has pressured DXLG's sales, as their product offerings are typically in the moderate to upper-moderate price points.
Q & A Highlights
Q&A Highlights from Destination XL Group Inc (DXLG) Q1 2024 Earnings Call
Q: How should we think about the timing of response from the new media campaign and its impact on sales trends?
A: Harvey Kanter, President, Chief Executive Officer, Director: The media campaign is a long-term investment expected to show results over two to three years. Initial metrics like website traffic are positive, but significant sales impact will take time. The campaign aims to increase brand awareness and drive traffic, which will eventually convert to sales.
Q: How do you expect the shift in consumer spending to lower price points to impact your channel mix?
A: Harvey Kanter, President, Chief Executive Officer, Director: The shift to lower price points is evident, but DXL will not drastically change its assortment. Instead, it will introduce select brands with lower entry prices to address this trend without diluting its core offerings.
Q: Can you provide more details on the Nordstrom collaboration and its expected impact on sales?
A: Harvey Kanter, President, Chief Executive Officer, Director: The collaboration with Nordstrom is live and expected to grow over time. Initial sales have started, but it is not expected to be material in 2024. The partnership aims to expand DXL's reach and drive incremental sales.
Q: How are you maintaining the EBITDA margin guidance despite lower sales expectations?
A: Peter Stratton, Chief Financial Officer, Executive Vice President, Treasurer: The company is scaling back on controllable expenses, including SG&A and occupancy costs, and focusing on maintaining strong merchandise margins. This disciplined approach allows DXL to sustain its EBITDA margin despite lower sales.
Q: What early results are you seeing from the brand campaign in test markets like Boston?
A: Harvey Kanter, President, Chief Executive Officer, Director: Early results show a significant increase in website sessions in test markets. While it's too early for definitive sales data, the initial traffic boost is promising. The campaign is expected to build awareness and drive traffic over time.
Q: How are you balancing long-term growth investments with short-term cost management?
A: Harvey Kanter, President, Chief Executive Officer, Director: DXL is committed to long-term growth investments, such as the brand campaign and new store openings, while carefully managing short-term costs. This balanced approach aims to drive sustainable growth without compromising financial stability.
Q: What are the key metrics you are using to measure the success of the new marketing campaign?
A: Harvey Kanter, President, Chief Executive Officer, Director: Key metrics include website traffic, conversion rates, and average order value. The primary goal is to drive traffic, which will then convert to sales if the customer experience and product offerings are compelling.
Q: How are you addressing the challenges posed by macroeconomic factors on consumer spending?
A: Harvey Kanter, President, Chief Executive Officer, Director: DXL is focusing on maintaining strong merchandise margins and managing inventory efficiently. The company is also introducing lower-priced brands to cater to price-sensitive consumers while continuing to invest in long-term growth initiatives.
Q: What is the expected timeline for the full rollout of the new e-commerce platform?
A: Harvey Kanter, President, Chief Executive Officer, Director: The new e-commerce platform is being rolled out in phases, with the first element launching now, the second in late summer, and the final update after the holidays. This phased approach aims to enhance customer experience and operational capabilities.
Q: How are the new store openings performing, and what are the plans for future openings?
A: Harvey Kanter, President, Chief Executive Officer, Director: New stores are performing well, with strong transaction values and new customer acquisition rates. DXL plans to open eight new stores in 2024, focusing on areas with high demand for big and tall apparel.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
