Destination XL Group, Inc.
Q4 2019 Earnings Call Transcript

Published: 19 Mar 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2019 Destination XL Group, Incorporated Earnings Conference Call. [Operator Instructions].I would now like to turn the conference over to your host today, Ms. Nitza Mckee. Ma'am, please begin.

[Nitza McKee:]

Thank you, Howard, and good morning, everyone. Thank you for joining us on Destination XL Group's Fourth Quarter and Full Year Fiscal 2019 Earnings Call. On our call today is our President and Chief Executive Officer, Harvey Kanter; and our Executive Vice President and 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 impact of the coronavirus outbreak on the company's business and results in fiscal 2000 -- in fiscal 2020 and actions being taken by the company to mitigate the impact, including reducing operating expenses, capital expenditures, canceling inventory receipts and preserving liquidity, the company's marketing efforts and the wholesale segment. 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 like -- I would now like to turn the call over to our CEO, Harvey Kanter. Harvey?

[Harvey Kanter:]

Thank you, Nitza. Let me start by saying on behalf of the DXL family, our thoughts and prayers go out to you and to your loved ones that are dealing with health or other hardships during this incredibly challenging time. These times are unprecedented, and we are all living in unchartered waters. To get through this, we must all stick together, and together, we hope we will overcome this pandemic.The format of our earnings call today is going to be a little different than how we've approached our calls in the past. I will be the only one with prepared remarks, and I will be fairly brief and cover just 2 items. First, I want to cover the impact of COVID-19 on DXL and to inform you of the steps we've taken to preserve our liquidity, to address expenses and to reduce capital expenditures in fiscal 2020. Second, I want to cover important achievements we've accomplished in fiscal 2019 and talk about the momentum coming out of fourth quarter and touch upon February in spite of the developing COVID-19 pandemic.Earlier this morning, we filed our fourth quarter and fiscal year-end press release, which contains much more detail on our fourth quarter. So let's start with COVID-19.This unprecedented global pandemic continues to be a fluid situation. My comments will be limited to what I know factually, and I will not address expectations in regards to what could be, under scenarios we have yet to experience. We are closely watching our business and considering all elements we can imagine as well as learning from others real-time by interacting with the NRF, NACD and fellow CEOs in retail. First and most importantly, like every company, our first priority is to protect our employees, and the guests, and the communities in which we do business. On Tuesday, we closed our stores temporarily and we have tentatively planned to reopen on March 29. Though at this point, we believe this is likely overly optimistic. We implemented a work-from-home plan for many of our corporate associates where it makes sense. We have canceled all business travel for the immediate future. We have no in-person meetings and are exclusively using teleconferencing to do our business. We are cleaning and driving hygiene in our stores and distribution center and our corporate office, where we still have limited staff on site.From a financial standpoint, it is just too early to determine the impact of the virus on the year. At this time, our stores are closed, and leading up to that point, over the last 10 days, we experienced significant double-digit declines on our top line across stores and online. At this time, our website remains open for business and is only moderately better than the store's performance before we closed the stores. With 0 revenue from stores for what is likely a multiple of weeks and the web significantly off, there is no question that our sales forecast for the year is going to be significantly impacted. With the situation at hand, we have and will continue to execute our contingency plan. We began executing this plan in the early part of February, and we have greatly intensified and accelerated our efforts in the last 2 weeks. We have taken very aggressive steps and acted very quickly to mitigate the declines we began much more meaningfully experiencing in the first week of March.The four specific areas I want to cover on this call are

[Operator:]

[Operator Instructions]. We have a question or comment from the line of Timothy Stabosz from Stabosz Asset Management [ph].

[Unidentified Analyst:]

I want to thank you for all your comments, your opening comments, especially. And we know that you've done a great job with the business here, but we're looking at going forward here. I have just a few quick questions. Do we know yet the legalities of whether a landlord or a mall or whatever closes stores that we don't have to pay rent versus we choose to close stores? So we don't -- so we have to eat that and pay the rent. Are those issues from a legal perspective still unclear?

[Harvey Kanter:]

We are not in any malls, so to speak. So I think the question was relevant to the malls?

[Unidentified Analyst:]

Well, partly, I guess, I'm showing my ignorance on that part, but to the degree we elected to close our stores, does that make us -- I guess, we're still on hook for rent by definition?

[Harvey Kanter:]

I believe that, that's a question that, obviously, is a work in progress on many levels for most retailers at this point in the entire United States.

[Unidentified Analyst:]

Are there any jurisdictions across the United States where the localities or the states ordered us to close our stores or have our closings been elective?

[Harvey Kanter:]

Yes. There's four locations where there has been, shelter in place, mandatory closings, San Francisco, Reno, New Jersey and Philadelphia.

[Unidentified Analyst:]

Okay. Do you I appreciate the comments about the bank support. Can you summarize for us, it matters related to covenants in this call?

[Peter Stratton:]

Sure. This is Peter. So as Harvey mentioned, we've got $48.5 million of excess availability. The biggest covenant that we have is we have to maintain a minimum level of excess availability, which is defined in our credit facility as 12.5% of our borrowing base. So that's really the only one that we're focused on.

[Unidentified Analyst:]

And this is why both capital expenditures and inventory management, as you discussed in the call, are a key part of adhering to that?

[Peter Stratton:]

Yes, exactly. We're just doing everything that we can to manage the cash outflow of the business so that we can preserve as much of that availability as we can.

[Unidentified Analyst:]

And then finally, the insiders replying stock at $1.15 or $1.20 a couple of months ago, times have changed. I hear you say that you're going to essentially fight for -- to control your destiny and protect the shareholders, obviously. Does the -- will the insider buying window open normally after whatever it is 48 to 72 hours? I'm not sure what it is for our company. I am a shareholder, by the way, myself.

[Peter Stratton:]

So yes, you're correct. We -- all of our insiders have been in blackout, but the window will open after we have released all of our information.

[Harvey Kanter:]

After close trading on Friday.

[Peter Stratton:]

After close of trading on Friday.

[Unidentified Analyst:]

Okay. That's all. I think I have. Best of luck, and congratulations on the successes, it's most regrettable that we have to have noise here for a while before we can see your strategies, the effects of them. But I have confidence that you're dealing with this in the most aggressive fashion possible. So thank you.

[Harvey Kanter:]

Thank you.

[Operator:]

Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn it back over to management for any closing remarks.

[Harvey Kanter:]

Our only closing thoughts are for the entire globe with respect to COVID-19 and hopefully, speedy recovery from this challenge. And with that, we'd like to say thank you and carry on.

[Operator:]

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