Thank you for joining us for the Second Quarter 2021 earnings conference call of Destination XL Group, Inc. All lines are currently in a listen-only mode. Following the presentations, there will be an opportunity for questions. I will now turn the call over to your host, Shelly Mokas, Director of Financial Reporting and SEC. Please proceed.

Thank you, Sarah, and good morning, everyone. Thank you for joining us on Destination XL Group's second 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 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 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 ongoing surges of the COVID Delta variant potential supply chain issues and ongoing labor challenges. 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. Today, Peter and I will share with you both the progress we are making with our business and our expectations for our continued recovery. At a high level, I can tell you that we are very pleased with our results. It is inspiring to see the consumer demand coming back at an accelerating rate, even more inspiring to see our customers responding to our ongoing digital transformation, which we began back in 2019 and helped us to respond to the challenges of the COVID-19 pandemic. Consumer engagement with DXL over the past three months has been remarkable. This quarter can be considered a very important chapter in the context of the strategy, even if we are pursuing and executing and the results we have achieved. Our digital transformation, which has been steadily developing and is a major underpinning to these results has provided a strong belief that our business was poised for inflection. In our second quarter, we saw big and tall customers surge into the stores and onto our website to drive a level of sales and profitability far greater than previously expected. This is happening across all customer demographics and includes both current customers and new customers to DXL who have not shopped with us before. We believe there's a material change in how consumers are thinking about DXL. We know that a lot of new customers are starting their shopping journey digitally finding us, and based upon some consumer research we have conducted, we believe we are taking share of market. We have seen continued growth with new-to-file DXL customers growing 28.5% in Q2 as compared to the same period in 2019. Our financial performance in the second quarter surpassed all internal expectations initially forecasted back in mid-May. Year-to-date for fiscal 2021, we have posted an adjusted EBITDA of 43.5 million. To put that into context, we have achieved in six months a level of profitability that is greater than any 12-month result that has been posted in the last 20 years by our company. This result was driven by improvements in gross margin from reduced promotional strategy, improvements in occupancy costs from a restructured lease portfolio and improvements in overhead from our restructuring of our selling, general, and administrative costs that was implemented in fiscal 2020. All of these elements, combined with leverage from greater than expected sales demand contributed to an EBITDA margin for the second quarter in excess of 20%. While we remain cautious given the ongoing surges of the COVID Delta variant and ongoing risk in the supply chain, today, we are raising our guidance for the full year, and I'm looking forward to talking to you in greater detail about where we believe our business is headed. Before I get ahead of myself, I want to acknowledge and thank all of our frontline associates who rise every day to make our customers look and feel their best. Since the beginning of the pandemic, our associates in the stores, in the distribution center, in the guest Engagement Center, and in our corporate office have answered the call every day. They are an amazing team; it is because of them that these results have been created, and that is something we must all be thankful for. Thank you all for your hard work, support, and dedication to DXL and our customer. It is because of you that our stores are going to open on time, our products get shipped and delivered, and our customers can get answers when they need them. From the bottom of my heart and our leadership team, thank you; you are worthy of our highest esteem. I'm planning to cover two topics today. First, I want to talk to you about our second quarter performance and what we are seeing and hearing from our customers. And second, I want to talk to you about our priorities for the remainder of the year and how we intend to fortify our marketing position to maintain this positive momentum into fiscal 2022. I'm very pleased to announce that our overall comp sales rate for the second quarter was 21.6% as compared to 2019 and 97.2% as compared to 2020. Since 2019 was our last normalized year from a financial comparison standpoint, we will be making most of our year-over-year comparisons to our Q2 2019 results. Comp sales growth in stores was 13.1% and comp sales growth in direct was 52.2%, as compared to 2019. In total, second quarter sales were 138.6 million compared to 123.2 million, and our adjusted EBITDA for the quarter was 29.8 million, compared to 7.1 million in the second quarter of 2019. And finally, our net income was 24.5 million compared to breakeven in the second quarter of 2019. These results exceeded our expectations and are a direct outcome of the leverage we have created as we've re-crafted our strategy and our operating model. Our plan for the year was constructed on the thesis that business would return gradually during the year but we have seen an acceleration in the first quarter and business continue to accelerate in the second quarter to levels meaningfully surpassing 2019. We've seen successes of improvement each month in fiscal 2021 with our most loyal top decile customers returning to shop with us. We also report that our sales growth rates for August have continued on a similar trend to what we reported for Q2. In stores, we saw an acceleration in comps each month as the quarter progressed. In May, our comp store rate was 6.9%; in June, 14.7%; and in July, 18.2%, all compared to 2019. This was a significant bump from the 3.1% comp we experienced in March and April. Conversion was up 12%, dollars per transaction up 10%; what was most encouraging was that traffic continued to work its way back toward 2019 levels. We exceeded our sales plan in 285 out of 297 stores this quarter, which is 96% of the store portfolio. Regionally, we saw the southeast, Midwest, and South Central all performing exceptionally well. The Pacific Northwest, Northeast, and Mid-Atlantic have opportunities to improve for the quarter while still having significant positive comps; the coasts lagged 600 basis points behind the middle of the country. All regions saw comparable sales increases in the second quarter as compared to fiscal 2019. One of the things we are most pleased with is that our direct business did not fall back as our store comps increased. Our direct costs not only continued to hold up but further accelerated in Q2. Our direct growth shows the sustainability of our digital transformation, and we believe it is a testament to our ability to stand out as a digital-first brand. Our direct comps by month were 48.8% in May, 53.4% in June, and 54.6% in July, all once again compared to 2019. Direct was 28.1% of total sales in Q2 as compared to 21.1% in Q2 2019, and we expect our direct penetration for the full year to be approximately 30% as compared to our full year annual penetration in 2019 of 23.1%. For the quarter, our direct business is up 52.2% driven by a combination of improvements in web traffic, conversion, and basket size. We believe our digital marketing investments and optimization of our digital infrastructure are driving significant inflection in new-to-DXL customers. Now, let me shift gears a bit and talk about product margins and the product itself. We saw continued performance in our casual and sportswear categories, but we also saw a remarkable resurgence in tailored clothing. Our merchandise assortment is about 55% private label and 45% designer collections, and our sales penetration for the second quarter was relatively consistent with inventory composition. We did see slightly higher selling velocity from designer collections, where brands such as Polo, Nautica, and Reebok drove the collection business. Tailored clothing drove 12.8% of the Q2 business compared to 16.7% in 2019 and just 6.8% in 2020. Suits and dress shirts saw the greatest improvement as our customers started to participate in formal events such as weddings once again. We believe we are seeing a shift in consumer preference emerging with pairs, casual and tailored together. We're even testing a new four-step by integrating our club department, which is primarily dress wear, with more casual sportswear for a more relaxed and relevant lifestyle. How many times have you seen someone wear a sport coat or dress woven shirt with a pair of jeans or even stretch jogger trousers or a fleece vest over the same? It's the new uniform for many on Wall Street. If there was one constant challenge throughout the quarter, it is that we continue to battle to secure more inventory. Obviously, the overperformance in sales to our plan in the second quarter had an impact on our inventory positions. In some stores, performance by brand was dictated by inventory availability. Brands where we were in a strong inventory position outperformed brands where we relied on inventory. We believe customers will continue to buy merchandise at a greater than pre-pandemic level. And we are continually chasing to bring in more inventory to keep up with the demand. We are working with our vendors to add more receipts to be in a stronger inventory position at the end of the fall season. We also continued to work through challenges with ocean freight capacities and the cost of containers, which in some cases is three to four times what they cost pre-pandemic. And lastly, we continue to consider shipping goods by air to support this growing demand. Furthermore, shortages of truck drivers have led to delays and price increases for transporting merchandise domestically, and we expect this challenge to continue through the second half of 2021. Despite these challenges in getting goods to the port and ultimately to the sales floor, we have been successful in procuring fabrics to support production. Our sourcing team began working with our merchants and planning partners to chase goods as early as February. If we can find a way to ship it, in most cases, we're able to get what we need and then sell through it, ultimately still turning our inventories faster than our historical pace. The flip side to the inventory challenge is that it creates an ideal environment for us to execute one of our primary strategic goals, which is repositioning the DXL brand to be less promotional. Our messaging to our customers in the second quarter continued to lean into the brand positioning built around our proprietary fit, a curated and largely exclusive assortment of private label and national brands, and an experience built around the respect and value for big and tall consumers who trust us. The direct outcome of this is a customer who leaves our store full of confidence and empowered to face the day happy, satisfied, and belonging to the DXL community. This strategy allows us to shift away from a value proposition that is highly promotional and discount-driven to a proposition that is grounded in comfort, fit, and experience. Our thesis is grounded in personalization and relevant messaging, which we are increasing to add more scale, allowing us to be more relevant without the need to offer our customer anything to engage further. We were essentially non-promotional in the second quarter with only limited targeted promotions, ongoing promotional elasticity testing, and deeper file promotions engaging lapsed customers. There was no need for broad-based discounting for Father's Day and Memorial Day, which drove stronger merchandise margins and profitability. We've also reduced the level of clearance merchandise, which we expect will drive more full-price selling. Our reduced promotional posture started in Q3 2020, and we have been making it more ingrained in our marketing across all channels. The evolution has been intentional and is an important strategic component of our long-term strategy. It allows us to cut down our markdown rates in the second half from two years ago; this has been a huge win and a driver of our second quarter results. Despite all the upside created by being virtually promotion-free, we do expect there will be certain times of the year where we will need to resume some level of moderate promotions, and we will incur some higher level of markdowns later in the year. But this reduced promotional posture has done for us to support the repositioning of DXL not as a discount and coupon store, but as a store that understands and honors big and tall guys better than anyone else in the market. And that is what we're really all about. We know that some level of performance in the second quarter was driven by tailwinds from pent-up demand for the pandemic stimulus checks and, at some level, revenge spending. But we also know through our CRM system and customer surveys that we are reactivating some of our best customers, and we are attracting many customers who are shopping at DXL for the first time. Our CRM data on newly acquired customers shows a few surprises that we believe are long-term tailwinds, and I'd like to share some examples with you. First, we are seeing more female customers than we have before. Attracting the female customer has been elusive for many years, but we are undoubtedly seeing her more now than pre-pandemic. We theorize that she is helping him get back in the game; either dressing up as many of our guests returned to the office or just getting back into the world with new clothes and a new look. Second, we are seeing a greater representation from the middle and upper rack sizes, or 3XL and up. And we do believe this is somewhat the shifting weight slides many of us have experienced while being cooped up during COVID lockdowns. Likewise, we believe that the outcomes we are creating are at least partially due to the improvements we've been making for the past two years in how we segment, communicate, and engage with our customer base in a more personalized and specific way. Just as a reminder, we believe the total addressable market for our core big and tall size of 2XL and up is north of $10 billion. When you include 1XL, we think the total addressable market is north of $15 billion, which means there's ample opportunity for us to continue taking market share. Hopefully, you have noticed some not-so-subtle changes to our marketing strategy. First, we have been making a greater effort to build on our values of inclusivity and diversity. Our creative messaging is now using more models that represent a broader range of body types. We have 13 unique models today for fall, where we used to feature only four different models. Second, we are ramping this further with greater inclusion and being representative of our consumer base in our marketing. We're also using much more user-generated content from some of our newer models, our customers who connected with us through social media. We're also focusing on more individualized content and storytelling, which is authentic and allows us as a brand to connect more relevantly with our customers on an individual basis. And third, our segmentation-based approach gives us greater flexibility to show an individual customer specifically what he wants to see across different mechanisms like email, the website, direct mail, and other communication rather than mass-marketed generic messaging. We will also be driving personalization up another level in the fall with variable printing capabilities and mailers for more relevant and targeted messaging for different customer cohorts. Fourth, in the second half of the year, we will be focusing more on branded marketing initiatives like connected TV, such as YouTube and Hulu, and creating relationships with content media companies to drive greater brand awareness without reliance on promotions. And fifth, on the digital technology front, we have invested in outfitting software design to help customers complete their look. Most product pages on our e-commerce website now include outfits that go with the item to help our customers to see the entire outfit and feel great by looking great. This will also help build customer trust in DXL as the brand with the largest, most unique, and often exclusive selection of apparel merchandise for big and tall men. And lastly, we have also a new app under construction that will enable us to extend the user experience that will provide not only a more stable environment but will be a more flexible platform that will allow us to build more functionality and product offerings into the app going forward. 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 throughout 2021 to further strengthen our defendable position, our moat as we have referred to it, and we look to greater inflection in 2022 and beyond. We lead with DXL's positioning in everything we do today and believe it is this position as a competitive stance that makes us the leading big and tall men's apparel retailer with the greatest possible potential for growth in the consumers' mindshare. And finally, let me give you an update on wholesale. In total, our wholesale business, which is primarily with Amazon, generated sales of $900,000 for the second quarter, compared to 2.7 million in the second quarter of 2019. While our sales have fallen back in our B2B wholesale business with Amazon, what is driving this is the ongoing challenge to order what they need when they need it and the teething challenges in trying to build a business together clearly impacted like every other business with supply chain challenges. We also continue to search for other opportunities to grow the overall business. And with that said, I would now like to turn the call over to Peter for an update on financials. Peter?

Thank you, Harvey and good morning, everyone. As Harvey discussed, the recovery in sales that we began to see in the first quarter continued to accelerate throughout the second quarter and at a rate much faster than we expected. The operating leverage generated from these higher sales, combined with the reduced promotions and cost reductions drove our strong earnings this quarter. Additionally, the cash flow we have generated this year enabled us to pay off our revolving credit facility and end the quarter with our lowest total debt level in many years. Based on the strength of this quarter's performance, we are again increasing our full-year sales and earnings guidance, which I will review with you after I discuss the quarter's results. Due to the significant impact that COVID-19 had on our second quarter 2020 results, I will also compare our results against Q2 of 2019 for better compatibility. So let's start with sales. Total sales for the second quarter were 138.6 million as compared to 76.4 million in the second quarter of fiscal 2020 and 123.2 million in the second quarter of fiscal 2019. On a comparable basis, sales increased 21.6% over the second quarter of 2019. Stores were up 13.1% for the quarter, and direct was up 52.2% compared to 2019 levels, and both channels saw business accelerate month-over-month as the quarter progressed. The dxl.com website, which is the biggest contributor to the direct channel, was up 66.4% over the second quarter of 2019. From our prior earnings calls, most of you are probably familiar with our omni-channel capabilities, whereby our stores are able to assist the customer in placing an order online, which we call our universe. Likewise, our stores play a key role in fulfilling many of our online orders if the merchandise is located in a store rather than our distribution center. For the second quarter, stores assisted either in the origination or fulfillment of 44% of our direct channel transactions. This is just one of the ways in which our stores have evolved to meet the changing needs of our customer. Speaking of our stores, I'd like to give a quick update on where we are restructuring leases and reducing occupancy costs. We continue to engage with landlords to renegotiate leases that are no longer at market rates. The pace of negotiations has slowed dramatically compared to 2020, but we are pleased with the progress we've made so far. In the past 18 months, we have restructured 133 individual store leases, more than 1/3rd of the chain, which are expected to deliver over 17.1 million of savings over the life of the leases, including 6.2 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 sales. Our gross margin rate, inclusive of occupancy costs, was 51.7% as compared to a gross margin rate of 28.1% for the second quarter of fiscal 2020 and 44.3% for the second quarter of fiscal 2019. The 740 basis point improvement over 2019 was a combination of 390 basis points of occupancy leverage and 350 basis points of improved merchandise margins. Store occupancy costs decreased by 3.2 million as a result of closing unproductive stores and the rent reduction that I just talked about. The improvement in merchandise margin was directly related to the change in promotional strategy that Harvey talked about earlier. Although we saw higher freight costs due to supply shortages in the transportation market and inflationary pressure as cotton prices are rising, the impact of these in the second quarter was more than mitigated by our markdown savings. Now, let me move on to selling, general, and administrative expenses. As a percentage of sales, SG&A expense for the second quarter of fiscal 2021 was 30.1% as compared to 33.7% for the second quarter of fiscal 2020 and 38.5% for the second quarter of fiscal 2019. The 30.1% rate was far lower than our historical expense rate. It was the result of the cost reduction actions that we implemented in fiscal 2020. These actions were intended to not only preserve liquidity but to lower our operating cost structure long-term. On a dollar basis, SG&A costs were down 5.7 million compared to two years ago. We are being very diligent about preserving as many fixed cost reductions as possible, despite the fact that certain variable costs will increase as the business accelerates. We will continue to invest in our store associates to ensure they are properly trained and that our stores are staffed to provide an exceptional DXL guest experience. We expect store costs to remain significantly below historical levels. Customer-facing costs were 16.9% of sales in Q2 compared to 23.9% in the second quarter of 2019. Corporate support costs, which include the distribution center and corporate overhead costs, represented 13.2% of sales in the second quarter compared to 14.6% of sales in the second quarter of fiscal 2019. Adjusted EBITDA was 29.8 million for the second quarter, compared to a loss of 4.3 million in the second quarter of 2020 and earnings of 7.1 million for the second quarter of fiscal 2019. Net income for the second quarter was 24.5 million or $0.36 per diluted share, compared with a net loss of 10.7 million or $0.21 per diluted share for the second quarter of fiscal 2020 in breakeven net income for the second quarter of fiscal 2019. Next, I will turn to cash flow and the balance sheet. Our free cash flow, which we define as cash flow from operations less capital expenditures for the first six months of fiscal 2021 was proceeds of 40.5 million as compared to a use of 11.1 million for the same period in fiscal 2020 and the use of 6.7 million in fiscal 2019. This improvement is primarily due to our improved earnings. This free cash flow enabled us to end the second quarter with a zero balance in our revolving credit facility for the first time since fiscal 2012. If we look at debt net of cash, this decreased to $11 million at the end of the quarter from $61 million at the end of Q2 2020 and 58.7 million at the end of Q2 2019. Our revolving credit facility had 65.1 million excess availability at the end of the quarter. Our revolving credit facility remains in place until May of 2023, and we expect to continue to access it from time to time to support seasonal inventory purchases and other business initiatives. Our inventory balance at July 31, 2021 was 73.4 million as compared to 87.4 million at August 1, 2020 and 110.4 million at August 3, 2019. The $14 million decrease since last year and $37 million decrease over the past two years was directionally in line with our goals of narrowing our assortment, focusing on brand exclusivity, and driving faster inventory turnover. However, the decrease in inventory over the first six months was a bit more than we would have preferred. As Harvey discussed earlier, it has been a constant battle to secure enough inventory, with customer demand stronger than we had expected and the challenges of ongoing global supply chain disruptions. Nevertheless, we believe our current receipt plans are sufficient to support our sales forecast. We will continue to chase goods and anticipate the gap between this year's inventory and our historical levels to narrow somewhat between now and the end of the year. At July 31, 2021, our clearance inventory represented 8.9% of our total inventory as compared to 11.3% at August 1, 2020. Our results for the second quarter far exceeded our internal expectations, and we are cautiously optimistic regarding our forecast in the second half of the year. To be perfectly clear, our guidance update assumes continued stability in consumer confidence and customer behavior despite the ongoing challenges we face from the COVID-19 pandemic and supply chain risks. For the full year, we expect sales to range from 490 million to 505 million, with an e-commerce penetration expected to be approximately 30%. We expect adjusted EBITDA to range from 65 million to 72 million, and net income for the full year is expected to be $0.64 to $0.76 per share. Finally, free cash flow is expected to exceed $50 million. The high end of our sales guidance of 505 million would imply a comp sales rate to 2019 in the low double digits and a gross margin rate in the high 40% range. We expect Q3 to be our lowest performing quarter of the fiscal year as our customers' buying habits are typically lowest in August, September, and October. We do expect to have a strong holiday season, albeit more promotional than the first half due to the time of year, so our gross margin is expected to be slightly lower in the second half of the year compared to the first half. In many ways, we've had a positive environment for performance in the second quarter. Strong sales leverage, low promotions, and razor-thin SG&A expenses. We do not expect that we will be able to hold as low of a promotional environment going forward, and we expect to add back some level of SG&A expense. Our guidance on the high end of $72 million of adjusted EBITDA on $505 million of sales is a 14% 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. Lastly, I would like to provide an update on our common stock listing. The company has applied to rejoin NASDAQ, and while we have not yet received formal approval, we expect NASDAQ will approve our application and invite us to rejoin the exchange very soon. With that, I would like to turn it back over to Harvey for some closing thoughts.

Thanks, Peter. As you hopefully have heard now, we remain energized and optimistic about the potential that lies ahead. Despite the ongoing challenges associated with the COVID-19 pandemic, some of which may have not yet fully understood, as well as supply chain risks, we remain cautiously optimistic. We have an incredible team and an obsessive focus on our customers and a plan to create a meaningful shareholder return. At DXL, big and tall is all we do. We're not just an aisle or rack in a store; we are an entire store. We believe we have entered a new phase in our company's history and that we are in the most solid financial position in recent company history. Most of all, we believe we have a strategy to engage consumers in 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 curated assortment from value-priced essentials to luxury brands and exclusive designers, both online and in-store, giving an underserved customer the all-in-one place to shop and interact. And finally, we know we have an incredible employee base that is passionate and committed to our customers, and that gives us the confidence that we will continue to make inroads into taking market share. And with that, we will now take questions.

Thank you. Our first question comes from Jeremy Hamblin with Craig-Hallum Capital.

Thanks and congratulations on a really impressive performance. I wanted to start by just understanding the composition of the acceleration that you've seen in your comp trends. So can you give us a sense, Peter, for that same-store sales growth, how much of that is growth in average transaction value versus total transactions versus 2019 levels?

Sure, I'd be happy to give you a little color on that. So we definitely saw a slight increase in conversion. We definitely saw a slight increase in average transaction levels. But the biggest level of change really came from traffic coming into the stores. As Harvey talked about, we've seen new customers coming in, and we've seen a lot of our returning customers coming back to the stores, but more than anything, it's really just been the sequential improvements in traffic that we saw each month during the quarter.

Thanks. That's really helpful. I wanted to get a little more insight. I think what I heard from Harvey's remarks was that you saw new customer growth of over 28%. I wanted to get a little more color around just what type of customer you're seeing, how you're kind of gleaning that type of information, and how much is embedded within that of those new customers? Are they totally new customers to the concept? Are these inclusive of reactivations of customers?

Yes, Jeremy, great question. I'll try to recap. This is Harvey. The new customer growth that we're seeing is really primarily customers that are not in our file and have not been in our file. And I alluded to research, some that we've done softly inquiring those customers asking, is it the first time you shop with us? If you haven't shopped with us before, where have you shopped? And if you have shopped with us before, where else do you shop? What we're absolutely seeing is customers that have not shopped with us before coming from the places you would expect, maybe not paying as much attention to the big and tall consumer because they have other priorities, which, although logical, leaves us the opportunity to really take share of market. And so we're seeing that through a pretty meaningful level of research about, I think, 18% of our query customers who have answered the question. They're coming from places that you would expect other men's apparel businesses to be possible, but not paying as much attention just to a smaller business, number one. Number two, we're seeing it through the query of search, and a lot of customers are coming to us, and what we're seeing through our data is that our growth is accelerating, whereas others is relatively stable. Again that alludes to the 28.5% of direct-to-consumer growth that we're seeing from our file primarily online but also in stores.

Wow! That's impressive. I also wanted to just get a little more color on the sales trends, which obviously has been accelerating. You've had a pretty extraordinary increase in your total sales guidance for the year and obviously have momentum and clearly confidence in the back half of the year. I wanted to just get a sense if you could provide a little bit more detail around the start to Q3, whether or not you indicated that it's similar to what you delivered in Q2. My sense based on the guidance raise is that it's more likely to be like you saw in July than what you did for the quarter in total, but any additional color that you might be able to share on the Q3 start.

Sure. So Jeremy, this is Peter. And yes, you're exactly right. The performance in August was more similar to what we were seeing in July than what we were seeing in May. The customer has been very resilient. He's coming into the stores and snapping up product as soon as he can get his hands on it. So we have not seen a slowdown, and so far, the performance has been very consistent with what we saw in June going into July.

One challenge we are addressing directly is the ongoing pursuit of goods. Our team has excelled in securing products from our suppliers and overseas manufacturers. We have started receiving these goods, which has helped speed up the process. The turnover rate for these goods has been impressive. However, we are currently at a low point in our inventory, and we anticipate significant improvements by the end of September. This will enable us to not only sell what is currently available in stores, which is already impressive, but also to meet customer demand, including for items needed for events like weddings. Once we improve our inventory situation, we plan to introduce goods that typically aren't cost-effective to air in. As we continue to secure more goods, we expect our inventory position to improve each month. We hope that nothing unexpected will hinder this progress, and that it will help us meet the guidance we provided.

Understood. I also wanted to get the call out on geographies, Pacific Northwest, the Coast, basically, you mentioned are comping about 600 basis points below the rest of the chain. Wanted to understand embedded within your full-year guidance; are you assuming normalization of that? Do you believe that the differential in comps is simply a reaction to a reflection of sentiment around COVID and COVID protocols, but what's embedded within that guidance? Do you expect that to normalize by Q4 or do you assume that that trend continues in the back half of the year?

Sure. So I'll take that one. With regard to the guidance for the year, we expect that the numbers will start to get closer to one another. In fact, we did see them start to get a little closer in July than they started to separate back to the 600 points in August. So it's really difficult to get our arms around that. But we do think that over time, they're going to neutralize and get closer to whether than historically which is very close to one another. But it's primarily, we believe it coincides very much with what you're seeing more socially around some of the COVID restrictions; the Pacific Northwest and the Northeast have particularly been lower than the middle of the country. So we are expecting it to get better over the second half of the year.

Great. And then I wanted to ask a couple of questions around your gross margins, which are truly extraordinary. In terms of what you're seeing in freight impact, you noted that your merch margins were up significantly over 300 basis points versus 2019 levels, but that's despite the impact you're seeing from freight. I wanted to see if you could actually be more specific on what was the drag from freight either versus last year versus 2019 levels?

Sure. Again, we're making all the comparisons to 2019. I would probably put it at about 100 basis points to 200 basis points as the drag on the freight. The improvement in promotions and the impact that that's had on margin has really been remarkable, and it's more than covered that pressure that we're seeing from some of the supply chain challenges, but like I said, maybe 100 basis points to 200 basis points.

Got it. And then last one on the gross margins, your rent obviously is down significantly both from store closures, as well as the renegotiation of 133 stores leases. You note in here, you've got 119 over the next two years, and I think of those 133 stores, you said $17 million over the life of the lease. Of the 119 that you have coming up over the next couple of years, I imagine you're probably not going to get $17 million in savings; things obviously have improved across retail. But what are your expectations? How are those negotiations going? Do you think it's something where you might be able to get $10 million of savings on those next 119 locations?

Yes, no. So, I mean, we're definitely continuing to renegotiate. We're seeing some savings, but it's definitely getting more difficult than it was pre-pandemic or during the pandemic. But we're very, very comfortable with being able to continue to generate some savings, and that's essentially what we're going to continue to do. And so, Jeremy, I'm just going to ask that we move on to the next person in the queue, and we would be happy to follow up with you with more questions afterward.

Thanks so much, guys.

Thank you.

Thank you. Our next question comes from the line of Eric Beder with SCC Research. Your line is now open.

Good morning. Congratulations on a great quarter.

Thanks, Eric.

Thank you.

I want to discuss the 1XL opportunity you mentioned, which is valued at around $5 billion. As the customer grows, they have more options available. What insights do you have on how to attract and retain this customer moving forward?

Eric, we really alluded to a bigger market, but that is not where we're really headed today. We are trying to leverage the share market gain greatest with respect to the core business that is greater than that size range, of course. We've talked about that size range extending the opportunity for our market positioning, but you just specifically and directly alluded to the fact that it is outside of the core part of what we do. And so we recognize that if you look at the addressable, the broader addressable market, that's the reference to $15 million. But we believe we have such a meaningful opportunity really to address the share gains in the $10 billion that exists. We understand that customers have actually moved up on that size range, not down. So, not to say that we won't go there eventually, but to your point, that is a space that other people are paying as much attention to as part of their core business unlike the space that we referred to where they're really just not in the business that we are in at the level we're doing.

Got it. That makes sense. When you look at the new customers, Pete, you mentioned being much more focused on your marketing, merchandising, and other aspects. How are you thinking about leveraging these new customers, keeping them engaged, and encouraging them to increase their business with you through emails and all the various marketing strategies you have?

Yes, we have significantly improved our capabilities in terms of individualized marketing. Although we don't market to each consumer directly, we have identified nine consumer segments. These segments are represented by names like Active Andy, Casual Carroll, and Wally Wall Street, which correspond to unique customer buying categories. Our marketing team engages with these segments through email and how they interact with our site. For instance, if a new customer visits our site with no prior data, we provide them with a different initial experience compared to a customer returning to make a purchase. We aim to tailor our presentation based on what they have bought in the past and what they may want to buy in the future. Historically, we’ve sent one uniform message, but now, if we know a customer only buys regular-priced items, we will refrain from sending them clearance offers. Conversely, if a customer has only purchased clearance items, we wouldn’t promote high-end brands like Ralph Lauren to them since it wouldn’t align with their buying habits. We pay close attention to metrics such as checkout rates, abandonment rates, and email opt-in or opt-out rates, as we aim to maximize initial open and click-through rates, leading to conversions. Our marketing is evolving to be distinctly different and more unique every day, presenting ourselves in varied ways that highlight our relevance across various consumer segments, rather than relying on a single mass marketing email.

Yes, one more question. In terms of mass market messages, so I know we are entering football season, and historically you guys have done stuff with the NFL and other pieces online and on TV. How does this year look in terms of your thought process for something like that?

Well, I specifically spoke to the fact that we are extending our awareness building and consumer engagement in what we would call streaming and more digital interaction via video and things like that, YouTube, Hulu, et cetera. We don't expect, but are still evaluating other broad-based campaigns. But the unfortunate reality is when you execute broad-based mass media campaigns, you are really not talking as much to your customer; you're talking to all customers, and the productivity of that is just not where it needs to be. And so we've continued to leverage and drive a level of efficiency as we've become much more oriented around the digital transformation, strategic and tactical elements, which obviously are allowing our marketing to resonate with our core customer versus customers that don't care about us.

Great. Good luck for the fall and holiday seasons.

Thanks so much for your interest. Really appreciate it.

Great. Thanks, guys.

Hi, Mike.

Hi, how are you? I'm wondering if you could in broad strokes discuss what inning you guys think you're in in terms of the inventory and marketing improvements. You've clearly come a long way. How much more is there to go both in terms of, if you can answer qualitatively and possibly quantitatively?

Yes, great question. I think on inventory, there's two different elements to it. One, I think we have a world-class inventory team. Our planning, merchandizing, and global sourcing teams work in unison in a remarkable way. It allowed us to really get out of goods early in the pandemic. It allowed us to very proactively drive decisions to get back into goods early, early in the year. I think it is literally a defining element of how we've navigated supporting the customers' desire to buy product and the demand need. So I think that's been quite remarkable. I think the other end of the issue on inventory is the fact that demand has just far exceeded our expectations. And on a scale of one to 10, I might say we're at a five or six right now on inventory, and we hope and believe, as I've alluded to, that September will build, as will October, November, and we'll be back to something more like a seven or eight; but we will be chasing goods, I think through the balance of the year. There are too many variables that I think are challenging. The flipside is, as I spoke, we have the core skill set to be a nine or 10 on inventory. The reality is in this environment, the greatest level of capabilities are still being impacted measurably by containers and the ability to get goods.

Yes, that makes sense. I want to follow up on the EBITDA margins, which you mentioned could exceed 10% over time. My calculations indicate they are currently around 9.8% on a trailing 12-month basis, suggesting there is still some room for improvement. This likely relates to your comments on gross margins. However, there are still opportunities in occupancy. Additionally, are there areas where you need to reinvest, possibly in payroll, as that continues to be a pressure point for many retailers? Are there other areas where you anticipate cost increases?

Yes, that's another great question. So there are definitely some SG&A areas that we're readdressing. So whether that's certain areas of overhead that we had really cut down and just were sort of choking those areas, we may need to make some reinvestments in, and making sure that we're recognizing our people for the work that they're doing. I think beyond that, the biggest areas are, I would say our warehouse and our infrastructure, our marketing efforts in our technology areas. I think all of those are areas that we have opportunities to continue to invest in, and we're going to continue to do that. And I'm just going to ask Mike that we just move on to the next caller since we're coming up on the top of the hour, but thank you for your interest.

Absolutely. Sure.

Yes. Operator, this will have to be our last question. Unfortunately, we're running out of time and we'll be happy to follow up with all our investor base offline on call. So last question.

Our last question comes from the line of William Zolezzi with Divisadero Street Capital. Your line is now open.

Hi, guys, congratulations. Can you hear me?

Yes, we can. Thank you.

We hear you.

Great. I just wanted to double click on the inventory issue. I mean, obviously, the results today are outstanding, but it sounds like inventory was down sequentially and you said that brands that had inventory were driving more sales. I guess, is there any way to quantify how much higher the sales would have been had we had adequate inventory across kind of the top brands?

The answer to your question is that we are uncertain because we have observed an impressive level of sell-through on products that may not have historically performed at the same rate. However, we believe we are meeting most of the demand. Our operations have become much more streamlined, enabling us to pursue new products and fresh inventory. Consequently, we feel confident about our current situation. We hope to receive what we have ordered, which would put us in a strong inventory position. Despite this, we have consistently seen an outstanding sell-through of our inventory, including items that have not historically sold at the same rate, which we view as a positive development.

I'm excited to hear that you're planning to up-list to the NASDAQ. Could you explain how that process will work and the timeline associated with it?

Sure. So I guess what I'll just say on it is we've made the application, we've had a number of conversations with NASDAQ, and we expect that the approval will be coming very soon. So I don't think it's going to be a long wait before we're able to speak about that more comprehensively.

Okay. So you would expect for sure the approval to come before the holiday timeframe?

Yes, if you're referring, yes, absolutely.

Yes, we honestly hope the approval will come pretty quickly.

That's great. I think that's going to be a huge catalyst for the stock at the end of the day, your guidance is conservative, your sales would have been higher had you had more inventory, and that's going to rectify itself. It sounds like the full-year guide calls from a deceleration from the trends you're seeing in August, and you guys keep finding ways to do better, not worse. So when you put all that together and put a market multiple on what I think you guys could do this year, I think this is a $20 stock, and obviously, we're not going to get there with the stock on the pink sheet. So I appreciate you guys making the move to up-list because I think once that happens, the markets are going to recognize the value here. So thank you, guys.

Well, William, really appreciate that comment. There's probably no more perfect way than an investor telling you have a $20 stock and there's upside. So we really appreciate that. We appreciate all the interest that you guys have shown. I again want to thank our employee base for the incredible work they've done. We wish you all a great, safe, and healthy fall season, and look forward to regrouping again with you in November. And with that operator, we'll call this call to a close.

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