Q4 2016 Real-Time Call Brief

Highlights

For the fourth quarter traffic trends were erratic and we experienced more pronounced weakness in the middle of the country, which resulted in a comp decline of 2.4%.

Despite the negative fourth quarter comp, we generated a positive comp of 0.6% for the year and recorded EBITDA of $31.6 million achieving the midpoint of our most recent guidance.

Importantly, after five years of borrowing to fund DXL build out in fiscal 2016, we were able to pay for our 30 new stores with free cash flow and we reduced debt to $63.1 million, which is approximately 2 times EBITDA.

Now that we have largely achieved our DXL men's apparel transformation with over 200 DXL stores in the most attractive markets, a robust destinationxl.com website and an integrated omni channel operation.

Our first strategic initiative is anchored on increasing our 2017 marketing budget by approximately 40%.

Our e-commerce sales penetration in fiscal 2016 was approximately 15%.

We currently operate 205 DXL men's apparel stores.

We've decided to slow our 2017 store growth to 20 stores compared to our 30 stores opened in 2016.

We plan to close approximately 19 Casual Male locations in 2017 resulting in square footage growth for the year of approximately 2.6%.

Our DXL Men's apparel stores now represent 76% of the total company's store footprint and are expected to reach 80% by the end of fiscal 2017.

In 2016, we embarked an inventory productivity initiative, which resulted in a year end decrease of 6% or approximately $7.6 million in our inventory balances.

Our Board of Directors has authorized $12 million share repurchase program for fiscal 2017.

2016 was a challenging year, but we're pleased to deliver a positive comp of 0.6%, EBITDA growth of 35.6% and a milestone with the opening of our 200 DXL men's apparel store.

In the fourth quarter, net sales were $122.6 million inclusive of total company comparable sales decline of 2.4% on a top of the 3.1% increase in the prior year quarter.

In the fourth quarter, gross margin including occupancy costs was 44.9% compared with 45.8% for the fourth quarter of fiscal 2015.

The decrease of 90 basis points was the result of 40 basis points decrease in merchandise margin and 50 basis points deleveraging in occupancy costs as a percentage of total sales.

Our SG&A expenses for the fourth quarter were 36.1% of sales compared with 40% a year ago for an improvement of 390 basis points.

On a dollar basis, SG&A expenses declined $5.3 million from Q4 2015, which primarily resulted from reductions in advertising costs and lower performance incentive accruals.

We are planning to increase our marketing in digital expenses by $6.8 million in fiscal 2017.

GAAP net income for the quarter was $1.8 million or $0.04 per share compared with a net loss of $1.4 million or $0.03 per share a year ago.

Net income on a non-GAAP basis assuming a normalized tax rate of 40% improved to $0.02 per share from a net loss of $0.02 per share in Q4 of fiscal 2015.

We are pleased to report fourth quarter EBITDA growth of 48% to $10.8 million from $7.3 million in the year ago quarter.

For the full year, we registered EBITDA growth of 36% to $31.6 million.

Capital expenditures for 2016 of $29.2 million were down 13% from $33.4 million in 2015.

Inventory at the end of the fourth quarter was down $7.6 million or 6% from the fourth quarter of fiscal 2015.

We have also identified several opportunities within our merchandized, planning and allocation functions that we believe will drive an additional $8 million to $12 million of further inventory improvements in fiscal 2017.

Clearance merchandize was 8% of our total inventory at the end of fiscal 2016 which was in line with our 2015 level.

Total debt at quarter end was $63.1 million, which includes borrowings under the revolving credit facility of $44.1 million with excess availability of $57.1 million.

This compares to $68.1 million of total debt a year-ago.

Now that our DXL men's apparels store fleet represents 76% of our company store footprint and we are accelerating our efforts to drive digital sales we will be reporting go forward comparable sales only on a total company basis.

We have adopting clear offensive strategies for 2017 in marketing and digital engagement, which are squarely focused on driving on new customer acquisition, as well as retention of existing customers.

Included in these initiatives is an increase in our marketing spend by approximately $6.8 million, combined with digital strategies that we believe we will drive accelerated top line growth.

Guidance for 2017; Total sales of $470 million to $480 million, a total comparable sales increase of approximately 1% to 4%.

Gross profit margin of approximately 46% and adjusted net loss on a non-GAAP basis of minus $0.06 to minus $0.14 per diluted share assuming a normal tax benefit of approximately 40%.

EBITDA in the range of $24 million to $30 million.

Capital expenditures of approximately $22 million before tenant allowances of $5 million with approximately $13.7 million invested in new DXL stores.

Free cash flow in the range of $15 million to $20 million.

We expect to open approximately 19 DXL men's apparel retail stores and 1 outlet location.

We also plan to close approximately 16 Casual Male XL retail stores and 3 Casual Men outlet stores.

The company is forecasting free cash-flow of $15 million to $20 million for fiscal 2017.

We announced that our Board of Directors authorized a stock buyback program for up to $12 million in fiscal 2017.