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Destination XL Group (NASDAQ:DXLG)

Q1 2013 Earnings Call

May 24, 2013 9:00 am ET

Executives

Jeffrey Unger - Vice President of Investor Relations

David A. Levin - Chief Executive Officer, President and Director

Dennis R. Hernreich - Chief Operating Officer, Chief Financial Officer, Executive Vice President, Secretary and Treasurer

Analysts

Lee J. Giordano - Imperial Capital, LLC, Research Division

Thomas A. Filandro - Susquehanna Financial Group, LLLP, Research Division

Mark Daniel Garfinkel - Perimeter Capital Partners LLC

Christina Brathwaite - Sidoti & Company, LLC

Operator

Good day, and welcome to the Destination XL First Quarter 2013 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Mr. Jeff Unger. Please go ahead.

Jeffrey Unger

Good. Thank you very much, Noah. Good morning, everyone, and thank you for joining us today for Destination XL Group's First Quarter Results. On our call today is David Levin, our President and Chief Executive Officer; and Dennis Hernreich, Executive Vice President, Chief Operating Officer and Chief Financial Officer. Today, David and Dennis are in separate locations. If you have a question for Dennis, please address him directly. If not, David will answer any questions first.

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 available at our website at investor.destinationxl.com for an explanation and reconciliation of such measures.

Today's discussion also contains certain forward-looking statements concerning the company's operations, performance and financial condition, including sales, expenses, gross margins, capital expenditures, earnings per share, store openings and closings and other such matters. 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 are detailed in the company's filings with the Securities and Exchange Commission.

I'd now like to turn the call over to President and CEO, David Levin.

David A. Levin

Thank you, Jeff, and good morning, everyone. We performed well in the first quarter as we continue to execute on our DXL strategy. In terms of the Q1 results, the quarter started off slow with colder than usual weather in February and March, delaying the sale of our Spring apparel such as shorts and T-shirts. As the weather warms up, we bounced back in April and had a 7.4% comp for the month. The strong sales in April were not enough to offset softness in the first months of the quarter, resulting in a decline in quarterly sales and net income.

The weather-related issue contributed to consolidated comps that were down by about 0.5%. More importantly, we made progress executing our accelerated 3-year strategy to roll out the DXL concept. We now have 53 DXL stores in operation in comparable established markets, which generated first quarter comparable sales of 17.7% and accounted for 22% of total comparable retail sales during Q1. We have opened one DXL store in a new market for a total of 54 DXL stores nationwide.

An important metric for the long-term growth of the DXL concept is dollars per transaction, which rose 17.6% in the first quarter to $154 from last year's $131. In comparison, dollars per transaction at our Casual Male XL stores during the quarter was only $110. This impressive year-over-year increase resulted not only from better sales productivity, but also improved sales mix toward higher-end name brands and increased sales penetration in tailored clothing. Also, all DXL stores now have a custom made-to-measure department that offers a robust selection of suits, sport coats, along with dress pants and shirts.

It's important to point out that the traction we have made with the DXL concept has been accomplished with essentially no marketing, but that is changing. By now, I hope you've had an opportunity to catch our DXL commercial that is currently airing on popular cable networks such as ESPN, USA, PBS, NBC Sports and Comedy Central to name just a few. The goal of the commercial is to express the challenges our customers face when shopping for merchandise that fits. We equate this challenge to shopping in no man's land and DXL is the solution. In the ad, we highlight the Destination XL shopping experience and the broad selection of styles and brands that we offer in one easy and convenient store.

We believe the commercial will drive traffic to our DXL stores and e-commerce website, destinationxl.com. The commercial is truly resonating with our customers, and given its humorous nature, people are sharing the video on various social networks allowing us to reach an even larger audience. The television commercial is just one element of a 6-week national marketing campaign that we launched on May 5 to define the DXL brand more clearly, expand market awareness and grow our active customer base. In addition to TV, the comprehensive campaign consists of a radio and digital marketing mix.

If you haven't seen our commercial on TV or heard it on the radio, I encourage you to visit destinationxl.com and click on the commercial. Here, you also can see examples of concepts we are using to drive traffic on the web. On the website, we also have another video we developed to give customers a virtual tour of our DXL stores. These videos have already been viewed thousands of times on our website and on YouTube and have been shared and reposted by users on various social networks.

As you may recall, this national campaign is based on a successful test campaign we conducted during the fall of 2012. The results of that test demonstrated that awareness increased by as much as 100% in newer markets like Minneapolis, which opened in fall 2012, and 38% in established DXL markets like Memphis, which opened in the summer of 2010.

In addition, we conducted another 6-week test in Dallas and Providence this winter that demonstrated a similar pattern of success in both markets.

The goal is to grow our total customer base by 40% from the front level of 1.5 million active customers over the next few years.

The total big & tall market is approximately 40 million customers, so there's a lot of opportunity for growth. While our new marketing campaign should put DXL on the radar, we did not expect them to rush out to the stores right away. In fact, our customers typically only shop about 2 times each year. That said, in the first year of the campaign, we expect to reverse the slow decline that we have experienced in our customer base during the past few years and to incrementally increase the number of active customers. We anticipate greater growth in our customer base in 2014 and '15.

In addition to the current 6-week flight of the national campaign, we plan to execute a second major flight in the fall. In both flights, we will proceed with both the mix of TV, radio and digital and will leverage relationships with our new PR and social media agencies to further drive awareness and brand enthusiasm, and ultimately, customer traffic and purchasing. It's important to note that our marketing strategy is about awareness and brand building. There's no call to action, no buy 1 get 1 type promotions. We'll be tracking results on a weekly basis, including traffic and sales and will be conducting a customer survey to measure awareness, purchase intent, brand perception and attributes.

Although it's far too soon to talk about results from the first flight of our national campaign, early response has been positive, and we're anticipating results, some of which are those we experienced in the test markets.

In our direct business, catalog sales continue to decline. We are reducing circulation by 50% in 2013, including a 45% reduction in page count. Our print catalogs are being replaced with a digitally focused direct marketing including email, banners, paid search, display advertising, social media, affiliates and other online sales tools.

In Q1, the web portion of our direct business was up 5.1%. We see our website as an extension of our retail stores as our customers are not single-channel shoppers. They are using each of our channels to port to one another, whether it's starting at the store and visiting the web faster or researching products online and then heading to a store to make a purchase. For this reason, we have invested in the design and functionality of our e-commerce website. Using data and analytics to understand our customers better, we've developed a website where our guys can easily find what they're looking for and only see products that are relevant to them. For example, our website encourages visitors to fill out a size profile, which allows them to enter their measurements and then ensures that only products available in their size are displayed. We also use customer data for location-based marketing. Depending on the current temperature from our where customers log in, there will be presented with digital marketing banners that promote season-appropriate apparel. If its's warm, they'll see t-shirts and polos. If it's cold, they'll see jackets or sweaters. The ability to create and run campaigns that are targeted to customers who experienced certain weather in real time has been productive for us.

Another new feature we added to our website recently is the ability to create and purchase a custom dress shirt online. Customers can now design a dress shirt by selecting from over 100 pattern and color combinations and choosing the preferred detailed treatment from a variety of collar, cuff and pocket options. We are just as focused on creating a great online experience as we are with the in-store -- with the in-person visits to our stores. We believe these details really exceed the expectations of our customers and will ultimately result in greater conversion rates.

Moving on to our outlook for 2013 and beyond. We are on schedule with our DXL rollout plan. During 2013, we'll grow the number of DXL stores in operation to between 105 to 112. We continue to focus on investing and our transformation with respect to real estate development, training and merchandising, along with adequate levels of SG&A capital expenditures.

Now that our marketing campaign is launched, we expect our performance to improve significantly in 2014 and beyond when we'll have a greater number of stores in operation. We'll continue to fine-tune our strategy to define the DXL brand more clearly, expand market awareness and grow our active customer base.

We plan to complete our transformation by the end of 2015. At that time, all of our Casual Male XL retail stores will be closed, and we'll have 215 to 230 DXL stores in operation. We'll still have about 55 Casual Male XL outlet stores that will be used to help liquidate product from the DXL stores, as well as 3 to 4 Rochester Clothing stores.

By accelerating our DXL strategy, we'll be able to realize the benefit of the DXL concept much early than we initially anticipated. In fact, with the substantial investments we are making this year in the strategy, we expect to report improved profitability and cash flow beginning next year. By 2016, we anticipate that this concept drives revenues of $600 million and operating margins that are greater than 10%.

And with that, I'll turn the call over to Dennis to review our financial results for the first quarter.

Dennis R. Hernreich

Thank you, David, and good morning, everyone. In my prepared remarks, I will first provide a synopsis highlighting the company's results for the first quarter and give you an update on the company's progress and what's still to come with respect to the transformation to the DXL concept, and lastly, provide the earnings and cash flow guidance for the strategically critical 2013 year.

For the first quarter of 2013, total sales decreased to $93.6 million from $95.5 million for the prior year's first quarter. We had 11 fewer stores in operation during quarter 1 compared with last year, which was partially responsible for $1.5 million of the decline in year-over-year revenues.

Comparable sales decreased 0.5% for the quarter. We expect to end 2013 with a store count of approximately 360 stores, which is about 52 fewer stores than we had at the start of the year.

As David mentioned, quarter 1 sales started out slow due to the unseasonably cool weather, specifically in the Northeast and Midwest. Our comparable sales for the end of March were down approximately 3.9%. However, for April, our comparable sales increased 7.4% once warmer weather emerged in these regions. April comparable sales in DXL stores increased 29.1%.

Let me quickly define what we mean by comparable sales. Total comparable sales for all periods include retail stores that have been opened for at least 1 full year. Stores that have been remodeled, expanded or relocated during the period also are included in determining comparable sales. Most DXL stores are considered relocations and are comparable to all closed stores in each respective market area. Therefore, those DXL stores are considered a comparable store upon opening. If the DXL stores are open in a new market, however, of which we have one DXL store like that today, such DXL store is not considered a comparable store until it's 1 year anniversary.

Direct businesses are included in the calculation of comparable sales since we are a multi-channel retailer.

With that said, sales from our retail business overall were up by almost 1% for the first quarter. However, our DXL stores continued to outperform our Casual Male XL and Rochester stores. As a result, the 53 comparable DXL stores experienced a 17.7% increase over the prior year, while the comparable sales for all other retail stores decreased by 3.2%. The DXL stores and direct sales represented 35% of the first quarter sales and are expected to grow to over 40% of second quarter sales.

Sales from our direct business for the first quarter decreased 6% over last year. Our direct business consists of 3 primary channels: catalogs, orders placed from stores to fulfill an immediate need if not available in the store and our website, destinationxl.com. Sales from our catalogs were down almost 61% during the first quarter, while sales from our website were up 5.1%. We are transitioning our customers away from our print catalogs to making purchases in our more profitable e-commerce website. So this transition away from print catalog is a positive for us in the long run. As a result, the operating margin of direct business has improved significantly from prior years and reached over 26% in the first quarter from 24% last year and is expected to continue to grow in 2013.

In response to the shift in purchasing behavior, we decreased impressions by approximately 70% in the first quarter. We will decrease our catalog circulation by another almost 60% this year and impressions by nearly 75%, resulting in $3 million of savings being diverted to partially fund the national advertising campaigns and digital marketing spend.

Given the early success of our national marketing campaign and digital strategies, we are optimistic that our direct business will resume its growth during this 2013 fiscal year.

For the first quarter, gross margin, inclusive of occupancy cost, was 47.5% compared with gross margin of 47.7% from the first quarter of last year. The decrease of 20 basis points was the result of occupancy dollar growth to 70 basis points, offset by an increase of 50 basis points related to merchandise margins.

On a dollar basis, occupancy costs for the first quarter increased 2.6% over the prior year due to the timing of DXL store openings and the associated pre-opening costs, as well as the timing of our Casual Male XL store closings.

The improvement in merchandise margins of 50 basis points was the result of continued improvement in our initial markups, as well as a favorable markdown rate compared with the prior year.

In 2013, we are expecting that our occupancy cost on a dollar basis to increase approximately $5 million as a result of the new DXL store openings this year and certain lease termination costs associated with closing Casual Male XL and Rochester Clothing stores. As a result, we expect occupancy costs will be between 40 to 60 basis points higher in 2013 than in 2012.

From a merchandise margin perspective, we are planning continued improvement of approximately 40 to 60 basis points. And accordingly, we are expecting overall gross margin will be a plus or minus 20% in 2013 compared with the year ago.

As a percentage of sales, SG&A expenses increased to 41% compared with 39.5% for the first quarter of 2012. On a dollar basis, SG&A expenses increased $0.6 million or 1.5% for the first quarter compared with the prior year's first quarter.

During the quarter, the company incurred approximately $1.6 million related to DXL preopening payroll, store training, infrastructure costs and increased marketing to support the DXL transformation effort.

This is a significant building year for us, and as such, our SG&A expenses are expected to be noticeably higher than they have been in the past. We expect that our SG&A expenses will increase by $15 million to $17 million, and as a percentage of sales, will be 220 basis points higher in 2012. This increase in dollars is primarily related to increased store payroll to support our planned new DXL openings, incremental marketing costs associated with our effort to increase brand awareness, costs to close Casual Male XL and Rochester Clothing stores and other infrastructure-related costs.

Net income for the first quarter was $1 million or $0.02 per share, which compares to $2.3 million or $0.05 per share in last year's first quarter. The -- this decrease is in line with our expectations.

The company used $8 million for capital expenditures during the quarter, and operating cash flow was a negative $5.6 million. From a liquidity perspective for the first 3 months of this year, we had $6.1 million in cash, cash equivalents, outstanding borrowings of $11.6 million and a $61.2 million of credit available under the company's revolver facility. The company's inventory levels at the end of the quarter were flat with year-ago levels, but unit inventory levels were 4% lower than year-ago levels.

Now I'd like to provide an update on the accelerated conversion plan for our Destination XL concept. We now have 54 DXL stores in operation with at least one DXL store located in most major metropolitan cities across the U.S. DXL store square footage has more than doubled since last year to just over 500,000 square feet. We plan to open 57 to 64 DXL stores and close between 110 and 119 Casual Male XL and Rochester stores in 2013. During quarter 1, we opened 6 DXL stores and closed 17 Casual Male XL stores.

We expect to open 12 DXL stores and close another 24 Casual Male XL stores in quarter 2. We have already selected sites for all of our -- for all of these new DXL stores and are working toward finalizing lease arrangements for DXL stores to open late in the year. We expect the overall store square footage to increase at approximately 3%, but the overall DXL square footage is expected to again double to just under 1 million square feet by the end of the year.

With that, we reiterate our guidance for 2013, which is a critical year in growing DXL store count across the chain, making significant progress in closing Casual Male XL stores and significantly enhancing market awareness of the company's DXL brand, which we expect will produce greater store and e-commerce traffic.

We anticipate total 2013 sales to be in the range of $415 million to $420 million, which is based on a comparable sales increase of between 8.5% and 10% for the year. The critical factors in achieving this guidance are the DXL store expansion along with the national media campaigns designed to increase DXL brand awareness.

EBITDA is expected to be in the range of $20 million to $23 million. We expect gross margin to be constant to 2012 levels at 46.5% within a range of plus or minus 20 basis points. SG&A costs are expected to increase by between $15 million and $17 million to a range of $171 million to $173.5 million, primarily due to the $10 million in increased advertising spend for the national marketing campaign plus higher corporate bonus expenses, increases in DXL store opening and Casual Male XL store closing costs, training and travel costs related to new DXL stores and higher operating expenses to support the expected sales increase. As a percentage of sales, SG&A expenses are expected to increase over last year as a result of our DXL initiative by 220 basis points to approximately 41.3% of sales.

Earnings per share are expected to be approximately breakeven. Our capital expenditures for 2013 are expected to be approximately $45 million after subtracting expected construction allowances contributed by our landlords on the new DXL sites. These expenditures will be spent largely in our planned opening of a total of 57 to 64 DXL stores in 2013, as well as technology projects to improving the e-commerce site and the in-store customer experience.

The 2013 net capital spend of $45 million will be funded with -- from cash, EBITDA generated during the year and reductions in working capital. We expect free cash flow to be negative, such that the revolver borrowings should be between $10 million to $15 million at year's end. Together with the company's seasonal borrowing needs, we expect the company's peak borrowing from its revolver to be in the neighborhood of $40 million during the year. Borrowing availability at year end is expected to be approximately $60 million to $65 million. The company is in discussions right now with its primary revolver facility lender to extend the existing facility to 2018, raise the credit limit to $100 million from the current $75 million limit and lower the overall facility cost, which is expected to be completed in the second quarter.

At the end of this year, we will have a significantly greater number of DXL stores in operation, and our Casual Male XL and Rochester store base will be reduced by more than half from what it was a few short years ago. In addition, we expect to have greater brand awareness as a result of our marketing campaign. Our turnaround plan is on schedule, which positions us for substantial revenue and operating profit growth beginning in 2014.

This concludes my remarks. We will now take your questions.

Jeffrey Unger

Before we -- hold on 1 second. Before we open up the call, Dennis misspoke in one point. He said that our gross margins will be plus or minus 20%, not 20 basis points, which he reiterated in our guidance. So the gross margin this year is going to be up or down 20 basis points, not 20%. The call is now open for any questions or answers -- or questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Lee Giordano with Imperial Capital.

Lee J. Giordano - Imperial Capital, LLC, Research Division

Can you talk a little bit more about the performance of the private label versus the branded apparel at the DXL stores and how that's working and the opportunity going forward as far as looking at the mix of those?

David A. Levin

Yes. It's pretty much the -- going in openings. The percent of the brand -- what we call the Rochester brand, the type of product ranges from anywhere from 20% to 30% when we usually kick off a new store, and we'll base that upon the demographics and what our core customer spend is. And then we tweak it and adjust it up or down. The one consistent pattern seems to be, over time, the percent of the private -- branded business tends to grow.

Lee J. Giordano - Imperial Capital, LLC, Research Division

Got it. Can you also talk about the build-out costs for the new DXL stores? And as you're opening those, do you see opportunity to lower those costs? And then secondly, what regions of the country are you targeting for the initial phase of the rollout, if any?

David A. Levin

Well, the rollout is random. The rollout is pretty much based on lease terminations. So as our -- it's wherever the leases expire is where we start converting the market to the DXL brand. The first part of your question, on the costs, we've reduced the costs significantly from -- originally, the CapEx of stores was running in the neighborhood of about $100 a square foot. Now we've got it down to about $65 a square foot. And we've also reduced the size of the box from 10,000 to 12,000 square feet to about 8,000 to 9,000 square feet. There's not going to be much more going forward in terms of being able to reduce those costs. We've got it down to a pretty manageable level right now.

Operator

We'll take our next question from Tom Filandro with Susquehanna Financial.

Thomas A. Filandro - Susquehanna Financial Group, LLLP, Research Division

A couple of questions. First, David, I want -- can you expand a little bit of this custom shirt online initiative that you had mentioned? I'm curious to know, are you promoting that in-store as well? Then Dennis, if you can expand, you made a comment about -- I think you said that IMU and MMU are both up in the first quarter, any comments on your outlook on those 2 metrics? And what drove the IMU performance? And David, can you also tell us what you're seeing in that smaller waist shopper in the DXL stores, in particular in those markets where you tested the awareness campaign? And then I have 2 follow-ups, please.

David A. Levin

Okay, I'll start with the first one. Yes, the custom shirt online is really an extension of what we have available in the stores. As I mentioned, all our stores are now outrigged for made-to-measure suits, sport coats, dress shirt, business. And we're very excited about it because it offers the customer a much broader range of product that they could buy in those categories. It gives a great fit. And we've put it out there at a very reasonable price. So for $100 or $200 more than an off-the-rack suit, our customers can now buy something custom. And we're excited about the shirt business online. Again, over 100 new patterns and styles that they can choose from, so we're pretty excited about that. As far as the smaller waist shopper, yes, clearly, we're moving the needle. For the first time, we've been able to resonate with the customer through the commercial. We're seeing that smaller waist guy come in. We'll give metrics on that on our next call, but I could say that in the test markets and on the national campaign that's running right now, we're clearly seeing an increase in attracting that no man's land guy, the guy who is a 40- to 46-inch waist. And then I'll pass this to Dennis.

Dennis R. Hernreich

The margin performance, Tom, in the first quarter where our gross margin was up, the merchandise margin -- rather component of gross margin was up 50 basis points, partially because of a better IMU and lower markdown rates. And that is the -- the IMU was just the result of just better product cost. We continue to challenge ourselves and where we produce and manufacture our private-label merchandise. We're also talking extensively with our brand vendors as our purchases from them become more and more significant as a result of expanding DXL stores. The markdown rates are down. And sort of an intermediate to longer-term view of all of this, I do expect our markdown rates to continue to subside as they become more brand-driven versus -- or rather less reliant on promotional activity like in Casual Male stores. So I think that, that is a positive going forward. There's a, as you know, Tom, there's a natural pressure on merchandise margins as a result of DXL stores because the brand product margins aren't as rich as private-label margins. So as our mix of sales gravitates towards the brand product, right now, it's about 25% of the company sales, it will probably gravitate upwards to, say, 35% of the company's sales mix. We do expect to neutralize that natural erosion with better product costs in the long run such that our merchandise margins will be slightly up to neutral in the long term.

Thomas A. Filandro - Susquehanna Financial Group, LLLP, Research Division

Got it. Two follow-ups. I assume, too, that you would expect in that scenario to drive a higher overall average transaction value as the branded mix accelerates in items like these custom shirts, which are higher AUR. Is that a fair assumption to think about the metrics with how the model works?

Dennis R. Hernreich

Yes, yes. And then in addition to that, the ticket is rising just as much as a result of the effort that we put in to hiring the right type of people to service our customer base as they visit the stores? As you know, we've put a significant investment in training this year. And so the service that a DXL customer receives in a DXL store is really fantastic, and it's a real opportunity for us to help dress our guys and look like what they should. And so we're very proud of that though.

Thomas A. Filandro - Susquehanna Financial Group, LLLP, Research Division

That's excellent. Two follow-ups, if I could. Lots of talk from other specialty retailers. And I apologize if you talked about this earlier, I got on a little late, but a lot of talk about the calendar shift, the 52 versus the 53rd week impact on the quarters. Can you tell us what the impact was in the first quarter in terms of sales and EPS? And is there a meaningful impact that we should be aware of for the balance of the year on a quarterly basis? And then one other follow-up for David. Any new brand introductions worth noting for either the summer, fall or holiday selling season this year at DXL?

Dennis R. Hernreich

Tom, the shift in 52 to 53 week, I'll have to -- I mean, we're reporting comparable sales on the right. We lined up the new weeks right -- in the right way last year.

Thomas A. Filandro - Susquehanna Financial Group, LLLP, Research Division

Right for you guys, Dennis. My guess, it is not as important. The back-to-school players, they've seen a big week move into like the second quarter and they're giving up a smaller week. So I guess, from your perspective, there's no major shifts that we should be aware of?

Dennis R. Hernreich

No, no. No major shifts in quarter 1 and no major shifts in future quarters.

David A. Levin

And in response to new brand launches, yes, we'll have 4 new brands launching in the fall season. And we're not going to tell you yet because we'd like to keep that kind of advantage, but we will be announcing it on the next quarter call.

Operator

We'll take our next question from Jack Bayliss [ph] with Focus Research.

Unknown Analyst

Regarding advertising and marketing going forward, what are your plans for Father's Day? And how -- and the holiday in terms of the degree to which your advertising will be increased? And also promotions. In other words, how is the comparison going to be this year versus last year?

David A. Levin

Well, Father's Day continues to be less significant year-after-year as Easter has gone away and all those types of events. We specifically built our marketing campaign to run right up to the Father's Day period, however, so we took the sweetest spot we could for the spring season, which would be May through the middle of June, which we believe is certainly going to help us accelerate the traffic in the stores as we get closer to Father's Day. The promotion itself is pretty much the same thing. It's -- if you spend money -- the more money you spend, you could get a discount. It's not a deep-driven promotional event for us. Again, we -- those who have followed us, we've really weaned ourselves over the years out of that promotional event with coupons and things like that. We used to have 24 promotions a year, and now we're down to around 4. And that -- and certainly, for the DXL brand, we want to build our future more on brand awareness and what DXL is all about rather than trying to get there through heavy discounting.

Unknown Analyst

Okay. So the additional spending on DXL stores nationally, do you expect that to impact your overall sales?

David A. Levin

Yes, we do. I mean, it's certainly built in our plan. I mean, we're talking about having an 8% to 10% comp for the year. And after the first quarter, we're flat and we're hoping for that number. So we're certainly anticipating a buildup in our comp sales as we get to the third quarter, and even more significantly in the fourth quarter when we have the heaviest weight of our new DXL stores opening.

Unknown Analyst

What is your opinion of the 23 DXL stores that are open more than a year that had a comparable sales increase of 4.7%? Was that what you were expecting?

David A. Levin

Actually, that's about what it's been running, even slightly less than that. But you have to understand, we have put no marketing dollars for the first couple of years into building new customers into those markets. We intently waited until we had enough critical mass that we could launch something on a national level. But we anticipate and should be reporting a much greater increase in those stores that have anniversaried themselves. And I think you'll see those numbers throughout the next several quarters.

Operator

We'll take our next question from Mark Garfinkel with Perimeter Capital.

Mark Daniel Garfinkel - Perimeter Capital Partners LLC

David, I guess, the first one would be directed to you. How -- you talked a little bit about some of the metrics that you would begin to communicate on the national advertising campaign. I'd like to -- I'd like you to address how you intend to communicate some of those metrics on future calls. And what type of granularity you would provide, particularly, for instance, as it relates to the end-of-the-rack customers you mentioned earlier?

David A. Levin

We'll be supplying all these metrics. We did supply these for our test markets, so the things we're going to be looking at are obviously the comp sales. We're going to be measuring traffic. We're going to be measuring new to file, which we are -- which we consider customers that are not in our database, market awareness, pre and post. I can say that our pre-market awareness going into the national campaign is about -- ranges from 12% to 17%, 17% in markets where we have an existing store and 12% where we don't have a store. So we know, going into this campaign, what our market awareness is. We're also looking at our web traffic. We're looking at our web sales, all of pre, during and post. By the time we announce the next quarter's earnings, we're going to fill in the blanks on all these items that I just mentioned to give the most transparency we can on what the impact of the marketing has been.

Mark Daniel Garfinkel - Perimeter Capital Partners LLC

As a follow-up to that, you mentioned that you will launched Phase 2 of the campaign in the fall. Do you have any kind of a specific timing as to when you'll launch that? Has that been determined? And secondly, depending on the success of these campaigns, do you anticipate any changes to your budgeted spend?

David A. Levin

We're going to run another 6-week flight through the -- the bulk of it being in the month of October. Again, it's a great month for us where our customers are really -- start to come out shopping for their fall products. As of now, it's, again, too early to say what type of tweaking we're going to do, but we are going to continue with a very similar campaign of national cable. Included in that would be radio and digital. The only change maybe, there may be some national network put into that number on top of it. But again, it's too early for us to really analyze what the impact is going to be. However, the spend for the fall is even greater than spring, so we're very encouraged that we're going to get a good bang for our buck.

Mark Daniel Garfinkel - Perimeter Capital Partners LLC

But that's factored into your budget and guidance?

Dennis R. Hernreich

Sure. Yes, yes, yes, Mark.

Mark Daniel Garfinkel - Perimeter Capital Partners LLC

On the dollars per transaction, and this could be directed to both of you guys, on the last call, you guys talked about a goal for your 2000 -- your long-term 3-year goal of a blended rate of $130 to $150. Already with this most recent quarter, you put up a very strong number, $150 plus. So did check come in and buy $50,000 worth of clothes and skew it up? Or is that something that's very sustainable moving forward? And how does that jive with your long-term projections if that number continues to move higher from here or the long-term projections that you're providing pretty conservative?

Dennis R. Hernreich

I think it's sustainable, Mark. I don't think it's a fluke that -- from any first quarter buying. It did surprise us to the positive. Perhaps long term, it's conservative, but we do expect DXL ticket to rise to $175 and on blended rate of closer $160 overall. So at this point, it's trending up, trending probably more positive than we expected at this point in time. We're not ready to change the long-term perspective on it. But certainly, it's on watch so we're very pleased about it.

Operator

[Operator Instructions] And we'll take our next question from Christina Brathwaite with Sidoti & Company.

Christina Brathwaite - Sidoti & Company, LLC

I just wanted to ask a little bit about sourcing risk. Could you -- just given the issues in Bangladesh and the tragedy over there, what is the most stuff that you guys are taking to mitigate your sourcing risk?

David A. Levin

Well, we are obviously looking at alternatives. We're already starting to organize to put in some of the same product of our core product into some other Asian countries, and we're watching it as closely as we can. We've been a little more conservative on our lead times to make sure we're getting the right delivery dates and -- with some of the strikes that have been going on. But yes, we're aware of it, and we're making alternative placements around the country -- around certain countries to offset some political issues and everything else that's been going on in Bangladesh.

Operator

[Operator Instructions] And we have no further questions at this time.

David A. Levin

Okay. Well, I'd like to thank everybody for being on the call. And I wouldn't -- I'd like to encourage everybody to visit a DXL store in the future. Again, I say it a lot, but once you've experienced what we're trying -- what we've accomplished in the DXL world versus what we had in Casual Male, it's quite remarkable. So again, thank you all for being on the call.

Operator

This concludes today's conference. Thank you for your participation.

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