Destination XL Group Inc (DXLG) 2003 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then 0 on your touch-tone phone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Unger, Mr. Unger, you may begin.

Good afternoon, I apologize for the incorrect call-in number. I'd like to read the forward-looking statement, then I will introduce David Levin as our moderator.

Forward-looking statements contained in this and other reports are made based upon known events and circumstances at the time of the release and as such, are subject in the future to unforeseen uncertainties and risks. All statements regarding future performance, earnings projections, events or developments are forward-looking statements. It is possible the company's future performance and earning projections may differ materially from current expectations, depending upon economic conditions within both the industry and the country as a whole. And its ability to achieve anticipated benefits associated with announced cost reductions and strategic initiatives to improve operating margins. Among the other factors which may affect future performance are changes in business relationships with and purchases by or from major customers or suppliers, including delays or purchases by -- or from major customers, including delays, cancellations or shipments, uncertainties surrounding timing, successful completion of integration or acquisition, threats associated with and efforts to combat terrorism, competitive market conditions and results effects on sales and pricing. Increases in raw material costs that can't be recovered in product pricing and global economic factors, including currency exchange rates, difficulties entering new markets, general economic conditions such as interest rates. The company makes these statements as of the date of this disclosure and takes no obligations to update them.

I introduce David Levin, CEO and President of Casual Male.

Good afternoon, everybody. Just a few notes before I pass this over to Dennis to go over the financials, but a couple of things in that our comp performance this year -- second quarter, of minus 2.3, a little light on that is that after nine months of being in this consistent negative 5%, really since Father's Day and July in the last several weeks, we have seen the comps start to move in the right direction and it's just a start of the commitment we made to get the top line performance going.

Another note is that we now have 11 new stores open, we'll be opening 11 more for 22 this year and our new stores have been exceeding their plans, so, we are excited about our planned growth for next year, probably around 30 stores.

And finally, you know, with the shortfall of sales we've had this spring, and there was a slight erosion on our margin, the -- the good news is we did take an aggressive stance in July to get our inventories in line, and on a good note is going into the back-to-school third quarter season, today we have 15% less inventory that's spring-related in our stores compared to a year ago.

Before I give you an update on our merchandising initiatives, Dennis is going to review the financials for the last quarter and six months year to date. Dennis?

Thank you, David and good afternoon. And thank you all for participating in Casual Male Retail Group Casual Male Retail Group Inc.'s Second Quarter Earnings Conference Call. In this call, I will first provide an overview of CMRG's earnings for the quarter, then I will discuss some of the operating details of the Casual Male Levi's Dockers and EcKo businesses and then provide some balance sheet highlights. And after David updates us on the company's merchandising initiatives, we will go into a Q&A portion of the call.

This morning, CMRG announced earnings per share of 2 cents per share for the second quarter, compared to an 80-cent per share loss for the second quarter last year. It should be noted that last year's loss included a restructuring charge of $11 million, primarily related to the Levi's Dockers outlet business. After excluding this charge and after adjusting the share base to a full quarter's outstanding shares, subsequent to the Casual Male transaction, the comparable earnings share per loss for the second quarter last year was 6 cents per share.

Results for last year included Casual Male's results for the second quarter, only subsequent to the May 15th, 2002 acquisition. So, your line-by-line comparisons need to consider the fact that it's missing 15 days of Casual Male's business for the quarter.

Consequently, I will discuss particularly components of the statement of operations when I discuss the operating performance of each of the businesses. Which have been presented on a pro forma basis. As if CMRG acquired Casual Male Retail Group at the beginning of last year. This information has been provided in the press release.

One last note, as to this quarter's earnings on a consolidated basis, if a normalized tax rate were to be applied to net income, the earnings per share would have been one penny per share. As I have previously outlined, CMRG currently does not reflect the tax provision, given the existing $50 million tax loss carry-forwards and that CMRG has yet demonstrate on a historical basis the ability to fully utilize these tax losses by the time prescribed by GAAP. However, this in no way impacts the ability of the company to utilize these tax loss carry forwards to reduce its tax bill and therefore expects to have minimum tax liabilities over the next couple of years.

Moving to the Casual Male business, which generated operating income of $4.2 million for the second quarter, compared to $3.5 million during the same quarter one year ago. As David mentioned, total sales dropped by 3% to $78.9 million, primarily due to the 2.3% decrease in comparative store sales during the second quarter. Consequently, Casual Male's gross margin rate of 40.8% for the second quarter dropped by 130 basis points from one year ago, due primarily to a higher markdown rate needed to keep spring inventories balanced. I'm happy to say that the medicine taken certainly was effective in that due to these actions spring inventories are trending 15% less than year-ago levels and therefore we are very well positioned for the new and important fall season.

Therefore, the 20% improvement in operating income that we're showing, or 2.4 -- excuse me, is largely on the strength of our $2.4 million decrease in SG&A. As you know, the $2.4 million decrease in SG&A is the result of CMRG's cost reduction initiatives, mostly in corporate overhead, accomplished last year subsequent to the acquisition.

Much of the trends I highlighted in the second quarter also relate to the first six months of Casual Male's business. Sales dropped by approximately 5%, primarily due to a comparable store sales drop of 3.6%. The 41.1% gross margin rate, however, for six months, dropped by 110 basis points from last year's 42.2 and had more to do with the de-leveraging impact in occupancy costs as opposed to the markdown rate that we saw in the second quarter.

Overall, operating income more than doubled to $6.7 million from last year's $3.1 million during the first six months of the year. Again, SG&A expenses provided much of the improvement, dropping by $7.5 million to $52.6 million. And I might add that the -- the gross margin rate impact that we saw in the second quarter is not necessarily at all indicative of what to expect in the third and fourth quarters.

As to the other branded apparel businesses, which includes the Levi's Dockers outlet business as well as the EcKo outlet business, its operating profits improved from year-ago levels, although sales dropped by 10% to $33.1 million, largely due to the drop in Levi's Dockers store count by 20% and its continued comp store declines.

The gross margin rate improved by over 340 basis points. The gross margin rate improvement can be attributable to two main factors. One is improved inventory management at Levi's Dockers outlet business, where the stores are operating on 40% less inventories than one year ago as we have changed the operating philosophies of this business.

And secondly, 10% of the other branded apparel business is now represented by the EcKo joint venture outlet business, whose gross margins exceed that of Levi's Dockers business by over 10 percentage points. At the same time, the SG&A and depreciation expense dropped $1.4 million, further improved operating income of this business in the second quarter.

Lastly, during the second quarter, the $7.3 million restructuring charge, primarily related to the Levi's Dockers outlet business, although, as you know, the total charge in the second quarter last year was $11 million, only $3.7 million related to the discontinued Levi's Dockers store operations in the balance to the Levi's Dockers stores still currently open. And therefore, $7.3 million is what you find in the continuing operation income table that we provided in the press release. Before this charge, operating income has improved by $1.8 million in the second quarter and by $1.6 million for the six months. We continue to expect the other branded businesses to significantly outperform the levels of operating losses that we saw last year.

Now, some comments on the company's financial position at the end of the quarter.

During our second quarter, CMRG raised approximately $12 million through the issuance of a new 12% senior subordinated note issuance due 2010. The proceeds of which were used to reduce the company's senior secured debt. The new notes have a 7-year maturity with certain premiums in the event of prepayment and were issued with warrants to purchase in aggregate of approximately 480,000 shares of common stock at to then average of the closing prices for the prior 30 days, which ranges from $4.75 to $5.80 per share. And are otherwise on substantially the same terms as the company's existing 12% senior subordinated notes, due 2007, issued last year. The new notes were purchased primarily by certain existing investors in the company, including, among others, Jule Core Management Inc., represented by Seymour Holtzman and affiliates of Clark Estates and Baron Capital.

The company expects to continue to pursue additional subordinating to debt financing to further secure the debt by up to $25 million in the near-term. The objectives of these issuances in the new notes is to reduce the more expensive acquisition-related senior debt and enhance flexibility in the balance sheet.

Otherwise, in the balance sheet, inventories are approximately 1% greater than last year in Casual Male's business and as I said before, they're more than 40% less than a year ago levels in the other branded businesses and also the liquidity at the end of the quarter were at more than adequate levels under our revolving line of credit.

That being my comments and overview of the second quarter earnings, I turn the call back to David.

Thanks, Dennis.

I did want to talk a little bit and give an update on our merchandise initiatives and how they're progressing and we're very excited about the progress that's getting made right now and things are definitely going in the right direction.

First of all, an update on -- with George Foreman, we met with him last week, we had a photo shoot and reviewed the lines with him and we presented to him the Comfort Zone by George Foreman and our George Foreman signature collection and he really loved what he saw and this product is going to be launched for next spring and, you know, one of his comments was he wants to do what he accomplished for Salt and for Casual Male and he's definitely excited about this and will be a great partner for us and the enthusiasm we're getting from our store people and the vendor community is -- is -- is outstanding.

Second, I -- I've talked before about extending sizes, getting back into sizes that previous management had eliminated and most of that was in the tall business. And we had -- I had identified before that -- in our catalog, 25% of our sales had come from the tall customer and it's eroded down to about 15% of our sales in our stores. Well, we're putting those sizes back into the chain and that will be all balanced in inventory by the end of September.

On suit separates, another business topic I've talked about in the past, what's interesting in the 175 stores that currently have suits, our season to date comps are up 25%. This seems to be consistent with what's going on at Men's Warehouse and Joseph A. Bank. There is a movement back to suits and we're certainly going to be certainly capitalizing on that. Again, we have 300 stores today that don't have the suit separates and it's coming in the following way, a third of the balance of the chain will have the suits in October. A third in November and by December, we will have the suit separates in all stores.

Another thing we established through our analysis is that the 175 stores that do have the suit separates, their dress shirt and tie business is 15% greater than the stores that don't. So, it's obviously a natural that our -- that our clothing business with accessories and shirts will join in getting those types of increases.

In the young men's sector, we've had an outstanding performance in the back-to-school -- early back-to-school period. We were in 100 stores for spring. We're in 200 stores today. We have added EcKo and Roca Wear to these stores. As I said before, first quarter, our comps in this category were up 75%. Second quarter jumped to 125%. Now we're well over 200% comp increases, incremental increases in this category, which just keeps getting stronger and stronger and word of mouth is bringing in younger customers as we had hoped.

In terms of our key item update, next week we launch our fall image mailer, which will be featuring the exclusive Perry Ellis America line for Casual Male and Big & Tall. Early reads on all of our key items has been great! We're getting significant sell throughs very early on and that's all being sold at regular price right now.

I talked before about changes the way our stores look. We're doing a lifestyle floor set. Previously, our stores were set up by category, jeans and pants on one side, shirts on the other side. And now we've re-zoned the store into lifestyles, traditional section, contemporary, young men's and active. We currently will be launching that, our stores will be set by mid-September. This week we had 30 of our DMs alone in our offices in -- in headquarters, learning the process, being trained and I was at a dinner with them and the response has been overwhelming, how exciting our stores are looking compared to the way they've looked in the past.

And finally, we're -- we're proud to have our Chief Merchant on board right now, Linda Carlo has joined us, she has an extensive experience in ready-to-wear. She was currently at Chadwick's where she ran one of the outlet divisions. Her experience was at Lane Bryant when it was owned by Limited and she has good training there. She has outlet experience, being a merchant at Bass. And she also spent time at Joseph A. bank. Linda's jumped in and is really just going to take us up a level in the quality and the way our stores are looking.

And one final note, just to talk about EcKo, our joint venture with the EcKo brand in the outlet business. We're -- we're coming out very strong for back-to-school and we finally have anniversaried our store openings so we have something to compare to. And the first four stores that have comped are doing significantly better than they have a year ago.

We attribute that to this is the first quarter where EcKo has made product specifically for the outlet stores. This is definitely giving us a better continuity of product and a better flow by classification. We're in much better stock position than we in just dealing in the clothes outside.

And today we have 18 stores. We will have 22 by the fourth quarter and we're going to be -- we're excited about getting the new stores up for next spring.

So, on that note, I'll pass it back to the operator.

Thank you. If you have a question at this time, please press the 1 key on your touch-tone phone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, if you would like to ask a question, please press the 1 key. One moment for questions. And our first question is from Christina de Marval.

Good afternoon, guys.

Hi.

Hi there. I guess my first question is for David.

Yes.

Your comments at the beginning of the call, can you repeat what you said about the store opening plan at Casual Male?

Yes.

The 22 for the full year?

Yes, we've opened 6 outlets and 5 full-price stores and we have another 11 that are really opening in the next several weeks. For the -- for the fall season.

Okay. So at the end of the July quarter, though, you had opened 9? And then you opened 2 more now that we're in the third quarter? Is that right? I'm just trying to reconcile this. Or just maybe --

No, Christina, we opened 11 before the end of the second quarter.

Okay.

Year to date so far.

Yeah.

So at the end of the year you'll end with --

We'll end with about 487.

Okay.

Approximately.

Okay.

If I'm doing my math.

That helps. I don't want to take up too much time with that. Dennis, I wanted to ask you about inventory. Can you repeat what you said about Casual Male? Was it down 1% year-over-year?

Casual male's inventories are up about, really closer to 2% than the 1%.

Okay. That's year-over-year?

Year-over-year. That's correct.

And I know the composition sounds better, but can you tell me how much of what you have now is carryover from spring/summer versus last year?

Yeah, at the moment our spring inventories at the end of the quarter are about -- let me back up. The -- of the $100 million inventories that we show on the balance sheet, Christina, 65%, $65 million, is Casual Male-related.

Okay.

And of that, approximately -- approximately 10% is spring-related. And as I said, those inventories are trending down about 15% from a year ago. Now, 10% might seem a bit odd in that a lot of our assortments, of course, as you know, are of a basic core type presentation. You know, denim, khakis, what not.

Uh-huh.

And, of course, that's not included in my spring inventories. What I'm talking about spring, I'm talking about short sleeve knits and short sleeve wovens, shorts and those kinds of categories.

Okay. So, what was the composition last spring? So, the total at Casual Male was up a little bit. So, let's say that's 60 and then for the total last year?

Total last year was about $64 million.

64. And then how much of that was --

And how much -- -- Was about 7, $7.5 million.

Okay. I was also curious about your comments on the gross margin in terms of markdowns and wondering how you see markdowns progressing as we get through the year and if you can kind of -- actually give a little more elaboration on the dynamics in the quarter between markdown and sourcing?

Sure. In the second quarter, you know, we were impacted, you know, to that extent, 130 basis points, primarily by the increased markdown rate, which was about 15% higher than a year ago.

Uh-huh.

Markdown rate, in the low 20s. And that was primarily due to our aggressiveness in staying balanced on the spring inventories.

Okay. Great.

And successfully, I might add. Now, going forward, we don't expect -- there's nothing in the horizon to suggest that our markdown rates will be any different than they were at year-ago levels.

Uh-huh.

And therefore, we don't see any margin pressure on the Casual Male business going into the third or fourth quarters.

Okay. And then do you expect some sourcing improvement going into the third and fourth quarters as well?

There will be some sourcing improvement, but probably, though, Christina, somewhat offset by some of the change in the mix in the merchandise from year-ago levels at the same time.

Okay.

So, therefore, the prescription appears to be -- or the prognosis is, you know, relatively stable level margin rates in the third or fourth quarter, at least as we could best prescribe at the moment.

Okay. Do you think you'll get any -- presuming sales pick up a little bit in the fourth quarter with some of the merchandising changes, do you think you will get any occupancy leverage?

We would expect -- with the sales increase, of course, to show some leveraging on the occupancy expenses, no doubt about it.

Okay. Okay. Fair enough. And then lastly, I wanted to ask about the Levi's Dockers comps, I don't know if you mentioned that. Can you share with us what that was?

Yes, those comps continue to run in the double digits between 15 and 20.

Okay. Great. Best of luck. The merchandising changes sound great.

Thank you.

We look forward to seeing it.

Thanks.

And our next question is from Rob Wilson of Tiburon Research.

Yes, thank you. Dennis, are you going to provide any sort of EPS guidance going forward yet?

No.

All right. Can you tell us what the -- the young men's merchandise sales mix is as a percentage of overall mix so we can get a sense for our, you know, how, you know, how much, you know, how -- you know, the -- the comps I guess that you're throwing out, how important those comps are?

Yeah, it's been about 5% of our business and it's, you know, more than tripling right now in terms -- but we're in a very good period for young man's with back-to-school. We don't have a lot of, you know, history, obviously, as we're rolling out to more stores, as to -- as to how -- what the top expectation levels is, but we're moderating it, we're adding stores judiciously, so, again we're up to 200 stores. Fourth quarter we will be at 250 stores. But again, it's -- it's starting off a relatively small base, but again, month of August, it is having some significance because of the back-to-school period. As it relates to our EcKo business. Our EcKo business in August is an incredibly big month in sales.

Right. Would you say that -- is that 5%, is that based off the 175 stores that currently have the product? Or is that based off the total chain?

That was based off of, you know, like -- last year's young men's category. Being in -- at that point, at 5%, it was probably in about 75 stores.

Okay.

But again, as we add more stores, you can't -- it's not totally exponential because we're moving into lower-volume stores, obviously as we roll it out more.

Right, so the stores that currently have that product, what would the mix be in those particular stores?

Anywhere between 5 and 25% of their sales right now.

Okay. That's a very broad range, but it does really vary by store. Okay. Dennis, can you give us a sense of where inventory levels will be in Q3 and Q4?

We expect as to Casual Male, Rob, we expect inventory levels to be trending up somewheres like 5 to 10% from year-ago levels. And that's primarily due to many initiatives that David just went over. But I might add that the component -- or the makeup, the composition of that inventory increase is primarily basic in nature and so we can reasonably and safely operate at those higher inventory levels.

So, is that 5 or 10% versus $144 million at the end of Q3 last year?

I'm only talking about Casual Male.

Okay.

The designs business will continue to experience significant decreases in inventory levels from a year ago. 50, 60% from year-ago levels. So, therefore, the overall inventory, combined, will be down something like 20 to 30% from year-ago levels.

Both Q3 and Q4?

Yes.

Okay. Got it. Can you give us some sense for -- I guess the sales trends for early part of this quarter? I mean you said -- you said they're moving in the right direction. Am I to assume the right direction is positive?

Yes, as we said that we think we're going stabilize in the third quarter, we're going to be showing improvement -- upside in the fourth quarter and it's really first quarter next year where we really believe all -- all these initiatives with the systems coming in, will have an impact, but we've certainly had, I would say, 6, 7 weeks now of encouraging comps, I'll use the word encouraging.

Okay. Well, thanks for taking my call.

Thank you, Rob.

Thank you. And our next question is from Steve Denault of Craig Hallum.

Good afternoon, everybody.

Hi, Steve.

What was the absolute level of cost savings in the second quarter?

Approximated about 9 to 10 -- second quarter, sorry, I was thinking six months, Steven. About between 3.5 and $4.5 million. The second quarter. Somewhat disguised, obviously, by the changing dynamics of the business. Decline in design stores, increase in EcKos. Some of the shifts in the expenses on the Casual Male side.

Should we, on an -- if we look on an absolute basis, I mean how much of that $20 million run rate should we assume you'll spend back? Either "A" to get the cost savings or "B" to spend back in advertising and marketing?

Yeah. Probably -- I would guess, sitting here, Steven, I would -- between advertising and other natural cost increases in the business, labor, et cetera, that you should expect something like a spend back of -- of 3 to $4 million for the entire year. You know, apples to apples. Without taking into account any changes in the business from a year ago. More new stores, you know, changes in the store mix, et cetera.

Okay. Where do you think, if I pick on the young men's business, ideally, once it's in all, you know, all of the stores, where can you see that mix going to? Or what are you targeting?

I don't know. It's -- again, we're working on remerchandising every store into clusters of lifestyles, so, we're -- we're working on this project to identify what stores could handle what percent capacity on their floors to maximize that business. It's a little premature for us, but we are -- we're already testing into expanding into these categories, we -- we've just brought in hats that are doing phenomenal. We'll be bringing in belts, we're bringing in underwear. So, these are all growth categories within this -- within this business. So, it's so -- it's such in the early growth stage, it's difficult for us to clearly see how -- how much this is going to grow.

And then we also have to account that the -- the active wear business that we're going into is definitely going young men's also, by adding Adidas, NBA, college teams, pro teams, that's certainly going to gear more younger than we've had in the past, too. So, we've not yet really been able to figure -- you know, what level this will see, but we're working towards that and will be -- we'll have a much clearer picture after this quarter as to how successful the next 100 stores did with the product.

Okay. If we get to 22 EcKos in the fourth quarter, I mean at this point in time, where do you think that number goes to in calendar 2004?

Well, we're -- we're kind of scheduling a rate of 15 outlets per year and it's a real estate question. We may get to more. It shouldn't really be less. We've already identified pretty much the next 15, but the plan is to grow it to approximately 75 stores and that is where -- and we'll cut it off right around that level.

Is there still an opportunity for [car vaults]?

There's still a few left, not as many -- we really nailed those in the first part of this year. We do have a few left, but not -- not a whole lot.

Okay. And if I could ask just one more. You wrote a statistic regarding the suit business, I think it was a comp within the stores that were carrying suits. What was that number?

Yes, the stores that had suits last year and have suits this year, in that category, their sales this quarter are running around 25% ahead of last year. It's virtually the same suit they had a year ago. So, we're starting to see very positive movements towards the clothing business again. Like I said, it seems to be consistent out there in the industry, there seems to be some coming back to the suit business.

Okay. And just directionally, suits tend to contribute what percent of the mix?

I don't --

Suit clothing business overall, Steven, you know, approaches 20%.

Yeah, if you take into the -- the -- the ties and the dress shirts, the package of that product is about 20. Suit separates, I'm not -- I don't have that number in front of me.

Okay. Thank you.

Okay.

Thank you. And our next question is from Monique Owens of AMT.

Hi, I see that you have raised additional debt. Is there any way to participate in the new offering? Thanks.

Yes. Although we are exploring it, Monique, but yes, there is a way to participate. And I welcome you or anybody to call me if they have any interest.

Okay, thank you.

Hello?

Yes?

Operator?

Yes.

That was it, thank you.

Yeah.

Our next question is from Kyle Schultz of William Smith and Company.

Hi, David, can you give an update on your custom pant and custom shirt program and how that's progressing?

Yes, the custom pant and shirt program has been in a couple of months that we've been having meetings on that this week. The good side is the logistics of it are running very smoothly. Customers are coming back. We're getting a lot of responses. They are re-ordering.

We're doing fairly -- we're doing well on the Internet and catalog insert piece. I believe we're disappointed in the store participation and we have to -- what we found is we have to do training to get our -- our sales people to take the measurements and process them through the transactions. So, it's becoming -- it's a -- it's clearly a priority, but the program is running well. We just want to push more of that product through -- through the store level.

One of the things -- statistics that we found very interesting, is that on the size curve of our customer, it's almost identical in the waist, where the average customer is buying around a 50 to 52-inch waist. What's the most incredible statistic is the average in-seam, 60% of our sales are below a 30-inch in-seam and we don't carry below 30-inch inseams. We're seeing a tremendous opportunity first to market to this customer who needs a shorter rise. And also gives us the opportunity to probably add some of that shorter in-seams into the stores themselves.

Okay.

So, work in progress and getting better.

Okay. Secondly, I guess I noticed on your web site, looks like you've teamed up with Foot Locker for a sort of shoe program. Can you comment on that?

We just did a code-branding link, where we link between sites. If the customer comes to Foot Locker and wants to buy apparel, they can link to us and again, if they're on our side and want to buy some athletic footwear that we don't carry, we can link to them. That is just in a test phase, we're really much more focused right now, we are a few weeks away from launching with Amazon on their -- on the retail site and we will be the premiere Big & Tall player there. We're very excited about that. I've mentioned before that the retailers that are up and running on that site all seem to be exceeding their expectations. So, that will bring us a lot of new customers to our Internet.

Again, our Internet business is -- is doing extremely well. Again, running, our Casual Male Internet site is consistently running 100% increases month-to-month.

Okay. Final question, I guess, on the reorganization of the store layouts --

Uh-huh.

Is there any incremental cost incurred with that?

No, none. It's using the same fixtures, just remerchandising.

Okay, great. Thank you.

Okay.

And our next question is from Leah Burmulen of Tiburon Research.

Yes, I'm curious, have you done in-store testing with lifestyle merchandising? And if so, what sort of impact are you seeing on sales from that sort of shift in the merchandising?

We've actually only done it on a few stores and I would say the response was so positive we just decided to roll it out in time for our big season. So, it's going to go live in the -- by mid-September and everybody's in training right now, but the -- the stores that we did it in had -- had instant improvement on their performance.

Okay. Great. Well, good luck.

Thank you.

Thank you. And we have a question from John Curti of Principal Global Partners.

Good afternoon. Of the 11 remaining stores scheduled for opening this year, what's the breakdown between full-price and outlets? And then the breakdown for the 30 stores for next year?

Yeah, let me take that for you because I have, in front of me. The anchor, the full price stores, we often call anchor, planning on another 8 stores on the full-price side, right? And 3 on the outlet side. And I would venture to say that next year's 30 stores will be more than two thirds, perhaps 75%, full-price related and the balance outlet.

And do you -- what about Cap Ex for this year? And for next year?

We expect our capital expenditures this year and -- and next, for that matter, to be running somewhere in the range of 12, perhaps $13 million.

And I want to go back to the 175 stores that had the suits.

Yes.

And then when you were talking about the very strong comps. Overall, what kind of comp store increases are you getting out of those stores?

I wouldn't have the answer to that. You asked me what the comp stores -- the total comp store sales in those specific stores are?

Yeah, I'm trying to get a sense of the potential as you add suits to your remaining stores --

All right, I -- you know, I did have a slide at our annual meeting and it had -- if you go to the web site, you will actually see the sales increased by month, the dollars are all there. Also, for anybody who's interested, if you look -- if you go to the web site and look at the young men's slide, we also have incremental dollars projected in young men's by month, so, you can find -- the answers to those two questions are clearly in the charts.

Okay. And then the introduction of some of the young men's wear, the EcKo, the Roca Wear, Rockaway, et cetera. You said 200 stores by the -- by year-end?

No, 200 stores today.

Today.

You know, it's coming in as we speak, almost every store has the inventory on the floor this week.

Okay. And ultimately, in almost all stores?

Well, we -- we have 250 for fourth quarter and we keep assessing it. We keep pushing it and pushing it, but theoretically, if it was in all stores, because they have to eliminate the outlets it would be about 300. So, we're -- I mean about 400. So, we're only -- you know, we still have another 150 to -- to grow into in the next -- for next spring.

Okay. And with regards to suits, will they eventually be in all stores?

They will be in all 475 stores. They will be in -- in the chain for first -- everybody will have it by January 1, including outlets will have the suit separates. Also, I have to make this note, the suit separates will now be under the George Foreman Comfort Zone because we're adding some technology into the suit for -- in the shoulder area for expansive stretching and it was just a natural for us to go with George Foreman on the suits.

Okay, thank you very much.

You're welcome.

And our next question is from Gary Giblen of BL King.

Hi, from CL King, actually, thanks. Can you describe the market research that supports the choice of George Foreman as your major spokesperson? And what I'm thinking is -- I mean the natural reaction is that gee, he's not a young sports figure, but he has other attributes, so, how do you put that together?

Well, we did. It's interesting, we -- we've done a survey several weeks ago that was concluded and it was 25 questions and one of the questions had seated several different well-known celebrities as to who would you like to see representing Casual Male? George Foreman came out 80% of our 1700 customers found him appealing to very appealing. And we -- you know, that was off the charts.

While we're also excited about, we're very excited about this, is that today, only about 30 to 35% of our customers are women who are shopping for the male. That is the inverse of the department store men's apparel business, where almost 75% of the purchases in men's apparel is made by the female.

George has a tremendous queue rating on women as well as men and obviously that is very reflective in the -- in the success of the Foreman grill. He just has a very warm, believable identity and we think once we have them out there on the national media, we're going change the mix and we're going to get a lot more women in our store shopping, especially if we get essentials like Oprah, Oprah show and some of the late night shows and "Good Morning America", talking about the George Foreman product in our stores.

So, the other point is he's got the -- you know, he's the third-highest rated celebrity today, but he's only behind Tiger Woods and Michael Jordan. So, we're -- we're totally, you know, thrilled to have -- to have George behind us.

Okay. Thanks. And one additional question is, you know, you have generally better service in your stores than the other men's stores because I think you have a more long tenured sales force, but I mean are there things you can do to, you know, can revitalize their enthusiasm? Or to just further build upon what you have at store level?

Yeah, again, I had dinner with 30 of our district managers who represent -- and we have 55 out there. So, I had more than half of them at dinner and I'm always asking that question. How are things going out there?

You know, what they're telling me is the stores have never been so excited, the fact that we're -- we're listening to the stores, we're out there and doing what they -- what they want. What they want is product. They know product is going to give them comp sales and comp sales is, of course, how we measure everything in life in retail.

And the -- the -- the product that they're getting in, the depth of product and these key items that we're advertising, which is a huge change, we would advertise items that we didn't own properly and just constantly disappoint the customers that they would come in for something advertised and we didn't have it. We've changed the total focus of depth into key promotional items, we're more aggressive on our promotional events and the stores are very excited and, again, I come back to George Foreman one more time.

They're just thrilled that we have somebody like George Foreman because they -- they believe that he's going to do a lot for our stores and they're also extremely excited that we're going to be advertising on a national level for the first time. We've never gone out and done that before.

Okay. Interesting.

One addition to that, David, Gary, to your question about the store associates. Small detail about our business, but we are -- over the last six months, we have studied carefully our most productive sales associates, you know, chain-wide. And some of the personal characteristics of those sales people. And with the -- with the help of an outside company, we have redesigned and -- and tailored our hiring process and our hiring questionnaire. The focus towards our managers, towards those same kinds of characteristics in an attempt to emulate, you know, our most successful sales people.

Okay.

In answer to your question how can we do better. And my answer to that is by hiring better and we're working on that aspect.

Okay. Any early results you can quantify from the sort of benchmarking best practice of associates?

Yeah, just started this in June, Gary, so perhaps next quarter.

Okay. Great. Good luck. Thank you.

Thank you.

Thank you. Our next question is from Cliff Greenberg of Baron Capital.

Hi, guys, good going.

Thanks.

Can you remind me again, when we start -- what's the timeframe for starting the Foreman advertising campaign and also the Foreman products? Either the signature line or the Comfort Zone stuff. When do you actually have the products rolling out? And how is it going to roll over to next year? And when do you advertise or get him out, just promoting?

Right, we have the line -- the -- the line has been put together. We're at all these different stages of production, getting the hang tags done, that's why we had the photo shoot. The product will start hitting the stores in, you know, November, December, January, just -- but we have a lot of inventory to build to get it rolled out, but we are set, really, for the end of January, February period, where the product will be in -- in all the stores.

And which, David, this is the -- that's the Comfort Zone stuff --

It's both. Now, in terms of when we kick off the national advertising, that -- that's yet to be determined. First quarter, but I can't tell you what month yet because, you know, we're still formulating our game plan on how we're going to market it.

Okay.

But it will be -- we're -- we're completely set for first quarter.

Cool. Okay.

Thank you. Again, ladies and gentlemen, if you would like to ask a question, please press 1 at this time. And we have a follow-up question from Rob Wilson.

Yes, quickly, Q2 capital expenditures, what were those, Dennis?

Q2 capital expenditures were about $3.5 million.

Okay. And also, in the other branded apparel division what was the operating income in Q3 and Q4 of last year?

One moment. Let me get that. Just bear with me one second.

And if you want, I can just call you back on that.

I have it right here, Rob. This is before discontinuing ops.

Right.

For the second half of the year, we made $200,000. One more -- $1.2 million in Q3, $1 million lost in Q4. So, basically break even in the second half of the year a year ago.

And you expect to be certainly operating on positive operating basis for this year in that division?

Yes.

Okay. Thank you.

And our next question is from Peter Cyrus of Guerrilla Capital.

Hi, David, hi, Dennis.

Hi, good afternoon.

Dennis, at the beginning you were going over -- you were -- [ INAUDIBLE]

Say it again, Peter, you're faint.

I'm sorry. At the beginning of the call you were mentioning about the debt offering. Can you just explain again what -- what you were doing there, what the terms were?

Yeah, the terms, we did a $12 million issuance, Peter. 12% rate maturity 2010. Terms and conditions, basically the same as the existing junior sub-debt that we sold a year ago, over a year ago. The proceeds of which were used to repay -- or pay down our revolving line of credit.

Okay. And -- and -- and the -- and there is the possibility that that offer would still be open, is that correct?

Yes, that is correct.

Okay, great. Thank you very much. And just for the record, even though I'm not size 52 waist and 28 pant, I have been in -- in the stores recently and I like some of the things I see. So, congratulations.

Good, thank you.

Thank you.

Thank you. And at this time, I'm showing no further questions.

Okay. Again, thanks everybody for joining us on the call. It's a work in progress every week, more things are taking place, but again, we feel good about -- we're feeling very good about where we're at today and the next few quarters, we should really see the fruits of our labor. So, we look forward to the next call with you all and have a good day. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the conference. You may now disconnect and have a good day.