Destination XL Group Inc (DXLG) 2003 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter fiscal year 2004 earnings call. (OPERATOR INSTRUCTIONS). I would now like to introduce your host for today's call, Mr. Jeff Unger, Vice President of Investor Relations.

Good morning. Welcome. On the call today is Seymour Holtzman, Chairman of Casual Male Retail Group; David Levin, President and Chief Executive Officer, and Dennis Hernreich, Chief Financial Officer and Chief Operating Officer.

I would like to read the forward-looking statements and turn the call over to Dennis. Forward-looking statements contained in this and other written or other oral reports are made based on known events and circumstances at the time of 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 earnings projections may differ materially from current expectations depending on economic conditions within both its 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 cancellations and shipments, uncertainty surrounding timing, successful completion or integration of acquisitions, threats associated with and efforts to combine terrorism, competitive market conditions and the results of effects on sales and pricing, increases in raw materials costs that can not be recovered on product pricing and global economic factors, including currency exchange rates, difficulty entering new markets and general economic conditions such as interest rates. The Company makes these statements as of the date of this disclosure and undertakes no obligation to update them.

Dennis, the call is yours.

Thank you, Jeff, and good morning everyone, and thank you for joining us for our third-quarter earnings call.

First, I will summarize and comments on the results for the third quarter (technical difficulty)-- released earlier this morning, and then briefly discuss CMRG's 5 percent convertible note offering as it affects its capital structure.

On a consolidated basis for the third quarter of fiscal 2004, the Company reported a net loss of approximately $1.2 million or 3 cents per diluted share as compared to a net loss of 300,000 last year or a penny per diluted share. For the nine months ended November 1st, 2003, the Company reported a net loss of $3.3 million or 9 cents per diluted share, as compared to a net loss of $15 million last year which included restructuring charges of approximately $11.1 million related to its Levi's/Dockers business. After assuming a normalized tax rate of 35 percent for fiscal 2004, the net loss for the three and nine months in ended would have been 2 cents and 6 cents respectively.

Now let me break down these results to Casual Male and the other branded businesses. First, the Casual Male business operating income for the third quarter was 1.3 million as compared to operating income of 2.4 million last third quarter, while for the nine months, Casual Male's operating income improved to 8 million from 5.4 million last year. In this third quarter, having anniversaried much of the Company's cost reduction initiatives, Casual Male's operating income was largely due to the decrease in total sales for the quarter of 2.3 percent and the deleveraging impact on its expense base. For example, Casual Male's gross margin rate reflects a drop of 60 basis points due primarily to the deleveraging of occupancy costs. Casual Male's merchandise margins actually improved slightly in the third quarter from a year ago.

Casual Male's SG&A for the third quarter of 227.1 million is in line with its expectations and similar to the first and second quarter SG&A levels of 26.2 and 26.4 million respectively, except for the approximate $400,000 charge taken in the third quarter for the early repayment of the Tranche B term loan to be discussed in a moment. Casual Male's comparable store sales for the third quarter were down 1.1 percent, which differs from the total decrease in sales of 2.3 percent due primarily to the planned and previously discussed discontinuance of the rep catalog. We are in the process of converting the rep catalog customers to the Casual Male brand and, therefore, are not yet reflecting the expected improved productivity and profitability of our catalog division until next year.

For the nine months, Casual Male sales have dropped in total by 4.1 percent, but operating income increased to 8 million from 5.4 million, largely from reductions in SG&A. Although the gross margin rate dropped by 110 basis points, merchandise margins remained steady to year ago levels while occupancy costs as a percentage of sales increased by that same rate.

Now the Company's other branded apparel business, which includes its Levi's/Dockers outlet stores and its growing EcKo Unltd outlet stores, showed improved operating income for the third quarter to $900,000 from $400,000 last year. Although there has been no improvement in the sales declines at the Levi's/Dockers outlet stores, its gross and operating margins have significantly improved from last year and have been steady throughout this year. We expect that the Levi's/Dockers outlet business will continue to perform at these breakeven levels.

At the same time, the EcKo Unltd joint venture sales volumes in the third quarter approached 6 percent of CMRG's total volume as compared to 1.5 percent last year in the third quarter, and therefore, its contribution to the operating income is becoming more significant. The third quarter improvement in operating income for the other branded apparel business was primarily a resultant of EcKo Unltd performance.

At the end of the third quarter, CMRG had 558 stores opened, of which 480 were Casual Male's with approximately 1.633 million square feet. Levi's/Dockers outlets had 57 stores, and incidentally 23 other Levi's/Dockers outlet stores are currently in liquidation and will be closed by the end of this fourth quarter. But the 57 stores have approximately 540,000 square feet, and the EcKo joint venture had 21 stores open at the end of the quarter with 79,400 square feet. This compares to the end of the third quarter last year of 586 total stores with Casual Male at 469 with 1.6 million square feet, Levi's/Dockers with 100 stores at 1,027,000 square feet, and five EcKo stores with 17,000 square feet.

In terms of the balance sheet, CMRG inventories were at 119.9 million compared to last year's 143.9 million, the reduction primarily due to the drop in the Levi's/Dockers store count. As to its capital structure, during the quarter, in an effort to reduce its average cost of capital and otherwise enhance its financial flexibility, the Company completed a private offering of 12 percent 2010 senior subnotes for a total amount of 29.56 million, the proceeds of which were used to retire the Tranche B term loan for approximately 16 million and the balance of the proceeds to reduce its borrowings under its revolving line of credit.

Subsequent to the quarter-end, the Company announced a private offering of a 5 percent convertible note, which is as of today not necessarily completed. The offering is up to a maximum of $100 million, the proceeds of which will be used to retire the 2007 and 2010 12 percent senior subnotes, repurchase up to 2 million shares, and otherwise further reduce borrowings under its revolving line of credit. After completion of the offering, we expect borrowings under its $90 million revolving line of credit facility to be at minimal levels. When the offering is completed, a further announcement will be made at that time.

That completes my comments as to the third-quarter results, and let me turn it now to David.

Thank you, Dennis. We are now 18 months into the critical turnaround of Casual Male. We have made significant progress in the critical areas of expense reduction, upgrading systems, and executing our merchandising initiatives. Our comps sales performance is showing gradual signs of improvement. We have gone from a -5 percent in the last year's fourth quarter and this year's first quarter to -2.5 percent in the second quarter and to a recently announced -1.1 percent. We anticipate the current fourth quarter to continue with moderate improvement.

I would like to begin with an update on our merchandising initiatives. First, our strategy to capture a younger customer has been exceeding our expectations. Our third-quarter comps in young men's were up 164 percent, and that percent will increase throughout the next several quarters. We have accomplished this without even communicating to our customers that the product is even in the stores. Today it is available in about 200 stores and will be chainwide for next spring.

Up until this month, suit separates were available in only 175 of our stores. The rollouts of the chain started this month and will be in all stores by the end of this year. Adding back the tall inseams in our size assortment of bottoms is also starting to payoff as well. And finally our key item strategy is doing very well also.

Having a broader color assortment and depth of key product in all stores at compelling prices has narrowed our assortment and kept us in a better stock position during our promotional events. We will continue to expand in this strategy, and we will have 20 percent less SKUs in our store for next spring.

One area of the business in the turnaround where we have not changed previous practices, however, is in marketing. We continue to spend our marketing dollars with direct-mail for our existing customer base. We have not done anything in terms of attracting new customers and branding the Casual Male name. Our sales per customer, our conversion, our items per transaction are not the issue. What is happening, however, is the fact that customer traffic is down. Bombarding our existing customer base with promo events has grown tiresome, and each promotion that we anniversary loses its pizzazz over time. And that is why we are so incredibly excited about the spring launch with George Foreman as our spokesperson and the introduction of his apparel line that is exclusive to the Casual Male chain.

I would like to give you an update on where we are at with the upcoming launch. Since we announced the deal in June, we have been putting a tremendous amount of energy and resources behind this project. First, we have engaged Eversley and Ginsburg out of New York to be our advertising agency. We will kickoff the national television campaign starting in March with a budget of $5 million. Based on the results of spring, we will determine the budget for the fall season. This $5 million spend is not incremental to our $22 million total budget but is being funded by cost reductions out of our catalog division, plus a reallocation of funds from our direct-mail.

We have also engaged Weber Shanwick to handle the appropriate PR work for George and Casual Male. In fact, we have already lined up a luncheon at NASDAQ for the investment community on December 3rd to meet George and preview the apparel line, and tentatively we will be on Fox network later in the day, and George will make an appearance on the Today Show the following morning.

The George Foreman Comfort Zone and Signature apparel line will be featured in our first spring catalog that will be delivered at the end of February. George's line will encompass the first 16 pages, with significant space allocated to describing the technological features of the product. The Comfort Zone and GF activewear line will be available in all stores by February. The three key items will be the waist relaxer, which expands up to three inches; our patent pending neck relaxer, where the collar can expand an inch, and our dry action polo shirt, which has a wicking process that keeps big guys dry.

We are launching the Signature line on our e-commerce site, in the catalog and 60 stores for February also. Signature is a more contemporary line that has more natural fibers, fabrics and higher price points. In all, the George Foreman product will represent about 10 to 15 percent of our sales for spring '04, and we anticipate that number to grow over time.

The other topic I would like to do is give you an update on our joint venture with EcKo. We are 50-50 partners with EcKo Unltd, a young men's and women's apparel company who hosts sales that exceed $300 million to date. We currently have 21 outlet stores in operation. Last year we had five stores open in the third quarter. Those stores comped up 21 percent this year in the quarter we just completed. This was from a combination of more awareness to the consumer that the stores exist and an improvement in our ability to better merchandise the stores.

Now that we have enough critical mass in store count, we have been able to manufacture key items for the outlets to ensure a better flow and presentation of product. Since our first receipts in July of this year of made-for-outlet product, sales have improved dramatically. We also anticipate further top-line growth with the addition of new licensed products including belts, underwear, socks, and a new footwear line that is being licensed to Skechers.

Based on the success, we have achieved thus far we are now accelerating the expansion of our five-year plan to get to our goal of 75 outlet stores. We now plan on opening as many as 30 new stores next fiscal year. In addition last week, we opened up a full price EcKo store in Emerald Square Mall, which is a regional mall between Boston and Providence. And we will be evaluating its potential over the next few months and then decide what opportunities there may be for another channel of distribution.

And on that note, Dennis and I and Seymour will now open the discussion to any questions and answers.

(OPERATOR INSTRUCTIONS). John Reilly, CJS Securities.

Just a specific question related to the $400,000 charge taken since the retirement of debt. Where does that hit on the segment income statement?

Within Casual Male, John.

That hits at the SG&A line on the Casual Male side?

Yes, pursuant to a most recent accounting pronouncement.

Very good. You mentioned that we still have further cost reductions related to new systems. Where are we in the process of that, and when can we expect those to be seen?

Good question. We are right now in the midst of testing our new systems, which is to be into our outlet stores in the early spring and scheduled to be chainwide early summer after Father's Day. Once that takes place, our distribution processes become more efficient, our MIS costs can be further reduced, and at that time, those areas can be made more efficient, and that is when we would start to see the rest of the cost reductions coming out.

Do you think you can quantify that amount?

Well, we have continued to say it is at least 5 and perhaps as much as 10 in totality.

You mentioned some of the new store rollouts on the EcKo side. Can you tell us where we are in the budget for new Casual Male stores during this year as well as next year, what your targets are?

Yes. This year we have opened up approximately 22. Next year we are intending to open up a net between 25 and 30 stores, with a handful of closing. So, therefore, we are going to be opening up something like upper 20s, low 30s to maintain our store count net increase of about 25 to 30.

So net, you are looking at 25 to 30? Thank you very much.

Kyle Stoltz (ph), William Smith & Co.

On the EcKo sales for the quarter, do you have a specific number there?

EcKo sales approximated $6.8 million in the third quarter.

Thank you. On the store count numbers, could you run those by me once more? I did not get those written down.

Okay. Store count at the end of this third quarter, we were at 480, 57 and 21; Casual Male, Levi's and EcKo.

Okay.

Last year, do you have that?

You can go ahead.

469, 100, and 5.

Greg. That is all I have. Thank you very much.

Gary Giblin (ph), C.L. King.

What was the impact on comps, if you can quantify it, of the winding down rep? In other words, you are moving some customers although retaining others, but can you give us a sense of that?

Yes, not yet. It is not so much rep, but it's more of our multichannel approach. But your question is, in terms of our 1.1 percent decrease in comps, how much was store-related perhaps and how much was multichannel contributing?

There is about a 1.5 percent difference between our 1.1 drop in comps versus what happened in the stores without the multichannel components. So, therefore, the store dropped in the upper 2s, as opposed to our total compact of 1.1 minus.

Okay. Okay. That is helpful. Can you give us a sense in stores where you did not have extraordinarily warm weather in October, what were the comps there? How much of a spread was there, normal seasonal weather stores, as opposes to let's say the Northeast, where you could go to the beech on Halloween?

We felt that impact. What was interesting was our comps for July, August and September -- three consecutive months -- we actually comped up for the first time in quite a while. October we gave it back. Purely weather-related from our prospective. If you break it down into the sweater, outerwear, long sleeve knit area, we are dropping 20 or 30 percent a day due to the weather.

Now September was a little cooler, and we got good reaction to it. So we do seem to be fluctuating with the weather. Our business in the warmer areas like Los Angeles, San Jose, San Diego, have been very good. Actually we brought in fresh seasonal products for them, short-sleeved product, and obviously struggling in the colder areas, but we know when it comes, the customers are there. But we did like every retailer out there. October was a bust.

Now in the Northeast, November has been warmer than usual, too. So is that correspondingly causing some softness in sales?

It has been interesting. We don't think we have any consistent momentum. Week one, we were down. Week two, we were up dramatically, and this week it is soft again. So it does bounce around, and again we are mild this week, so we are back into the not too good numbers again. But blended together, we expect to improve comps quarter to quarter.

Okay. A couple more. (multiple speakers)

Providing there is no heatwave in December, we should be okay.

I hope not. Is the promotional environment changing? Is it easy or tough, let us say, for the holidays? What do you see out there? Does it affect you?

Again, we are not always competing with a lot of other players. It is not like the toy business that is going on today where everybody has got the same thing. Our own worst enemy is our own promotional events. Again, they lack excitement; they are nothing new. Customers are kind of bored and lost. The trill is going out of buying on promotions.

What will be interesting is our December third promotion, we have put George on the cover of it, so it will be interesting to see how people react to seeing him for the first time in a relationship with our company.

Okay. And then finally, just a financial question. Now that the convertible deal has been priced and so forth, Dennis, could you give us your sense of the short-term accretion? In other words, what do you think it comes out to without regard to the new shares?

Well, I would love to be able to answer that question. The offering is not yet completed. If you can bear with us a few more days, we will further announce that, and I will get back to you at that time with that.

It is the green shoe issue, Gary.

That point is unknown, right. Okay. Great. Thanks.

Steve Denault, Craig Hallum Capital.

I think I heard you say that the fourth quarter we should expect maybe a sequential improvement in the comps with a continuation of what we have seen sequentially.

Provided -- we think provided the weather is somewhat normalized that we should continue on that trend.

If it is normal, do you think you can get to a flattish sort of a comp? Eventually positive?

That is the kind of numbers we are looking at. The move -- we're pretty pleased to get to move -- we have moved to needle five points almost. It goes slow because again we are not out really marketing how the product is different in the stores, it's just happening as customers come in. So we really don't see a breakout of any type of comps until next spring. We would like to see a little pickup, another percent moved from where we are, flatten it out, stabilize it, that would be nice.

David, do you want to just comment on the Foreman activities that are on the horizon?

I did.

Okay. I am sorry.

What do you see if you look at the young men's business being up 164 percent, is there one or two things that is driving it? Is it (inaudible); is it the Adidas? What is it?

This is strictly the brands of EcKo, Roca Wear, Sean John -- these are the young men's brands. Adidas would fall into activewear, and we did not have any sales in the third quarter. That product is just coming in. But it is getting the product out to more stores. We never really had enough confidence to say this is a chainwide movement we should make, but when we took it from 100 stores in the second quarter, the 200 stores were back-to-school. The next wave of stores performed very well, and obviously the field is clamoring and begging us that they want it in all stores. So for next spring, it will be. EcKo will be the first brand to reach all stores, and then we're increasing the other brands more conservatively because this is just something we don't want to overreact to.

But I would say for next spring it is currently about 5 percent of our sales, but if you actually break it down, it is as high as 20, 25 percent of some of our individual stores that have a full line assortment. Shady just came in in the last week or two, and we believe that one is going to do very well, also.

Yes, I would imagine. Can a big and tall person, young man, buy this product, these brands anywhere else in their respect sizes?

Except for a few specialty players that have three or four stores, we have not seen it anywhere else.

Okay and if I can just ask one more. How is the customer apparel program doing?

It is a very -- that's a good question because it's been quite a journey for us. We fell short of our projected sales coming out of the stores. What we learned was that our employees were not really trained to take a tape measure, measure a customers. They were a little intimidated, and we went back to the drawing board and took our district in Miami, put them through an intensive training program, and their sales of custom have doubled since they went through this training program.

Now we are in the process we are going to roll this out to the chain. We don't have tailors. Our employees are not (inaudible) and using it. So it's a learning process. But every week it is getting better.

Thank you.

Christina de Marval, Sidoti & Co.

I guess my first question would be for David. I am just wondering if you can update us on the results of the change in the floorset to the lifestyle format, if you're seeing any meaningful or measurable change in the financials from that?

Well, we did complete it. From a store prospective, they are enthralled. Our employees love the new look. They are getting a lot of positive feedback from the customers. But today honestly it is a little cosmetic because we did not buy to lifestyle. We bought the way again we previously bought, which was not a lot of cohesiveness, and we've done our best to put it into lifestyle. So we have had some positive impact as again our comps are getting a little better. But the real play will be next spring when we have actually purchased to lifestyle, and when they go into these sections, the pants will actually match the shirts and the sweaters and everything else. Today it is just kind of the best we can do because we wanted to get a jumpstart on it to get our floor people familiar with how to set the floor. But, again, that's another piece I would say we don't anticipate the customer really understanding it until next spring when the product comes in.

Thank you. That is helpful. I guess my next question would be for Dennis. First, with respect to the EcKo revenue, can you tell us what it was in the second quarter?

EcKo in the second quarter, Christina, was about -- one moment and I will tell you -- about 3.5 million.

As far as young men's goes, I think you just said it was 5 percent of business in the third quarter at Casual Male. I was just wondering if you might be able to give us some direction on what to expect when you have it chainwide in the spring? I know you said it's up to 25 percent in some stores, so what do you think is realistic?

Actually we just went through those numbers, and right now it is project to be about ate percent for spring, which it seems like small numbers, but that is a big jump to move from 5 to 8.

Where would it have been last spring I guess? Probably under 5 maybe?

2 or 3.

Dennis, I am wondering on the balance sheet if you could help me out here and if you could break down the components of long-term debt at the end of the third quarter? I guess before the impact of the convert obviously.

At the end of the third quarter, we had -- besides the Kale (ph) Wood notes for 9.5 million and the mortgage for approximately 10.5 million, we had a 29.56 million issue of the 12 percent 2010 notes.

So that was at the end of the second quarter, the balance, because I think you had about 11 million --

We had 11 at the end of the third, right, at 29.5, and then we had 24.5 of the 2007 12 percent senior subnotes, and largely the term loan by then had been repaid. There was a 5 million balance still left at the end of the third quarter that we then repaid the following Monday.

Okay. Maybe you cannot really answer this given the green shoe issue, but am I just wondering with respect to the 2010 notes to the extent that they are not redeemable yet, I was wondering how that is going in terms of --?

That is in progress. We have some redemptions, and it's a little early to say for sure yet, Christina, but in the next week or so, I will have a better idea of that. I just got an electric shock from our legal department.

I do want to get anyone in trouble. My last question is much easier then. On the tax rate for normalized tax rate, should we be -- I think I was assuming something a little higher -- do you think 35 percent is the right number going forward?

That is where our tax planning strategies take us to, Christina.

Okay. Thanks very much and best of luck.

Richard Kine (ph), Kensington Management Group. (technical difficulty). Would you like me to go on to the next one?

Yes.

Russell Hoss, Roth Capital Partners.

Just a clarification on the occupancy issue. Was that purely a function of the deleveraging effect, or was there are an absolute increase?

In terms of the dollar amount, there was an increase from last year of some 6, 7 percent. Some new store activity, but we did not have occupancy cost increases at Casual Male from its (inaudible) base from the prior quarter.

Why? Is that a SPI related issue or is it sales a --?

It is built into the leases, normal increases.

Can you break out the Casual Male sales by catalog, Internet stores?

Sure. In the third quarter?

Correct.

Casual Male in total, that you know, sorry. Casual Male stores were approximately 66 million, and the Web and catalog about 7.3, and I have to maybe get back to you, but the Web was approximately 2.5 million of that.

Okay. Last question is on inventory. I guess your expectations for Q4 and Q1 inventory given the Foreman rollout.

Well, the Casual Male -- we are talking the two different businesses separately for a moment -- Casual Male inventories will generally be up around the 10 percent level at the end of the year, again primarily because what you said, the George Foreman rollout, besides some of these other strategies, extended sizes and so on. However, that is going to be more than offset by the drop in the store count at the Levi's/Dockers stores. However, further offset to some degree by the increased count in the EcKo stores. I think when you add that all up, at the Casual Male Retail Group level, our inventories will be some 15, 20 percent less than last year at the end of the year.

Okay. That is it. Thank you.

Thomas Danslow (ph), Hamilton Investment Management.

I think you actually already hit on this by saying you have to wait until the deal is finished, but I wanted to get a sense of what the pro forma balance sheet looks like, cash and the components of debt, or what they will look like if the writers exercise their share?

If you crystal ball it out to the end of the year, the Company's cap structure, besides the Kale Wood note note, by that time of some $8 million or so.

(technical difficulty) I'm sorry?

The Kale Wood note will be about $8 million. The mortgage will be about $10 million. The only other debt outstanding on the balance sheet will be the convertible note offering. The revolver will be at a cleanup level, zero, it will be in a cash position. And that is what the debt structure will look like at that time.

You won't be carrying any kind of significant amount of cash on the balance sheet?

We will be assuming again -- just by the way, let me say I did assume full redemption of those 2010 notes which obviously I am not sure of at this moment, but we will be in and out of a cash position really throughout the year.

Okay. Thanks.

John Reilly.

Two quick follow-ups. First on, do you you anticipate releasing monthly same-store sales so we can get a better idea in the quarter where you are?

John, I don't think so. I think it is for the very reason. If you look at our last quarter, like I said, we were down 1 percent. If we had given you monthly numbers, you would think we are all over the board and nobody can get a handle on it. I think our strategy for retail is to try and blend things to get out a lot of the noise of specific events and weather. So I think we gave a much clearer picture. Had we given you monthlies, you would have gotten excited and then depressed. So right now we have no plans on changing.

Okay. Just a question. I know you said we will get a lot more information about the convertible offering. Can you tell us you mentioned in the press release you had bought back a million shares and what your plans are if the shoe is exercised?

If the shoe gets exercised, we have carved out at the company's discretion to purchase back another million shares of our common stock on the open market subject to market conditions, etc.. No plans have been made to do that, but we have earmarked that potentially as a use of funds.

So then you have already purchased 1 million?

Yes, we have.

In your balance sheet assumptions which you just spoke about, are you including or not including the purchase of another million shares?

Not including that, John.

David Kaufwell (ph), Dierchen (ph) Management.

Just some questions for David about the EcKo deal. I was curious what you are thinking of long-term? I think you said you are about 6.1 percent of sales now coming from EcKo. Long-term, what would you expect that penetration to be? And then I will follow up after that.

Well, we matured to 75 stores. That would be somewhere around $100 million. And then if you assume Levi's goes away and then Casual Male is going to be in a couple of years probably exceeding 400 million, so it's 500 million and 100 million of EcKo, it could be 20 percent of our topline sales.

What is the thinking over there -- obviously it is bullish -- but about using what is more of a fashion brand relying on them for 20 percent of sales going forward? What is the thinking there? Could you share some color on how you guys talk about it? Is there a little more risk associated with that?

Well, we have a lot of experience in the Outlet business. They are in such a growth stage, we feel very comfortable that the performance is going to continue to increase. The payout on an EcKo store right now is approximately eight months. In the Outlet business, the leases are not as tenuous as full price. We feel very comfortable about where we are positioned in this space. But it does max out at the 75 stores.

Pardon my ignorance, but you mentioned a 50-50 joint venture deal. Is there anything -- how long can that deal last? What are potential deal breakers? What are the particular arrangement in terms of keeping that deal going?

I would say (inaudible) the negotiations for this venture took several months, and I would say 90 percent of the energy was spent on the divorce rather than the marriage. So we have all sorts of options if they sell their company, if this is spun out to a public company. We have lots of if scenarios, and we have protected ourselves quite well in any of those events happening.

Just to add to what David said, the relationship with them could not be better. I am sort of their financial advisor outside their own business, and the president called me just two hours ago about some things. And the president's brother works for me personally. We cannot think -- I think this thing was well thought through. The structure of being a genuine partnership. I am very comfortable about the relationship continuing.

Thank you.

Kyle Stoltz.

How is your Amazon.com launch progressing, and what is your outlook for that program?

Well, we launched it three weeks ago, and of course, everyone of these things usually has bugs in it, and it took us a few weeks to get those out. Right now we are pretty robust, and we have not been doing any promotion, but we have been getting quite a bit of traffic. We just have got to get the word out that this is another place for customers to shop.

As David said, it has been out a couple of weeks. We are watching it closely. Orders are growing by the day. We will probably further discuss that during the fourth quarter or after the fourth quarter.

Thanks a lot.

Grace Holtig (ph), Axia Capital Management.

Most of my questions have been answered, but I did have one further one. You had a store refurbishment program that you were doing that related to the signage in the stores. Could you just update me on that and where that finishes relative to when you start your George Foreman campaign in March?

We have allocated -- we had allocated prior to this current debt offering about $2 million a year to renovate our stores, which is not a total retrofit, but more or less redoing the signs, getting the carpets cleaned, new carpet, paint and fixtures. So we figure we are running at a rate right now we that would do 70 stores a year for the next few years. We are now reevaluating, accelerating that program now that we are in a much better financial position than we were when we did the budget originally.

So we have our real estate department looking -- it is a matter of logistics, how many can we physically get done in the next year, but we are agreeable that we are going to try and get signage done as soon as we can.

If the problem -- if the metric you're having problems with is traffic, and I guess I think I heard in the meeting that maybe 80 percent of your stores don't actually say Casual Male or they say it in very small letters -- actually it says Big & Tall. What percentage of your stores would actually have the proper signage by the time you roll out your George Foreman campaign?

We've got probably 30 percent of our stores have signage that I would say is where we want to be. In the spring, we are going to do -- they start January -- obviously we can't touch the stores until after the holidays, and we are trying to get as many done. But maybe we will get another 10 percent of the chain done before we actually are out there with George Foreman.

Thank you.

Jason Krasha (ph), Great Specialist Funds (ph).

A couple of quick questions on the Casual Male stores here. First of the 480 stores, how many of those stores would you consider underperforming, and if you have some, what are you doing about those?

Our stores basically breakout as follows. One-third of the chain is exceeding the average, so, therefore, perhaps exceeding our expectations. One-third is sort of running at an average level, and another third is running below. We have a constant program of working with those lesser productive stores, reviewing their real estate, particularly as the leases come up on whether to close or whether to relocate, whether to continue to remain open.

In terms of improving its productivity while still at its current location, our people are constantly looking on exception basis, the underperformers, trying to improve conversion factors, and obviously we are very prudent on the expense side. However, all of our stores, though, do make money. So, as you know, it's a constant battle that retailers have where you have got the economy of performance between the stores.

How many new stores -- will you open new stores in the next financial year for Casual Male, and if so, how many?

Yes. We intend on increasing our store base by between 5 to 7 percent per annum. Next year, as I said, we expect to open net stores 25 to 30.

As far as -- for Casual Male again -- as far as total capacity for stores nationwide, what do you think that number is if you had to take a guess?

We think we are at 700 to 800 total Casual Male stores. Obviously it will take us a few years to get there, but that is where we think the store base will grow to.

When we did a survey of over 2000 of our customers and one of the questions was how far do you travel to visit our store, 25 percent traveled more than 25 miles, which means how many would not drive that distance? So we think -- again, these guys don't have a lot of options to do a one-stop shop, so we think we've got a lot of penetration ahead of us.

So if we are looking at the top-line number for Casual Male once again for the next couple of years out, you are going to be adding a net 5 to 7 percent new store growth, and then it is a question of getting the same-store sales growth headed in the right direction; that is a fair assessment. So if you can get the comps -- we are talking about maybe mid-single digit type of top-line growth over the next couple years; is that a ballpark number?

I hope people up above are listening to you.

Gary Giblin.

I just wanted to be clear on the definition of the 164 percent increase in young men's. Is that on a same-store sales basis where you put young men's, or that is just a total aggregate increase in the category?

Total aggregate increase. So obviously we have stores that are getting sales against zero, but that is because we are only in hundred stores. Now as we roll it out -- yes, we don't look at department comps by anything but the total classification.

Okay. Good. Any observations on the general state of the consumer? I know you have your own segment of the consumer world, but I guess the consumer seemed to be getting more flush, and now maybe there are some conflicting data points on that from Wal-Mart or whatever, do do you have any general observations?

No. I don't know -- I would say that we will trend with whatever is going out there in apparel. If it is going to be a good -- if you hear good numbers from other men's apparel companies, then we should move along with it, and if you read that men are not shopping again, then we will probably go that way relative to that to. We tend to go with -- whatever we hear business is out there for the week, we tend to fall into the same patterns.

Okay. Great. Thanks.

(OPERATOR INSTRUCTIONS). Richard Kine, Kensington Management Group.

I apologize if this question has been asked because I had to get off for a few minutes. On the Levi stores, you have I believe you said you are down to 57 from 100. Where will you be by the end of this year (technical difficulty)-- or end of this year, end of --?

That is the number, Richard. Actually we have 80 operating today. 57 will be operating next year, and 23 of those are in the state of closing right now. So it will be at the end of this year 57, and at the end of the following year and at the end of next year, we will be down into we expect to be the low 30s.

Okay. Are you reserved for all these?

Yes.

And are your reserves adequate?

We believe so, yes.

Including the ones that you are going to close next year?

Yes.

You'll be down 30, and I assume the following year you will probably be out?

Something like that, yes.

Something like that means what?

Something like that means we will be down to a level to where we expect to be able to basically shut it down completely. If you look at the lease expirations, this is an orderly liquidation. We are closing the stores according to the leases only right now. Buying out very few leases. At the end of two years, we will probably have a handful, maybe up to 10 stores still operating that we will decide what to do with them at that point.

None of these are conversion possibilities to other --?

Most of the conversions to other formats have taken place or plan to take place in the spring of this year. I am sorry, the spring of next year.

Thank you.

I show no further questions at this time.

Well, thank you all, and we look forward to making our numbers for fourth quarter, and we will speak to you soon. Thank you very much.

Ladies and gentlemen, this concludes the conference. Thank you for your participation. You may now disconnect, and have a good day.