What changed in this filing

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Item 1. Financial Statements

2022-11-17 compared with 2022-08-25 · 249 added, 210 removed, 597 unchanged (43% of the section changed)

3 unchanged sentences

(In thousands, except share data)

July 30, 2022

October 29, 2022

January 29, 2022

24 unchanged sentences

Preferred stock, $ 0.01 par value, 1,000,000 shares authorized, none issued

Common stock, $ 0.01 par value, 125,000,000 shares authorized, 77,359,687 and 77,025,419 shares issued at July 30, 2022 and January 29, 2022, respectively

Common stock, $ 0.01 par value, 125,000,000 shares authorized, 78,057,366 and 77,025,419 shares issued at October 29, 2022 and January 29, 2022, respectively

Additional paid-in capital

Treasury stock at cost, 15,625,172 shares and 12,755,873 shares at July 30, 2022 and January 29, 2022, respectively

Treasury stock at cost, 15,625,172 shares and 12,755,873 shares at October 29, 2022 and January 29, 2022, respectively

Accumulated deficit

7 unchanged sentences

For the Three Months Ended

For the Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

For the Nine Months Ended

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

(Fiscal 2022)

19 unchanged sentences

For the Three Months Ended

For the Six Months Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

For the Nine Months Ended

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

(Fiscal 2022)

38 unchanged sentences

Balance at July 30, 2022

Board of directors compensation

Stock compensation expense

Issuance of common stock, upon RSUs release

Exercise of stock options

Shares withheld for taxes related to net share settlement

Accumulated other comprehensive income:

Pension plan, net of taxes

Foreign currency, net of taxes

Balance at October 29, 2022

The accompanying notes are an integral part of the consolidated financial statements.

21 unchanged sentences

Balance at July 31, 2021

Board of directors compensation

Stock compensation expense

Issuance of common stock, upon PSUs release

Exercise of stock options

Shares withheld for taxes related to net share settlements

Accumulated other comprehensive income (loss):

Pension plan, net of taxes

Foreign currency, net of taxes

Balance at October 30, 2021

The accompanying notes are an integral part of the consolidated financial statements.

2 unchanged sentences

(In thousands)

For the Six Months Ended

July 30, 2022

July 31, 2021

For the Nine Months Ended

October 29, 2022

October 30, 2021

(Fiscal 2022)

24 unchanged sentences

Net repayments under credit facility

Debt extinguishment costs

Debt issuance costs

44 unchanged sentences

Other comprehensive income (loss) includes amounts related to foreign currency and pension plans and is reported in the Consolidated Statements of Comprehensive Income (Loss).

Other comprehensive income (loss) and reclassifications from AOCI for the three and six months ended July 30, 2022 and July 31, 2021, respectively, were as follows:

July 30, 2022

July 31, 2021

Other comprehensive income (loss) and reclassifications from AOCI for the three and nine months ended October 29, 2022 and October 30, 2021, respectively, were as follows:

October 29, 2022

October 30, 2021

For the three months ended:

7 unchanged sentences

Balance at end of quarter

July 30, 2022

July 31, 2021

For the six months ended:

October 29, 2022

October 30, 2021

For the nine months ended:

(in thousands)

8 unchanged sentences

Expense on the Consolidated Statements of Operations for all periods presented.

The Company recognized income of $ 8,000 and $ 12,000 for the three months ended July 30, 2022 and July 31, 2021 , respectively, and income of $ 20,000 and $ 24,000 for the three months ended July 30, 2022 and July 31, 2021 , respectively, as a result of a change in amortization from average remaining future service to average remaining lifetime.

There was no related tax effect for the three and six months ended July 30, 2022 and July 31, 2021.

The Company recognized income of $ 9,000 and $ 13,000 for the three months ended October 29, 2022 and October 30, 2021 , respectively, and income of $ 29,000 and $ 37,000 for the first nine months ended October 29, 2022 and October 30, 2021 , respectively, as a result of a change in amortization from average remaining future service to average remaining lifetime.

There was no related tax effect for the three and nine months ended October 29, 2022 and October 30, 2021.

Stock-based Compensation

7 unchanged sentences

Actual results and future changes in estimates may differ from the Company’s current estimates.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions in the table below as it relates to stock options granted during the first six months of fiscal 2022 and fiscal 2021.

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

Expected volatility

19 unchanged sentences

The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company’s average cost of funds.

The Company recognized non-cash gains of $ 0.1 million and $ 0.4 million, respectively, for the second quarter of fiscal 2022 and fiscal 2021 and non-cash gains of $ 0.6 million and $ 1.1 million, respectively, for the first six months of fiscal 2022 and fiscal 2021 related to the Company’s decision to close certain retail stores, which resulted in a revaluation of the existing lease liabilities.

There were no impairments or non-cash gains recognized in the third quarter of fiscal 2022.

For the third quarter of fiscal 2021, the Company recognized a non-cash gain of $ 1.2 million, and for the first nine months of fiscal 2022 and fiscal 2021, the Company recognized non-cash gains of $ 0.6 million and $ 2.3 million, respectively.

These non-cash gains related to the Company’s decision to close certain retail stores, which resulted in a revaluation of the existing lease liabilities.

The portion of the gains that related to previously recorded impairment charges against the operating lease right-of-use asset were included as an offset to previously recorded asset impairment charges.

Accordingly, for the second quarter of fiscal 2022 and fiscal 2021, $ 0.1 million and $ 0.4 million, respectively, were included as an offset to asset impairment charges.

For the first six months of fiscal 2022 and fiscal 2021, $ 0.4 million and $ 1.0 million, respectively, were included as an offset to asset impairment charges.

The remaining gains for the second quarter and first six months of fiscal 2022 and fiscal 2021 were included as a reduction of store occupancy costs.

Accordingly, for the third quarter of fiscal 2021, $ 1.1 million was included as an offset to asset impairment charges.

For the first nine months of fiscal 2022 and fiscal 2021, $ 0.4 million and $ 2.1 million, respectively, were included as an offset to asset impairment charges.

The remaining gains for the third quarter of fiscal 2021 and the first nine months of fiscal 2022 and fiscal 2021 were included as a reduction of store occupancy costs.

The Company adopted ASU 2016-02, “

7 unchanged sentences

The Company also made an accounting policy election that the recognition requirement of ASC 842 will not be applied to certain, if any, non-store leases, with a term of 12 months or less, recognizing those lease payments on a straight-line basis over the lease term.

At July 30, 2022 , the Company had no short-term leases.

At October 29, 2022 , the Company had no short-term leases.

The Company’s store leases typically contain options that permit renewals for additional periods of up to five years each.

2 unchanged sentences

Renewal options are not included in the lease term for automobile and equipment leases because they are not considered reasonably certain of being exercised at lease commencement.

Renewal options were not considered for the Company’s corporate headquarters and distribution center lease, which was entered into in 2006 and was for an initial 20 -year

Renewal options were not considered

for the Company’s corporate headquarters and distribution center lease, which was entered into in 2006 and was for an initial 20 -year term .

At the end of the initial term, the Company will have the opportunity to extend this lease for six additional successive periods of five years .

7 unchanged sentences

for additional information.

Recently Issued Accounting Pronouncements

No new accounting pronouncements, issued or effective during the first six months of fiscal 2022, have had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.

Recently Issued Accounting Pronouncements -Not Yet Adopted

In September 2022, the FASB issued Accounting Standards Update ("ASU") 2022 - 04, Liabilities –

Supplier Finance Programs, which is intended to enhance the transparency surrounding the use of supplier finance programs in connection with the purchase of goods and services.

The guidance requires companies that use supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated rollforward information.

The new standard does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations.

ASU 2022-04 is effective as of the Company's first quarter of fiscal 2023, with the exception of the rollforward information, which is effective for fiscal 2024.

The Company does not plan to elect early adoption of this update and does not expect this pronouncement to materially affect its Consolidated Financial Statements.

No other new accounting pronouncements, issued or effective during the first nine months of fiscal 2022, have had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.

Revenue Recognition

8 unchanged sentences

Revenue from the Company’s direct operations is recognized at the time a customer order is delivered, net of an allowance for sales returns, which is estimated based upon historical experience.

Revenue from the Company’s wholesale operations is recognized at the time the wholesale customer takes physical receipt of the merchandise, net of any identified discounts in accordance with each individual order.

For the first six months of fiscal 2022 and fiscal 2021, chargebacks were immaterial.

Revenue from the Company’s wholesale operations was recognized at the time the wholesale customer took physical receipt of the merchandise, net of any identified discounts in accordance with each individual order.

For the first nine months of fiscal 2022 and fiscal 2021, chargebacks were immaterial.

Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers.

3 unchanged sentences

Breakage is recognized over two years in proportion to historical redemption trends and is recorded as sales in the Consolidated Statements of Operations.

The gift card liability, net of breakage, was $ 2.3 million and $ 3.3 million at July 30, 2022 and January 29, 2022, respectively.

The gift card liability, net of breakage, was $ 2.1 million and $ 3.3 million at October 29, 2022 and January 29, 2022, respectively.

Unredeemed Loyalty Coupons.

3 unchanged sentences

The cycle of earning and redeeming loyalty points is generally under one year in duration.

The loyalty accrual, net of breakage, was $ 1.1 million and $ 1.3 million at July 30, 2022 and January 29, 2022, respectively.

The loyalty accrual, net of breakage, was $ 1.3 million and $ 1.3 million at October 29, 2022 and January 29, 2022, respectively.

Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales for all periods presented.

6 unchanged sentences

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

(in thousands)

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Retail segment

14 unchanged sentences

If the Company’s availability under the Credit Facility at any time is less than the greater of (i) 10 % of the Revolving Loan Cap (the lesser of the aggregate revolving commitments or the borrowing base) and (ii) $ 7.5 million, then the Company is required to maintain a minimum consolidated fixed charge coverage ratio of 1.0 :1.0 until such time as availability has exceeded the greater of (1) 10 % of the Revolving Loan Cap and (2) $ 7.5 million for 30 consecutive days.

At July 30, 2022 , the Company had no borrowings outstanding under the revolving credit facility and availability under the Credit Facility was $ 85.1 million.

The Company had no borrowings during the first six months of fiscal 2022, resulting in an average unused excess availability of approximately $ 79.9 million.

Outstanding standby letters of credit were $ 2.4 million and outstanding documentary letters were $ 1.0 million at July 30, 2022.

At July 30, 2022, the Company’s prime-based interest rate was 5.75 % .

Borrowings and repayments for the first six months ended July 31, 2021 were as follows:

For the six months ended

At October 29, 2022 , the Company had no borrowings outstanding under the Credit Facility and unused availability was $ 90.2 million.

The Company had no borrowings during the first nine months of fiscal 2022, resulting in an average unused excess availability of approximately $ 82.0 million.

Outstanding standby letters of credit were $ 3.8 million and outstanding documentary letters were $ 1.0 million at October 29, 2022.

At October 29, 2022, the Company’s prime-based interest rate was 6.50 % .

Borrowings and repayments for the first nine months ended October 30, 2021 were as follows:

For the nine months ended

(in thousands)

July 31, 2021

October 30, 2021

Net borrowings (repayments)

Long-Term Debt

The Company had no outstanding long-term debt during the first six months of fiscal 2022.

The Company had no outstanding long-term debt during the first nine months of fiscal 2022.

During the first quarter of fiscal 2021, the Company refinanced its then existing $ 15.0 million FILO (first-in, last-out) loan and entered into a new $ 17.5 million FILO loan, which was subsequently repaid in full in September 2021.

The Company paid interest and fees totaling $ 0.1 million and $ 1.7 million for the six months ended July 30, 2022 and July 31, 2021, respectively.

The Company paid interest and fees totaling $ 0.3 million and $ 3.1 million for the nine months ended October 29, 2022 and October 30, 2021, respectively.

Included in the $ 3.1 million of interest and fees paid in fiscal 2021 was a prepayment fee of $ 1.1 million associated with the prepayment of the Company $ 17.5 million FILO loan.

In connection with the execution of the Credit Facility and prepayment of the FILO loan, in the third quarter of fiscal 2021, the Company also wrote-off a total of $ 0.8 million in unamortized debt issuance costs.

The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, under operating leases.

The store leases typically have initial terms of 5 years to 10 years , with options that usually permit renewal for additional five-year periods.

The initial term of the lease for the corporate headquarter was for 20 years, with the opportunity to extend for six additional

consecutive periods of five years , beginning in fiscal 2026 .

The initial term of the lease for the corporate headquarter was for 20 years, with the opportunity to extend for six additional consecutive periods of five years , beginning in fiscal 2026 .

The Company also leases certain equipment and other assets under operating leases, typically with initial terms of 3 to 5 years .

5 unchanged sentences

The Company opted not to elect this practical expedient and instead accounted for these rent concessions as lease modifications in accordance with ASC 842.

As of July 30, 2022, the Company’s operating leases liabilities represent the present value of the remaining future minimum lease payments updated based on concessions and lease modifications.

As of October 29, 2022, the Company’s operating leases liabilities represent the present value of the remaining future minimum lease payments updated based on concessions and lease modifications.

Lease costs related to store locations are included in cost of goods sold including occupancy costs on the Consolidated Statements of Operations, and expenses and lease costs related to the corporate headquarters and equipment leases are included in selling, general and administrative expenses on the Consolidated Statements of Operations.

The following table is a summary of the Company’s components of net lease cost for the three and six months ended July 30, 2022 and July 31, 2021:

The following table is a summary of the Company’s components of net lease cost for the three and nine months ended October 29, 2022 and October 30, 2021:

For the three months ended

For the six months ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

For the nine months ended

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

(in thousands)

3 unchanged sentences

(1) Variable lease costs include the cost of property taxes, insurance and common area maintenance fees related to its leases.

Supplemental cash flow and balance sheet information related to leases for the first six months ended July 30, 2022 and July 31, 2021 is as follows:

Supplemental cash flow and balance sheet information related to leases for the first nine months ended October 29, 2022 and October 30, 2021 was as follows:

(dollars in thousands)

For the six months ended

For the nine months ended

Cash paid for amounts included in the measurement of lease liabilities:

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

Operating cash flows for operating leases (1)

3 unchanged sentences

Weighted average discount rate

(1) The cash paid for the first six months of fiscal 2022 and fiscal 2021 includes prepaid rent of $ 3.6 million and $ 3.8 million, respectively.

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the Consolidated Balance Sheet as of July 30, 2022:

(1) The cash paid for the first nine months of fiscal 2022 and fiscal 2021 included prepaid rent of $ 4.1 million and $ 3.8 million, respectively.

(in thousands)

18 unchanged sentences

In the first quarter of fiscal 2022, on March 21, 2022, the Compensation Committee approved a 141.9 % payout of its performance targets for the 2019-2021 LTIP.

On that date, the Company granted awards totaling $ 2.7 million, in a combination of 50 % cash and 50 % restricted stock units (RSUs), which will vest, net of any forfeitures, on August 31, 2022.

On that date, the Company granted awards totaling $ 2.7 million, in a combination of 50 % cash and 50 % restricted stock units (RSUs), which vested, net of any forfeitures, on August 31, 2022.

In connection with the grant of 269,162 RSUs, the Company reclassified $ 1.1 million of its liability accrual from “Accrued expenses and other current liabilities”

2 unchanged sentences

See the Consolidated Statement of Changes in Stockholders’

At July 30, 2022 , the Company had three active LTIPs:

At October 29, 2022 , the Company had three active LTIPs:

the 2020-2022 LTIP, the 2021-2023 LTIP and the 2022-2024 LTIP.

8 unchanged sentences

Approximately half of the compensation expense for each LTIP relates to the time-based awards, which are being expensed straight-line over 46 months, 49 months and 48 months, respectively.

At July 30, 2022 , the Company had accrued $ 1.9 million under the 2020-2022 LTIP, $ 1.2 million under the 2021-2023 LTIP and $ 0.2 million under the 2022-2024 LTIP for the performance awards.

At October 29, 2022 , the Company had accrued $ 2.1 million under the 2020-2022 LTIP, $ 1.4 million under the 2021-2023 LTIP and $ 0.6 million under the 2022-2024 LTIP for the performance awards.

Stock-Based Compensation

5 unchanged sentences

The Company’s shareholders approved amendments to increase the share reserve by 2,800,000 shares on August 8, 2019, an additional 1,740,000 shares on August 12, 2020 and an additional 4,855,000 on August 5, 2021.

At July 30, 2022, the Company had 3,825,095 shares available under the 2016 Plan.

At October 29, 2022, the Company had 3,975,145 shares available under the 2016 Plan.

In accordance with the terms of the 2016 Plan, any shares outstanding under the previous 2006 Incentive Compensation Plan (the “2006 Plan”) at August 4, 2016 that subsequently terminate, expire or are cancelled for any reason without having been exercised or paid are added back and become available for issuance under the 2016 Plan, with stock options being added back on a one-for-one basis and full-value awards being added back on a 1 to 1.9 basis.

At July 30, 2022 , 298,231 stock options remained outstanding under the 2006 Plan.

At October 29, 2022 , 263,341 stock options remained outstanding under the 2006 Plan.

The 2016 Plan is administered by the Compensation Committee.

2 unchanged sentences

Except with respect to 5 % of the shares available for awards under the 2016 Plan, no award will become exercisable unless such award has been outstanding for a minimum period of one year from its date of grant.

The following tables summarize the share activity and stock option activity for the first six months of fiscal 2022:

The following tables summarize the share activity and stock option activity for the first nine months of fiscal 2022:

Share Units (3)

4 unchanged sentences

Outstanding non-vested shares at end of quarter

(1) During the first six months of fiscal 2022, the Company granted RSUs for the achievement of performance metrics under the 2019-2021 LTIP that are subject to additional vesting through August 31, 2022 and time-based RSUs under its 2022-2024 LTIP.

(1) During the first nine months of fiscal 2022, the Company granted RSUs for the achievement of performance metrics under the 2019-2021 LTIP that were subject to additional vesting through August 31, 2022 and time-based RSUs under its 2022-2024 LTIP.

See Note 5, Long-Term Incentive Plans .

17 unchanged sentences

Options exercisable at end of quarter

For the first six months of fiscal 2022, the Company granted stock options to purchase an aggregate of 3,640 shares of common stock, 496,467 restricted stock units and 17,532 fully-vested shares.

For the first six months of fiscal 2021, the Company granted stock options to purchase an aggregate of 1,518,154 shares of common stock and 8,054 restricted stock units.

(1) As a result of net share settlements, of the 752,938 shares underlying stock options that were exercised during the first nine months of fiscal 2022, only 527,712 shares of common stock were issued.

For the first nine months of fiscal 2022, the Company granted stock options to purchase an aggregate of 15,747 shares of common stock, 563,691 restricted stock units and 27,386 fully-vested shares.

For the first nine months of fiscal 2021, the Company granted stock options to purchase an aggregate of 1,518,154 shares of common stock and 8,054 restricted stock units.

Non-Employee Director Compensation Plan

The Company granted 36,690 shares of common stock, with a fair value of approximately $ 169,482 , to certain of its non-employee directors as compensation in lieu of cash in the first six months of fiscal 2022.

The Company granted 57,307 shares of common stock, with a fair value of approximately $ 254,218 , to certain of its non-employee directors as compensation in lieu of cash in the first nine months of fiscal 2022.

These shares are in addition to any shares that may be granted under the 2016 Plan related to the requirement to receive equity if a director has not yet satisfied his or her minimum equity ownership requirement under the Non-Employee Director Compensation Plan.

Stock Compensation Expense

The Company recognized total stock-based compensation expense of $ 0.8 million and $ 0.6 million for the first six months of fiscal 2022 and fiscal 2021, respectively.

The total compensation cost related to time-vested stock options and RSU awards not yet recognized as of July 30, 2022 was approximately $ 2.1 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 32 months.

The Company recognized total stock-based compensation expense of $ 1.1 million and $ 0.9 million for the first nine months of fiscal 2022 and fiscal 2021, respectively.

The total compensation cost related to time-vested stock options and RSU awards not yet recognized as of October 29, 2022 was approximately $ 2.2 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 32 months.

Equity and Earnings per Share

1 unchanged sentence

For the three months ended

For the six months ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

For the nine months ended

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

(in thousands )

6 unchanged sentences

For the three months ended

For the six months ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

For the nine months ended

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

(in thousands, except exercise prices)

5 unchanged sentences

$ 4.19 - $ 5.50

$ 2.25 - $ 5.50

The above options, which were outstanding at July 30, 2022 , expire from January 31, 2023 to June 12, 2032 .

Excluded from the computation of basic and diluted earnings per share were 240,000 shares for the second quarter and first six months of fiscal 2022 and 720,000 shares for the second quarter and first six months of fiscal 2021 of unvested performance stock units.

The above options, which were outstanding at October 29, 2022 , expire from May 28, 2023 to October 26, 2032 .

Excluded from the computation of basic and diluted earnings per share were 240,000 shares for the third quarter and first nine months of fiscal 2022 and 480,000 shares for the third quarter and first nine months of fiscal 2021 of unvested performance stock units.

These performance-based awards are included in the computation of basic and diluted earnings per share if, and when, the respective performance targets are achieved.

In addition, 435,568 shares of deferred stock at July 30, 2022 and at July 31, 2021 were excluded from basic earnings per share.

In addition, 435,568 shares of deferred stock at October 29, 2022 and at October 30, 2021 were excluded from basic earnings per share.

Outstanding shares of deferred stock are not considered issued and outstanding until the vesting date of the deferral period.

5 unchanged sentences

The Company expects to finance the repurchases from operating funds and/or periodic borrowings on its credit facility.

For the first six months of fiscal 2022, the Company repurchased 2.9 million shares at an aggregate cost of $ 12.7 million, including fees, from available cash on hand.

There were no stock repurchases in the third quarter of fiscal 2022.

For the first nine months of fiscal 2022, the Company repurchased 2.9 million shares at an aggregate cost of $ 12.7 million, including fees, from available cash on hand.

Shares of repurchased common stock are held as treasury stock.

3 unchanged sentences

As a result, in the second quarter of fiscal 2022, the Company recognized a discrete tax benefit related to the release of approximately $ 35.5 million in valuation allowance against its deferred tax assets in the United States that are expected to be realized in future years.

At July 30, 2022, the Company continued to provide a valuation allowance of $ 2.4 million primarily against certain state and foreign net operating losses ("NOLs").

During the second quarter and first six months of fiscal 2022, the Company recorded an income tax benefit of $ 35.1 million and $ 35.0 million, respectively.

Excluding the release of $ 35.5 million in valuation allowance, the Company recorded income tax expense of $ 408,000 and $ 511,000 , respectively, primarily related to income tax in states where NOL usage is statutorily limited.

During the second quarter and first six months of fiscal 2021, the Company recorded income tax expense of $ 426,000 and $ 454,000 , respectively, primarily related to income tax in states where NOL usage is statutorily limited.

At October 29, 2022, the Company continued to provide a valuation allowance of $ 2.4 million primarily against certain state and foreign net operating losses ("NOLs").

For the third quarter of fiscal 2022, the Company recorded an income tax provision of $ 2.1 million, which included a $ 2.0 million discrete tax expense to adjust the release of the valuation allowance to reflect an increase in the Company's third quarter earnings and full-year earnings forecast.

For the first nine months of fiscal 2022, the Company recorded an income tax benefit of $ 32.9 million, which included a discrete tax benefit of $ 33.5 million for the release of the valuation allowance discussed above.

For the third quarter and first nine months of fiscal 2021, the Company recorded an income tax provision of $ 94,000 and $ 548,000 , respectively, primarily related to income tax in states where NOL usage was statutorily limited.

The Company made tax payments of $ 0.3 million and $ 0.1 million for the first nine months of fiscal 2022 and fiscal 2021, respectively.

For federal income tax purposes, at the end of fiscal 2021, the Company had net operating loss carryforwards of approximately $ 100.7 million, which will expire from fiscal 2028 through fiscal 2037 , and net operating loss carryforwards of $ 43.1 million that are not subject to expiration.

15 unchanged sentences

The forward-looking statements contained in this Quarterly Report are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”

but may be found in other locations as well, and include statements regarding our expectations with respect to sales trends, marketing costs, gross margin rate, improved inventory levels, our ability to realize our deferred tax assets and our ability to secure sufficient inventory to meet customer demand, increased freight costs, increases in certain raw materials cost, our long-term outlook, expected capital expenditures in 2022, our ability to attract new customers, and our plans with respect to our store portfolio, including anticipated closures, re-brandings, and new and relocated stores.

but may be found in other locations as well, and include statements regarding our expectations with respect to sales trends, including expected sales growth in the fourth quarter of 2022, expected marketing costs in 2022, gross margin rate, improved inventory levels and our management of inventory levels, our ability to realize our deferred tax assets, increased freight costs, increases in certain raw materials cost, our long-term outlook, expected capital expenditures in 2022, our ability to attract new customers, and our plans with respect to our store portfolio, including anticipated closures, re-brandings, and new and relocated stores.

These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends.

10 unchanged sentences

We operate under the trade names of Destination XL ® , DXL ® , DXL Outlets, Casual Male XL ® and Casual Male XL Outlets.

At July 30, 2022, we operated 218 Destination XL stores, 16 DXL outlet stores, 31 Casual Male XL retail stores, 19 Casual Male XL outlet stores and a digital business, including an e-commerce site at dxl.com and a mobile site, m.destinationXL.com and mobile app.

At October 29, 2022, we operated 218 Destination XL stores, 16 DXL outlet stores, 30 Casual Male XL retail stores, 19 Casual Male XL outlet stores and a digital business, including an e-commerce site at dxl.com and a mobile site, m.destinationXL.com, mobile app and third-party marketplaces.

Unless the context indicates otherwise, all references to “we,”

32 unchanged sentences

For the three months ended

For the six months ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

For the nine months ended

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

(in millions, except percentage of sales and per share data)

4 unchanged sentences

Per diluted share:

We are pleased to report continued earnings and sales growth this quarter, with results exceeding our internal expectations.

Comparable sales increased 6.1% for the quarter, with increases across all of our customer channels, driven by higher average order values, our digital transformation, and our brand repositioning.

Regionally, all parts of the country performed above their pre-pandemic levels, with the largest gains during the second quarter in New England and Florida, while parts of the Midwest lagged.

Dollars per transaction was the primary driver of our sales increase and was attributable to our reduced reliance on promotions, a historically low-level of clearance inventory and a shift in merchandise mix to higher-price items, such as tailored clothing.

Our gross margin rate for the second quarter also benefited from the low promotions and clearance enabling us to substantially offset the increase in freight and shipping costs that we continue to experience.

In line with our expectations, our selling, general and administrative expenses (SG&A) increased by 410 basis points during the second quarter, primarily due to increased payroll costs to support sales, marketing costs, and accruals for performance-based incentive plans.

Our marketing costs for the second quarter of fiscal 2022 represented approximately 170 basis points of this increase.

Our marketing plan for fiscal 2022 is 6.2% of sales, which in total is an increase of 150 basis points from fiscal 2021.

During the second quarter of fiscal 2022, we determined that it was more likely than not that we would be able to realize substantially all of our deferred tax assets primarily due to the cumulative three-years of earnings as well as projections for future earnings.

As a result, we recorded a non-cash tax benefit of $35.5 million, related to the release of substantially all of the valuation allowance against our deferred tax assets.

Net income for the second quarter was $56.9 million, or $0.85 per diluted share and included a tax benefit of $35.5 million, or $0.53 per diluted share, related to the release of the tax valuation allowance.

Net income for the second quarter of fiscal 2021 was $24.5 million, or $0.36 per diluted share.

At July 30, 2022, we had no debt outstanding and we did not make any borrowings under our credit facility during the first six months.

Our unused excess availability at July 30, 2022 was $85.1 million.

At the end of the second quarter, we are in a strong inventory position and have been able to replenish those categories that were depleted at the end of the second quarter last year.

As a result, our inventory level at the end of the second quarter is intentionally up 31.8% from last year, but compared to the end of the second quarter in fiscal 2019 inventory is down 12.7%.

In addition, we have improved our inventory turn by almost 40% from fiscal 2019.

As we previously disclosed, the Company's Board of Directors approved a $15.0 million stock repurchase program in March 2022 and, during the first six months of fiscal 2022, we utilized our free cash flow to repurchase 2.9 million shares of our common stock, at an aggregate cost of $12.7 million, including fees.

While we believe our long-term outlook is strong, the current retail environment remains highly volatile, with inflation, rising interest rates, supply chain issues, labor and staffing challenges, the ongoing global pandemic, as well as the war in Ukraine.

We are pleased to report continued earnings and sales growth this quarter, with results exceeding our internal expectations, especially up against a very strong third quarter last year.

Comparable sales increased 8.7% for the quarter, with strong performance from our stores, which were up 10.1% for the third quarter, with all regions reporting sales growth over last year.

This growth was primarily driven by higher dollars per transactions and conversion.

The increase in dollars per transactions was attributable to our reduced reliance on promotions and a shift in merchandise mix to higher-price items, such as tailored clothing.

Our direct business had a comparable sales increase of 5.5% for the third quarter, driven primarily by our web, app and marketplaces.

Our gross margin rate for the third quarter continued to benefit from the low promotions and clearance enabling us to partially offset the increase in freight and raw material costs that we continue to experience.

In line with our expectations, our selling, general and administrative expenses (SG&A) increased by 280 basis points during the third quarter, with our marketing costs representing approximately 140 basis points of this increase.

The remainder of the increase in SG&A was primarily due to increased payroll costs to support sales growth and higher accruals for performance-based incentive plans.

As a result, net income for the third quarter was $10.5 million, or $0.16 per diluted share, as compared to net income for the third quarter of fiscal 2021 of $13.7 million, or $0.20 per diluted share.

At October 29, 2022, we had no debt outstanding and we did not borrow from our credit facility during the first nine months.

Our unused excess availability at October 29, 2022 was $90.2 million.

At the end of the third quarter, we are in a strong inventory position and have been able to replenish those categories that were depleted last year.

As a result, our inventory level at the end of the third quarter was intentionally up 29.8% from last year, but was down 11.1%, when compared to the end of the third quarter in fiscal 2019 inventory, or pre-pandemic levels.

In addition, we have improved our inventory turn by over 30% from the third quarter of fiscal 2019.

As we previously disclosed, the Company's Board of Directors approved a $15.0 million stock repurchase program in March 2022 and, during the first nine months of fiscal 2022, we utilized our free cash flow to repurchase 2.9 million shares of our common stock, at an aggregate cost of $12.7 million, including fees.

There were no repurchases of stock during the third quarter of fiscal 2022.

Our results year-to-date have outperformed our expectations and we believe that we are well-positioned as we head into the fourth quarter.

While we remain optimistic, we are cognizant of the potential impact that inflation and other macro-economic factors may have on fourth quarter consumer spending.

We expect to grow our comparable sales in the fourth quarter by single digits.

Financial Summary

The following table presents sales by segment for the three and six months ended July 30, 2022 and July 31, 2021:

The following table presents sales by segment for the three and nine months ended October 29, 2022 and October 30, 2021:

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

(in thousands)

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Retail segment

Wholesale segment

Total sales for the second quarter of fiscal 2022 were $144.6 million, as compared to $138.6 million in the second quarter of fiscal 2021.

Comparable sales for the second quarter were up 6.1% with comparable sales from our stores up 3.6% and our direct business up 12.7%.

Sales for the second quarter exceeded our plan, driven primarily by an increase in dollars per transaction.

This increase is attributable to a combination of factors, including less markdowns from fewer promotions, deeper penetration in high-ticket categories such as tailored clothing, less clearance inventory available for sale and, to a lesser extent, targeted price increases.

The growth in our direct business of 12.7% was driven by our web and app with continued growth from online marketplaces.

Through our digital efforts and marketplace presence, we are continuing to attract a new customer to DXL.

Compared to the second quarter of fiscal 2019, the last normalized selling year, our comparable sales for the second quarter of fiscal 2022 were up 32.6% in May, up 27.8% in June, and up 27.6% in July.

Total sales for the third quarter of fiscal 2022 were $129.7 million, as compared to $121.5 million in the third quarter of fiscal 2021.

Comparable sales for the third quarter were up 8.7% with comparable sales from our stores up 10.1% and our direct business up 5.5%.

Store sales for the third quarter exceeded our plan, driven primarily by increases in dollars per transaction and conversion.

The increase in dollars per transaction was attributable to a combination of factors, including less markdowns as a result of fewer promotions and deeper penetration in high-ticket categories such as tailored clothing.

All regions outperformed the prior year third quarter, with the southeast region showing the strongest sales increase.

The growth in our direct business of 5.5% was driven primarily by our web and app with continued growth from online marketplaces.

Stores accelerated and outpaced the direct business in total during the third quarter, as consumers continued to return to stores at an increasing level.

Compared to the third quarter of fiscal 2019, the last normalized selling year, our comparable sales for the third quarter of fiscal 2022 were up 33.7%.

We believe the comparison to fiscal 2019 is relevant when evaluating our sales performance given the impact of the pandemic on the past two years.

We expect to see a fairly similar comparable sales trend in the second half of fiscal 2022 as compared to fiscal 2019, and we expect comparable sales growth, against fiscal 2021, to be in the low to mid-single digits during the third quarter and high-single digits during the fourth quarter.

During the second quarter of fiscal 2022, comparable sales were up 14.0% in May, up 3.6% in June and up 1.1% in July, when compared against fiscal 2021.

For the first six months of fiscal 2022, total sales increased 8.9% to $272.3 million, as compared to $250.1 million for the first six months of fiscal 2021.

Comparable sales for the first six months of fiscal 2022, as compared to fiscal 2021, increased 12.0%, with comparable sales from our stores up 11.0% and our direct business up 14.6%.

As compared to the third quarter of fiscal 2021, for the third quarter of fiscal 2022 comparable sales were up 7.4% in August, up 8.5% in September and up 10.3% in October.

We are aware of the potential macro-economic impact on consumer spending in the fourth quarter.

As a result, while we remain optimistic, we are conservatively forecasting comparable sales growth for the fourth quarter of fiscal 2022 to be single digits.

For the first nine months of fiscal 2022, total sales increased 8.2% to $402.0 million, as compared to $371.6 million for the first nine months of fiscal 2021.

Comparable sales for the first nine months of fiscal 2022, as compared to fiscal 2021, increased 10.9%, with comparable sales from our stores up 10.7% and our direct business up 11.5%.

As we previously disclosed, during the first quarter of fiscal 2022, we ended our relationship with our primary wholesale customer.

As a result, our wholesale revenues for the first six months of fiscal 2022 were $0.4 million as compared to $4.0 million for the first six months of fiscal 2021.

As a result, our wholesale revenues for the first nine months of fiscal 2022 were $0.4 million as compared to $4.8 million for the first nine months of fiscal 2021.

Gross Margin Rate

For the second quarter of fiscal 2022, our gross margin rate, inclusive of occupancy costs, was 52.1% as compared to a gross margin rate of 51.7% for second quarter of fiscal 2021.

Our gross margin rate improved by 40 basis points, driven by a 50 basis point improvement in occupancy cost offset by a 10 basis point decrease in merchandise margins as compared to the second quarter of fiscal 2021.

The 50 basis point improvement in occupancy costs was due to the increased leverage from sales as well as a decrease of approximately $0.1 million in occupancy costs from closed stores.

The 10 basis point decrease in merchandise margin was due to an increase in both inbound and outbound shipping costs of approximately 180 basis points, mostly offset by lower promotional markdowns.

We expect that we will continue to experience an increase in freight costs and in the cost of certain raw materials, particularly cotton.

Although at the beginning of fiscal 2022, we reported that we expected our gross margin to be 200 points lower than fiscal 2021, we now expect that our gross margin rate for the full fiscal year will be approximately flat to fiscal 2021 based on our current expectations.

For the first six months of fiscal 2022, our gross margin rate, inclusive of occupancy costs, was 51.1%, as compared to a gross margin rate of 49.0% for the first six months of fiscal 2021.

The increase of 210 basis points was due to an improvement of 130 basis points in occupancy costs, due to the increased leverage from sales, and an increase in merchandise margins of 80 basis points, due primarily to the lower promotional markdowns partially offset by the increase in freight and shipping costs.

For the third quarter of fiscal 2022, our gross margin rate, inclusive of occupancy costs, was 50.0% as compared to a gross margin rate of 50.2% for third quarter of fiscal 2021.

Our gross margin rate decreased by 20-basis points, with a decrease in merchandise margin of 70-basis points, partially offset by a 50-basis point improvement in occupancy costs due to the increased leverage from sales.

The decrease in merchandise margin of 70-basis points was due to increased costs for raw materials, increased shipping costs per package, driven by higher fuel costs and surcharges, and a higher penetration of our marketplace business, which has commission costs.

Those increases were partially offset by lower promotional markdowns.

We continue to optimize our pricing and promotional cadence to mitigate cost increases and preserve our margin rates.

For the first nine months of fiscal 2022, our gross margin rate, inclusive of occupancy costs, was 50.8%, as compared to a gross margin rate of 49.4% for the first nine months of fiscal 2021.

The increase of 140-basis points was due to an improvement of 110-basis points in occupancy costs, due to the increased leverage from sales, and an increase in merchandise margins of 30-basis points, due primarily to lower promotional markdowns partially offset by an increase in freight and shipping costs.

Selling, General and Administrative Expenses

As a percentage of sales, SG&A (selling, general and administrative) expenses for the second quarter of fiscal 2022 were 34.2% as compared to 30.1% for the second quarter of fiscal 2021.

The SG&A rate for the second quarter of fiscal 2021 was abnormally low due to the surge in sales from pent-up demand and stimulus money while at the same time experiencing a shortage in store staffing.

However, our SG&A rate as a percentage of sales is favorable when compared against 38.5% in the second quarter of fiscal 2019, which was our last normalized second quarter, pre-pandemic.

On a dollar basis, SG&A expenses increased by $7.7 million as compared to the second quarter of fiscal 2021.

As a percentage of sales, SG&A (selling, general and administrative) expenses for the third quarter of fiscal 2022 were 37.3% as compared to 34.5% for the third quarter of fiscal 2021.

The SG&A rate for third quarter of fiscal 2021 was abnormally low due to the surge in sales from pent-up demand and stimulus money while at the same time experiencing a shortage in store staffing.

our SG&A rate as a percentage of sales is favorable when compared against 39.5% in the third quarter of fiscal 2019, which was our last normalized third quarter, pre-pandemic.

On a dollar basis, SG&A expenses increased by $6.4 million as compared to the third quarter of fiscal 2021.

The increase was primarily due to an increase in marketing costs to drive customer acquisition and engagement, payroll costs to support sales growth, including merit adjustments and filling open positions, and an increase in performance-based incentive accruals.

Our marketing costs for the second quarter of fiscal 2022 represented 5.4% of sales as compared to 3.7% in the second quarter of fiscal 2021.

For fiscal 2022, the Company is expecting marketing costs to be approximately 6.2% of sales.

For the first six months of fiscal 2022, SG&A expenses were 35.3% of sales as compared to 31.5% of sales for the first six months of fiscal 2021.

Similar to the second quarter, the prior year rate was abnormally low.

When compared against the first six months of fiscal 2019 when the rate was 39.0% of sales, the savings that we have been able to realize in our SG&A costs is evident.

As compared to the first six months of fiscal 2021, SG&A costs increased $17.2 million, or 21.8%, as a result of increased marketing costs, payroll costs to support sales growth, first quarter merit adjustments, filling open positions and an increase in performance-based incentive accruals.

Our marketing costs for the third quarter of fiscal 2022 represented 5.9% of sales as compared to 4.5% in the third quarter of fiscal 2021.

For fiscal 2022, we are expecting marketing costs to be approximately 6.2% of sales.

For the first nine months of fiscal 2022, SG&A expenses were 35.9% of sales as compared to 32.5% of sales for the first nine months of fiscal 2021.

Similar to the third quarter, the prior year rate was abnormally low.

When compared against the first nine months of fiscal 2019 when the rate was 39.1% of sales, the savings that we have been able to realize in our SG&A costs is evident.

As compared to the first nine months of fiscal 2021, SG&A costs increased $23.6 million, or 19.5%, as a result of increased marketing costs, payroll costs to support sales growth, annual merit adjustments, filling open positions and an increase in performance-based incentive accruals.

Marketing costs represented 5.5% of sales for the first nine months of fiscal 2022 as compared to 3.7% for the first nine months of fiscal 2021.

Management views SG&A expenses through two primary cost centers:

Customer Facing Costs and Corporate Support Costs.

Customer Facing Costs, which include store payroll, marketing and other store and direct operating costs, represented 19.8% of sales in the first six months of fiscal 2022 as compared to 17.4% of sales in the first six months of fiscal 2021.

Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 15.5% of sales in the first six months of fiscal 2022 compared to 14.1% of sales in the first six months of fiscal 2021.

Customer Facing Costs, which include store payroll, marketing and other store and direct operating costs, represented 20.4% of sales in the first nine months of fiscal 2022 as compared to 18.1% of sales in the first nine months of fiscal 2021.

Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 15.5% of sales in the first nine months of fiscal 2022 compared to 14.4% of sales in the first nine months of fiscal 2021.

Impairment (Gain) of Assets

During the second quarter of fiscal 2022 and fiscal 2021, the Company recorded non-cash gains of $0.1 million and $0.4 million, respectively, and for the first six months of fiscal 2022 and fiscal 2021, the Company recorded non-cash gains of $0.6 million and $1.1 million, respectively, on the reduction of its operating lease liability in connection with its decision to close certain retail stores, which resulted in a revaluation of the lease liability.

Of the total non-cash gains, $0.1 million and $0.4 million for the second quarter of fiscal 2022 and fiscal 2021, respectively, and $0.4 million and $1.0 million for the first six months of fiscal 2022 and fiscal 2021 respectively, related to leases where the right-of-use assets had previously been impaired, and therefore, were recorded as a reduction of the previously-recorded impairment and were included in the Impairment (Gain) of Assets line of the Consolidated Statement of Operations for the three months ended July 30, 2022 and July 31, 2021.

The remaining gains of $0.2 million and $0.1 million for the first six months of fiscal 2022 and fiscal 2021 were recorded as a reduction to occupancy costs in each period.

There were no impairments or non-cash gains recognized in the third quarter of fiscal 2022.

During the third quarter of fiscal 2021, we recorded non-cash gains of $1.2 million, and for the first nine months of fiscal 2022 and fiscal 2021, we recorded non-cash gains of $0.6 million and $2.3 million, respectively.

These non-cash gains related to the reduction of our operating lease liability in connection with our decision to close certain retail stores, which resulted in a revaluation of the lease liability.

Accordingly, $1.1 million for the third quarter of fiscal 2021, and $0.4 million and $2.1 million for the first nine months of fiscal 2022 and fiscal 2021, respectively, were included in the Impairment (Gain) of Assets line of the Consolidated Statement of Operations.

The remaining gains were recorded as a reduction to occupancy costs in each period.

Depreciation and Amortization

Depreciation and amortization for the second quarter of fiscal 2022 decreased to $4.0 million as compared to $4.4 million for the second quarter of fiscal 2021.

For the first six months of fiscal 2022, depreciation and amortization decreased to $8.0 million as compared to $8.9 million for the first six months of fiscal 2021.

Depreciation and amortization for the third quarter of fiscal 2022 decreased to $3.8 million as compared to $4.1 million for the third quarter of fiscal 2021.

For the first nine months of fiscal 2022, depreciation and amortization decreased to $11.7 million as compared to $13.0 million for the first nine months of fiscal 2021.

The decrease was due to a lower depreciable cost base, especially from our store assets, due to our limited capital spending since fiscal 2020.

Interest Expense, Net

Interest expense for second quarter of fiscal 2022 was $0.1 million, as compared to $0.9 million for the second quarter of fiscal 2021.

For the first six months of fiscal 2022, interest expense was $0.2 million as compared to $2.1 million for the first six months of fiscal 2021.

The Company had no outstanding debt and no borrowings under its credit facility during the second quarter and first six months of fiscal 2022 resulting in a decrease in interest expense as compared to the second quarter and first six months of fiscal 2021.

Interest expense for third quarter of fiscal 2022 was $0.1 million, as compared to $2.2 million for the third quarter of fiscal 2021.

For the first nine months of fiscal 2022, interest expense was $0.4 million as compared to $4.3 million for the first nine months of fiscal 2021.

The Company had no outstanding debt and no borrowings under its credit facility during the third quarter and first nine months of fiscal 2022 resulting in a decrease in interest expense as compared to the third quarter and first nine months of fiscal 2021.

Interest expense for the third quarter and first nine months of fiscal 2021 included a prepayment penalty of $1.1 million associated with the Company's early prepayment of its long-term debt.

Since the end of fiscal 2013, we have maintained a full valuation allowance against our deferred tax assets.

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As a result, in the second quarter of fiscal 2022, we recognized a tax benefit related to the release of approximately $35.5 million in valuation allowance against our deferred tax assets in the United States.

At July 30, 2022, we continued to provide a valuation allowance of $2.4 million, primarily against certain state and foreign net operating losses ("NOLs").

During the second quarter and first six months of fiscal 2022, we recorded an income tax benefit of $35.1 million and $35.0 million, respectively.

Excluding the release of $35.5 million in valuation allowance, we recorded income tax expense of $408,000 and $511,000, respectively, primarily related to income tax in states where NOL usage is statutorily limited.

During the second quarter and first six months of fiscal 2021, we recorded income tax expense of $426,000 and $454,000, respectively, primarily related to income tax in states where NOL usage is statutorily limited.

For the second quarter and first six months of fiscal 2022, we recorded net income of $56.9 million, or $0.85 per diluted share, and $70.3 million, or $1.04 per diluted share, respectively.

Results for the second quarter and first six months of fiscal 2022 include a non-cash tax benefit of $35.5 million, or $0.53 per diluted share, related to the release of substantially all of the Company's valuation allowance against its deferred tax assets.

For the second quarter and first six months of fiscal 2021 net income was $24.5 million, or $0.36 per diluted share and $33.1 million, or $0.50 per diluted share, respectively.

As of July 30, 2022, our inventory increased approximately $23.4 million to $96.7 million, as compared to $73.4 million at July 31, 2021.

We are in a stronger inventory position at July 30, 2022 than at the end of the second quarter last year.

At October 29, 2022, we continued to provide a valuation allowance of $2.4 million, primarily against certain state and foreign net operating losses ("NOLs").

For the third quarter of fiscal 2022, we recorded an income tax provision of $2.1 million, which included a $2.0 million discrete tax expense to adjust the release of the valuation allowance to reflect an increase in third quarter earnings and full-year earnings forecast.

For the first nine months of fiscal 2022, we recorded an income tax benefit of $32.9 million, which included a discrete tax benefit of $33.5 million for the release of the valuation allowance.

For the third quarter and first nine months of fiscal 2021, we recorded an income tax provision of $94,000 and $548,000, respectively, primarily related to income tax in states where NOL usage was statutorily limited.

For the third quarter of fiscal 2022, we recorded net income of $10.5 million, or $0.16 per diluted share, as compared to net income of $13.7 million, or $0.20 per diluted share, for the third quarter of fiscal 2021.

The decrease in earnings from the prior year third quarter was primarily due to the planned investment in marketing, an increase in payroll to support the increased sales volume and an increase in tax provision as a result of the reversal of the valuation allowance.

As mentioned previously, our operating cost structure in fiscal 2021 was insufficient to support our 2022 sales growth objectives and was unsustainable over the long-term.

For the first nine months of fiscal 2022, we have recorded net income of $80.8 million, or $1.20 per diluted share, as compared to net income of $46.8 million, or $0.69 per diluted share, for the first nine months of fiscal 2021.

Results for the first nine months of fiscal 2022 include a non-cash tax benefit of $33.5 million, or $0.50 per diluted share, related to the release of substantially all of the Company's valuation allowance against its deferred tax assets.

As of October 29, 2022, our inventory increased approximately $24.5 million to $106.8 million, as compared to $82.3 million at October 30, 2021.

We are in a stronger inventory position at October 29, 2022 than at the end of the third quarter last year.

This increase was purposeful in order to replenish several categories that were depleted last year.

Compared to the second quarter of fiscal 2019, our inventory is down 12.7%.

While our inventory has increased over last year's third quarter, inventory is down 11.1% and inventory turnover is up over 30% from the third quarter of fiscal 2019, or pre-pandemic levels.

Managing our inventory remains a primary focus for us given the potential impact that inflation may have on consumer spending.

We believe that we will be able to secure sufficient inventory to support our sales forecasts for fiscal 2022 while also ensuring that we don't have excess inventory levels.

At July 30, 2022, our clearance inventory was 6.9% of our total inventory, as compared to 8.9% at July 31, 2021 and 10.9% at August 3, 2019.

As we head into the fourth quarter of fiscal 2022, we believe that we are in a strong inventory position.

At October 29, 2022, our clearance inventory was 6.7% of our total inventory, as compared to 8.9% at October 30, 2021 and 10.0% at November 2, 2019.

Historically, and consistent with the retail industry, we have experienced seasonal fluctuations as it relates to our operating income and net income.

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Our primary sources of liquidity are cash generated from operations and availability under our credit facility.

At July 30, 2022, we had no outstanding debt, including no borrowings under our credit facility during the first six months of fiscal 2022.

At October 29, 2022, we had no outstanding debt, including no borrowings under our credit facility during the first nine months of fiscal 2022.

We believe our cash on hand, availability under our credit facility, and ongoing cash generated from our operations will be sufficient to fund our working capital requirements, our stock repurchase program and capital expenditures for the next 12 months.

We believe that cash flows from operating activities and cash on hand will also be sufficient to satisfy our capital requirements in the longer-term, however, to the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we anticipate that working capital will be financed by our credit facility, as discussed below.

For the first six months of fiscal 2022, cash flow from operations decreased to $23.8 million as compared to $42.2 million for the first six months of fiscal 2021.

Free cash flow, a non-GAAP measure, decreased to $19.8 million for the first six months of fiscal 2022 as compared to $40.5 million for the first six months of fiscal 2021.

The decrease in free cash flow was due to our seasonal inventory build, the payout of incentive-based awards, and an increase in capital expenditures, which were partially offset by our increased earnings.

Cash flow used from financing activities for the first six months of fiscal 2022 improved by $40.5 million as compared to the first six months of fiscal 2021, primarily due to the repayment in the prior year of amounts outstanding under our revolver.

This was partially offset by the stock offering in February 2021 and the repurchase of our common stock, as discussed below, in the first six months of fiscal 2022.

For the first nine months of fiscal 2022, cash flow from operations decreased to $30.2 million as compared to $64.2 million for the first nine months of fiscal 2021.

Free cash flow, a non-GAAP measure, decreased to $22.3 million for the first nine months of fiscal 2022 as compared to $61.3 million for the first nine months of fiscal 2021.

The decrease in free cash flow was due to our purposeful replenishment of inventory in several categories that were depleted last year, the payout of incentive-based awards, and an increase in capital expenditures.

Cash flow used from financing activities for the first nine months of fiscal 2022 improved by $59.1 million as compared to the first nine months of fiscal 2021, primarily due to the repayment in the prior year of amounts outstanding under our credit facility and the early repayment of our long-term debt.

This was partially offset by the stock offering in February 2021 and the repurchase of our common stock, as discussed below, in the first nine months of fiscal 2022.

Stock Repurchase Program

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Under the stock repurchase program, the Company may repurchase up to $15.0 million of its common stock through open market and privately negotiated transactions.

For the first six months of fiscal 2022, the Company repurchased 2.9 million shares at an aggregate cost, including fees, of $12.7 million

from available cash on hand.

the first nine months of fiscal 2022, the Company repurchased 2.9 million shares at an aggregate cost, including fees, of $12.7 million from available cash on hand.

There were no stock repurchases in the third quarter of fiscal 2022.

Shares of repurchased common stock are held as treasury stock.

1 unchanged sentence

Credit Facility

On October 28, 2021, we entered into a $125.0 million revolving credit agreement, which replaced our prior credit facility that was due to expire in May 2023 (the "Credit Facility").

The Credit Facility has a five-year term and provides more favorable terms than the previous credit facility.

On October 28, 2021, we entered into a $125.0 million revolving credit agreement with a five-year term, which replaced our prior credit facility that was due to expire in May 2023 (the "Credit Facility").

The Credit Facility includes a sublimit of $20.0 million for commercial and standby letters of credit and a sublimit of up to $15.0 million for swingline loans.

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LIBOR Rate loans, which may be either for 1 month or 3 months, bear interest at (i) the LIBOR rate, or the Benchmark Rate as defined in the credit agreement plus (ii) a varying percentage based on the Company’s average excess availability, of either 1.25% or 1.50%.

We had no outstanding borrowings under the New Credit Facility at July 30, 2022 and no borrowings during the first six months of fiscal 2022.

At July 30, 2022, outstanding standby letters of credit were $2.4 million and outstanding documentary letters of credit were $1.0 million.

The average unused excess availability during the first six months of fiscal 2022 was approximately $79.9 million and the unused excess availability at July 30, 2022 was $85.1 million.

We had no outstanding borrowings under our Credit Facility at October 29, 2022 and no borrowings during the first nine months of fiscal 2022.

At October 29, 2022, outstanding standby letters of credit were $3.8 million and outstanding documentary letters of credit were $1.0 million.

The average unused excess availability during the first nine months of fiscal 2022 was approximately $82.0 million and the unused excess availability at October 29, 2022 was $90.2 million.

Capital Expenditures

The following table sets forth the open stores and related square footage at July 30, 2022 and July 31, 2021, respectively:

July 30, 2022

July 31, 2021

The following table sets forth the open stores and related square footage at October 29, 2022 and October 30, 2021, respectively:

October 29, 2022

October 30, 2021

Store Concept

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Casual Male Outlets

Our capital expenditures for the past two years have been very limited due to the pandemic.

Our capital expenditures in fiscal 2021 and fiscal 2020 were very limited due to the pandemic.

For fiscal 2022, we expect our capital expenditures will be approximately $10.0-$12.0 million as we make investments in technology related to our marketing and merchandising initiatives.

We are also actively pursuing opportunities to relocate or convert our remaining Casual Male XL stores to DXL stores which may require some capital investment in fiscal 2022.

During the first six months of fiscal 2022, we closed 4 Casual Male XL retail stores and 2 DXL retail stores.

During the first nine months of fiscal 2022, we closed 5 Casual Male XL retail stores and 2 DXL retail stores.

We are also reviewing white space opportunities in markets where our store footprint is underpenetrated and relocation opportunities where we have an existing Casual Male XL store.

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In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, the non-GAAP measures presented in this Quarterly Report may not be comparable to similar measures used by other companies.

We believe that inclusion of these non-GAAP measures helps investors gain a better understanding of our performance, especially when comparing such results to previous periods and that they are useful as an additional means for investors to evaluate our operating results, when reviewed in conjunction with our GAAP financial statements.

We believe that inclusion of these non-GAAP measures helps investors gain a better

understanding of our performance, especially when comparing such results to previous periods and that they are useful as an additional means for investors to evaluate our operating results, when reviewed in conjunction with our GAAP financial statements.

Reconciliations of these non-GAAP measures are presented in the following tables (certain columns may not foot due to rounding) :

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The following table reconciles free cash flow:

For the six months ended

For the nine months ended

(in millions)

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

Cash flow from operating activities (GAAP basis)

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For the three months ended

For the six months ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

For the nine months ended

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

(in millions)

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements