What changed in this filing

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Item 1. Financial Statements

2023-08-24 compared with 2023-05-25 · 379 added, 230 removed, 533 unchanged (53% of the section changed)

3 unchanged sentences

(In thousands, except share data)

April 29, 2023

July 29, 2023

January 28, 2023

25 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, 78,495,557 and 78,229,861 shares issued at April 29, 2023 and January 28, 2023, respectively

Common stock, $ 0.01 par value, 125,000,000 shares authorized, 78,605,837 and 78,229,861 shares issued at July 29, 2023 and January 28, 2023, respectively

Additional paid-in capital

Treasury stock at cost, 15,625,172 shares at April 29, 2023 and January 28, 2023, respectively

Treasury stock at cost, 17,874,322 shares at July 29, 2023 and 15,625,172 shares at January 28, 2023

Accumulated deficit

7 unchanged sentences

For the Three Months Ended

April 29, 2023

April 30, 2022

For the Six Months Ended

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

(Fiscal 2023)

(Fiscal 2022)

(Fiscal 2023)

(Fiscal 2022)

Cost of goods sold including occupancy costs

4 unchanged sentences

Operating income

Loss on termination of pension plan

Interest income (expense), net

Income before provision for income taxes

Provision for income taxes

Income before provision (benefit) for income taxes

Provision (benefit) for income taxes

Net income per share - basic

6 unchanged sentences

For the Three Months Ended

April 29, 2023

April 30, 2022

For the Six Months Ended

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

(Fiscal 2023)

(Fiscal 2022)

(Fiscal 2023)

(Fiscal 2022)

Other comprehensive income before taxes:

1 unchanged sentence

Pension plans

Recognized loss on termination of pension plan

Other comprehensive income before taxes

16 unchanged sentences

Exercise of stock options

Other comprehensive income

Other comprehensive income, net of taxes

Balance at April 29, 2023

Board of directors' compensation

Stock compensation expense

Exercise of stock options

Repurchase of common stock, including excise tax

Other comprehensive income, net of taxes

Balance at July 29, 2023

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

13 unchanged sentences

Repurchase of common stock

Other comprehensive income (loss):

Pension plan, net of taxes

Foreign currency, net of taxes

Other comprehensive income

Balance at April 30, 2022

Board of directors' compensation

Stock compensation expense

Issuance of common stock, upon RSUs release

Shares withheld for taxes related to net share settlement

Exercise of stock options

Repurchase of common stock

Other comprehensive income

Balance at July 30, 2022

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

2 unchanged sentences

(In thousands)

April 29, 2023

April 30, 2022

For the Six Months Ended

July 29, 2023

July 30, 2022

(Fiscal 2023)

1 unchanged sentence

Cash flows from operating activities:

Adjustments to reconcile net income to net cash used for by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of deferred debt issuance costs

Impairment (gain) of assets

Loss on pension plan termination

Gain from the sale of equipment

9 unchanged sentences

Accrued expenses and other liabilities

Net cash used for operating activities

Net cash provided by operating activities

Cash flows from investing activities:

8 unchanged sentences

Net cash used for financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents:

21 unchanged sentences

Short-Term Investments

Short-term investments consists of those investments that have a maturity date, when acquired, that is greater than three months and less than twelve months.

Short-term investments consist of those investments that have a maturity date, when acquired, that is greater than three months and twelve months or less.

These investments are classified as held-to-maturity and are carried at amortized cost, which approximates fair value due to the short period between purchase and maturity.

26 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 months ended April 29, 2023 and April 30, 2022, respectively, were as follows:

April 29, 2023

April 30, 2022

Other comprehensive income (loss) and reclassifications from AOCI for the three and six months ended July 29, 2023 and July 30, 2022 were as follows:

July 29, 2023

July 30, 2022

For the three months ended:

3 unchanged sentences

reclassifications, net of taxes

Recognition of loss on pension termination, net of taxes (1)

Amounts reclassified from accumulated other

2 unchanged sentences

Balance at end of quarter

July 29, 2023

July 30, 2022

For the six months ended:

(in thousands)

Balance at beginning of fiscal year

Other comprehensive income (loss) before

reclassifications, net of taxes

Recognition of loss on pension termination, net of taxes (1)

Amounts reclassified from accumulated other

comprehensive income, net of taxes (2)

Other comprehensive income (loss) for the period

Balance at end of quarter

(1) In connection with the Company's decision to terminate its pension plan, during the second quarter of fiscal 2023 the Company completed a partial settlement and accordingly recognized a pro-rated portion of AOCI in the amount of $ 4.2 million, or $ 3.1 million net of taxes.

(2) Includes the amortization of the unrecognized loss on pension plans, which was charged to “Selling, General and Administrative”

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

The Company recognized expense of $ 58,000 , or $ 43,000 net of taxes, for the three months ended April 29, 2023.

For the three months ended April 30, 2022 , the Company recognized income of $ 12,000 , 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 months ended April 30, 2022.

The Company recognized expense of $ 34,000 , or $ 25,000 net of taxes, for the three months ended July 29, 2023 and expense of $ 92,000 , or $ 68,000 net of taxes, for the six months ended July 29, 2023.

For the three and six months ended July 30, 2022 , the Company recognized income of $ 8,000 and $ 20,000 , 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.

Stock-based Compensation

4 unchanged sentences

The values derived from using the Black-Scholes model are recognized as an expense over the vesting period, net of estimated forfeitures.

The estimation of stock-based awards

that will ultimately vest requires judgment.

The estimation of stock-based awards that will ultimately vest requires judgment.

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 three months of fiscal 2023 and fiscal 2022.

April 29, 2023

April 30, 2022

July 29, 2023

July 30, 2022

Expected volatility

15 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.

There were no impairments or non-cash gains recognized in the first quarter of fiscal 2023.

For the first quarter of fiscal 2022, the Company recognized a non-cash gain of $ 0.5 million.

This non-cash gain 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 three months and six months ended July 29, 2023.

For the three months and six months ended July 30, 2022, the Company recognized non-cash gains of $ 0.1 million and $ 0.6 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 first quarter of fiscal 2022, $ 0.4 million was included as an offset to asset impairment charges.

The remaining gain was included as a reduction of store occupancy costs.

Accordingly, for the three months and six months ended July 30, 2022, $ 0.1 million and $ 0.4 million, respectively, were included as an offset to asset impairment charges.

The remaining gains for the three months and six months ended July 30, 2022 were included as a reduction of store occupancy costs.

The Company determines if an arrangement contains a lease at the inception of a contract.

3 unchanged sentences

The Company elected the lessee non-lease component separation practical expedient, which permits the Company to not separate non-lease components from the lease components to which they relate.

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 April 29, 2023 , the Company had no short-term leases.

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 29, 2023 , 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.

7 unchanged sentences

Other store leases contain one periodic fixed lease payment that includes real estate taxes, common area maintenance and insurance.

These fixed payments are considered part of the lease payment and

included in the right-of-use assets and lease liabilities.

These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities.

Tenant allowances are included as an offset to the right-of-use asset and amortized as reductions to rent expense over the associated lease term.

8 unchanged sentences

Recently Issued Accounting Pronouncements - Not Yet Adopted

There were no other new accounting pronouncements, issued or effective during the first three months of fiscal 2023, which had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718):

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock, which amends or supersedes various SEC paragraphs within the Accounting Standards Codification to conform to past SEC announcements and guidance issued by the SEC.

The ASU does not provide any new guidance, and as such, there is no transition effective date.

ASU 2023 - 03 is not expected to have a material impact on the Company's Consolidated Financial Statements.

There were no other new accounting pronouncements, issued or effective during the first six months of fiscal 2023, which had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.

Revenue Recognition

5 unchanged sentences

Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included as part of accrued expenses on the Consolidated Balance Sheets.

Revenue from the Company’s store operations is recorded upon purchase of merchandise by customers, net of an allowance for sales returns, which is estimated based upon historical experience.

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.

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 $ 2.6 million and $ 3.4 million at April 29, 2023 and January 28, 2023, respectively.

The gift card liability, net of breakage, was $ 2.3 million and $ 3.4 million at July 29, 2023 and January 28, 2023, respectively.

Unredeemed Loyalty Coupons.

2 unchanged sentences

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

The loyalty accrual, net of breakage, was $ 1.6 million and $ 1.6 million at April 29, 2023 and January 28, 2023, respectively.

The loyalty accrual, net of breakage, was $ 1.6 million at July 29, 2023 and at January 28, 2023.

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

3 unchanged sentences

Substantially all of the Company’s revenue is generated from its stores and direct businesses.

Results for the first quarter of fiscal 2022 included operating results from the wholesale segment, which was discontinued in the first quarter of fiscal 2022.

Results for the second quarter and first six months of fiscal 2022 included operating results from the wholesale segment, which was discontinued in the first quarter of fiscal 2022.

Accordingly, the Company has determined that the following sales channels depict the nature, amount, timing, and uncertainty of how revenue and cash flows are affected by economic factors:

For the Three Months Ended

For the Six Months Ended

(in thousands)

April 29, 2023

April 30, 2022

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

Retail segment

2 unchanged sentences

On October 28, 2021, the Company entered into a credit facility with Citizens Bank, N.A.

On April 20, 2023, the Company entered into the First Amendment to Credit Agreement which provided for the replacement of the London Interbank Offering Rate (“LIBOR”) interest rate options with the secured overnight financing rate ("SOFR") based options (as amended, the "Credit Agreement").

The Credit Facility is a $ 125.0 million secured, asset-based credit facility with a maturity date of October 28, 2026 .

The Credit Facility provides for a $ 125.0 million secured, asset-based credit facility with a maturity date of October 28, 2026 .

The maximum committed borrowing of $ 125.0 million includes a sublimit of $ 20.0 million for commercial and standby letters of credit and a sublimit of up to $ 15.0 million for swing line loans.

The Company’s ability to borrow under the Credit Facility is determined using an availability formula based on eligible assets .

As of April 20, 2023, borrowings under the Credit Agreement bear interest at either a Base Rate loan or Daily Simple SOFR rate, at the Company's option .

As of April 20, 2023, borrowings under the Credit Facility bear interest at either a Base Rate loan or Daily Simple SOFR rate, at the Company's option .

Base Rate loans will bear interest at a rate equal to (i) the greater of:

(a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50 % per annum and (c) the Daily Simple SOFR rate plus 1.00 % per annum (provided the Base Rate shall never be less than the Floor (as defined in the First Amendment)), plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25 % or 0.50 % (the “Applicable Margin”).

(a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50 % per annum and (c) the Daily Simple SOFR rate plus 1.00 % per annum (provided the Base Rate shall never be less than the Floor (as defined in the Credit Facility)), plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25 % or 0.50 % (the “Applicable Margin”).

Daily Simple SOFR loans will bear interest at a rate equal to (i) the Daily Simple SOFR rate plus an adjustment of 0.10 % (provided the Daily Simple SOFR rate shall never be less than the Floor), plus (ii) the Applicable Margin.

3 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 April 29, 2023 , the Company had no borrowings outstanding under the Credit Facility and unused availability was $ 93.8 million.

The Company had no borrowings during the first three months of fiscal 2023, resulting in an average unused excess availability of approximately $ 82.5 million.

Outstanding standby letters of credit were $ 3.8 million and outstanding documentary letters were $ 1.3 million at April 29, 2023.

At April 29, 2023, the Company’s prime-based interest rate was 8.25 % .

At July 29, 2023 , the Company had no borrowings outstanding under the Credit Facility and unused availability was $ 81.8 million.

The Company had no borrowings during the first six months of fiscal 2023, resulting in an average unused excess availability of approximately $ 85.6 million.

Outstanding standby letters of credit were $ 4.0 million and outstanding documentary letters were $ 1.2 million at July 29, 2023.

At July 29, 2023, the Company’s prime-based interest rate was 8.75 % .

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 headquarters is 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 headquarters is 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 .

2 unchanged sentences

Lease modification accounting requires the recalculation of the ROU asset, lease liability and lease expense over the respective lease term.

In April 2020, the FASB issued guidance allowing entities to make a policy election to account for lease concessions related to the COVID-19 pandemic as though enforceable rights and obligations for those concessions existed.

The election applies to any lessor-provided lease concession related to the impact of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee.

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 April 29, 2023, 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 July 29, 2023, 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 months ended April 29, 2023 and April 30, 2022:

The following table is a summary of the Company’s components of net lease cost for the three and six months ended July 29, 2023 and July 30, 2022:

For the three months ended

April 29, 2023

April 30, 2022

For the six months ended

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

(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 three months ended April 29, 2023 and April 30, 2022 was as follows:

Supplemental cash flow and balance sheet information related to leases for the first six months ended July 29, 2023 and July 30, 2022 was as follows:

(dollars in thousands)

For the three months ended

For the six months ended

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

April 29, 2023

April 30, 2022

July 29, 2023

July 30, 2022

Operating cash flows for operating leases (1)

3 unchanged sentences

Weighted average discount rate

(1) The cash paid for the first three months of fiscal 2023 and fiscal 2022 included prepaid rent of $ 4.2 million and $ 4.1 million, respectively.

The decrease in cash paid was due to the timing of prepaid rents, which resulted in approximately four months of rent payments in the first quarter of fiscal 2022 as opposed to three months of rent payments in the first quarter of fiscal 2023.

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 April 29, 2023:

(1) The cash paid for the first six months of fiscal 2023 and fiscal 2022 included prepaid rent of $ 3.7 million and $ 3.6 million, respectively.

(in thousands)

5 unchanged sentences

Long-term lease obligations

At April 29, 2023, the Company entered into a ten-year store lease that has not yet commenced with aggregated estimated future lease payments of approximately $ 2.1 million, which are not included in the above table.

As of July 29, 2023, the Company had entered into a ten-year store lease that has not yet commenced with aggregated estimated future lease payments of approximately $ 3.0 million, which are not included in the above table.

The lease is expected to commence in the fall of 2023 .

7 unchanged sentences

Under each LTIP, 50 % of each participant’s Target Cash Value is subject to time-based vesting and 50 % is subject to performance-based vesting.

Awards for any achievement of performance targets are not granted until the

performance targets are achieved and then are subject to additional vesting through August 31 following the end of the applicable performance period.

Awards for any achievement of performance targets are not granted until the performance targets are achieved and then are subject to additional vesting through August 31 following the end of the applicable performance period.

2020-2022 LTIP

1 unchanged sentence

The time-vested portion of the 2020-2022 LTIP vests in four annual installments, with the remaining installment vesting on April 1, 2024.

In the first quarter of fiscal 2023, on March 6, 2023, the Compensation Committee approved a grant of awards equal to $ 2.8 million for the achievement of the performance target for the 2020-2022 LTIP.

On March 6, 2023, the Compensation Committee approved a grant of awards equal to $ 2.8 million for the achievement of the performance target for the 2020-2022 LTIP.

The awards were granted on March 23, 2023, following completion of the audited financial statements, in a combination of 50 % cash and 50 % restricted stock units ("RSUs").

2 unchanged sentences

to “Additional paid-in capital”.

in the first quarter of fiscal 2023.

See the Consolidated Statement of Changes in Stockholders’

At April 29, 2023 , the Company had two active LTIPs:

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

The time-based awards under the 2021-2023 LTIP were granted in a combination of 25 % stock options and 75 % cash and the 2022-2024 LTIP time-based awards were granted in a combination of 50 % RSUs and 50 % cash.

Performance targets for the 2021-2023 LTIP and 2022-2024 LTIP were established and approved by the Compensation Committee on March 8, 2021 and April 9, 2022, respectively.

At July 29, 2023 , the Company had three active LTIPs:

the 2021-2023 LTIP, the 2022-2024 LTIP and the 2023-2025 LTIP.

The time-based awards under the 2021-2023 LTIP were granted in a combination of 25 % stock options and 75 % cash, and the time-based awards under the 2022-2024 LTIP and the 2023-2025 LTIP were granted in a combination of 50 % RSUs and 50 % cash.

Performance targets for the 2021-2023 LTIP, 2022-2024 LTIP and the 2023-2025 LITP were established and approved by the Compensation Committee on March 8, 2021, April 9, 2022 and May 1, 2023, respectively.

The performance period for each LTIP is three years .

Awards for any achievement of performance targets will not be granted until the performance targets are achieved and then will be subject to additional vesting through August 31, 2024 and August 31, 2025, respectively.

The time-based awards under the 2021-2023 LTIP and 2022-2024 LTIP vest in four equal installments through April 1, 2025 and April 1, 2026, respectively.

Assuming that the Company achieves the performance targets at target levels and all time-based awards vest, the compensation expense associated with the 2021-2023 LTIP and 2022-2024 LTIP is estimated to be approximately $ 4.1 million and $ 4.7 million, respectively.

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

At April 29, 2023 , the Company had accrued $ 1.8 million under the 2021-2023 LTIP and $ 1.1 million under the 2022-2024 LTIP for the performance awards.

Subsequent to the end of the first quarter of fiscal 2023, on May 1, 2023, the Compensation Committee approved the 2023-2025 LTIP.

The time-based awards, which represent 50 % of the 2023-2025 LTIP, were granted in a combination of 50 % cash and 50 % RSUs on May 1, 2023 and will vest in four equal installments on May 1, 2024, April 1, 2025, April 1, 2026 and April 1, 2027.

The performance-based awards, which represent the remaining 50 % of the 2023-2025 LTIP, will not be granted until the performance targets are achieved and then will be subject to additional vesting through August 31, 2026.

Assuming that the Company achieves the performance target at target level and all time-based awards vest, the compensation expense associated with the 2023-2025 LTIP is estimated to be approximately $ 4.9 million.

Approximately half of that compensation expense relates to the time-based awards, which will be expensed straight-line over 47 months.

At April 29, 2023, the Company had no accrual for the performance-based awards under the 2023-2025 LTIP.

Awards for any achievement of performance targets will not be granted until the performance targets are achieved and then will be subject to an additional service requirement through August 31, 2024, August 31, 2025 and August 31, 2026, respectively.

The time-based awards under the 2021-2023 LTIP, 2022-2024 LTIP and 2023-2025 LTIP vest in four equal installments through April 1, 2025, April 1, 2026 and April 1, 2027, respectively.

Assuming that the Company achieves the performance targets at target levels and all time-based awards vest, the compensation expense associated with the 2021-2023 LTIP, 2022-2024 LTIP and 2023-2025 LTIP is estimated to be approximately $ 4.1 million, $ 4.7 million and $ 4.9 million, respectively.

Approximately half of the compensation expense for each LTIP relates to the time-based awards, which are being expensed straight-line over 49 months, 48 months and 47 months, respectively.

At July 29, 2023 , the Company had accrued $ 2.0 million under the 2021-2023 LTIP and $ 1.4 million under the 2022-2024 LTIP for the performance awards.

At July 29, 2023, the Company had no accrual for the performance-based awards under the 2023-2025 LTIP.

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 April 29, 2023, the Company had 3,916,695 shares available under the 2016 Plan.

At July 29, 2023, the Company had 3,374,231 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 April 29, 2023 , 108,602 stock options remained outstanding under the 2006 Plan.

At July 29, 2023 , 90,487 stock options remained outstanding under the 2006 Plan.

The 2016 Plan is administered by the Compensation Committee.

The Compensation Committee is authorized to make all determinations with respect to amounts and conditions covering awards.

Options are not granted at a price less than fair value on the

date of the grant.

Options are not granted at a price less than fair value on the date of the grant.

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 three months of fiscal 2023:

The following tables summarize the share activity and stock option activity for the first six months of fiscal 2023:

Share Units (3)

5 unchanged sentences

Outstanding non-vested shares at end of quarter

(1) During the first three months of fiscal 2023, the Company granted RSUs for the achievement of performance metrics under the 2020-2022 LTIP that are subject to additional vesting through August 31, 2023.

(1) During the first six months of fiscal 2023, the Company granted RSUs for the achievement of performance metrics under the 2020-2022 LTIP that are subject to additional vesting through August 31, 2023 and time-based RSUs under its 2023-2025 LTIP.

See Note 5, Long-Term Incentive Plans .

1 unchanged sentence

(2) The outstanding deferred shares will be issued upon the director’s separation from service.

(3) Represents the remaining performance stock units (“PSUs”) granted to Mr.

(3) Represented the remaining performance share units (“PSUs”) granted to Mr.

Kanter in February 2019 which expired unvested on April 1, 2023.

(4) Represents compensation, with a fair value of $ 20,249 , to certain directors, who are required to receive shares, in lieu of cash, in order to satisfy their minimum equity ownership under the Non-Employee Director Plan.

(4) Represented compensation, with a fair value of $ 60,746 , to certain directors, who are required to receive shares, in lieu of cash, in order to satisfy their minimum equity ownership under the Non-Employee Director Compensation Plan.

Voluntary shares received, in lieu of cash, are reported below under Non-Employee Director Compensation Plan .

9 unchanged sentences

Options exercisable at end of quarter

For the first three months of fiscal 2023, the Company granted stock options to purchase an aggregate of 1,316 shares of common stock, 270,867 restricted stock units and 2,844 fully-vested shares.

For the first three months of fiscal 2022, the Company granted stock options to purchase an aggregate of 2,040 shares of common stock, 494,444 restricted stock units and 9,352 fully-vested shares.

For the first six months of fiscal 2023, the Company granted stock options to purchase an aggregate of 1,317 shares of common stock, 547,294 restricted stock units and 11,924 fully-vested shares.

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.

Subsequent to the end of the second quarter of fiscal 2023, on August 11, 2023, in connection with the extension of Mr.

Kanter's employment agreement, the Company granted 573,000 PSUs to Mr.

The award consists of nine tranches, with the first tranche vesting if and when the 30-day volume-weighted closing price of the Company's common stock is equal to or greater than $ 6.50 per share.

Each subsequent tranche will vest in $0.25 increments with the ninth tranche vesting when the 30-day volume-weighted closing price of the Company common stock is equal to or greater than $ 8.50 per share.

The PSUs are subject to a one-year minimum vesting period, and any unvested PSUs will expire on August 11, 2026.

Non-Employee Director Compensation Plan

The Company granted 12,376 shares of common stock, with a fair value of approximately $ 88,117 , to certain of its non-employee directors as compensation in lieu of cash in the first three months of fiscal 2023.

The Company granted 28,349 shares of common stock, with a fair value of approximately $ 159,357 , to certain of its non-employee directors as compensation in lieu of cash in the first six months of fiscal 2023.

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 $ 0.4 million and $ 0.4 million for the first three months of fiscal 2023 and fiscal 2022, respectively.

The total compensation cost related to time-vested stock options and RSU awards not yet recognized as of April 29, 2023 was approximately $ 1.7 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 27 months.

The Company recognized total stock-based compensation expense of $ 0.8 million for the first six months of both fiscal 2023 and fiscal 2022.

The total compensation cost related to time-vested stock options and RSU awards not yet recognized as of July 29, 2023 was approximately $ 2.5 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 34 months.

Equity and Earnings per Share

1 unchanged sentence

For the three months ended

April 29, 2023

April 30, 2022

For the six months ended

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

(in thousands )

6 unchanged sentences

For the three months ended

April 29, 2023

April 30, 2022

For the six months ended

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

(in thousands, except exercise prices)

4 unchanged sentences

$ 4.48 - $ 5.50

The above options, which were outstanding at April 29, 2023 , expire from April 3, 2032 to March 20, 2033 .

Deferred stock of 435,568 shares at April 29, 2023 and at April 30, 2022 was excluded from the computation of basic earnings per share.

$ 4.48 - $ 6.59

$ 4.48 - $ 5.50

The above options, which were outstanding at July 29, 2023 , expire from January 29, 2024 to March 20, 2033 .

Deferred stock of 435,568 shares at July 29, 2023 and at July 30, 2022 was excluded from the computation of basic earnings per share.

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

1 unchanged sentence

On March 14, 2023, the Company's Board of Directors approved a stock repurchase program, effective March 16, 2023.

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

Under the program, the Company is authorized to repurchase up to $ 15.0 million of its common stock, including excise tax, through open market and privately negotiated transactions.

The timing and the amount of any repurchases of common stock will be determined based on the Company’s evaluation of market conditions and other factors.

The stock repurchase program will expire on March 16, 2024 , but may be suspended, terminated or modified at any time for any reason.

There were no stock repurchases during the first quarter of fiscal 2023.

In the first quarter of fiscal 2022, the Company’s effective tax rate was reduced from the statutory rate due to the utilization of the Company’s fully reserved net operating loss carryforwards.

Then in the second quarter of fiscal 2022, the Company determined that it was more likely than not that it would be able to realize the benefits of substantially all of its deferred tax assets in the United States.

The Company expects to finance the repurchases from cash generated from operations.

During the second quarter of fiscal 2023, the Company repurchased 2.2 million shares at an aggregate cost of $ 10.8 million, excluding excise taxes.

The Inflation Reduction Act of 2022 imposed a nondeductible 1 % excise tax on the net value of certain share repurchases made after December 31, 2022.

Beginning in fiscal year 2023, the applicable excise tax is being charged to additional paid-in capital in the Company's Consolidated Balance Sheet as part of the cost basis of the shares repurchased, with the corresponding liability for the excise tax payable recorded in accrued expenses and other current liabilities.

This liability is partially offset by a 1 % credit permitted under the rules for the fair value of shares issued by the Company.

For the six months ended July 29, 2023, the Company has accrued $ 0.1 million for the payment of excise taxes.

In the second quarter of fiscal 2022, the Company determined that it was more likely than not that it would be able to realize the benefits of substantially all of its deferred tax assets in the United States.

Accordingly, in the second quarter of fiscal 2022, the Company released substantially all of its deferred tax valuation allowance.

As a result of the valuation allowance being released, the Company has returned to a normal tax provision for fiscal 2023.

For the first quarter of fiscal 2023, the Company’s effective tax rate was 26.6 % compared to 0.8 % for the first quarter of fiscal 2022.

The Company made no tax payments for the first three months of fiscal 2023 and fiscal 2022, respectively.

As a result of the valuation allowance being released, the Company returned to a normal tax provision for fiscal 2023.

For the second quarter and first six months of fiscal 2023, the Company’s effective tax rate was 26.4 % and 26.5 % , respectively.

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 was statutorily limited.

The Company made tax payments of $ 0.3 million for the first six months of fiscal 2023, and no tax payments for the first six months of fiscal 2022.

Termination of Noncontributory Pension Plan

In connection with the acquisition of Casual Male Corp.

in May 2002, the Company assumed the assets and liabilities of the Casual Male Noncontributory Pension Plan “Casual Male Corp.

Retirement Plan”, which was previously known as the J.

Qualified Plan (the “Pension Plan”).

Casual Male Corp.

froze all future benefits under this plan on May 1, 1997.

On May 3, 2023, the Audit Committee approved the termination of the Pension Plan, which was then approved and ratified by the Board of Directors on May 4, 2023 with a final termination approval on June 8, 2023.

On July 1, 2023, the Company completed a partial settlement through the purchase of nonparticipating annuities.

The Company made a cash contribution during the first six months of fiscal 2023 of $ 1.6 million.

The remaining pension liability, net of plan assets, at July 29, 2023 is approximately $ 0.2 million.

The remaining plan assets are invested in short-term investments and cash equivalents.

In the second quarter of fiscal 2023, the Company recognized a charge of $ 4.2 million, representing a pro-rata portion of the unrealized loss in "Accumulated Other Comprehensive Loss" on the Consolidated Balance Sheet.

The Company expects to settle the remaining obligation and terminate the Pension Plan by the end of fiscal 2023, at which time the Company will recognize the remaining unrealized loss that is part of "Accumulated Other Comprehensive Loss."

Net periodic pension cost for the three and six months ended July 29, 2023 and July 30, 2022 was as follows:

For the three months ended

For the six months ended

July 29, 2023

Net periodic pension cost:

(in thousands)

Interest cost on projected benefit obligation

Expected return on plan assets

Amortization of unrecognized loss

Loss on pension plan termination

Net periodic pension cost (income)

Assumptions used were as follows:

For the six months ended

July 29, 2023

Discount rate

Expected return on plan assets

Fair Value Measurement

At April 29, 2023, the Company held U.S.

At July 29, 2023 and January 28, 2023, the Company held U.S.

treasury bills which were classified as held-to maturity and carried at amortized cost.

The Company had no investments at April 30, 2022.

Fair Value at April 29, 2023

(in thousands)

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Inputs (Level 3)

At July 29, 2023:

Cash equivalents:

2 unchanged sentences

Treasury Bills

At January 28, 2023

Cash equivalents:

Treasury Bills

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

13 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 the impact of our brand re-positioning efforts on sales, strategic initiatives to grow our business, expected marketing costs in 2023, gross margin rates in 2023, expected capital expenditures in 2023, expected timing of stock repurchases under our board-approved stock repurchase program, and our plans with respect to our store portfolio, including anticipated re-brandings and new stores.

but may be found in other locations as well, and include statements regarding our long-range strategic growth plan and our ability to achieve accelerated growth in the future;

the expected impact of our strategic initiatives, including with respect to raising brand awareness, store development and future alliances and collaborations;

expected marketing costs, gross margin rates and expected capital expenditures in 2023;

expected timing of stock repurchases under our board-approved stock repurchase program;

and expected changes in our store portfolio and long-term plans for new or 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.

2 unchanged sentences

Numerous factors could cause our actual results to differ materially from such forward-looking statements.

federal government to avoid a default and potential federal government shutdown, changes in consumer spending in response to the economy, increased labor costs, the continuing economic impact of the war in Ukraine, our ability to manage appropriate inventory levels, our ability to successfully execute on our corporate strategy, our ability to predict customer tastes and fashion trends, our ability to grow market share, and the other risks and uncertainties set forth in the “Risk Factors”

This discussion sets forth certain risks and uncertainties that may have an impact on future results and direction of our Company, including, without limitation, risks related to inflationary pressures, changes in consumer spending in response to economic factors, increased labor costs and potential labor shortages, the continuing economic impact of the Russian invasion of Ukraine, our ability to manage appropriate inventory levels, our ability to successfully execute on our strategic initiatives, our ability to predict customer tastes and fashion trends, our ability to grow market share, our ability to forecast sales growth trends and compete in the market, and the other risks and uncertainties set forth in the “Risk Factors”

section in Part I, Item 1A of our Fiscal 2022 Annual Report.

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

At April 29, 2023, we operated 218 Destination XL stores, 16 DXL outlet stores, 28 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.

At July 29, 2023, we operated 219 Destination XL stores, 16 DXL outlet stores, 27 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,”

17 unchanged sentences

Similarly, if a customer visits a store and the item is out of stock, the associate can order the item through our website.

A customer also has the ability to order online and pick-up in a store and at curbside.

A customer also has the ability to order

online and pick-up in a store and at curbside.

We define store sales as sales that originate and are fulfilled directly at the store level.

5 unchanged sentences

The method of calculating comparable sales varies across the retail industry and, as a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other retailers.

RESULTS OF OPERATIONS

EXECUTIVE SUMMARY

For the three months ended

April 29, 2023

April 30, 2022

For the six months ended

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

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

6 unchanged sentences

Adjusted net income (Non-GAAP basis)

We are pleased to report our ninth consecutive quarter of positive comparative sales growth.

The first quarter was a more challenging growth quarter for the retail industry as a whole, which was affected by the macroeconomic headwinds that have impacted consumer spending.

While we saw a softening in consumer demand this quarter, we do believe that the work that we have done over the past two years to transform and reposition the DXL brand enabled us to mitigate some of this consumer weakness.

For the first quarter of fiscal 2023, we had a comparable sale increase of 0.6%, which was driven primarily by our stores which were up 1.5%, partially offset by our direct business which decreased 1.6%.

Our merchandise margins decreased approximately 110 basis points from the first quarter of fiscal 2022 due to increased costs on certain private-label merchandise, much of which we absorbed rather than passing on to the customer through price increases.

We also experienced increased shipping costs for our direct-to-consumer orders and increased costs related to our loyalty program, which we relaunched late in fiscal 2022.

These costs were partially offset by reduced inbound freight costs.

Our SG&A costs were higher by approximately $1.7 million, due primarily to an increase in payroll costs for roles that were added last year to support our sales growth, merit increases in the prior year, as well as increased benefit costs.

Net income for the first quarter of fiscal 2023 was $7.0 million, or $0.11 per diluted share, as compared to net income of $13.4 million, or $0.20 per diluted share, for the first quarter of fiscal 2022.

Assuming a normalized tax rate and adjusting for asset impairments (gains), if any, on a non-GAAP basis, net income for the first quarter of fiscal 2023 was $7.0 million, or $0.11 per diluted share, as compared to adjusted net income of $9.7 million, or $0.14 per diluted share, for the first quarter of fiscal 2022.

At April 29, 2023, we had cash and investments of $46.0 million as compared to $7.5 million at April 30, 2022.

At April 29, 2023, we had no debt outstanding and no borrowings during the quarter.

Our unused excess availability at April 29, 2023 was $93.8 million.

Our inventory was in a healthy position at quarter-end, down 11% to 2019 (pre-pandemic) levels with turnover up over 25%, and we expect to continue to maintain our low promotional cadence.

With cash on hand, no outstanding debt and full availability under our credit facility, we are continuing to pursue our strategic initiatives this year to further grow our business.

As discussed below, the Company's Board of Directors approved a $15.0 million stock repurchase program in March 2023.

There were no repurchases of stock during the first quarter of fiscal 2023.

We expect to begin executing on the stock repurchase program in the second quarter of fiscal 2023, however the timing and the amount of any repurchases will be determined based on the Company’s evaluation of market conditions and other factors.

The stock repurchase program will expire on March 16, 2024 and may be suspended, terminated or modified at any time for any reason.

Financial Summary

The following table presents sales by segment for the three months ended April 29, 2023 and April 30, 2022:

Our comparable sales for the second quarter of fiscal 2023 decreased 1.4%, our first decrease since the fourth quarter of fiscal 2020, as we compared against a strong prior year second quarter.

During the second quarter, we saw a decrease in dollars per transaction, a reflection of the continuing economic headwinds.

However, traffic improved as the quarter progressed, resulting in a positive comp of 1.0% in July.

Despite the pressure on top-line growth, we continue to proactively manage our inventory and operating costs, which has resulted in a strong adjusted EBITDA margin (a non-GAAP measure) for the quarter of 16.4%.

While we saw improvement at the end of the second quarter, traffic has slowed during the first few weeks of the third quarter, up against a strong prior year, with comparable sales trending down in the mid-single digits.

In the second quarter of fiscal 2023, our Board approved the termination of our frozen, noncontributory pension plan.

Given the current high interest rates, we saw this as an opportunistic use of excess cash to eliminate this variable liability.

In connection with that decision, during the second quarter, we completed a partial settlement of our pension obligations through the purchase of nonparticipating annuities.

As a result, during the second quarter of fiscal 2023, we recognized a loss of $4.2 million, representing a pro-rata portion of the unrealized loss in Accumulated Other Comprehensive Loss.

We expect to complete the termination of the pension plan by the end of fiscal 2023.

Net income for the second quarter of fiscal 2023 was $11.6 million, or $0.18 per diluted share, as compared to net income of $56.9 million, or $0.85 per diluted share, for the second quarter of fiscal 2022.

Net income for the second quarter of fiscal 2022 included the release of substantially all of the valuation allowance against our deferred tax assets.

Assuming a normalized tax rate and adjusting for the loss from the pension plan termination and asset impairments (gains), if any, on a non-GAAP basis, net income for the second quarter of fiscal 2023 was $14.8 million, or $0.23 per diluted share, as compared to adjusted net income of $16.1 million, or $0.24 per diluted share, for the second quarter of fiscal 2022.

For the first six months of fiscal 2023, net income was $18.6 million, or $0.28 per diluted share, as compared to net income of $70.3 million, or $1.04 per diluted share, for the first six months of fiscal 2022.

Adjusted net income for the first six months of fiscal 2023, was $21.8 million, or $0.33 per diluted share, as compared to net income of $25.8 million, or $0.38 per diluted share, for the first six months of fiscal 2022.

As of July 29, 2023, we had cash and investments of $62.8 million as compared to $22.2 million at July 30, 2022.

As of July 29, 2023, we had no debt outstanding, unused excess availability of $81.8 million, and no borrowings during the quarter.

Our inventory was in a healthy position at quarter-end, down 9.5% as compared to July 30, 2022.

Inventory turnover, as of July 29, 2023, has improved over 28% from fiscal 2019 levels.

With cash on hand, no outstanding debt and full availability under our credit facility, we are continuing to pursue our strategic initiatives this year to grow our business.

As discussed below, during the second quarter of fiscal 2023, we repurchased 2.2 million shares at a total cost, including fees of $10.8 million, within the Board's authorized $15.0 million share repurchase.

Our Future Growth Strategy

Our Company is in a fundamentally different position today than it was pre-pandemic.

We have achieved a heightened level of operational excellence, recapitalized our balance sheet to provide a greater level of financial flexibility, made investments in our technical capabilities, and upgraded our leadership team.

As we look beyond fiscal 2023, we are excited about our long-term growth plan.

Our goal is to meaningfully accelerate the trajectory of the Company over the next three to five years, by focusing on three specific growth initiatives:

brand-building, store development, and alliances/collaborations.

Marketing and Brand-Building :

We believe one of our greatest opportunities is to address our overall brand awareness levels.

Over the past few years, we have transformed our brand position and differentiated ourselves in terms of experience, fit, and assortment.

However, many of our target consumers simply do not know DXL.

We now have the financial flexibility, informed consumer research, and the right messaging to invest in building our brand.

For the past several years, our advertising-to-sales ratio has been between 5.0% to 6.0%.

Our plan is to increase our advertising-to-sales ratio over the next few years.

We expect over the next few years to invest more in brand building and top-of-funnel marketing to grow our customer file.

Store Development :

As we have stated before, we believe there are at least 50 net new store opportunities.

New store development addresses another factor critical to our growth.

While we have stores in every major metro market across the United States, there are voids in certain markets where big & tall consumers are not being serviced by a DXL.

In our most recent research across 2,500 big + tall men, both customers and non-customers, 49% self-reported that they do not shop with us because a store is not near them, while 37% self-reported that they do not shop with us because a store location is not convenient.

This year, we expect to open our first three new stores since fiscal 2018, with plans to open another 10 new stores in fiscal 2024 and 15 to 20 new stores in fiscal 2025.

Alliances/Collaborations :

We strongly believe that our "fit authority" is one of our biggest assets and that we can develop successful collaborations with other brands, who are interested in finding a cost-effective way to expand their offering to include big & tall men's apparel.

In September, we will be launching Untuckit, Fit by DXL in partnership with Untuckit to be sold exclusively by DXL.

In addition, we also are adding Hugo Boss and Faherty to our list of national brands this Fall, each with a level of merchandise exclusivity that cannot be found elsewhere.

We believe these examples are only the beginning, and we are working in real-time on additional retail brand alliances.

Lastly, we also launched our new fit technology and size mapping in two of our stores, with plans to expand to an additional 10 stores by the end of the month.

RESULTS OF OPERATIONS

The following table presents sales by segment for the three and six months ended July 29, 2023 and July 30, 2022:

For the Three Months Ended

For the Six Months Ended

(in thousands)

April 29, 2023

April 30, 2022

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

Retail segment

Wholesale segment

Total sales for the first quarter of fiscal 2023 were $125.4 million, as compared to $127.7 million in the first quarter of fiscal 2022.

Comparable sales for the first quarter were up 0.6% with comparable sales from our stores up 1.5% and our direct business down 1.6%.

This increase in comparable sales was offset by sales from closed stores and a decrease in non-comparable sales.

Sales for the quarter started off strong with a comparable sales increase of 9.1% in February.

However, we saw a comparable sales decline in March of (2.8)% and in April of (1.9)%.

The slowdown in sales was primarily driven by decreases in traffic, both to our stores and web, but was partially offset by increased dollars per transaction and conversion.

Throughout the quarter, our stores performed better than our direct business, but we continued to see sales growth from online marketplaces and our mobile app.

Total sales for the second quarter of fiscal 2023 were $140.0 million, as compared to $144.6 million in the second quarter of fiscal 2022.

Comparable sales for the second quarter decreased 1.4% with comparable sales from our stores down 1.4% and our direct business down 1.3%.

The remainder of the decrease was due to sales from closed stores and a decrease in non-comparable sales.

During the quarter, we saw a decrease in dollars per transaction, which we believe was the result of inflationary pressures impacting customer spending.

These decreases were partially offset by an increase in conversion.

Despite these headwinds, during the quarter we saw comparable sales improve each month, with May down 2.8%, June down 1.7% and July up 1.0%.

Both stores and our direct business improved throughout the quarter, driven largely by improvement in traffic to our stores and growth in our mobile app and email marketing.

Sales for the first six months of fiscal 2023 were $265.5 million as compared to $272.3 million for the first six months of fiscal 2022.

Comparable sales for the first six months of fiscal 2023 decreased 0.5%, with comparable sales from our stores flat to the prior year period and direct down 1.5%.

Gross Margin Rate

For the first quarter of fiscal 2023, our gross margin rate, inclusive of occupancy costs, was 48.6% as compared to a gross margin rate of 50.0% for the first quarter of fiscal 2022.

Our gross margin rate decreased by 140-basis points, with a decrease in merchandise margin of 110-basis points and an increase of 30-basis points in occupancy costs, primarily due to the deleveraging of sales.

The decrease in merchandise margin of 110-basis points was due to increased costs on certain private-label merchandise, much of which we absorbed rather than passing on to the customer through price increases.

We also experienced increased shipping costs related to direct-to-consumer shipments, and costs related to our loyalty program with more sales tendered with loyalty certificates as compared to the first quarter of fiscal 2022.

For the second quarter of fiscal 2023, our gross margin rate, inclusive of occupancy costs, was 50.3% as compared to a gross margin rate of 52.1% for the second quarter of fiscal 2022.

Our gross margin rate decreased by 180-basis points, with a decrease in merchandise margin of 110-basis points and an increase of 70-basis points in occupancy costs primarily due to the deleveraging of sales and increased rents as a result of lease extensions.

decrease in merchandise margin of 110-basis points was due to continued cost pressures on certain private-label merchandise, much of which we continued to absorb rather than passing on to the customer through price increases.

We also experienced increased shipping costs related to direct-to-consumer shipments and costs related to our loyalty program with more sales tendered with loyalty certificates, as compared to the second quarter of fiscal 2022.

These cost increases were partially offset by lower inbound freight costs.

For the year, we expect gross margin rates to be approximately 100-basis points lower than fiscal 2022.

For the first six months of fiscal 2023, our gross margin rate, inclusive of occupancy costs, was 49.5% as compared to a gross margin rate of 51.1% for the first six months of fiscal 2022.

The decrease of 160-basis points was due to a decrease in merchandise margins of 110-basis points and a 50-basis point increase in occupancy costs.

Similar to the second quarter merchandise margin, the decrease was due to cost pressures on certain private-label merchandise, increased direct-to-consumer shipping costs and costs related to our loyalty program.

Selling, General and Administrative Expenses

As a percentage of sales, SG&A (selling, general and administrative) expenses for the first quarter of fiscal 2023 were 38.5% as compared to 36.5% for the first quarter of fiscal 2022.

On a dollar basis, SG&A expenses increased by $1.7 million as compared to the first quarter of fiscal 2022.

The increase was primarily due to an increase in payroll-related costs from new positions added in the past year and last year's merit increases.

We also saw increases in benefit costs over the first quarter of the prior year.

The increase in payroll last year was added to support the Company's growth initiatives.

As a percentage of sales, SG&A (selling, general and administrative) expenses for the second quarter of fiscal 2023 were 33.9% as compared to 34.2% for the second quarter of fiscal 2022.

For the first six months of fiscal 2023, SG&A expenses, as a percentage of sales, were 36.1% as compared to 35.3% for the first six months of fiscal 2022.

On a dollar basis, SG&A expenses decreased by $2.0 million and $0.3 million for the second quarter and first six months of fiscal 2023, respectively as compared to the second quarter and first six months of fiscal 2022.

The decreases were primarily due to a decrease in performance-based incentive accruals and marketing costs, partially offset by an increase in payroll-related costs from new positions added in the past year to support our long-range growth initiatives.

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 21.1% of sales in the first quarter of fiscal 2023 as compared to 20.2% of sales in the first quarter of fiscal 2022.

Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 17.4% of sales in the first quarter of fiscal 2023 as compared to 16.3% of sales in the first quarter of fiscal 2022.

Marketing costs for the first quarter were 5.5% of sales as compared to 5.3% of sales for the first quarter of fiscal 2022.

Customer Facing Costs, which include store payroll, marketing and other store and direct operating costs, represented 20.3% of sales in the first six months of fiscal 2023 as compared to 19.8% of sales in the first six months of fiscal 2022.

Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 15.8% of sales in the first six months of fiscal 2023 as compared to 15.5% of sales in the first six months of fiscal 2022.

Marketing costs for the first six months were 5.3% of sales for both fiscal 2023 and fiscal 2022.

For fiscal 2023, marketing costs are expected to be approximately 5.7% of sales.

Impairment (Gain) of Assets

There were no impairments or non-cash gains recognized in the first quarter of fiscal 2023.

During the first quarter of fiscal 2022, we recorded a non-cash gain of $0.5 million 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.

There were no impairments or non-cash gains recognized in the first six months of fiscal 2023.

During the second quarter and first six months of fiscal 2022, we recorded non-cash gains of $0.1 million and $0.6 million 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.

The portion of the gain that related to a previously recorded impairment charge against the operating lease right-of-use asset was included as an offset to previously recorded asset impairment charge.

Accordingly, $0.4 million was included in the Impairment (Gain) of Assets line of the Consolidated Statement of Operations.

Accordingly, $0.1 million and $0.4 million were included in the Impairment (Gain) of Assets line of the Consolidated Statement of Operations for the second quarter and first six months of fiscal 2022.

The remaining gain was recorded as a reduction to occupancy costs.

Depreciation and Amortization

Depreciation and amortization for the first quarter of fiscal 2023 decreased to $3.5 million as compared to $4.0 million for the first quarter of fiscal 2022.

Depreciation and amortization for the second quarter of fiscal 2023 decreased to $3.5 million as compared to $4.0 million for the second quarter of fiscal 2022.

For the first six months of fiscal 2023, depreciation and amortization decreased to $6.9 million as compared to $8.0 million for the first six months of fiscal 2022.

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

Net interest income for the first quarter of fiscal 2023 was $0.3 million, as compared to interest expense of $0.1 million for the first quarter of fiscal 2022.

For the first quarter of fiscal 2023, interest income was earned from investments in U.S.

Loss from Termination of Pension Plan

During the second quarter of fiscal 2023, we identified an opportunity to eliminate a variable liability by taking advantage of the current high-interest rate environment and terminating the frozen pension plan.

We completed a partial settlement of the pension obligation in the second quarter through the purchase of nonparticipating annuities.

We made a cash contribution to the plan during the first six months of fiscal 2023 of $1.6 million.

The remaining pension liability as of July 29, 2023, was approximately $0.2 million.

In the second quarter of fiscal 2023, we recognized a charge of $4.2 million, representing a pro-rata portion of the unrealized loss that is part of accumulated other comprehensive loss on the balance sheet.

We expect to settle the remaining obligation, recognize the remaining unrealized loss and terminate the plan by the end of fiscal 2023.

Interest Income/Expense, Net

Net interest income for the second quarter of fiscal 2023 was $0.5 million, as compared to net interest expense of $0.1 million for the second quarter of fiscal 2022.

For the first six months of fiscal 2023, net interest income was $0.8 million as compared to net interest expense of $0.2 million for the first six months of fiscal 2022.

For the second quarter and first six months of fiscal 2023, interest income was earned from investments in U.S.

government-backed investments and money market accounts.

Interest costs for both periods were minimal because we had no outstanding debt and no borrowings under our credit facility during either period.

As a result of the valuation allowance against our deferred tax assets being substantially released during fiscal 2022, we have returned to a normal tax provision for fiscal 2023.

Accordingly, for the first quarter of fiscal 2023, the effective tax rate was 26.6% as compared to 0.8% for the first quarter of fiscal 2022.

The effective tax rate for the first quarter of fiscal 2022 was reduced from the statutory rate due to the utilization of fully reserved net operating loss carryforwards ("NOLs").

For the first quarter of fiscal 2023, we recorded net income of $7.0 million, or $0.11 per diluted share, as compared to net income of $13.4 million, or $0.20 per diluted share, for the first quarter of fiscal 2022.

On a non-GAAP basis, assuming a normalized tax rate of 26% and adjusting for asset impairments (gains), if any, adjusted net income for the first quarter of fiscal 2023 was $7.0 million, or $0.11 per diluted share, as compared to adjusted net income of $9.7 million, or $0.14 per diluted share for the first quarter of fiscal 2022.

There was no asset impairment (gains) for the first quarter of fiscal 2023 and an asset impairment (gain) of $(0.4) million for the first quarter of fiscal 2022.

As of April 29, 2023, our inventory increased approximately $3.4 million to $100.3 million, as compared to $96.9 million at April 30, 2022.

While our inventory increased over last year's first quarter, inventory levels were down 11% and turnover was up over 25% from the first 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.

As a result of releasing substantially all of the valuation allowance against our deferred tax assets during fiscal 2022, we have returned to a normal tax provision for fiscal 2023.

Accordingly, for the second quarter and first six months of fiscal 2023, the effective tax rate was 26.4% and 26.5%, respectively.

For the second quarter and first six months of fiscal 2022, we recognized a tax benefit of $35.1 million and $35.0 million, respectively, which reflects the release of approximately $35.5 million, or $0.53 per diluted share, in valuation allowance against our deferred tax assets, partially offset by income tax expense of $0.4 million and $0.5 million, respectively, in states where our usage of net operating losses ("NOL") is limited.

We are able to utilize our remaining NOL carryforwards to reduce our cash federal and state income taxes.

We began the year with $78.9 million in federal NOL carryforwards.

For the second quarter of fiscal 2023, we recorded net income of $11.6 million, or $0.18 per diluted share, as compared to net income of $56.9 million, or $0.85 per diluted share, for the second quarter of fiscal 2022.

Net income for the first six months of fiscal 2023 was $18.6 million, or $0.28 per diluted share, as compared to net income of $70.3 million, or $1.04 per diluted share for the first six months of fiscal 2022.

On a non-GAAP basis, assuming a normalized tax rate of 26% and adjusting for asset impairments (gains), if any, and for the loss on the termination of the pension plan, adjusted net income for the second quarter of fiscal 2023 was $14.8 million, or $0.23 per diluted share, as compared to adjusted net income of $16.1 million, or $0.24 per diluted share for the second quarter of fiscal 2022.

For the first six months of fiscal 2023, adjusted net income was $21.8 million, or $0.33 per diluted share, as compared to adjusted net income of $25.8 million, or $0.38 per diluted share.

As of July 29, 2023, our inventory decreased by approximately $9.2 million to $87.5 million, as compared to $96.7 million at July 30, 2022.

Managing our inventory remains a primary focus for us given the impact that inflation appears to have had on consumer spending.

Based on the sales trends we started to see in March 2023, we took proactive measures and adjusted our receipt plan.

At April 29, 2023, our clearance inventory was 7.8% of our total inventory, as compared to 6.9% at April 30, 2022 and below our historical benchmark of approximately 10.0%.

At July 29, 2023, our clearance inventory was 9.3% of our total inventory, as compared to 6.9% at July 30, 2022 and still below our historical benchmark of approximately 10.0%.

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

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Our primary sources of liquidity are our cash and cash equivalents, short-term investments, cash generated from operations and availability under our credit facility, which is discussed below.

At April 29, 2023, we had no outstanding debt, including no borrowings under our credit facility during the first three months of fiscal 2023.

At July 29, 2023, we had no outstanding debt, including no borrowings under our credit facility during the first six months of fiscal 2023.

Cash that is in excess of our forecasted needs may be invested in money market accounts and U.S.

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However, we remain cautious regarding the effect that the current macroeconomic conditions, including inflation and rising interest costs, may have on consumer spending as well as the continuing geopolitical impact of Russia's invasion of Ukraine on our business and the global economy.

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 three months of fiscal 2023, cash flow from operations decreased to $(4.2) million as compared to $(1.5) million for the first three months of fiscal 2022.

Free cash flow, a non-GAAP measure, decreased to $(5.9) million for the first three months of fiscal

2023 as compared to $(2.7) million for the first three months of fiscal 2022.

The first quarter is historically a period of net cash outflows as we build our seasonal inventories and pay out prior year performance incentive accruals.

The year-over-year decrease in free cash flow was primarily due to our lower earnings.

Cash flow used for investing activities increased by $16.5 million for the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022, primarily due to the purchase of $16.1 million of short-term investments.

Cash flow used for financing activities for the first three months of fiscal 2023 decreased by $5.0 million as compared to the first three months of fiscal 2022, primarily due to the repurchase of $5.0 million shares of the Company's common stock in the first quarter of fiscal 2022.

There were no repurchases of common stock during the first quarter of fiscal 2023.

We also believe that cash flows from operating activities and cash on hand will 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 2023, cash flow from operations increased to $26.2 million as compared to $23.8 million for the first six months of fiscal 2022.

Free cash flow, a non-GAAP measure, increased to $21.6 million for the first six months of fiscal 2023 as compared to $19.8 million for the first six months of fiscal 2022.

The increase in free cash flow was primarily due to a decrease in merchandise purchases as we continue to proactively manage inventory levels.

Cash flow used for investing activities increased by $44.0 million for the first six months of fiscal 2023 as compared to the first six months of fiscal 2022, primarily due to the purchase of $43.5 million of short-term investments.

Cash flow used for financing activities for the first six months of fiscal 2023 decreased by $2.1 million as compared to the first six months of fiscal 2022, primarily due to a decrease in shares repurchased as compared to the second quarter 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.

The Company did not repurchase any shares in the first quarter of fiscal 2023.

Any shares of repurchased common stock will be held as treasury stock.

During the second quarter of fiscal 2023, we repurchased 2.2 million shares at a total cost, including fees of $10.8 million.

Shares of repurchased common stock are held as treasury stock.

The timing and the amount of any remaining repurchases will be determined based on the Company’s evaluation of market conditions and other factors.

The stock repurchase program will expire on March 16, 2024 and may be suspended, terminated or modified at any time for any reason.

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On October 28, 2021, we entered into a $125.0 million revolving credit agreement with Citizens Bank, N.A., with a maturity date of October 28, 2026.

The Credit Agreement 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.

April 20, 2023, borrowings under the Credit Agreement bear interest at either a Base Rate loan or Daily Simple SOFR rate, at the Company's option.

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.

April 20, 2023, borrowings under the Credit Facility bear interest at either a Base Rate loan or Daily Simple SOFR rate, at the Company's option.

Base Rate loans will bear interest at a rate equal to (i) the greater of:

(a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50% per annum and (c) the Daily Simple SOFR rate plus 1.00% per annum (provided the Base Rate shall never be less than the Floor (as defined in the First Amendment)), plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25% or 0.50% (the “Applicable Margin”).

(a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50% per annum and (c) the Daily Simple SOFR rate plus 1.00% per annum (provided the Base Rate shall never be less than the Floor (as defined in the Credit Facility)), plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25% or 0.50% (the “Applicable Margin”).

Daily Simple SOFR loans will bear interest at a rate equal to (i) the Daily Simple SOFR rate plus an adjustment of 0.10% (provided the Daily Simple SOFR rate shall never be less than the Floor), plus (ii) the Applicable Margin.

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We are subject to an unused line fee of 0.25%.

We had no outstanding borrowings under our Credit Agreement at April 29, 2023 and no borrowings during the first three months of fiscal 2023.

At April 29, 2023, outstanding standby letters of credit were $3.8 million and outstanding documentary letters of credit were $1.3 million.

The average unused excess availability during the first three months of fiscal 2023 was approximately $82.5 million and the unused excess availability at April 29, 2023 was $93.8 million.

We had no outstanding borrowings under the Credit Facility at July 29, 2023 and no borrowings during the first six months of fiscal 2023.

At July 29, 2023, outstanding standby letters of credit were $4.0 million and outstanding documentary letters of credit were $1.2 million.

The average unused excess availability during the first six months of fiscal 2023 was approximately $85.6 million and the unused excess availability at July 29, 2023 was $81.8 million.

Capital Expenditures

The following table sets forth the open stores and related square footage at April 29, 2023 and April 30, 2022, respectively:

April 29, 2023

April 30, 2022

For fiscal 2023, we expect our capital expenditures to range from $19.0 million to $21.0 million, of which approximately $7.8 million is discretionary spending for new or improved stores with the remaining for non-discretionary, infrastructure improvements.

The following table sets forth the open stores and related square footage at July 29, 2023 and July 30, 2022, respectively:

July 29, 2023

July 30, 2022

Store Concept

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Casual Male Outlets

We have executed our first lease agreement this year for a new store in the Los Angeles market.

We are very close on our second new store which will be in the New York market and we expect to sign at least one more lease for a third whitespace store that we expect to open by the end of 2023.

We have also started to convert four Casual Male stores to the DXL store format and we have started to remodel one existing DXL store.

By the end of fiscal 2023, we expect to open 3 new DXL stores and 10 Casual Male to DXL conversion stores.

We expect to have begun construction on at least 5 DXL remodels by the end of the year.

Over the next three to

five years, we believe we could potentially open 50 new DXL stores across the country.

We expect our capital expenditures to range from $19.0 million to $21.0 million in fiscal 2023.

We have executed lease agreements for three new stores, one in each of the Los Angeles, New York and Cincinnati markets.

We expect these stores to open by the end of 2023.

During the second quarter, we completed the conversion of one Casual Male store to the DXL store format.

By the end of fiscal 2023, we expect to open 3 new DXL stores and 10 Casual Male-to-DXL conversion stores and to have begun construction on at least 5 DXL remodels.

Over the next three to five years, we believe we could potentially open 50 net new DXL stores across the United States.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Free cash flow is a metric that management uses to monitor liquidity.

Management believes this metric is important to investors because it demonstrates the Company's ability to strengthen liquidity while supporting its capital projects and new store growth.

We expect to fund our ongoing capital expenditures with cash flow from operations.

The following table reconciles free cash flow:

For the three months ended

For the six months ended

(in millions)

April 29, 2023

April 30, 2022

July 29, 2023

July 30, 2022

Cash flow from operating activities (GAAP basis)

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Adjusted Net Income and Adjusted Net Income Per Diluted Share:

The above discussion includes adjusted net income, on a non-GAAP basis.

For comparability, the adjusted net income has been calculated to adjust for asset impairment charge (gain), if any, and to apply a normal tax rate of 26%.

Adjusted net income and adjusted net income per diluted share is calculated by excluding any asset impairment charge (gain) and the loss from the termination of the pension plan, subtracting the actual income tax provision (benefit) and applying an effective tax rate of 26%.

The Company believes that this comparability is useful in comparing the actual results period to period.

Adjusted net income per diluted share is then calculated by dividing the adjusted net income by the weighted average shares outstanding for the respective period, on a diluted basis.

For the three months ended

April 29, 2023

April 30, 2022

For the six months ended

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

(in millions, except per share data)

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Adjust for impairment (gain) of assets

Add back loss on termination of pension plan

Add back actual income tax provision

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Weighted average number of common shares outstanding on a diluted basis

Adjusted EBITDA .

Adjusted EBITDA and Adjusted EBITDA Margin .

Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation and amortization and is before any impairment of assets, if any.

We believe that adjusted EBITDA is useful to investors in evaluating our performance and is a key metric to measure profitability and economic productivity.

The following table reconciles adjusted EBITDA from net income:

Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Sales.

We believe that providing adjusted EBITDA and adjusted EBITDA margin is useful to investors in evaluating our performance

and are key metrics to measure profitability and economic productivity.

The following table reconciles adjusted EBITDA from net income and calculates adjusted EBITDA margin:

For the three months ended

April 29, 2023

April 30, 2022

For the six months ended

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

(in millions)

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Impairment (gain) of assets

Provision for income taxes

Loss on termination of pension plan

Provision (benefit) for income taxes

Interest (income) expense

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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