DESTINATION XL GROUP, INC. 10-Q

Item 1. Financial Statements. DESTINATION XL GROUP, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) August 3, 2024 February 3, 2024 (Fiscal 2024) (Fiscal 2023) ASSETS Current assets: Cash and cash equivalents $ 21,475 $ 27,590 Short-term investments 41,732 32,459 Accounts receivable 898 3,920 Inventories 78,612 80,968 Prepaid expenses and other current assets 8,977 8,308 Total current assets 151,694 153,245 Non-current assets: Property and equipment, net of accumulated depreciation and amortization 47,791 43,238 Operating lease right-of-use assets 163,246 138,118 Deferred income taxes, net of valuation allowance 19,403 21,533 Intangible assets 1,150 1,150 Other assets 484 457 Total assets $ 383,768 $ 357,741 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 22,576 $ 17,353 Accrued expenses and other current liabilities 25,505 35,302 Operating leases, current 35,155 37,221 Total current liabilities 83,236 89,876 Long-term liabilities: Operating leases, non-current 141,479 117,316 Other long-term liabilities 2,099 1,596 Total long-term liabilities 143,578 118,912 Commitments and contingencies Stockholders' equity: Preferred stock, $ 0.01 par value, 1,000,000 shares authorized, none issued — — Common stock, $ 0.01 par value, 125,000,000 shares authorized, 79,329,785 and 79,033,378 shares issued at August 3, 2024 and February 3, 2024, respectively 793 790 Additional paid-in capital 327,235 325,202 Treasury stock at cost, 21,094,463 shares at August 3, 2024 and 21,041,661 shares at February 3, 2024 ( 130,348 ) ( 130,137 ) Accumulated deficit ( 40,726 ) ( 46,902 ) Total stockholders' equity 156,954 148,953 Total liabilities and stockholders' equity $ 383,768 $ 357,741 The accompanying notes are an integral part of the consolidated financial statements. 2 DESTINATION XL GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) For the Three Months Ended For the Six Months Ended August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 (Fiscal 2024) (Fiscal 2023) (Fiscal 2024) (Fiscal 2023) Sales $ 124,820 $ 140,043 $ 240,309 $ 265,485 Cost of goods sold including occupancy costs 64,649 69,664 124,456 134,190 Gross profit 60,171 70,379 115,853 131,295 Expenses: Selling, general and administrative 53,662 47,446 101,185 95,727 Depreciation and amortization 3,385 3,468 6,663 6,945 Total expenses 57,047 50,914 107,848 102,672 Operating income 3,124 19,465 8,005 28,623 Loss on termination of retirement plans — ( 4,174 ) — ( 4,174 ) Interest income, net 551 505 1,121 844 Income before provision for income taxes 3,675 15,796 9,126 25,293 Provision for income taxes 1,292 4,163 2,950 6,693 Net income $ 2,383 $ 11,633 $ 6,176 $ 18,600 Net income per share - basic $ 0.04 $ 0.19 $ 0.11 $ 0.30 Net income per share - diluted $ 0.04 $ 0.18 $ 0.10 $ 0.28 Weighted-average number of common shares outstanding: Basic 58,233 61,977 58,135 62,334 Diluted 61,117 65,449 61,035 65,829 The accompanying notes are an integral part of the consolidated financial statements. 3 DESTINATION XL GROUP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) For the Three Months Ended For the Six Months Ended August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 (Fiscal 2024) (Fiscal 2023) (Fiscal 2024) (Fiscal 2023) Net income $ 2,383 $ 11,633 $ 6,176 $ 18,600 Other comprehensive income before taxes: Retirement plans — 65 — 131 Recognized loss on termination of retirement plans — 4,174 — 4,174 Other comprehensive income before taxes — 4,239 — 4,305 Tax effect related to items of other comprehensive income — ( 1,111 ) — ( 1,128 ) Other comprehensive income, net of tax — 3,128 — 3,177 Comprehensive income $ 2,383 $ 14,761 $ 6,176 $ 21,777 The accompanying notes are an integral part of the consolidated financial statements. 4 DESTINATION XL GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) Additional Common Stock Paid-in Treasury Stock Accumulated Shares Amounts Capital Shares Amounts Deficit Total Balance at February 3, 2024 79,033 $ 790 $ 325,202 ( 21,041 ) $ ( 130,137 ) $ ( 46,902 ) $ 148,953 Board of directors' compensation 18 1 111 — — — 112 Stock compensation expense — — 875 — — — 875 Issuance of common stock, upon RSUs release 129 1 ( 1 ) — — — — Shares withheld for taxes related to net share settlement ( 14 ) — ( 48 ) — — — ( 48 ) Exercise of stock options 132 1 75 — — — 76 Repurchase of common stock — — — ( 53 ) ( 211 ) — ( 211 ) Net income — — — — — 3,793 3,793 Balance at May 4, 2024 79,298 $ 793 $ 326,214 ( 21,094 ) $ ( 130,348 ) $ ( 43,109 ) $ 153,550 Board of directors' compensation 23 — 112 — — — 112 Stock compensation expense — — 905 — — — 905 Exercise of stock options 8 — 4 — — — 4 Net income — — — — — 2,383 2,383 Balance at August 3, 2024 79,329 $ 793 $ 327,235 ( 21,094 ) $ ( 130,348 ) $ ( 40,726 ) $ 156,954 The accompanying notes are an integral part of the consolidated financial statements. 5 DESTINATION XL GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) Accumulated Additional Other Common Stock Paid-in Treasury Stock Accumulated Comprehensive Shares Amounts Capital Shares Amounts Deficit Loss Total Balance at January 28, 2023 78,230 $ 782 $ 321,516 ( 15,625 ) $ ( 105,386 ) $ ( 74,756 ) $ ( 4,928 ) $ 137,228 Board of directors' compensation 15 — 108 — — — — 108 Stock compensation expense — — 404 — — — — 404 Restricted stock units (RSUs) granted for achievement of performance-based compensation, reclassified from liability to equity — — 1,146 — — — — 1,146 Issuance of common stock, upon RSUs release 251 3 ( 3 ) — — — — — Shares withheld for taxes related to net share settlement ( 81 ) ( 1 ) ( 445 ) — — — — ( 446 ) Exercise of stock options 81 1 215 — — — — 216 Other comprehensive income, net of taxes — — — — — — 49 49 Net income — — — — — 6,967 — 6,967 Balance at April 29, 2023 78,496 $ 785 $ 322,941 ( 15,625 ) $ ( 105,386 ) $ ( 67,789 ) $ ( 4,879 ) $ 145,672 Board of directors' compensation 25 — 112 - — — — 112 Stock compensation expense — — 411 - — — — 411 Exercise of stock options 85 1 48 - — — — 49 Repurchase of common stock, including excise tax — — — ( 2,249 ) ( 10,905 ) — — ( 10,905 ) Other comprehensive income, net of taxes — — — — — — 3,128 3,128 Net income — — — — — 11,633 11,633 Balance at July 29, 2023 78,606 $ 786 $ 323,512 ( 17,874 ) $ ( 116,291 ) $ ( 56,156 ) $ ( 1,751 ) $ 150,100 The accompanying notes are an integral part of the consolidated financial statements. 6 DESTINATION XL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) August 3, 2024 July 29, 2023 (Fiscal 2024) (Fiscal 2023) Cash flows from operating activities: Net income $ 6,176 $ 18,600 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred debt issuance costs 38 38 Loss on retirement plan terminations — 4,174 Gain from the sale of equipment ( 9 ) ( 129 ) Depreciation and amortization 6,663 6,945 Deferred taxes, net of valuation allowance 2,130 7,489 Stock compensation expense 1,780 815 Board of directors' stock compensation 224 220 Changes in operating assets and liabilities: Accounts receivable 2,887 836 Inventories 2,356 5,472 Prepaid expenses and other current assets ( 669 ) 460 Other assets ( 65 ) ( 40 ) Accounts payable 5,223 ( 6,649 ) Operating leases, net ( 3,031 ) ( 3,181 ) Accrued expenses and other liabilities ( 7,731 ) ( 8,811 ) Net cash provided by operating activities 15,972 26,239 Cash flows from investing activities: Additions to property and equipment, net ( 12,779 ) ( 4,665 ) Proceeds from sale of equipment 9 129 Purchase of short-term investments ( 34,011 ) ( 43,536 ) Maturity of short-term investments 24,873 — Net cash used for investing activities ( 21,908 ) ( 48,072 ) Cash flows from financing activities: Repurchase of common stock ( 211 ) ( 10,814 ) Tax withholdings paid related to net share settlements ( 48 ) ( 446 ) Proceeds from the exercise of stock options 80 265 Net cash used for financing activities ( 179 ) ( 10,995 ) Net decrease in cash and cash equivalents ( 6,115 ) ( 32,828 ) Cash and cash equivalents: Beginning of period 27,590 52,074 End of period $ 21,475 $ 19,246 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for income taxes $ 811 $ 237 Cash paid during the period for interest $ 182 $ 159 Non-cash activity during the period: Capital expenditures incurred but not yet paid $ 776 $ 505 The accompanying notes are an integral part of the consolidated financial statements. 7 DESTINATION XL GROUP, INC. Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation In the opinion of management of Destination XL Group, Inc., a Delaware corporation (collectively with its subsidiaries, referred to as the “Company”), the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited Consolidated Financial Statements for the fiscal year ended February 3, 2024 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 21, 2024. The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year. The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2024 is a 52-week period ending on February 1, 2025 and fiscal 2023 was a 53-week period ending on February 3, 2024. Segment Information The Company has two principal operating segments: its stores and its direct business. The Company considers its stores and direct operating segments to be similar in terms of economic characteristics, production processes and operations, and has therefore aggregated them into one reportable segment, retail segment, consistent with its omni-channel business approach. Cash and Cash Equivalents Cash and cash equivalents consist of cash in banks and short-term investments, which have a maturity of ninety days or less when acquired. Included in cash equivalents are credit card and debit card receivables from banks, which generally settle within two to four business days. Short-Term Investments 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. Concentration of Credit Risk Cash and cash equivalents include amounts due from third party financial institutions, which from time to time, may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company is potentially exposed to a concentration of credit risk when cash and cash equivalent deposits in these financial institutions are in excess of FDIC limits. The Company considers the credit risk associated with these financial instruments to be minimal as cash and cash equivalents are held by financial institutions with high credit ratings and it has not historically sustained any credit losses associated with its cash and cash equivalents balances. In addition, the Company's cash and cash equivalents include money market accounts with Citizens Bank, N.A. and investments in U.S. government-backed securities held with Fidelity Investments. Fair Value of Financial Instruments ASC Topic 825, Financial Instruments , requires disclosure of the fair value of certain financial instruments. ASC Topic 820, “ Fair Value Measurements and Disclosures ,” defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. 8 The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities. The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these instruments. See Note 9 - Fair Value Measurement for information regarding the fair value of certain financial assets. Accumulated Other Comprehensive Income (Loss) - (“AOCI”) In the fourth quarter of fiscal 2023, the Company terminated its frozen retirement plans, which was the only AOCI activity. As a result, there was no remaining AOCI as of February 3, 2024. For the first three and six months of fiscal 2023, other comprehensive income and reclassifications from AOCI was as follows: in thousands For the three months ended July 29, 2023 For the six months ended July 29, 2023 Balance at beginning of fiscal year $ ( 4,879 ) $ ( 4,928 ) Other comprehensive income before reclassifications, net of taxes 23 29 Recognition of loss on retirement plan termination, net of taxes (1) 3,080 3,080 Amounts reclassified from accumulated other comprehensive income, net of taxes (2) 25 68 Other comprehensive income for the period 3,128 3,177 Balance at end of quarter $ ( 1,751 ) $ ( 1,751 ) (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 retirement plans, which was charged to “Selling, General and Administrative” Expense on the Consolidated Statements of Operations for the three and six months ended July 29, 2023. 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. Stock-based Compensation All share-based payments, including grants of employee stock options and restricted stock, are recognized as an expense in the Consolidated Statements of Operations based on their fair values and vesting periods. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). The Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. 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 9 that will ultimately vest requires judgment. Actual results and future changes in estimates may differ from the Company’s current estimates. There were no grants of stock options in the first six months of fiscal 2024. For the first six months of fiscal 2023, the fair value of each stock option grant was 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. July 29, 2023 Expected volatility 86.3 % - 92.1 % Risk-free interest rate 3.71 %- 4.42 % Expected term 2.5 yrs. Dividend rate — Weighted average fair value of options granted $ 3.24 Impairment of Long-Lived Assets The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company’s judgment regarding the identification of impairment indicators is based on operational performance at the store level. Factors considered by the Company that could result in an impairment triggering event include significant changes in the use of assets, a current period operating or cash flow loss, underperformance of a store relative to historical or expected operating results, and an accumulation of costs significantly in excess of the amount originally expected for the construction of the long-lived store assets. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The model for undiscounted future cash flows includes assumptions, at the individual store level, with respect to expectations for future sales and gross margin rates as well as an estimate for occupancy costs used to estimate the fair value of the respective store’s operating lease right-of-use asset. 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 six months of fiscal 2024 and fiscal 2023. Advertising Costs The Company expenses in-store advertising costs as incurred. Creative production costs, if any, are expensed in the period in which the advertising is first aired, and media costs are expensed as incurred. Direct response advertising costs, if any, are expensed in the period in which the mailing occurs. Advertising expense, which is included in selling, general and administrative expenses, was $ 11.0 million and $ 7.1 million for second quarter of fiscal 2024 and fiscal 2023, respectively, and was $ 18.3 million and $ 14.0 million for the first six months of fiscal 2024 and fiscal 2023, respectively. Leases The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments, initial direct costs. Lease incentives are included in the value of the ROU assets. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate, based on information available at the lease measurement date, to determine the present value of future payments. 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 August 3, 2024 , 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. In general, for store leases with an initial term of 10 years or more, the options to extend are not considered reasonably certain at lease commencement. For store leases with an initial term of 5 years, the Company evaluates each lease independently and, when the Company considers it reasonably certain that it will exercise an option to extend, the associated payment of that option will be included in the measurement of the ROU asset and lease liability. 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 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 . For store leases, the Company accounts for lease components and non-lease components as a single lease component. Certain store leases may require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance 10 and insurance, and are expensed as incurred as variable lease costs. 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 ROU assets and lease liabilities. Tenant allowances are included as an offset to the ROU asset and amortized as reductions to rent expense over the associated lease term. See Note 4, " Leases" for additional information. Recently Issued Accounting Pronouncements - Not Yet Adopted 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. In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendment in Response to the SEC ’ s Disclosure Update and Simplification Initiative . ASU-2023-06 incorporates several disclosure and presentation requirements currently residing in the SEC Regulations S-X and S-K. The amendments will be applied prospectively and are effective when the SEC removes the related requirements from Regulations S-X or S-K. Any amendments the SEC does not remove by June 30, 2027 will not be effective. The ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements or related disclosures because the Company is currently subjected to the reporting requirements of Regulations S-X and S-K. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) , which requires all public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for our annual financial statements starting in fiscal 2024 and interim periods starting in fiscal 2025, with early adoption permitted. We are currently evaluating the impact of this accounting standard on our financial statements or related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) , which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid and to improve the effectiveness of income tax disclosures. This ASU will be effective in fiscal 2025, and allows for adoption on a prospective basis, with a retrospective option. Early adoption is permitted. We are currently evaluating the impact of adopting this accounting standard on our financial statements or related disclosures. There were no other new accounting pronouncements, issued or effective during the first six months of fiscal 2024, which had or are expected to have a significant impact on the Company’s Consolidated Financial Statements. 2. Revenue Recognition The Company operates as a retailer of big and tall men’s clothing, which includes stores and direct. Revenue is recognized by the operating segment that initiates a customer’s order. Store sales are defined as sales that originate and are fulfilled directly at the store level. Direct sales are defined as sales that originate online, including those initiated online at the store level, on its website or on third-party marketplaces. Generally, all revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration in exchange for those goods. 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. Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers. Upon issuance of a gift card, gift certificate, or credit voucher, a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Based on historical redemption patterns, the Company can reasonably estimate the amount of gift cards, gift certificates, and credit vouchers for which redemption is remote, which is referred to as “breakage.” 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 $ 2.1 million and $ 3.2 million at August 3, 2024 and February 3, 2024, respectively. Unredeemed Loyalty Coupons. The Company offers a free loyalty program to its customers for which points accumulate based on the purchase of merchandise. Under ASC 606, Revenue from Contracts with Customers , these loyalty points provide the customer with a material right and a distinct performance obligation with revenue deferred and recognized when the points are expected to be redeemed or expire. 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 $ 1.7 million at August 3, 2024 and February 3, 2024, respectively. 11 Shipping. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales for all periods presented. Amounts related to shipping and handling that are billed to customers are recorded in sales, and the related costs are recorded in cost of goods sold, including occupancy costs, in the Consolidated Statements of Operations. Disaggregation of Revenue As noted above under Segment Information in Note 1, the Company’s business consists of one reportable segment, its retail segment. Substantially all of the Company’s revenue is generated from its stores and direct businesses. 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) August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 Store sales $ 87,845 70.4 % $ 97,445 69.6 % $ 168,693 70.2 % $ 184,742 69.6 % Direct sales 36,975 29.6 % 42,598 30.4 % 71,616 29.8 % 80,743 30.4 % Total sales $ 124,820 $ 140,043 $ 240,309 $ 265,485 3. Debt Credit Agreement with Citizens Bank, N.A. The Company has a credit facility with Citizens Bank, N.A, which provides for a $ 125.0 million secured, asset-based credit facility with a maturity date of October 28, 2026 (the "Credit Facility"). 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 . B orrowings 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 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. Any swingline loan will continue to bear interest at a rate equal to the Base Rate plus the Applicable Margin. The Company is subject to an unused line fee of 0.25 %. The Company’s obligations under the Credit Facility are secured by a lien on substantially all of its assets. 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 August 3, 2024 , the Company had no borrowings outstanding under the Credit Facility and unused availability was $ 69.9 million. The Company had no borrowings during the first six months of fiscal 2024, resulting in an average unused excess availability of approximately $ 73.4 million. Outstanding standby letters of credit were $ 4.2 million and outstanding documentary letters were $ 0.9 million at August 3, 2024. At August 3, 2024, the Company’s prime-based interest rate was 8.75 % . 4. Leases 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 Company also leases certain equipment and other assets under operating leases, typically with initial terms of 3 to 5 years . The Company is generally obligated for the cost of property taxes, insurance and common area maintenance fees relating to its leases, which are considered variable lease costs and are expensed as incurred. ASC 842 requires the assessment of any lease modification to determine if the modification should be treated as a separate lease and if not, modification accounting would be applied. Lease modification accounting requires the recalculation of the ROU asset, lease liability and lease expense over the respective lease term. As of August 3, 2024, 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. 12 The following table is a summary of the Company’s components of net lease cost for the three and six months ended August 3, 2024 and July 29, 2023: For the three months ended For the six months ended August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 (in thousands) Operating lease cost $ 12,222 $ 11,374 $ 23,699 $ 22,041 Variable lease costs (1) 3,151 3,293 6,544 6,458 Total lease costs $ 15,373 $ 14,667 $ 30,243 $ 28,499 (1) Variable lease costs include the cost of property taxes, insurance and common area maintenance fees related to leases. Supplemental cash flow and balance sheet information related to leases as of and for the first six months ended August 3, 2024 and July 29, 2023 was as follows: (dollars in thousands) For the Six Months Ended Cash paid for amounts included in the measurement of lease liabilities: August 3, 2024 July 29, 2023 Operating cash flows for operating leases (1) $ 25,750 $ 24,513 Non-cash operating activities: Right-of-use assets obtained in exchange for operating lease liabilities $ 43,087 $ 23,533 As of August 3, 2024 July 29, 2023 Weighted average remaining lease term 5.4 yrs. 4.4 yrs. Weighted average discount rate 6.38 % 6.41 % (1) The cash paid for the first six months of fiscal 2024 and fiscal 2023 included prepaid rent of $ 4.3 million and $ 3.7 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 August 3, 2024: (in thousands) 2024 (remaining) $ 19,434 2025 50,191 2026 38,544 2027 31,806 2028 24,067 Thereafter 46,230 Total minimum lease payments $ 210,272 Less: amount of lease payments representing interest 33,638 Present value of future minimum lease payments $ 176,634 Less: current obligations under leases 35,155 Long-term lease obligations $ 141,479 As of August 3, 2024 , the Company had entered into three ten-year store leases that have not yet commenced with aggregated estimated future lease payments of approximately $ 6.2 million, which are not included in the above table. The leases are expected to commence during the second half of fiscal 2024 . 5. Long-Term Incentive Plans The following is a summary of the Company’s Long-Term Incentive Plan (“LTIP”). All equity awards granted under long-term incentive plans are issued from the Company’s stockholder-approved 2016 Plan. See Note 6, Stock-Based Compensation . The LTIPs are granted annually and each LTIP covers a three-year performance period. Each participant in the LTIP participates based on that participant’s “Target Cash Value” which is defined as the participant’s annual base salary (on the participant’s effective date) multiplied by his or her LTIP percentage. 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 13 performance targets are achieved and then are subject to additional vesting through August 31 following the end of the applicable performance period. 2021-2023 LTIP The performance targets for the Company’s 2021-2023 LTIP were approved by the Compensation Committee of the Board of Directors (the "Compensation Committee”) on March 8, 2021, and covered a three-year period performance period, which ended on February 3, 2024. The time-vested portion of the 2021-2023 LTIP vests in four annual installments, with the remaining installment vesting on April 1, 2025. On March 29, 2024, the Compensation Committee approved a grant of awards, effective April 1, 2024, equal to $ 3.0 million for the achievement of the performance target for the 2021-2023 LTIP. In an effort to preserve share availability under the 2016 Plan, all awards, which are subject to further vesting through August 31, 2024, were granted in cash. Active LTIPs At August 3, 2024 , the Company had three active LTIPs: the 2022-2024 LTIP, the 2023-2025 LTIP and the 2024-2026 LTIP. The time-based awards under each LTIP were granted in a combination of 50 % RSUs and 50 % cash. Performance targets for the 2022-2024 LTIP, the 2023-2025 LTIP and the 2024-2026 LITP were established and approved by the Compensation Committee on April 9, 2022, May 1, 2023 and April 1, 2024, 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 an additional service requirement through August 31, 2025, August 31, 2026 and August 31, 2027, respectively. The time-based awards under the 2022-2024 LTIP, the 2023-2025 LTIP, and the 2024-2026 LTIP vest in four equal installments through April 1, 2026, April 1, 2027 and April 1, 2028, respectively. Assuming that the Company achieves the performance targets at target levels and all time-based awards vest, the compensation expense associated with the 2022-2024 LTIP, 2023-2025 LTIP and 2024-2026 LTIP is estimated to be approximately $ 4.8 million, $ 5.1 million and $ 5.3 million, respectively. Approximately half of the compensation expense for each LTIP relates to the time-based awards, which are being expensed straight-line over 48 months, 47 months and 49 months, respectively. At August 3, 2024 , the Company had accrued $ 1.6 million under the 2022-2024 LTIP, $ 0.2 million under the 2023-2025 LTIP and $ 0.2 million under the 2024-2026 LTIP for the performance awards. 6. Stock-Based Compensation The Company has one active stock-based compensation plan: the 2016 Incentive Compensation Plan (as amended, the “2016 Plan”). A grant of a stock option award or stock appreciation right will reduce the outstanding reserve on a one-for-one basis, meaning one share for every share granted. A grant of a full-value award, including, but not limited to, restricted stock, restricted stock units and deferred stock, will reduce the outstanding reserve by a fixed ratio of 1.9 shares for every share granted. At August 3, 2024 , 15,120,538 shares were authorized under the 2016 Plan, of which 1,425,262 shares remained available for grant. Subsequent to the end of the second quarter of fiscal 2024, at the Company's Annual Meeting of Stockholders, which was held on August 8, 2024, the shareholders approved an increase of 6,150,000 shares authorized for future grant under the 2016 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. 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 2024: RSUs (1) Deferred shares (2) Performance Share Units (3) Fully-Vested Shares (4) Total number of shares Weighted- average grant-date fair value Shares Outstanding non-vested shares at beginning of year 536,285 435,568 573,000 — 1,544,853 $ 3.53 Shares granted 383,007 19,901 — 22,234 425,142 $ 3.56 Shares vested and/or issued ( 129,112 ) — — ( 22,234 ) ( 151,346 ) $ 4.55 Shares expired — — — — — $ — Shares forfeited — — — — — $ — Outstanding non-vested shares at end of quarter 790,180 455,469 573,000 — 1,818,649 $ 3.45 (1) During the first six months of fiscal 2024, the Company granted time-based RSUs under its 2024-2026 LTIP. See Note 5, Long-Term Incentive Plans . As a result of net share settlements, of the 129,112 RSUs that vested, 115,292 shares of common stock were issued. 14 (2) The 19,901 shares of deferred stock, with a fair value of $ 72,495 represent director compensation in lieu of cash, in accordance with the director's irrevocable election. The shares of deferred stock will be issued upon the director's separation from service. (3) On August 11, 2023, the Company granted 573,000 performance share units ("PSUs") in connection with the extension of Mr. Kanter's employment agreement. 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 upon achievement of the 30-day volume-weighted closing price of the Company's common stock in $0.25 increments with the ninth tranche vesting when such price 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. The $ 2.4 million fair value is being expensed over the respective derived service periods of each tranche which range from 12 to 13 months. The respective fair value and derived service periods assigned to the PSUs were determined using a Monte Carlo model based on: a weighted historical volatility of 57.8 %, a term of 3 years, stock price on the date of grant of $ 4.98 per share, a risk-free rate of 4.6 % and a cost of equity of 11.0 %. (4) Represented compensation, with a fair value of $ 80,993 , 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 . Number of shares Weighted- average exercise price per option Weighted- average remaining contractual term Aggregate intrinsic value (000's) Stock Options Outstanding options at beginning of year 3,180,739 $ 0.75 — $ 10,962 Options granted — — — — Options exercised ( 139,667 ) $ 0.57 — 409 Options expired ( 53,441 ) $ 5.29 — — Options forfeited ( 1,715 ) $ 0.75 — 5 Outstanding options at end of quarter 2,985,916 $ 0.67 6.1 years $ 8,124 Options exercisable at end of quarter 2,745,724 $ 0.66 6.0 years $ 7,491 For the first six months of fiscal 2024, the Company granted 383,007 restricted stock units, 19,901 shares of deferred stock and 22,234 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. Non-Employee Director Compensation Plan The Company granted 19,214 shares of common stock, with a fair value of approximately $ 69,992 , to certain of its non-employee directors as compensation in lieu of cash in the first six months of fiscal 2024. 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 $ 1.8 million and $ 0.8 million for the first six months of fiscal 2024 and fiscal 2023, respectively. The total compensation cost related to time-vested stock options, RSU awards, and PSU awards not yet recognized as of August 3, 2024 was approximately $ 3.0 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 32 months. 7. Equity and Earnings per Share The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share: For the three months ended For the six months ended August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 (in thousands ) Common stock outstanding: Basic weighted average common shares outstanding 58,233 61,977 58,135 62,334 Common stock equivalents – stock options, restricted stock units and deferred stock 2,884 3,472 2,900 3,495 Diluted weighted average common shares outstanding 61,117 65,449 61,035 65,829 15 The following potential common stock equivalents were excluded from the computation of diluted earnings per share in each period, because the exercise price of such options was greater than the average market price per share of common stock for the respective periods or because the unearned compensation associated with stock options or restricted stock units had an anti-dilutive effect. For the three months ended For the six months ended August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 (in thousands, except exercise prices) Stock options 36 100 36 100 Restricted stock units and deferred stock 350 179 363 24 Range of exercise prices of such options $ 4.48 -$ 6.59 $ 4.48 - $ 6.59 $ 4.48 - $ 6.59 $ 4.48 - $ 6.59 The above options, which were outstanding at August 3, 2024 , expire from November 10, 2024 to March 20, 2033 . Excluded from the computation of basic and diluted earnings per share were 573,000 shares for the first three and six months of fiscal 2024. These performance-based awards will be included in the computation of basic and diluted earnings per share if, and when, the respective performance targets are achieved. In addition, 455,469 shares and 435,568 shares of deferred stock at August 3, 2024 and July 29, 2023 , respectively, were 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. 8. Income Taxes The Company's tax provision for income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any. Each quarter, the Company updates its estimate of the annual effective tax rate and makes a year-to-date adjustment to the provision. For the first six months of fiscal 2024 and 2023, the Company’s effective tax rate was 32.3 % and 26.5 % , respectively. The increase in the effective tax rate was primarily due to permanent book to tax differences combined with a lower pretax income as compared to the first six months of fiscal 2023. 9 . Fair Value Measurement At August 3, 2024 and February 3, 2024, the Company held U.S. treasury bills which were classified as held-to maturity and carried at amortized cost. Fair Value (in thousands) Carrying value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) At August 3, 2024: Cash equivalents: 4,031 4,032 — — Short-term investments 41,732 41,757 — — At February 3, 2024: Cash equivalents 6,047 6,052 — — Short-term investments 32,459 32,479 — — 10. Stock Repurchase Program On March 14, 2023, the Company's Board of Directors (“Board”) approved a stock repurchase program, effective March 16, 2023, which was subsequently amended in November 2023. Under the amended program, the Company was authorized to repurchase up to $ 25.0 million of its common stock, including excise tax, through open market and privately negotiated transactions. During the first quarter of fiscal 2024, the Company repurchased 52,802 shares at a total cost, including fees, of $ 211,182 , completing its stock repurchase program. 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 until paid. This liability is partially offset by a 1 % credit permitted 16 under the rules for the fair value of shares issued by the Company. At August 3, 2024 , the Company had accrued $ 0.2 million for the payment of excise taxes. 11. 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. Baker, Inc. Qualified Plan (the “Pension Plan”). Casual Male Corp. froze all future benefits under this plan on May 1, 1997. In the second quarter of fiscal 2023, the Board of Directors approved the termination of the Pension Plan, and on July 1, 2023, the Company completed a partial settlement through the purchase of nonparticipating annuities. In connection with the partial settlement, 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 settled the remaining obligation and terminated the Pension Plan in the fourth quarter of fiscal 2023. 17