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Item 2. Management’s Discussion and Analysis

2025-05-29 compared with 2024-11-22 · 126 added, 161 removed, 112 unchanged (72% of the section changed)

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FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995.

Certain statements contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995.

In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect” or “anticipate” or the negatives thereof, variations thereon or similar terminology.

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 long-range strategic plan and the expected impact of our strategic initiatives on future growth, including with respect to our marketing efforts and raising brand awareness, store development, website replatform and future alliances and collaborations;

expected marketing costs, gross margin rates and expected capital expenditures in 2024;

expected store openings and store conversions for the remainder of fiscal 2024 and fiscal 2025;

expected long-term plans for new stores;

the expected completion and impact of our rollout of our improved eCommerce platform;

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 belief that our performance was due to the challenges present in the current economic downcycle and does not reflect on the opportunity in our total addressable market or the longer-term potential for our brand;

our belief that the broader macroeconomic challenges and uncertainty within the apparel industry are impacting consumer sentiment and discretionary spending;

our belief that our customers are trading down from national designer brands to our private label brands;

our belief that our targeted promotions and the introduction of new value-driven brands have had a positive impact on our store traffic;

our belief that our recently implemented initiatives will help to drive enhanced value and affinity for our brand;

our belief that the impact of current tariffs on our financial results for fiscal 2025 could be an increase in costs of less than $2.0 million, or approximately 40 basis points as a percentage of sales;

our ability to manage inventory;

our belief that our FiTMAP technology will enhance customer engagement, attract new customers and establish DXL as a technology leader in men’s big + tall apparel;

our expected expansion of FiTMAP to additional stores by the end of fiscal 2025 and the end of fiscal 2027;

expected marketing costs;

expected capital expenditures in 2025;

expected store openings and store conversions for the remainder of fiscal 2025;

and our expectations regarding liquidity needs for the next 12 months.

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The forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and notes to those statements included elsewhere in this Quarterly Report and our audited Consolidated Financial Statements for the year ended February 3, 2024, included in our Annual Report on Form 10-K for the year ended February 3, 2024, as filed with the Securities and Exchange Commission on March 21, 2024 (our “Fiscal 2023 Annual Report”).

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and notes to those statements included elsewhere in this Quarterly Report and our audited Consolidated Financial Statements for the year ended February 1, 2025, included in our Annual Report on Form 10-K for the year ended February 1, 2025, as filed with the Securities and Exchange Commission ("SEC") on March 20, 2025 (our “Fiscal 2024 Annual Report”).

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

the impact of inflation with rising costs and high interest rates;

the impact of ongoing worldwide conflicts, including the Israel-Hamas conflict and the ongoing Russian invasion of Ukraine, on the global economy;

potential labor shortages;

and the Company’s ability to execute on its marketing, digital, store and collaboration strategies, ability to grow its market share, predict customer tastes and fashion trends, forecast sales growth trends and compete successfully in the United States men’s big and tall apparel market, and the other risks and uncertainties as set forth in the “Risk Factors” section in Part I, Item 1A of our Fiscal 2023 Annual Report.

The Company encourages readers to refer to its filings with the SEC that set forth certain risks and uncertainties that may have an impact on future results and direction of our Company, including risks related to changes in consumer spending in response to economic factors, the impact of current tariffs, the impact of any further increases in tariffs, the Company's ability to proactively react to the potential changes in tariffs to minimize risk, rising costs, high interest rates;

the impact of ongoing worldwide conflicts on the global economy;

and the Company’s ability to execute on its marketing, digital, store and collaboration strategies, ability to grow its market share, predict customer tastes and fashion trends, compete successfully in the United States men’s big + tall apparel market, and the other risks and uncertainties as set forth in the “Risk Factors” section in Part I, Item 1A of our Fiscal 2024 Annual Report.

All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing.

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BUSINESS SUMMARY

Destination XL Group, Inc., together with our consolidated subsidiaries (the “Company”), is the largest specialty retailer of big and tall men’s clothing with retail and direct operations in the United States.

Destination XL Group, Inc., together with our consolidated subsidiaries (the “Company”), is the largest specialty retailer of big + tall men’s clothing with retail and direct operations in the United States.

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

At November 2, 2024, we operated 239 Destination XL stores, 15 DXL outlet stores, 12 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 May 3, 2025, we operated 251 Destination XL stores, 15 DXL outlet stores, 6 Casual Male XL retail stores, 18 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,” “our,” “us” and “the Company” refer to Destination XL Group, Inc.

and our consolidated subsidiaries.

We refer to our fiscal years, which end on February 1, 2025 and February 3, 2024 as "fiscal 2024" and “fiscal 2023,” respectively.

Fiscal 2024 is a 52-week period and fiscal 2023 was a 53-week period.

We refer to our fiscal years, which end on January 31, 2026 and February 1, 2025 as "fiscal 2025" and “fiscal 2024,” respectively.

Both fiscal years were 52-week periods.

SEGMENT REPORTING

We currently have two principal operating segments:

our stores and direct business.

We consider our stores and direct business segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into one reportable segment, retail segment, consistent with our omni-channel business approach.

We currently have two operating segments:

our stores and our direct business.

We consider our stores and direct business segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into one reportable segment consistent with our omni-channel business approach.

COMPARABLE SALES

Our customer’s shopping experience continues to evolve across multiple channels, and we are continually adapting to meet the guest’s needs.

The majority of our stores have the capability of fulfilling online orders if merchandise is not available in the warehouse.

The majority of our stores have the capability to fulfill online orders if merchandise is not available in the warehouse.

As a result, certain transactions that begin online are ultimately completed at the store level.

Similarly, if a customer visits a store and the

item is out of stock, the associate can order the item through our website.

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.

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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.

RECENT DEVELOPMENTS - TARIFFS

economy continues to encounter considerable disruptions that have directly affected the retail sector and increased uncertainty as it relates to consumer spending.

In light of the implications of new tariffs, many companies, including ours, have had to reassess their global sourcing strategy in an effort to minimize the impact of these tariffs.

The frequent changes and unpredictability surrounding tariffs and trade policies has resulted in substantial uncertainty for companies’ operational management and their ability to forecast with confidence.

This unpredictability has disrupted strategic planning cycles and added complexity to supply chain and cost management efforts.

See “Risk Factors” section in Part I, Item 1A of our Fiscal 2024 Annual Report for further disclosure of the risks associated with the imposition of existing and new tariffs.

EXECUTIVE SUMMARY

For the three months ended

For the nine months ended

November 2, 2024

October 28, 2023

November 2, 2024

October 28, 2023

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

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Net income (loss)

Our third quarter performance continued to be challenged by consumer spending headwinds, which resulted in lower traffic to our stores and lower conversion online.

These were the primary contributors to our comparable sales decrease for the third quarter of 11.3%.

Comparable sales for our stores were down 9.9% and our direct business was down 14.7%.

Our customers have been very price conscious and, when they shop, they are gravitating toward our more moderate and entry-level price points.

Despite the disappointing sales performance, we have maintained our disciplined operating regimen, and we have avoided a material erosion in merchandise margin, while keeping our inventory healthy and maintaining a strong balance sheet.

While we continued to diligently manage our operating expenses, given the pressure on sales, some of our cost structure was negatively deleveraged by the sales shortfall.

As of November 2, 2024, we had cash and investments of $43.0 million as compared to $60.4 million at October 28, 2023 with no debt outstanding and unused excess availability of $78.1 million.

We continued to maintain our strong financial position, successfully managing our liquidity and our inventory levels, which were down 10.7% to October 28, 2023.

In September 2024, our Board of Directors approved a $15.0 million stock repurchase program and during the third quarter of fiscal 2024, we utilized $10.2 million of our excess cash on hand to repurchase 3.6 million shares of our common stock.

Progress on Our Long-Range Plan and Future Growth Strategy

Through the first nine months of fiscal 2024, we continued to move forward with our long-term strategic growth initiatives, and we continue to believe that these initiatives will give us the opportunity to build greater brand awareness and a greater opportunity for long-term growth.

However, given the continued pressure on sales, we have paused our brand campaign for the fourth quarter of fiscal 2024 and are reducing the planned number of new store openings in fiscal 2025.

While we still remain committed to our long-range plan, we believe pulling back on parts of our initiatives is prudent to ensure that we remain fiscally responsible with our investment spending and focused on near-term profitability and positive free cash flow.

Marketing & Brand Building :

We launched our new brand advertising campaign in the second quarter of fiscal 2024 to build awareness of our brand.

The campaign ran in a three-matched-market test in Boston, Detroit, and St.

Louis and the results were positive in all three markets, with increased traffic, sessions, and customer acquisition.

However as we disclosed in the second quarter of fiscal 2024, given current market conditions, we have paused our brand campaign at this time and are instead investing our marketing dollars back into our traditional marketing channels that will be more productive, including a video campaign on various social media platforms.

Store Development :

While we have stores in every major metropolitan market across the United States, there are geographic voids in certain markets where big + tall consumers are not being served by a DXL store.

Our consumer research has indicated that 44% of big + tall men self-reported they do not shop with us because a store is not near them, while 35% self-reported that they do not shop with us because a store location is not convenient.

During the first nine months of fiscal 2024, we opened four new stores, with four more

expected by the end of the fiscal year.

We are developing our fiscal 2025 store development schedule and are targeting 8 new store openings, down from our previous expectation of 10 new store openings.

New Website Platform :

We are making significant progress in our transition to a new and improved eCommerce platform, with 100% of the site traffic now on our new platform.

The platform addresses friction online and will drive a richer and simpler consumer experience, as well as drive measurably greater speed and agility.

During the third quarter, we completed the second phase of this project, which included catalog pages, product detail pages, and a new site search experience.

The last phase, which will improve the checkout process and other user experiences, is scheduled to be completed in early 2025.

We expect this new platform, engineered by a leading eCommerce technology provider, will position us to respond faster and more effectively to make changes in the future.

Alliances & Collaborations :

In the second quarter of fiscal 2024, we launched our DXL Big & Tall merchandise assortment on Nordstrom's digital marketplace platform and we currently have 37 brands and over 1,400 styles available on the platform, with plans for an additional 500 styles during the next month.

We believe this collaboration will allow us to bring the DXL experience beyond our four walls and directly to the Nordstrom customer, thereby further extending our relationship with the female consumer.

We are currently managing our business through an economic downcycle, and our performance does not reflect the opportunity in our total addressable market or the longer-term potential for our brand.

We believe the broader macroeconomic challenges and uncertainty within the apparel industry are further impacting consumer sentiment and discretionary spending.

We have observed many customers trading down from national designer brands to our private label brands, which have lower average retail prices but higher margins.

Despite these macroeconomic headwinds, we saw a slight improvement in sales over the quarter, largely driven by our stores, which showed improvements in store traffic and conversion versus prior trends.

Our comparable sales for the first quarter of fiscal 2025 were down 9.4%, but we saw gradual improvement over the course of the quarter with comparable sales down 13.9% in February, down 8.2% in March, and further improving to down 7.2% in April.

We remain focused on key initiatives aimed specifically to appeal to our value-driven customers who are more price sensitive and less inclined to shop during this downward economic cycle.

In late 2024, we implemented our price match guarantee, and during the first quarter of fiscal 2025, we launched fit exchange, a first responder program and our new loyalty program, all of which we believe is helping to drive affinity for our brand.

We are also very excited about our FiTMAP sizing technology program, which allows customers to engage with our brand in a much more personalized manner using full body scanning technology.

We have an exclusive license until 2030 for this proprietary FiTMAP Sizing Technology for big + tall men.

Although our overall sales performance was below expectations, we saw some improvement in sales velocity, while still maintaining a healthy merchandise margin and controlling costs.

Our net loss for the first quarter was $(0.04) per diluted share, primarily driven by the sales shortfall.

The situation with tariffs is very fluid and we continue to monitor trade discussions and changes to policy as they develop.

We are leaning into relationships with our vendors and suppliers around the world and we are working very hard to mitigate the cost of those tariffs.

Our discussions with our private label vendors have been productive.

On the domestic side, we are also having dialogue with our national brands as we all try to navigate this environment.

Where possible, we also accelerated the receipt of inventory within the quarter, ahead of certain tariffs, to minimize cost and ensure that we are well positioned ahead of Father's Day.

Looking forward, we will continue to monitor these evolving trade discussions and look for opportunities to proactively mitigate the potential impact of such tariffs.

As of May 3, 2025, we had cash and investments of $29.1 million as compared to $53.2 million at May 4, 2024 with no debt outstanding and unused excess availability of $77.1 million.

Since May 4, 2024, we have used $13.6 million of our available cash to repurchase shares of our common stock.

Our cash and investments balance also reflects a seasonal inventory build.

We continued to maintain our strong financial position, successfully managing our liquidity and our inventory levels, which were down 6.3% to May 4, 2024.

RESULTS OF OPERATIONS

The following table presents sales by segment for the three and nine months ended November 2, 2024 and October 28, 2023:

The following table presents sales by segment for the three months ended May 3, 2025 and May 4, 2024:

For the Three Months Ended

For the Nine Months Ended

(in thousands)

November 2, 2024

October 28, 2023

November 2, 2024

October 28, 2023

Total sales for the third quarter of fiscal 2024 were $107.5 million, as compared to $119.2 million in the third quarter of fiscal 2023.

The decrease in total sales was primarily attributable to a decrease in comparable sales for the third quarter of 11.3%, partially offset by an increase in non-comparable sales.

The comparable sales decrease of 11.3% consisted of comparable sales from our stores down 9.9% and our direct business down 14.7%.

This third quarter decline was consistent with the trend from the first half of fiscal 2024, with the decrease in comparable sales principally driven by a decrease in traffic in our stores and decreased conversion in our direct business.

We continued to see a shift toward our private-label merchandise, as opposed to our national brands, as customers continued to be cost-conscious with their discretionary spending.

For the first nine months of fiscal 2024, total sales of $347.8 million decreased 9.6% as compared to $384.7 million for the first nine months of fiscal 2023.

The decrease was primarily driven by a decrease in comparable sales of 11.2%, with stores down 10.5% and our direct business down 12.8%.

This decrease in comparable sales was slightly offset by an increase in non-comparable sales of $4.8 million, primarily from new stores, and a $1.4 million shift in calendar weeks due to the 53rd week in fiscal 2023.

Total sales for the first quarter of fiscal 2025 were $105.5 million, as compared to $115.5 million in the first quarter of fiscal 2024.

The decrease in total sales was primarily attributable to a decrease in comparable sales for the first quarter of 9.4%, partially offset by an increase in non-comparable sales.

Sales trends improved month over month, with comparable sales down 13.9% in February, down 8.2% in March, and down 7.2% in April.

Overall, the first quarter decline was consistent with the sales trend in fiscal 2024, as customers are continuing to pull back on discretionary spending.

We continued to see customers shift toward our private-label merchandise and value-driven brands.

The first quarter comparable sales decrease of 9.4% consisted of a comparable sales decrease of 6.6% from stores and a comparable decrease of 16.2% from our direct business.

While store traffic remained negative for the first quarter of fiscal 2025, there was a gradual improvement over the course of the first quarter.

We believe that our targeted promotions, which include our Fit Exchange by DXL, our Hero/First Responder discounts as well as the introduction of new value-driven brands, have had a positive impact on our store traffic.

The direct business, which includes our website, app and marketplaces, struggled during the first quarter of fiscal 2025 and was challenged by decreases in online traffic and average order value, while conversion was relatively flat.

In addition, in connection with our website conversion, we identified and corrected certain functionalities which we believe likely had a negative impact on sales in the beginning of the first quarter.

Gross Margin Rate

For the third quarter of fiscal 2024, our gross margin rate, inclusive of occupancy costs, was 45.1% as compared to a gross margin rate of 47.5% for the third quarter of fiscal 2023.

Our gross margin rate decreased by 240-basis points, which was driven by an increase of 220 basis points in occupancy costs, as a percentage of sales, primarily due to the deleveraging of sales and increased rents as a result of lease extensions.

Merchandise margin for the third quarter decreased by 20 basis points, as compared to the third quarter of fiscal 2023, primarily due to an increase in markdown activity on seasonal merchandise as well as an increase in inbound freight.

These increases were partially offset by favorable outbound shipping costs, a decrease in loyalty expense and a shift in product mix.

For the first nine months of fiscal 2024, our gross margin rate, inclusive of occupancy costs, was 47.2% as compared to a gross margin rate of 48.8% for the first nine months of fiscal 2023.

The decrease of 160-basis points was due to an increase of 200-basis points in occupancy costs due to the deleveraging of sales and increased rents.

This increased cost was partially offset by an increase in merchandise margin of 40-basis points, driven by favorable shipping costs and a reduction in loyalty expense.

For 2024, we expect gross margin rates to be approximately 130 to 180 basis points lower than fiscal 2023 primarily related to the deleveraging of occupancy on a lower sales base.

For the first quarter of fiscal 2025, our gross margin rate, inclusive of occupancy costs, was 45.1% as compared to a gross margin rate of 48.2% for the first quarter of fiscal 2024.

Our gross margin rate decreased by 310 basis points, which was driven by an increase of 280 basis points in occupancy costs, as a percentage of sales, due to the deleveraging from lower sales and increased rents from new stores and lease extensions.

Merchandise margin for the first quarter decreased by 30 basis points, as compared to the first quarter of fiscal 2024, primarily due to an increase in markdown activity and promotional offers associated with our new marketing initiatives, including the new loyalty program, as well as an increase in freight costs associated with the acceleration of inventory receipts.

These increases were partially offset by an increase in merchandise margins as a result of a shift in product mix.

There remains significant uncertainty with respect to evolving trade policies and the enactment of additional tariffs globally.

We are proactively taking measures to mitigate the impact of such tariffs and trade restrictions on our business.

Given the volatility that currently exists around these trade discussions, it is difficult to determine the potential impact that these tariffs may have on our financial results.

However, if currently enacted rates remain in effect throughout this fiscal year, we estimate that the impact on our

financial results for fiscal 2025 could be an increase in costs of less than $2.0 million, or approximately 40 basis points as a percentage of sales.

Selling, General and Administrative Expenses

As a percentage of sales, SG&A (selling, general and administrative) expenses for the third quarter of fiscal 2024 were 44.1% as compared to 40.2% for the third quarter of fiscal 2023.

For the first nine months of fiscal 2024, SG&A expenses, as a percentage of sales, were 42.7% as compared to 37.4% for the first nine months of fiscal 2023.

On a dollar basis, SG&A expenses decreased by $0.6 million for the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023.

The decrease was primarily due to a decrease in marketing of $1.4 million as compared to the prior year's third quarter, partially offset by increases in healthcare costs, technology costs and professional services.

On a percentage of sales basis, SG&A expenses increased due to the decrease in sales for the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023.

For the first nine months of fiscal 2024, SG&A expenses increased $4.9 million as compared to the first nine months of fiscal 2023.

The increase was principally due to an increase in marketing costs of $2.9 million, which included our brand campaign that launched in the second quarter.

The remainder of the increase was primarily due to increased healthcare costs and technology costs as compared to the first nine months of fiscal 2023.

These increased costs were partially offset by a decrease in incentive accruals.

Marketing costs were 5.7% of sales for the third quarter of fiscal 2024 as compared to 6.3% of sales for the third quarter of fiscal 2023.

For the first nine months of fiscal 2024, marketing costs were 7.0% as compared to 5.6% for the first nine months of fiscal 2023.

For fiscal 2024, marketing costs are expected to be approximately 6.8% of sales.

As a percentage of sales, selling, general and administrative ("SG&A") expenses for the first quarter of fiscal 2025 were 45.0% as compared to 41.1% for the first quarter of fiscal 2024.

On a dollar basis, SG&A expenses decreased by $0.1 million for the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024.

The decrease was primarily due to a decrease in marketing and incentive-based compensation, partially offset by an increase in store payroll and healthcare costs.

On a percentage of sales basis, SG&A expenses increased due to the decrease in sales for the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024.

Marketing costs were 6.1% of sales for the first quarter of fiscal 2025 as compared to 6.3% of sales for the first quarter of fiscal 2024.

For fiscal 2025, marketing costs are expected to be approximately 5.9%.

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 24.2% of sales in the first nine months of fiscal 2024 as compared to 21.0% of sales in the first nine months of fiscal 2023.

Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 18.5% of sales in the first nine months of fiscal 2024 as compared to 16.4% of sales in the first nine months of fiscal 2023.

Customer Facing Costs, which include store payroll, marketing and other store and direct operating costs, represented 25.2% of sales in the first quarter of fiscal 2025 as compared to 23.0% of sales in the first quarter of fiscal 2024.

Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 19.8% of sales in the first quarter of fiscal 2025 as compared to 18.1% of sales in the first quarter of fiscal 2024.

Depreciation and Amortization

Depreciation and amortization for the third quarter of fiscal 2024 increased slightly to $3.6 million as compared to $3.4 million for the third quarter of fiscal 2023.

Our capital expenditures have increased in fiscal 2024 as we have started to open new store locations and are investing in certain other infrastructure and technology projects.

For the first nine months of fiscal 2024 depreciation and amortization was $10.2 million as compared to $10.3 million for the first nine months of fiscal 2023.

Loss from Termination of Retirement Plans

Results for the third quarter and first nine months of fiscal 2023 included a charge of $57,000 and $4.2 million, respectively, related to the termination of the frozen Supplemental Executive Retirement Plan ("SERP") in the third quarter of fiscal 2023 and a partial settlement of our pension obligation in the second quarter of fiscal 2023.

The termination and final settlement of the remaining pension obligation was completed in the fourth quarter of fiscal 2023.

Depreciation and amortization for the first quarter of fiscal 2025 increased slightly to $3.6 million as compared to $3.3 million for the first quarter of fiscal 2024.

Our capital expenditures have increased in fiscal 2025 due to the opening of new store locations and investments in certain other infrastructure and technology projects.

Interest Income, Net

Net interest income for the third quarter of fiscal 2024 was $0.6 million, which was flat as compared to the third quarter of fiscal 2023.

Net interest income for the first nine months of fiscal 2024 was $1.7 million, as compared to $1.4 million for the first nine months of fiscal 2023.

Interest income was earned from investments in U.S.

Net interest income for the first quarter of fiscal 2025 was $0.3 million as compared to $0.6 million for the first quarter of fiscal 2024.

For both periods, interest income was earned from investments in U.S.

government-backed investments and money market accounts.

Interest costs for all periods were immaterial because we had no outstanding debt and no borrowings under our credit facility.

Our provision for income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any.

The decrease in interest income was due to the decrease in the average balance of investments during the first quarter of fiscal 2025 as compared to the prior year period.

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

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any.

Each quarter, we update our estimate of the annual effective tax rate and make a year-to-date adjustment to the provision.

For the third quarter of fiscal 2024 and fiscal 2023, our effective tax rate was 9.2% and 30.2%, respectively.

For the first nine months of fiscal 2024 and fiscal 2023, our effective tax rate was 38.8% and 27.2%, 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 nine months of fiscal 2023.

For the first quarter of fiscal 2025 and fiscal 2024, our effective tax rate was 39.7% and 30.4%, respectively.

The increase in the effective tax rate for the first quarter of fiscal 2025, as compared to the first quarter of fiscal 2024, was primarily due to permanent book-to-tax differences.

While in dollars, these permanent book-to-tax differences are down, the impact as a percentage of our estimated annual pretax income is greater.

Net Income (Loss)

For the third quarter of fiscal 2024, we recorded a net loss of $1.8 million, or $(0.03) per diluted share, as compared to net income of $4.0 million, or $0.06 per diluted share, for the third quarter of fiscal 2023.

For the first nine months of fiscal 2024, net income was $4.4 million, or $0.07 per diluted share, as compared to $22.6 million, or $0.35 per diluted share, for the first nine months of fiscal 2023.

The decrease in earnings was driven primarily by a decrease in sales and to a lesser extent an increase in marketing costs associated with our brand campaign.

Results for the third quarter and first nine months of fiscal 2023 included charges of $0.1 million and $4.2 million related to the termination of the SERP and the partial settlement of the pension plan .

As of November 2, 2024, our inventory decreased by approximately $10.7 million to $89.1 million, as compared to $99.9 million at October 28, 2023.

We continue to take proactive measures to manage our inventory and adjust our receipt plan given the ongoing macroeconomic factors affecting consumer spending.

At November 2, 2024, our clearance inventory was 9.2% of our total inventory, as compared to 9.7% at October 28, 2023.

For the first quarter of fiscal 2025, we recorded a net loss of $1.9 million, or $(0.04) per diluted share, as compared to net income of $3.8 million, or $0.06 per diluted share, for the first quarter of fiscal 2024.

The decrease in earnings for the first quarter of fiscal 2025 was driven primarily by the decrease in sales.

As of May 3, 2025, our inventory decreased by approximately $5.8 million to $85.5 million, as compared to $91.2 million at May 4, 2024.

We continue to take proactive measures to manage our inventory and adjust our receipt plan given the ongoing macroeconomic factors affecting consumer spending while, at the same time, accelerating certain receipts to avoid the impact of potential tariffs.

At May 3, 2025, our clearance inventory was 9.5% of our total inventory, as compared to 9.7% at May 4, 2024.

Our inventory position is very strong and our clearance levels are in line with our benchmark of 10% even with the 6.3% decrease in total inventory.

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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 November 2, 2024, we had no outstanding debt, including no borrowings under our credit facility during the first nine months of fiscal 2024.

At May 3, 2025, we had no outstanding debt, including no borrowings under our credit facility during the first three months of fiscal 2025.

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

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We believe that our cash and cash equivalent balances, short-term investments, cash generated from operations, and borrowings available to us under our credit facility will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months.

However, we remain cautious regarding the effect that the current macroeconomic conditions may have on consumer spending, including inflation, high interest costs, and other geopolitical conflicts around the world.

However, we remain cautious regarding the effect that the current macroeconomic conditions may have on consumer spending, including geopolitical conflicts around the world, the imposition of tariffs, inflation and high interest costs.

We also believe that cash flows from operating activities and cash on hand will be sufficient to satisfy our current capital requirements and our stock repurchase program.

In the longer term, 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.

For the first nine months of fiscal 2024, cash flow from operations was $12.5 million as compared to $33.1 million for the first nine months of fiscal 2023.

Free cash flow, before capital expenditures for store development, a non-GAAP measure, was $2.5 million for the first nine months of fiscal 2024 as compared to $26.5 million for the first nine months of fiscal 2023.

Free cash flow, a non-GAAP measure, was $(7.0) million for the first nine months of fiscal 2024 as compared to $22.7 million for the first nine months of fiscal 2023.

The decrease in free cash flow was primarily due to a decrease in operating income, driven by our sales decrease, and increases in capital expenditures of $5.6 million for store development and $3.4 million for other capital projects.

For the nine months ended

For the first three months of fiscal 2025, cash flow from operations was $(12.0) million as compared to $(1.1) million for the first three months of fiscal 2024.

The decrease in cash flow from operations was primarily due to a decrease in earnings and the timing of payables associated with the acceleration of inventory receipts during the first quarter of fiscal 2025.

We operate in a seasonal business that typically includes greater uses of cash in the first quarter as we build inventory in anticipation of the summer selling season.

Free cash flow, before capital expenditures for store development, a non-GAAP measure, was $(14.5) million for the first three months of fiscal 2025 as compared to $(4.6) million for the first three months of fiscal 2024.

Free cash flow, a non-GAAP measure, was $(18.8) million for the first three months of fiscal 2025 as compared to $(7.0) million for the first three months of fiscal 2024.

For the three months ended

(in millions)

November 2, 2024

October 28, 2023

Cash flow from operating activities (GAAP basis)

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Free Cash Flow (non-GAAP basis)

Cash flow used for investing activities was $22.5 million for the first nine months of fiscal 2024 as compared to $59.1 million for the first nine months of fiscal 2023.

This decrease of $36.6 million was primarily due to a decrease in net purchases of short-term investments, partially offset by an increase in capital expenditures.

Cash flow used for financing was $10.4 million for the first nine months of fiscal 2024 as compared to $15.3 million for the first nine months of fiscal 2023 and primarily reflected cash used to repurchase shares of the Company's common stock pursuant to the Stock Repurchase Programs.

Stock Repurchase Program

In the first quarter of fiscal 2024, the Company repurchased 52,802 shares at a total cost, including fees, of $211,182, completing the stock repurchase program that was approved by the Company's Board of Directors ("Board") in March 2023.

On September 3, 2024, the Board approved a new stock repurchase program, pursuant to which 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.

During the third quarter of fiscal 2024, the Company repurchased 3.6 million shares at a total cost, including fees, of $10.2 million under this stock repurchase program.

Cash flow provided by investing activities was $8.3 million as compared to cash flow used for investing activities of $10.0 million for the first three months of fiscal 2024.

The increase in cash flow provided by investing activities of $18.3 million was primarily due to the maturity, net of purchases, of short-term investments, partially offset by an increase in capital expenditures.

Credit Facility

1 unchanged sentence

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.

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

Borrowings under the Credit Facility bear interest at either a Base Rate 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:

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

We had no outstanding borrowings under the Credit Facility at November 2, 2024 and no borrowings during the first nine months of fiscal 2024.

At November 2, 2024, outstanding standby letters of credit were $4.2 million and outstanding documentary letters of credit were $0.3 million.

The average unused excess availability during the first nine months of fiscal 2024 was approximately $72.9 million and the unused excess availability at November 2, 2024 was $78.1 million.

We had no outstanding borrowings under the Credit Facility at May 3, 2025 and no borrowings during the first three months of fiscal 2025.

At May 3, 2025, outstanding standby letters of credit were $4.2 million.

The average unused excess availability during the first three months of fiscal 2025 was approximately $68.7 million and the unused excess availability at May 3, 2025 was $77.1 million.

Capital Expenditures

The following table sets forth the open stores and related square footage at November 2, 2024 and October 28, 2023, respectively:

November 2, 2024

October 28, 2023

The following table sets forth the open stores and related square footage at May 3, 2025 and May 4, 2024, respectively:

Store Concept

2 unchanged sentences

Casual Male Outlets

During the first nine months of fiscal 2024, we opened four new DXL stores, relocated one DXL store, converted four Casual Male XL stores to the DXL format, completed four DXL remodels, and closed one Casual Male XL store and one DXL store.

We expect to open four additional DXL stores, convert another Casual Male store to the DXL store format and complete one additional DXL remodel before the end of fiscal 2024.

We expect our capital expenditures to range from $21.0 million to $24.0 million, net of tenant incentives, in fiscal 2024.

Over the next five years, we believe we could potentially open approximately 50 net new DXL stores across the country, which could average 6,000 square feet or 300,000 sq.

in total, a 15% increase over our current square footage.

We are currently planning to open 8 stores in fiscal 2025.

During the first three months of fiscal 2025, we opened two new DXL stores and converted one Casual Male XL retail store and one Casual Male XL outlet to DXL stores.

We expect to open six additional DXL stores during fiscal 2025 and expect our capital expenditures to range from $19.0 million to $21.0 million, net of tenant incentives.

Over the past two years, we have been working with and testing a proprietary FiTMAP Sizing Technology for which we have an exclusive license for big + tall men until 2030.

This innovative, contactless, digital scanning technology captures 242 unique measurements and offers custom clothing options for all our customers, and size recommendations across the variety of brands for a great fit.

FiTMAP offers a unique experience for our customers, whether selecting from our Ready-to-Wear clothing or opting for custom garments.

This technology currently provides recommended sizes in all of our private label brands, as well as 15 of our exclusive national brands.

We believe this technology will enhance customer engagement, attract new customers and establish DXL as a technology leader in men's big + tall apparel.

To date, we have scanned over 20,000 customers.

FiTMAP is currently in 52 DXL retail locations with a plan to end fiscal 2025 with 85 stores and to further expand to as many as 200 stores by the end of fiscal 2027.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to the critical accounting policies and estimates disclosed in our Fiscal 2024 Annual Report.

See Note 1 to the Consolidated Financial Statements included in this report for information on recent accounting pronouncements and changes in accounting principles.

See Note 1, Basis of Presentation to the Consolidated Financial Statements included in this Quarterly Report for information on recent accounting pronouncements and changes in accounting principles.

Non-GAAP Financial Measures

Free cash flow, free cash flow before capital expenditures for store development, adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures.

These non-GAAP measures are not presented in accordance with GAAP and should not be considered superior to or as a substitute for net income, net income per diluted share or cash flows from operating activities or any other measure of performance derived in accordance with GAAP.

In addition, all companies do not calculate non-GAAP financial measures in the same

manner and, accordingly, the non-GAAP measures presented in this Quarterly Report may not be comparable to similar measures used by other companies.

These non-GAAP measures are not presented in accordance with GAAP and should not be considered superior to or as a substitute for net income (loss), net income (loss) per diluted share or cash flows from operating activities or any other measure of performance derived in accordance with GAAP.

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

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

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The following table reconciles free cash flow:

For the nine months ended

For the three months ended

(in millions)

November 2, 2024

October 28, 2023

Cash flow from operating activities (GAAP basis)

4 unchanged sentences

Adjusted EBITDA and Adjusted EBITDA Margin .

Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation and amortization and adding back impairment (gain) of assets, if any, and loss on termination of retirement plans.

Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation and amortization and adding back impairment (gain) of assets and accrual for estimated non-recurring legal settlement costs, if any.

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

2 unchanged sentences

For the three months ended

For the nine months ended

November 2, 2024

October 28, 2023

November 2, 2024

October 28, 2023

(in millions)

Net income (loss) (GAAP basis)

Loss on termination of retirement plans

Provision (benefit) for income taxes

2 unchanged sentences

Adjusted EBITDA (non-GAAP basis)

Adjusted EBITDA margin (non-GAAP), as a percentage of sales

Adjusted EBITDA margin (non-GAAP basis), as a percentage of sales

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 2. Management’s Discussion and Analysis