DESTINATION XL GROUP, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. FORWARD-LOOKING STATEMENTS 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 belief that the challenging macroeconomic and geopolitical environment is affecting consumer discretionary spending; our belief that our customer has been gravitating more towards lower priced goods and select promotions which we believe is signaling a consumer who is carefully choosing where and how he spends his money; our focus on bringing product to market that offers higher quality, lower price points and greater value; our belief that we are working to expand the core assortment in our private brands and refining our promotional strategy to prioritize relevance, competitiveness, and a stronger perception of value; our belief that because we own and design our private brand merchandise we are able to better control the margins than with our national designer brands; our belief that our actions will directly address ongoing consumer sector and macro challenges; our belief that our targeted promotions will drive greater incremental sales growth; our belief that the impact of current tariffs on our financial results for fiscal 2025 could be an increase of just under $4.0 million in the cost of inventory purchased; our belief that our broad and measured actions taken will ultimately improve our results and move the business forward; our go-forward approach that treats promotions like a managed category, with a clear and deliberate intent around timing, product focus, and purpose to drive sales, engagement, and brand equity; our believe that we are now better positioned to maximize the return on every markdown dollar, better aligned with strategic imperatives, and precisely target specific customer cohorts; our belief that reducing investment in underperforming national brands will drive higher profitability and enable us to leverage strategic promotions to fuel customer acquisition and sales growth; our belief that we can grow our private brand sales penetration from today’s 56.5% to greater than 60% in 2026 and to greater than 65% in 2027; our belief that we can drive greater customer loyalty and position our private brands as a primary reason customers choose DXL; 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 and expected capital expenditures in fiscal 2025; expected store openings and store conversions in fiscal 2025; our ability to manage inventory; and our expectations regarding liquidity needs for the next 12 months. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. 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 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. We encourage readers to refer to our 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, our ability to proactively react to the current and further potential changes in tariffs to minimize risk, our ability to grow our private brand; rising costs, high interest rates; the impact of ongoing worldwide conflicts on the global economy; and our ability to execute on our marketing, digital, store and collaboration strategies, ability to grow our 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. These forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances in which the forward-looking statement is based. BUSINESS SUMMARY 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 August 2, 2025, we operated 257 Destination XL stores, 16 DXL outlet stores, 4 Casual Male XL retail stores, 17 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. 17 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 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 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 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. A customer also has the ability to order online and pick-up in a store and at curbside. We define store sales as sales that originate and are fulfilled directly at the store level. Digital commerce sales, which we also refer to as direct sales, are defined as sales that originate online, whether through our website, at the store level or through a third-party marketplace. Stores that have been open for at least 13 months are included in comparable sales. Stores that have been remodeled or relocated during the period are also included in our determination of comparable stores sales. Stores that have been expanded by more than 25% are considered non-comparable for the first 13 months. If a store is temporarily closed for more than 7 days, it is removed from the calculation of comparable sales until it reopens and upon its anniversary is once again removed from the calculation until the reopen date. 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 The U.S. 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 six months ended August 2, 2025 August 3, 2024 August 2, 2025 August 3, 2024 (in millions, except percentage of sales and per share data) Sales $ 115.5 $ 124.8 $ 221.0 $ 240.3 Net income (loss) $ (0.3 ) $ 2.4 $ (2.2 ) $ 6.2 Adjusted EBITDA (non-GAAP basis) $ 4.6 $ 6.5 $ 4.7 $ 14.7 Gross margin, as a percentage of sales 45.2 % 48.2 % 45.1 % 48.2 % SG&A expenses, as a percentage of sales 41.2 % 43.0 % 43.0 % 42.1 % Adjusted EBITDA margin (non-GAAP basis) 4.0 % 5.2 % 2.1 % 6.1 % Per diluted share: Net income (loss) $ 0.00 $ 0.04 $ (0.04 ) $ 0.10 Our second quarter results continue to reflect the challenging macroeconomic and geopolitical environment affecting consumer discretionary spending. Over the past year, our customer has been gravitating more towards lower priced goods and select promotions, signaling a consumer who is carefully choosing where and how he spends his money. In response to these challenges, and given our customers' shift to our private brands, we recognize and are focused on bringing product to market that offers higher quality, lower price points and greater value. As discussed below under Strategic Priorities, we are working to expand the core assortment in our private brands and refining our promotional strategy to prioritize relevance, competitiveness, and a stronger perception of value. 18 During the second quarter of fiscal 2025, our comparable sales were down 9.2%, primarily driven by a decrease in traffic. Sales trends improved month over month, with comparable sales down 10.4% in May, down 9.6% in June, and down 7.0% in July. While our sales performance this quarter was disappointing, we were pleased that we were able to manage our merchandise margins and reduce our operating costs, resulting in an adjusted EBITDA for the second quarter of 4.0% of sales. As of August 2, 2025, we had cash and investments of $33.5 million as compared to $63.2 million at August 3, 2024 with no debt outstanding and unused excess availability of $70.1 million. The decrease in cash and investments from the second quarter of fiscal 2024, included the use of $13.6 million in the second half of fiscal 2024 to repurchase shares of common stock and $14.6 million on capital spent over the past 12 months for new store development. We continued to maintain our strong financial position, successfully managing our liquidity and our inventory level, which was up slightly by 0.4% compared to August 3, 2024, due to the acceleration of receipts in an effort to mitigate the impact of increased costs due to tariffs. There remains a significant amount of volatility in the market, particularly surrounding tariffs and the impact that these costs will have on an already concerned consumer. The actions we are taking, we believe, will directly address these ongoing consumer sector and macro challenges. Assuming the current global tariff rate policies and applications do not change for the remainder of fiscal 2025 and no new tariffs are added, we estimate the impact to add just under $4.0 million to our inventory receipts this year. We are leaning into our relationships with our vendors and suppliers around the world and we are working hard to mitigate the impact of those tariffs, as well as with a limited focus making retail changes in pricing select elements of the private brand offering. While there are a number of moving parts, and the clearer horizon is at best a ways ahead, we believe our broad and measured actions taken will ultimately improve our results and move the business forward. Strategic Priorities Promotional Strategy: We have reframed our promotional strategy around a more disciplined, strategic framework that prioritizes relevance, competitiveness, and a stronger perception of value. Our customer has been telling us that we need to create greater levels of value, and our go-forward approach treats promotions like a managed category, with a clear and deliberate intent around timing, product focus, and purpose to drive sales, engagement, and brand equity. We are now better positioned to maximize the return on every markdown dollar, better aligned with strategic imperatives, and precisely targeting specific customer cohorts. Assortment: Over the course of the next two years, we will be strategically shifting our assortment to prioritize private brands, which deliver consistent fit and the flexibility to balance trend-right fashion with core essentials and stronger margins. To support this focus, we are reducing investment in underperforming national brands which will drive higher profitability and enable us to leverage strategic promotions to fuel customer acquisition and sales growth. Our intent is to grow private brand sales penetration from today’s 56.5% to greater than 60% in 2026 and to greater than 65% in 2027. We are confident that with the strength of our assortment, enhanced storytelling, and strategic marketing efforts, we can drive greater customer loyalty and position our private brands as a primary reason customers choose DXL. FiTMAP: 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 243 unique measurements and offers custom clothing options and a great fit for all our customers. FiTMAP offers a unique experience for our customers, whether selecting from our Ready-to-Wear clothing or opting for custom garments. We are able to provide recommended sizes in all of our private brands, as well as 15 of our 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 23,000 customers. At the end of the second quarter of fiscal 2025, FiTMAP was in 62 DXL retail locations. Subsequent to the end of the second quarter, we opened another 24 stores in August, bringing us to 86 store locations leading into the fall season. We have a plan to further expand to as many as 200 stores by the end of fiscal 2027. 19 RESULTS OF OPERATIONS Sales The following table presents sales by segment for the three months ended August 2, 2025 and August 3, 2024: For the Three Months Ended For the Six Months Ended (in thousands) August 2, 2025 August 3, 2024 August 2, 2025 August 3, 2024 Store sales $ 83,695 72.5% $ 87,845 70.4% $ 160,166 72.5 % $ 168,693 70.2 % Direct sales 31,810 27.5% 36,975 29.6% 60,872 27.5 % 71,616 29.8 % Total sales $ 115,505 $ 124,820 $ 221,038 $ 240,309 Total sales for the second quarter of fiscal 2025 were $115.5 million, as compared to $124.8 million in the second quarter of fiscal 2024. The decrease in total sales was primarily attributable to a decrease in comparable sales for the second quarter of 9.2%, partially offset by an increase in non-comparable sales. Sales trends improved month over month, with comparable sales down 10.4% in May, down 9.6% in June, and down 7.0% in July. Comparable sales performance during the second quarter was similar to our first quarter performance, as our customers continued to pull back on discretionary spending and shifted purchases towards our private brand merchandise and value-driven brands. The second quarter comparable sales decrease of 9.2% consisted of a comparable sales decrease of 7.1% from stores and a comparable sales decrease of 14.4% from our direct business. The decrease in traffic continued to be the primary driver for the decrease in comparable sales. While our conversion rate was slightly up, our dollars per transaction were down, partly due to the shift in product mix toward more value-driven merchandise. We have seen positive results from our Price Match Guarantee, Fit Exchange by DXL, and our Heroes discount and believe that these programs helped to offset some of the negative traffic. Sales performance from our direct business, which includes our website, app and marketplaces, improved slightly from the first quarter but continued to be challenged by decreases in online traffic and average order value. In addition, we have experienced some challenges with our new e-commerce platform, which we are actively addressing, that could be contributing to the sales performance for our direct business. For the first six months of fiscal 2025, total sales of $221.0 million decreased 8.0% as compared to $240.3 million for the first six months of fiscal 2024. The decrease was primarily driven by a decrease in comparable sales of 9.3%, with stores down 6.8% and our direct business down 15.3%. Subsequent to the end of the second quarter of fiscal 2025, our store traffic is showing modest improvement with comparable sales for August trending slightly better than July. Gross Margin Rate For the second quarter of fiscal 2025, our gross margin rate, inclusive of occupancy costs, was 45.2% as compared to a gross margin rate of 48.2% for the second quarter of fiscal 2024. Our gross margin rate decreased by 300 basis points, which was driven by an increase of 240 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 second quarter decreased by 60 basis points, as compared to the second quarter of fiscal 2024, primarily due to an increase in freight costs associated with the acceleration of inventory receipts in advance of certain tariffs and markdown activity and promotional offers associated with our new marketing initiatives. These increases were partially offset by an increase in merchandise margins as a result of a shift in product mix toward our private brand merchandise. For the first six months 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 six months of fiscal 2024. The decrease of 310-basis points was due to an increase of 260-basis points in occupancy costs due to the deleveraging of sales and increased rents and a 50 basis point decrease in merchandise margin. The decrease in merchandise margin was due to an increase in freight costs associated with the acceleration of inventory receipts partially offset by an increase in merchandise margins as a result of a shift in product mix. As discussed above, there remains significant uncertainty with respect to evolving trade policies and the enactment of additional tariffs globally. However, if currently enacted rates remain in effect throughout the remainder of the fiscal year, and no new tariffs are added, we estimate that the impact of tariffs on fiscal 2025 receipts will be just under $4.0 million, which will be recognized through our financial results as inventory turns. Through the first six months of fiscal 2025, the impact of tariffs on merchandise margins was estimated to be approximately 10 basis points as a percentage of sales. 20 Selling, General and Administrative Expenses As a percentage of sales, selling, general and administrative ("SG&A") expenses for the second quarter of fiscal 2025 were 41.2% as compared to 43.0% for the second quarter of fiscal 2024. For the first six months of fiscal 2025, SG&A expenses, as a percentage of sales, were 43.0% as compared to 42.1% for the first six months of fiscal 2024. On a dollar basis, SG&A expenses decreased by $6.1 million for both the second quarter and first six months of fiscal 2025. The decrease in both periods primarily was due to a decrease in marketing and incentive-based compensation, partially offset by an increase in healthcare benefit costs. For the first six months of fiscal 2025, on a percentage of sales basis, SG&A expenses increased due to the decrease in sales as compared to the first six months of fiscal 2024. Marketing costs were 6.1% of sales for the second quarter of fiscal 2025 as compared to 8.8% of sales for the second quarter of fiscal 2024, with the decrease primarily attributable to the brand campaign in the second quarter of fiscal 2024. For the first six months of fiscal 2025, marketing costs were 6.1% of sales as compared to 7.6% of sales for the first six months of fiscal 2024. For fiscal 2025, marketing costs are expected to be approximately 5.9% of sales. 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 24.6% of sales for the first six months of fiscal 2025 as compared to 24.2% of sales for the first six months of fiscal 2024. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 18.4% of sales for the first six months of fiscal 2025 as compared to 17.9% of sales for the first six months of fiscal 2024. Depreciation and Amortization Depreciation and amortization for the second quarter of fiscal 2025 increased to $3.9 million as compared to $3.4 million for the second quarter of fiscal 2024. For the first six months of fiscal 2025, depreciation and amortization was $7.5 million as compared to $6.7 million for the first six months of fiscal 2024. The increase in depreciation and amortization in fiscal 2025 is 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 second quarter of fiscal 2025 was $0.2 million as compared to $0.6 million for the second quarter of fiscal 2024. For the first six months of fiscal 2025, net interest income was $0.5 million as compared to $1.1 million for the first six months of fiscal 2024. The decrease in interest income for the second quarter and first six months of fiscal 2025 was primarily due to the decrease in the average balance of investments as compared to the second quarter and first six months of fiscal 2024. For both years, interest income was earned from investments in U.S. government-backed investments and money market accounts. Interest costs for all periods were minimal because we had no outstanding debt and no borrowings under our credit facility. Income Taxes 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 first six months of fiscal 2025 and 2024, the Company’s effective tax rate was 4.6% and 32.3%, respectively. The effective tax rate for the first six months of fiscal 2025 reflects an annual effective tax rate estimate of 6.9% net of discrete items and the impact of permanent book-to-tax differences. On an annual basis, while in dollars these permanent book-to-tax differences are down, the impact as a percentage of our estimated annual pretax earnings is greater. Net Income (Loss) For the second quarter of fiscal 2025, we recorded a net loss of $(0.3) million, or $0.00 per diluted share, as compared to net income of $2.4 million, or $0.04 per diluted share, for the second quarter of fiscal 2024. For the first six months of fiscal 2025, the net loss was $(2.2) million, or $(0.04) per diluted share, as compared to net income of $6.2 million, or $0.10 per diluted share, for the first six months of fiscal 2024. The decrease in earnings for the second quarter and first six months of fiscal 2025 was driven primarily by the decrease in sales. Inventory As of August 2, 2025, our inventory increased by $0.3 million to $78.9 million, as compared to $78.6 million at August 3, 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 August 2, 2025, our clearance inventory was 10.2% of our total inventory, as compared to 10.4% at August 3, 2024. Our inventory position is 21 very strong and our clearance levels are in line with our benchmark of 10%. Our inventory turnover rate has improved by over 30% from fiscal 2019. SEASONALITY Historically, and consistent with the retail industry, we have experienced seasonal fluctuations as it relates to our operating income, net income, and free cash flow. Traditionally, a significant portion of our operating income, net income, and free cash flow is generated in the second and fourth quarters. Our inventory is typically at peak levels by the end of the third quarter, which represents a significant use of cash, which is then relieved in the fourth quarter as we sell-down our inventory through the holiday shopping season. LIQUIDITY AND CAPITAL RESOURCES 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 August 2, 2025, we had no outstanding debt, including no borrowings under our credit facility during the first six months of fiscal 2025. Cash that is in excess of our forecasted needs may be invested in money market accounts and U.S. government-backed securities. 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 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. 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 six months of fiscal 2025, cash flow from operations was $(2.1) million as compared to $16.0 million for the first six 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 partly with the acceleration of inventory receipts during the first six months of fiscal 2025 and the timing of other working capital. Free cash flow, before capital expenditures for store development, a non-GAAP measure, was $(7.6) million for the first six months of fiscal 2025 as compared to $8.4 million for the first six months of fiscal 2024. Free cash flow, a non-GAAP measure, was $(14.2) million for the first six months of fiscal 2025 as compared to $3.2 million for the first six months of fiscal 2024. For the six months ended (in millions) August 2, 2025 August 3, 2024 Cash flow from operating activities (GAAP basis) $ (2.1 ) $ 16.0 Capital expenditures, excluding store development (5.5 ) (7.6 ) Free Cash Flow before capital expenditures for store development (non-GAAP basis) $ (7.6 ) $ 8.4 Capital expenditures for store development (6.6 ) (5.2 ) Free Cash Flow (non-GAAP basis) $ (14.2 ) $ 3.2 Cash flow provided by investing activities was $4.4 million as compared to cash flow used for investing activities of $(21.9) million for the first six months of fiscal 2024. The increase in cash flow provided by investing activities of $26.3 million was primarily due to the maturity of short-term investments and a decrease in the amount of short-term investments purchased. Credit Facility We have a $125.0 million revolving credit agreement with Citizens Bank, N.A., with a maturity date of October 28, 2026 (the "Credit Facility"). On August 13, 2025, subsequent to the end of the second quarter of fiscal 2025, the Credit Facility was amended by entering into the Second Amendment to Credit Facility. As a result of the amendment, the maturity date was extended to August 13, 2030 and the revolving commitments under the facility were reduced from $125.0 million to $100.0 million, to more closely align with our average inventory levels, which serve as the primary borrowing base for the Credit Facility. In addition, the sublimit for swing-line loans was reduced from $15.0 million to $10.0 million. The Credit Facility continues to include a sublimit of $20.0 million for commercial and standby letters of credit. Our availability under the Credit Facility did not materially change as a result of the amendment. 22 Borrowings under the Credit Facility bear interest at either a Base Rate or Daily Simple SOFR rate, at our 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 our 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. We are subject to an unused line fee of 0.25%. We had no outstanding borrowings under the Credit Facility at August 2, 2025 and no borrowings during the first six months of fiscal 2025. At August 2, 2025, outstanding standby letters of credit were $4.2 million. The average unused excess availability during the first six months of fiscal 2025 was approximately $71.8 million and the unused excess availability at August 2, 2025 was $70.1 million. Capital Expenditures The following table sets forth the open stores and related square footage at August 2, 2025 and August 3, 2024, respectively: August 2, 2025 August 3, 2024 Store Concept Number of Stores Square Footage Number of Stores Square Footage (square footage in thousands) DXL Retail 257 1,847 233 1,729 DXL Outlets 16 82 15 76 Casual Male XL Retail 4 12 17 55 Casual Male Outlets 17 50 19 57 Total Stores 294 1,991 284 1,917 During the first six months of fiscal 2025, we opened six new DXL stores, converted three Casual Male XL retail stores and one Casual Male XL outlet to DXL retail stores and one Casual Male XL outlet to a DXL outlet. We expect to open two additional DXL stores during fiscal 2025 and expect our capital expenditures to range from $17.0 million to $19.0 million, net of tenant incentives. 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, 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 (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. Reconciliations of these non-GAAP measures are presented in the following tables (certain columns may not foot due to rounding) : Free Cash Flow. We define free cash flow as cash flow from operating activities less capital expenditures. We define free cash flow before capital expenditures for store development as cash flow from operations less all capital expenditures except capital expenditures for store development. Capital expenditures for store development includes capital expenditures for new stores, conversions of Casual Male XL stores to DXL and remodels. Capital expenditures related to store relocations and maintenance are not included in store development. Free cash flow excludes the mandatory and discretionary repayment of debt. Free cash flow is a metric that management uses to monitor liquidity. Management believes this metric is important to investors because it demonstrates the Company's ability to strengthen liquidity while supporting its capital projects and new store development. We expect to fund our ongoing capital expenditures with cash flow from operations. The following table reconciles free cash flow: 23 For the six months ended (in millions) August 2, 2025 August 3, 2024 Cash flow from operating activities (GAAP basis) $ (2.1 ) $ 16.0 Capital expenditures, excluding store development (5.5 ) (7.6 ) Free Cash Flow before capital expenditures for store development (non-GAAP basis) $ (7.6 ) $ 8.4 Capital expenditures for store development (6.6 ) (5.2 ) Free Cash Flow (non-GAAP basis) $ (14.2 ) $ 3.2 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 and accrual for estimated non-recurring legal settlement costs, if any. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Sales. We believe that providing adjusted EBITDA and adjusted EBITDA margin is useful to investors in evaluating our performance and are key metrics to measure profitability and economic productivity. The following table reconciles adjusted EBITDA from net income and calculates adjusted EBITDA margin: For the three months ended For the six months ended August 2, 2025 August 3, 2024 August 2, 2025 August 3, 2024 (in millions) Net income (loss) (GAAP basis) $ (0.3 ) $ 2.4 $ (2.2 ) $ 6.2 Add back: Provision (benefit) for income taxes 1.2 1.3 (0.1 ) 3.0 Interest income, net (0.2 ) (0.6 ) (0.5 ) (1.1 ) Depreciation and amortization 3.9 3.4 7.5 6.7 Adjusted EBITDA (non-GAAP basis) $ 4.6 $ 6.5 $ 4.7 $ 14.7 Sales $ 115.5 $ 124.8 $ 221.0 $ 240.3 Adjusted EBITDA margin (non-GAAP basis), as a percentage of sales 4.0 % 5.2 % 2.1 % 6.1 %