What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-09-09 compared with 2026-06-03 · 180 added, 122 removed, 158 unchanged (66% of the section changed)

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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 Board’s belief in the industrial logic of the combination;

the Board’s belief that given the increasingly challenging consumer environment since the execution of the Merger Agreement in December 2025 and FullBeauty Brands’ indebtedness, the existing terms of the Merger Agreement are not in the best interests of the Company's stockholders;

our belief that profitability would return over the long term, while forecasting operating losses in the near term;

our conclusion that the negative evidence outweighs available positive evidence regarding realizability of its deferred tax assets and that the full valuation allowance should remain against its net deferred tax assets;

our belief that the macro and sector headwinds are influencing the core DXL big + tall consumer and are materially affecting traffic, which remains very challenged, particularly in stores;

despite the shortfall in absolute traffic, guests that do visit DXL are buying, with conversion and average order value up in both stores and online, which we believe reinforces that the adjustments we are making to our assortment, promotional strategy, and customer experience are aligning better with today’s value-conscious consumer;

our advancement of several strategic initiatives designed to strengthen our market leadership in the big + tall sector while enhancing the customer experience across channels;

our belief that the adjustments we are making to our merchandise assortment, promotional strategy, and customer experience to align better with today’s value-conscious consumer;

our belief that AI-powered search and discovery tools are becoming increasingly important in ecommerce;

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 the proposed Merger with FullBeauty, including the filing of a definitive proxy statement, the Board's continued evaluation of the proposed transaction, the factors considered by the Board in changing its recommendation with respect to the Issuance Proposal, stockholder voting matters, and the potential consummation of the proposed Merger and related transactions;

our belief that our business historically has been seasonal in nature, and that the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year;

our expectation that ASU-2023-06 will not have a material impact on our Consolidated Financial Statements or related disclosures because we are currently subject to the reporting requirements of Regulation S-X and Regulation S-K;

our belief that profitability will return over the long term, while forecasting operating losses in the near term;

our continued conclusion that the negative evidence outweighs available positive evidence regarding realizability of our deferred tax assets and that the full valuation allowance should remain against our net deferred tax assets;

our belief that the macro and sector headwinds are influencing the core DXL big + tall consumer and are materially affecting traffic;

our belief that our disciplined operating approach and focus on execution will position us to drive improved performance as fiscal 2026 progresses;

our belief that our customer is responding positively to the adjustments we are making to our assortment, promotional strategy, and customer experience;

our belief in several strategic initiatives designed to strengthen our market leadership in the big + tall sector while enhancing the customer experience across channels;

our belief that FiTMAP remains one of the Company’s most important long-term growth drivers;

our belief that early results for FiTMAP technology continue to reinforce its value;

our belief that personalized fit solutions can drive both customer satisfaction and profitable growth;

our belief that AI-powered search and discovery tools may become increasingly important in ecommerce;

our belief that the new AI initiatives that were launched will improve product data quality, enrich item-level attributes and strengthen our ability to connect product, pricing and inventory information across AI-enabled platforms;

our intention that our AI initiatives will improve discoverability, support future commerce applications and position us to compete effectively as digital shopping journeys become more conversational and agent-driven;

our belief that GLP-1 medications and similar weight-loss medications may be influencing customer behavior and category demand;

our belief, based on our research, that a meaningful portion of our customer base is currently using GLP-1 medications;

our belief that GLP-1 medications provide both a near-term challenge and a long-term opportunity;

our belief that the impact of GLP-1 medications and similar weight-loss medications are contributing to structural changes in customer demand within the big + tall category;

our belief based on our research that while some customers may pause apparel purchases during periods of rapid size change, we expect them to return once they reach a more stable size profile;

our belief based on our research that while some customers may pause apparel purchases during periods of rapid size change, we expect many will return once they reach a more stable size profile;

our belief that we can strengthen retention, reactivation and lifetime value over time by staying closely aligned with evolving customer needs;

our belief that the slowdown in April reflects a combination of macroeconomic pressures impacting consumer confidence and discretionary spending, including global conflict, rising fuel costs, and inflation;

our expectation that the impact of tariffs on gross margin, exclusive of any refunds realized, will be approximately 100 basis points, a decrease from the previous estimate of 150 basis points;

our belief that the comparable sales for May reflected lower traffic as consumers remained cautious amid pressure on discretionary spending from inflation, higher energy costs, global conflict and broader economic uncertainty;

our belief that the comparable sales for June and July reflected Father’s Day and other promotional activities that helped offset the continued decline in traffic;

our belief that the scope, duration, and rates of existing and proposed tariff measures, as well as the potential for modifications, suspensions, or retaliatory trade actions, could impact our operations, supply chain, and cost structure;

our belief that it is difficult to determine the potential impact that continuing tariffs may have on our financial results for fiscal 2026;

our expectation that the impact of the current administration’s tariffs on gross margin for fiscal 2026, exclusive of refunds realized, will be approximately 100 basis points;

our expectation that for fiscal 2026 marketing costs will be approximately 5.8% of sales;

our belief 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;

our belief 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;

our expectation that capital expenditures for fiscal 2026 will range from $8.0 million to $12.0 million, net of tenant incentives;

our belief that store development plans for fiscal 2026 will be limited to conversions of a few remaining Casual Male XL stores to the DXL format, store relocations and other capital projects will be necessary to maintain our existing store portfolio and distribution center;

our expectation that the remainder of our capital spend for fiscal 2026 will primarily be for technology-related projects to support our business initiatives;

our belief that cash flows from operating activities and cash on hand will be sufficient to satisfy our current capital requirements in the short-term;

our belief that 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;

our belief that our inventory position is healthy, and our clearance levels are in line with our benchmark of 10%;

our expectation that capital expenditures for fiscal 2026 will range from $8.0 million to $10.0 million, net of tenant incentives, which is a decrease from our previous estimate of $9.0 million to $12.0 million;

our expectation that capital spend for fiscal 2026 to be primarily for technology-related projects to support our business initiatives and projects necessary to maintain our existing store portfolio and distribution center;

our belief that inclusion of the 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;

our belief that the comparability of adjusted net loss is useful in comparing the actual results period to period;

our expectation that we will be able 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 potential delays caused by the recent conflict with Iran.

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.

our belief that the comparability of adjusted net income (loss) is useful in comparing the actual results period to period;

our belief that free cash flow is important to investors because it demonstrates our ability to strengthen liquidity while supporting our capital projects and new store development;

our belief 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;

our belief that the resolution of legal proceedings and claims that may arise in the ordinary course of business will not have a material adverse impact on our future results of operations or financial position;

our expectation that we will be able to take proactive measures to

manage our inventory and adjust our receipt plan given the ongoing macroeconomic factors affecting consumer spending.

These forward-looking statements generally relate to plans and objectives for future operations and are based on 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.

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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 the Merger and combining our business with FullBeauty Brands, 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;

We encourage readers to refer to our filings with the SEC, including Amendment No.

1 to Preliminary Proxy Statement filed on September 2, 2026, that set forth certain risks and uncertainties that may have an impact on future results and direction of our Company, including risks related to the Merger and combining our business with FullBeauty, risks if a Merger is not approved, 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;

rising fuel costs, high interest rates;

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

At May 2, 2026, we operated 257 Destination XL stores, 17 DXL outlet stores, 5 Casual Male XL retail stores, 14 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 August 1, 2026, we operated 257 Destination XL stores, 17 DXL outlet stores, 5 Casual Male XL retail stores, 14 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 January 31, 2026 and February 1, 2025 as "fiscal 2026" and “fiscal 2025,” respectively.

We refer to our fiscal years, which end on January 30, 2027 and January 31, 2026 as “fiscal 2026” and “fiscal 2025,” respectively.

Both fiscal years are 52-week periods.

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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.

Update on Merger with FullBeauty Brands

In December 2025, DXL and FullBeauty Brands announced a Merger of equals to create a scaled, category-defining retailer for size-inclusive apparel.

On June 3, 2026, subsequent to the end of the first quarter of fiscal 2026, the Company issued a press release to provide an update on the status of its Merger with FullBeauty Brands.

The Board has reevaluated the previously announced Merger and is engaging with FullBeauty Brands in constructive discussions to determine the best path forward.

As part of its ongoing fiduciary duties to the Company's stockholders, the Board, with the assistance of external financial and legal advisors, has conducted a comprehensive reevaluation of the Merger.

The Board continues to believe in the industrial logic of the combination.

However, given the increasingly challenging consumer environment since the execution of the Merger Agreement on December 11, 2025 and FullBeauty Brands' indebtedness, the Board believes that the existing terms of the Merger Agreement are not in the best interests of the Company's stockholders.

Update on Merger with FullBeauty

On December 11, 2025, the Company, Divine Merger Sub I, Inc., a Delaware corporation and wholly owned direct subsidiary of the Company (“Merger Sub”), and FBB Holdings I, Inc., a Delaware corporation (“FBB” or “FullBeauty”), entered into an Agreement and Plan of Merger (as subsequently amended, the “Merger Agreement”).

The Merger Agreement provides that, on the terms and subject to the conditions set forth therein, Merger Sub would merge with and into FullBeauty, with FullBeauty being the surviving corporation as a wholly owned subsidiary of the Company (the “Merger”).

On August 19, 2026, the Company, Merger Sub and FullBeauty amended the Merger Agreement to extend the end date from September 11, 2026 to October 30, 2026.

In connection with this Merger, the Company filed the Preliminary Proxy Statement with the SEC on September 2, 2026.

Upon clearance from the SEC, the Company intends to file a definitive proxy statement, which will be distributed to its stockholders in connection with their vote on the Issuance Proposal.

As described more fully in the Preliminary Proxy Statement, the Board has continued to evaluate the Merger, including in light of developments since the execution of the Merger Agreement.

As part of that evaluation, the Board has considered, among other things, (i) the increasingly challenging consumer environment since the execution of the Merger Agreement in December 2025, (ii) FullBeauty’s continuing decline in operating performance and financial results, including lower-than-expected net sales, net income (loss), adjusted EBITDA and cash flow from operations as compared to both prior-year performance and prior projections (and the corresponding heightened risk that FullBeauty will not achieve its projections for the current fiscal year), (iii) FullBeauty’s increased level of indebtedness, (iv) concerns regarding FullBeauty’s potential negative equity value, and (v) the substantial economic dilution that DXL stockholders would experience if the Merger were consummated on its current terms.

Based on this evaluation, including these considerations, the Board has determined that the Merger and the transactions contemplated by the Merger Agreement, including the Issuance Proposal, are no longer advisable and are not in the best interests of the Company and its stockholders .

Accordingly, the Board recommends that its stockholders vote “against” the Issuance Proposal that will be included in the definitive proxy statement, when it becomes available.

EXECUTIVE SUMMARY

For the Three Months Ended

For the Six Months Ended

August 1, 2026

August 2, 2025

August 1, 2026

August 2, 2025

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

Net loss (GAAP)

Adjusted net loss (non-GAAP)

Net income (loss) (GAAP)

Adjusted net income (loss) (non-GAAP)

Adjusted EBITDA (non-GAAP ) (1)

Per diluted share:

Net loss (GAAP)

Adjusted net loss (non-GAAP)

Net income (loss) (GAAP)

Adjusted net income (loss) (non-GAAP)

As a percentage of sales:

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Adjusted EBITDA margin (non-GAAP) (1)

(1) The amounts and percentages for the three months ended May 3, 2025 reflect the reclassification of certain costs from SG&A expenses to Transaction-related costs for comparability with the amounts and percentages for the three months ended May 2, 2026.

We were encouraged by our first quarter results which reflected sales performance improving and continued progress against our strategic priorities.

Although comparable sales were down (3.8)% for the first quarter of fiscal 2026, this represents our best quarterly comparable sales result since the second quarter of fiscal 2023.

We believe macro and sector headwinds are influencing the core DXL big + tall consumer and are materially affecting traffic, which remains very challenged, particularly in stores.

Despite the shortfall in absolute traffic, guests that do visit DXL are buying, with improvements in conversion and average order value in both stores and online.

These trends reinforce that the adjustments we are making to our assortment, promotional strategy and customer experience are aligning better with today’s value-conscious consumer.

(1) The amounts and percentages for the second quarter and first six months ended August 2, 2025 reflect the reclassification of certain costs from SG&A expenses to Transaction-related costs for comparability with the amounts and percentages for the second quarter and first six months ended August 1, 2026.

Our results for the second quarter reflect our continued progress against our strategic priorities.

While traffic to both stores and digital remains under pressure, we were encouraged by the sequential improvement in comparable sales during the second quarter.

Comparable sales were down 5.7% in May, down 2.8% in June and improved to down 1.9% in July.

We believe macro and sector headwinds are influencing the core DXL big + tall consumer and are materially affecting traffic, but we believe our customer is responding positively to the adjustments we are making to our merchandise assortment, promotional strategy, and customer experience.

We remain confident that our disciplined operating approach and focus on execution will position us to drive improved performance as the year progresses.

We continued to maintain a solid financial position, successfully managing our liquidity.

As of August 1, 2026, we had cash and investments of $20.1 million as compared to $33.5 million as of August 2, 2025, with no outstanding debt in either period.

The decrease in cash and investments at August 1, 2026 as compared to August 2, 2025 is primarily due to the capital spent over the past 12 months of approximately $13.9 million.

We did not have any borrowings under our credit facility and, as of August 1, 2026, the availability under our credit facility was $61.7 million.

Our inventory is down 4.3% at August 1, 2026 as compared to August 2, 2025 and our clearance inventory is below our benchmark of 10%.

Strategic Priorities :

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FiTMAP® remains one of the Company’s most important long-term growth drivers.

During the quarter, we completed the rollout of FiTMAP technology in 188 stores to enhance the customer journey.

This FiTMAP technology is currently available in 188 stores.

Since launch, over 150,000 customers have engaged with the platform, and early results continue to reinforce its value.

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We are sharpening our focus on artificial intelligence (“AI”) as consumer shopping behavior evolves.

As AI-powered search and discovery tools become increasingly important in ecommerce, the Company is investing to ensure that its products and content are more visible, relevant and accessible in these emerging environments.

During the quarter, DXL launched new AI initiatives to improve product data quality, enrich item-level attributes and strengthen its ability to connect product, pricing and inventory information across AI-enabled platforms.

As the Company believes AI-powered search and discovery tools may become increasingly important in ecommerce, the Company is investing to ensure that its products and content are more visible, relevant and accessible in these emerging environments.

We have launched new AI initiatives to improve product data quality, enrich item-level attributes and strengthen our ability to connect product, pricing and inventory information across AI-enabled platforms.

These efforts are intended to improve discoverability, support future commerce applications and position the Company to compete effectively as digital shopping journeys become more conversational and agent-driven.

GLP-1s and Similar Weight-Loss Medications

GLP-1 Medications and Similar Weight-Loss Medications

We continue to deepen our understanding of how the use of glucagon-like peptide-1 (“GLP-1”) medications and similar weight-loss medications may be influencing customer behavior and category demand.

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RESULTS OF OPERATIONS

The following table presents sales by segment for the three months ended May 2, 2026 and May 3, 2025:

The following table presents sales by segment for the three months ended August 1, 2026 and August 2, 2025:

For the Three Months Ended

For the Six Months Ended

(in thousands)

Total sales for the first quarter of fiscal 2026 were $103.3 million, as compared to $105.5 million in the first quarter of fiscal 2025.

The decrease in total sales was primarily attributable to a decrease in comparable sales for the first quarter of 3.8%, partially offset by an increase in non-comparable store sales.

Sales improved at the start of fiscal 2026 with comparable sales down 1.3% in February and down 2.7% in March and, in April, sales were down 6.8%.

While the performance between March and April was impacted at some level by the earlier Easter holiday, we believe the slowdown in sales in April was primarily the result of a combination of macroeconomic pressures impacting consumer confidence and discretionary spending, including global conflict, rising fuel costs, and inflation.

We also believe the impact of GLP-1 medications and similar weight-loss medications are contributing to structural changes in customer demand within the big + tall category.

The comparable sales decrease of 3.8% for the first quarter consisted of a comparable sales decrease of 4.6% from stores and a comparable sales decrease of 1.6% from our direct business.

August 1, 2026

August 2, 2025

August 1, 2026

August 2, 2025

Total sales for the second quarter of fiscal 2026 were $111.6 million, as compared to $115.5 million in the second quarter of fiscal 2025.

The decrease in total sales was primarily attributable to a decrease in comparable sales for the second quarter of 3.5%, partially offset by an increase in non-comparable store sales.

Comparable sales decreased 5.7% in May, reflecting lower traffic as consumers remained cautious amid pressure on discretionary spending from inflation, higher energy costs, global conflict and broader economic uncertainty.

Comparable sales improved sequentially to a decrease of 2.8% in June and a decrease of 1.9% in July, supported by Father's Day and other promotional activity that helped offset the continued decline in traffic, while consumer confidence still remains pressured.

We also continue to believe GLP-1 medications and similar weight-loss medications are contributing to structural changes in customer demand within the big + tall category.

The comparable sales decrease of 3.5% for the second quarter consisted of a comparable sales decrease of 4.3% from stores and a comparable sales decrease of 1.6% from our direct business.

A decrease in traffic continued to be the primary driver, particularly in stores, partially offset by improvements in conversion and dollars per transaction.

The direct business showed improvement during the first quarter, with increased demand being generated from our paid search, paid social and program marketing efforts.

In addition, improvements to the website and app have helped to improve conversion during the first quarter of fiscal 2026.

Contributing to this improvement were strong sales of clearance merchandise on the website.

The direct business performed stronger than stores as we have seen positive results from our paid search, paid social and program marketing efforts.

Contributing to this improvement were strong sales of clearance and promotional merchandise on the website.

For the first six months of fiscal 2026, total sales of $214.9 million decreased 2.8% as compared to total sales of $221.0 million for the first six months of fiscal 2025.

The decrease was primarily driven by a decrease in comparable sales of 3.6%, with stores down 4.4% and our direct business down 1.6%.

Gross Margin Rate

For the first quarter of fiscal 2026, our gross margin rate, inclusive of occupancy costs, was 44.3% as compared to a gross margin rate of 45.1% for the first quarter of fiscal 2025.

Our gross margin rate decreased by 80 basis points, driven by a decrease of 100 basis points in merchandise margin, partially offset by a 20-basis point decrease in occupancy costs.

The decrease in merchandise margin as compared to the first quarter of fiscal 2025 is primarily due to the impact of tariffs, increased shipping costs as a result of fuel surcharges and increased markdown activity associated with clearance sales.

These increased costs were partially offset by an improvement in merchandise margins as a result of a shift in product mix toward our private brand merchandise and favorable loyalty costs.

The decrease in occupancy costs of 20 basis points, or $0.5 million, was primarily due to $1.4 million received from a landlord as a result of an early lease termination, partially offset by increased rents from lease extensions and new stores.

In April 2026, U.S.

Customs and Border Protection ("CBP") launched an online portal through which companies may submit refund requests.

During the first quarter of fiscal 2026, the Company submitted a claim seeking a refund of approximately $4.0 million related to tariffs previously paid.

The timing and amount of any potential refund and recovery remain uncertain, and the Company expects to recognize any recovery when receipt is considered realizable.

Given the volatility that currently exists around trade discussions, it is difficult to determine the potential impact that tariffs may have on our financial results for fiscal 2026.

For the second quarter of fiscal 2026, our gross margin rate, inclusive of occupancy costs, was 47.9% as compared to a gross margin rate of 45.2% for the second quarter of fiscal 2025.

Our gross margin rate for the second quarter increased by 270 basis points, driven by an increase of 340 basis points in merchandise margin, partially offset by a 70 basis point increase in occupancy costs.

The increase in merchandise margin as compared to the second quarter of fiscal 2025 is primarily due to a refund of $4.6 million, or 410 basis points, received in the second quarter of fiscal 2026 for tariffs previously paid.

This benefit was partially offset by increased shipping costs as a result of fuel surcharges and increased markdown activity associated with clearance sales.

The 70 basis point increase in occupancy costs for the second quarter, as a percent of sales, was primarily due to the deleveraging of sales.

On a dollar basis, occupancy costs increased $0.1 million as compared to the second quarter of fiscal 2025.

For the first six months of fiscal 2026, our gross margin rate, inclusive of occupancy costs, was 46.1% as compared to a gross margin rate of 45.1% for the first six months of fiscal 2025.

The increase of 100 basis points was driven by an increase of 130 basis points in merchandise margin, partially offset by a 30 basis point increase in occupancy costs.

The increase in merchandise margin as compared to the first six months of fiscal 2025 was primarily due to the refund for tariffs of $4.6 million, or 210 basis points.

Similar to the second quarter, this benefit was partially offset by increased shipping costs and increased markdown activity.

The increase in occupancy costs of 30 basis points for the first six months of fiscal 2026, as a percentage of sales, was primarily due to the deleveraging of sales.

On a dollar basis, occupancy costs decreased $0.4 million, primarily due to $1.4 million received from a landlord as a result of an early lease termination, partially offset by increased rents from lease extensions and new stores.

Given the volatility that currently exists around trade discussions, it is difficult to determine the potential impact that continuing tariffs may have on our financial results for fiscal 2026.

However, if currently enacted rates remain in effect throughout fiscal 2026, and no additional tariffs, including those under U.S.

trade laws, are added, we estimate that the impact of tariffs on pre-tariff gross margin, in fiscal 2026, exclusive of any refunds realized, will be approximately 100 basis points, a decrease from the previous estimate of 150 basis points.

trade laws, are added, we estimate that the impact of the current administration’s tariffs on gross margin for fiscal 2026, exclusive of refunds realized, will be approximately 100 basis points.

Selling, General and Administrative Expenses

As a percentage of sales, selling, general and administrative ("SG&A") expenses for the first quarter of fiscal 2026 were 45.0% as compared to 44.9% for the first quarter of fiscal 2025.

On a dollar basis, SG&A expenses decreased by $0.9 million for the first quarter of fiscal 2026 as compared to the first quarter of fiscal 2025.

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

Marketing costs were 6.5% of sales for the first quarter of fiscal 2026 as compared to 6.1% of sales for the first quarter of fiscal 2025.

As a percentage of sales, selling, general and administrative (“SG&A”) expenses for the second quarter of fiscal 2026 were 41.0% as compared to 41.1% for the second quarter of fiscal 2025.

For the first six months of fiscal 2026, SG&A expenses, as a percentage of sales, were 42.9% as compared to 42.9% for the first six months of fiscal 2025.

On a dollar basis, SG&A expenses decreased by $1.8 million for the second quarter of fiscal 2026 as compared to the second quarter of fiscal 2025.

For the first six months of fiscal 2026, SG&A expenses decreased $2.7 million as compared to the first six months of fiscal 2025.

The decrease for both periods was primarily due to a decrease in incentive-based compensation, including the reversal of expense associated with forfeited awards, and favorable healthcare costs.

Marketing costs were 6.1% of sales for the second quarter of fiscal 2026 and fiscal 2025.

For the first six months of fiscal 2026, marketing costs were 6.3% of sales as compared to 6.1% of sales for the first six months of fiscal 2025.

For fiscal 2026, marketing costs are expected to be approximately 5.8% of sales.

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Customer Facing Costs and Corporate Support Costs.

Customer Facing Costs, which include store payroll, marketing and other store and direct operating costs, represented 26.1% of sales for the first quarter of fiscal 2026 as compared to 25.2% of sales for the first quarter of fiscal 2025.

Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 18.9% of sales for the first quarter of fiscal 2026 as compared to 19.7% of sales for the first quarter of fiscal 2025.

Customer Facing Costs, which include store payroll, marketing and other store and direct operating costs, represented 25.5% of sales for the first six months of fiscal 2026 as compared to 24.6% of sales for the first six months of fiscal 2025.

Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 17.4% of sales for the first six months of fiscal 2026 as compared to 18.3% of sales for the first six months of fiscal 2025.

Transaction-Related Costs

Transaction-related costs for the first quarter of fiscal 2026 and fiscal 2025 were $1.2 million and $0.1 million, respectively, and primarily related to fees paid for professional services in connection with costs related to the Merger.

Transaction-related costs for the second quarter and first six months of fiscal 2026 were $1.8 million and $3.0 million, respectively, as compared to $0.1 million and $0.2 million for the second quarter and first six months of fiscal 2025, respectively.

Transaction-related costs primarily related to fees paid for professional services in connection with costs related to the Merger.

Depreciation and Amortization

Depreciation and amortization for the first quarter of fiscal 2026 increased to $4.0 million as compared to $3.6 million for the first quarter of fiscal 2025.

Depreciation and amortization for the second quarter of fiscal 2026 increased to $4.0 million as compared to $3.9 million for the second quarter of fiscal 2025.

For the first six months of fiscal 2026, depreciation and amortization was $7.9 million as compared to $7.5 million for the first six months of fiscal 2025.

The increase in depreciation and amortization in fiscal 2026 is due to capital projects, including new stores, completed in fiscal 2025.

Interest Income, Net

Net interest income for the first quarter of fiscal 2026 was $0.1 million as compared to $0.3 million for the first quarter of fiscal 2025.

The decrease in interest income for the first quarter of fiscal 2026 was primarily due to the decrease in the average balance of investments as compared to the first quarter of fiscal 2025.

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

Net interest income for the second quarter of fiscal 2026 was $0.1 million, as compared to $0.2 million for the second quarter of fiscal 2025.

For the first six months of fiscal 2026, net interest income was $0.1 million, as compared to $0.5 million for the first six months of fiscal 2025.

The decrease in interest income for the second quarter and first six months of fiscal 2026 was primarily due to the decrease in the average balance of investments as compared to the second quarter and first six months of fiscal 2025.

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

government-backed investments and money market accounts.

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

Interest costs for all 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 first quarter of fiscal 2026 and 2025, the Company’s effective tax rate was (1.1)% and 39.7%, respectively.

The Company’s effective tax rate was (1.6)% and 129.3%, respectively, for the second quarter of fiscal 2026 and fiscal 2025, and (0.8)% and 4.6%, respectively, for the first six months of fiscal 2026 and fiscal 2025.

In the fourth quarter of fiscal 2025, a full valuation allowance was established against the net deferred tax assets.

As a result, the effective tax rate for the first quarter of fiscal 2026 primarily reflects a provision for state margin tax, based on gross receipts less certain deductions.

The effective tax rate for the first quarter of fiscal 2025 reflected the impact of permanent book-to-tax differences.

For the first quarter of fiscal 2026, we recorded a net loss of $(5.9) million, or $(0.11) per diluted share, as compared to a net loss of $(1.9) million, or $(0.04) per diluted share, for the first quarter of fiscal 2025.

The decrease in earnings for the first quarter of fiscal 2026 as compared to first quarter of fiscal 2025 was driven primarily by a decrease in sales, an increase in transaction-related expenses and a decrease in the effective tax rate.

We have fully reserved against our deferred tax assets and, therefore, the net loss in the first quarter of fiscal 2026 is not reflective of earnings assuming a normal tax position for the Company.

On a non-GAAP basis, adjusting for a normal tax rate of 26% and the add back of transaction-related costs, adjusted net loss for the first quarter of fiscal 2026 was $(0.06) per diluted share as compared to adjusted net loss for the first quarter of fiscal 2025 of $(0.04) per diluted share.

As of May 2, 2026, our inventory decreased by $4.1 million to $81.4 million, as compared to $85.5 million at May 3, 2025.

As a result, the effective tax rate for the second quarter and first six months of fiscal 2026 primarily reflected a provision for state margin tax, based on gross receipts less certain deductions.

The effective tax rate for the second quarter and first six months of fiscal 2025 reflected the impact of permanent book-to-tax differences and discrete items.

Net Income (Loss)

For the second quarter of fiscal 2026, we recorded net income of $2.0 million, or $0.04 per diluted share, as compared to a net loss of $(0.3) million, or $0.00 per diluted share, for the second quarter of fiscal 2025.

The increase in earnings for the second quarter of fiscal 2026 as compared to the second quarter of fiscal 2025 was driven primarily by the tariff refund and lower incentive-based accruals, partially offset by a decrease in sales and an increase in transaction-related expenses.

The net loss for the first six months of fiscal 2026 was $(3.9) million, or $(0.07) per diluted share, as compared to a net loss for the first six months of fiscal 2025 of $(2.2) million, or $(0.04) per diluted share.

The decrease in earnings for the first six months of fiscal 2026 as compared to the first six months of fiscal 2025, was primarily due to the decrease in sales and an increase in transaction-related costs of $2.8 million, partially offset by the tariff refund and the lower incentive-based accruals.

We have fully reserved against our deferred tax assets and, therefore, the results for the second quarter and the first six months of fiscal 2026 are not reflective of earnings assuming a normal tax position for the Company.

On a non-GAAP basis, adjusting for a normal tax rate of 26% and the add back of transaction-related costs, adjusted net income for the second quarter of fiscal 2026 was $0.05 per diluted share as compared to adjusted net income for the second quarter of fiscal 2025 of $0.01 per diluted share.

For the first six months of fiscal 2026, adjusted net loss was $(0.01) per diluted share, as compared to an adjusted net loss of $(0.03) per diluted share, for the first six months of fiscal 2025.

As of August 1, 2026, our inventory decreased by $3.4 million to $75.5 million, as compared to $78.9 million at August 2, 2025.

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

At the same time, we may accelerate certain receipts to avoid potential delays caused by the recent conflict with Iran.

At May 2, 2026, our clearance inventory was 9.9% of our total inventory, as compared to 9.5% at May 3, 2025.

Our inventory position is 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.

At August 1, 2026, our clearance inventory was 9.8% of our total inventory, as compared to 10.2% at August 2, 2025.

We believe that our inventory position is healthy and our clearance levels are in line with our benchmark of 10%.

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

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

At May 2, 2026, we had no outstanding debt, including no borrowings under our credit facility during the first quarter of fiscal 2026.

At August 1, 2026, we had no outstanding debt, including no borrowings under our credit facility during the first six months of fiscal 2026.

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

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For the first three months of fiscal 2026, cash flow from operations was $(8.8) million as compared to $(12.0) million for the first three months of fiscal 2025.

The improvement in cash flow from operations was primarily due to the timing of other working capital partially offset by a decrease in earnings.

Free cash flow, before capital expenditures for store development, a non-GAAP measure, was $(12.3) million for the first three months of fiscal 2026 as compared to $(14.5) million for the first three months of fiscal 2025.

Free cash flow, a non-GAAP measure, was $(12.7) million for the first three months of fiscal 2026 as compared to $(18.8) million for the first three months of fiscal 2025.

For the Three Months Ended

For the first six months of fiscal 2026, cash flow from operations was $(2.8) million as compared to $(2.1) million for the first six months of fiscal 2025.

The slight decrease in cash flow from operations was primarily due to the decrease in earnings partially offset by the timing of other working capital.

Free cash flow, before capital expenditures for store development, a non-GAAP measure, was $(8.3) million for the first six months of fiscal 2026 as compared to $(7.6) million for the first six months of fiscal 2025.

Free cash flow, a non-GAAP measure, was $(8.7) million for the first six months of fiscal 2026 as compared to $(14.2) million for the first six months of fiscal 2025.

This improvement reflects a decrease in capital expenditures for new store openings of $6.2 million.

For the Six Months Ended

(in millions)

August 1, 2026

August 2, 2025

Cash flow from operating activities (GAAP basis)

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Free Cash Flow (non-GAAP basis)

Cash flow used for investing activities was $(3.8) million as compared to cash flow provided by investing activities of $8.3 million for the first three months of fiscal 2025.

Cash flow used for investing activities was $(4.0) million as compared to cash flow provided by investing activities of $4.4 million for the first six months of fiscal 2025.

The decrease in cash flow from investing activities of $(8.4) million was primarily due to a decrease in proceeds from short-term investments partially offset by a decrease in capital expenditures in fiscal 2026 as compared to fiscal 2025.

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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 May 2, 2026 and no borrowings during the first three months of fiscal 2026.

At May 2, 2026, outstanding standby letters of credit were $3.6 million.

The average unused excess availability during the first three months of fiscal 2026 was approximately $73.6 million and the unused excess availability at May 2, 2026 was $70.0 million.

We had no outstanding borrowings under the Credit Facility at August 1, 2026 and no borrowings during the first six months of fiscal 2026.

At August 1, 2026, outstanding standby letters of credit were $3.7 million.

The average unused excess availability during the first six months of fiscal 2026 was approximately $64.7 million and the unused excess availability at August 1, 2026 was $61.7 million, as compared to $70.1 million as of August 2, 2025.

Capital Expenditures

The following table sets forth the open stores and related square footage at May 2, 2026 and May 3, 2025, respectively:

The following table sets forth the open stores and related square footage at August 1, 2026 and August 2, 2025, respectively:

August 1, 2026

August 2, 2025

Store Concept

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Casual Male Outlets

During the first three months of fiscal 2026, we closed one DXL retail store and one Casual Male XL outlet store.

We expect our capital expenditures for fiscal 2026 to range from $8.0 million to $12.0 million, net of tenant incentives.

Our store development plans for fiscal 2026 will be limited to conversions of a few remaining Casual Male XL stores to the DXL format, store relocations and other capital projects necessary to maintain our existing store portfolio and distribution center.

The remainder of our expected capital spend for fiscal 2026 will primarily be for technology-related projects to support our business initiatives.

During the first six months of fiscal 2026, we closed one DXL retail store and one Casual Male XL outlet store.

We expect our capital expenditures for fiscal 2026 to range from $8.0 million to $10.0 million, net of tenant incentives, a decrease from our previous estimate of $9.0 million to $12.0 million.

We expect that our capital spend for fiscal 2026 to be primarily for technology-related projects to support our business initiatives and projects necessary to maintain our existing store portfolio and distribution center.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Non-GAAP Financial Measures

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

Adjusted net income (loss), adjusted net income (loss) per diluted share, 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.

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

Adjusted Net Loss and Adjusted Net Loss Per Diluted Share

Adjusted net loss and adjusted net loss per diluted share reflect an adjustment assuming a normal tax rate of 26% and the add back of transaction-related costs.

We have fully reserved against our net deferred tax assets and, therefore, the net loss in the first quarter of fiscal 2026 is not reflective of earnings assuming a “normal” tax position.

Adjusted net loss provides investors with a useful indication of the financial performance of the business, on a comparative basis, assuming a normalized tax rate of 26%.

Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Diluted Share

Adjusted net income (loss) and adjusted net income (loss) per diluted share reflect an adjustment assuming a normal tax rate of 26% and the add back of transaction-related costs.

We have fully reserved against our net deferred tax assets and, therefore, the net income (loss) for the second quarter and first six months of fiscal 2026 is not reflective of earnings assuming a “normal” tax position.

Adjusted net income (loss) provides investors with a useful indication of the financial performance of the business, on a comparative basis, assuming a normalized tax rate of 26%.

The estimated normal tax rate of 26% includes a blended state income tax rate.

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

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

The following table is a reconciliation of net loss on a GAAP basis to adjusted net loss, on a non-GAAP basis, for each period:

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

The following table is a reconciliation of net income (loss) on a GAAP basis to adjusted net income (loss), on a non-GAAP basis, for each period:

For the Three Months Ended

For the Six Months Ended

August 1, 2026

August 2, 2025

August 1, 2026

August 2, 2025

(in thousands, except per share data)

Net loss (GAAP)

Net income (loss) (GAAP)

Transaction-related costs

Actual provision (benefit) for income taxes

Income tax benefit, assuming a normalized tax rate of 26%

Adjusted net loss (non-GAAP)

Income tax provision (benefit), assuming a normalized tax rate of 26%

Adjusted net income (loss) (non-GAAP)

Weighted average number of common

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

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

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

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 on hand and cash flow from operations.

The following table reconciles free cash flow:

For the Three Months Ended

For the Six Months Ended

(in millions)

August 1, 2026

August 2, 2025

Cash flow from operating activities (GAAP basis)

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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:

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

For the Three Months Ended

For the Six Months Ended

August 1, 2026

August 2, 2025

August 1, 2026

August 2, 2025

(in millions)

Net loss (GAAP)

Net income (loss) (GAAP)

Transaction-related expenses

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis