Destination XL Group, Inc. — Second Quarter Fiscal 2026 Earnings Summary

Financial Performance

• Total sales for the second quarter were $111.6 million, a 3.4% decrease from $115.5 million in the second quarter of fiscal 2025.
• Comparable sales decreased 3.5% year-over-year, with store comparable sales down 4.3% and direct business comparable sales down 1.6%.
• Net income was $2.0 million ($0.04 per diluted share), compared to a net loss of $0.3 million ($0.00 per diluted share) in the prior year quarter.
• Net income includes a $4.6 million refund for tariffs previously paid.
• Adjusted net income (non-GAAP) was $0.05 per diluted share, up from $0.01 per diluted share in the prior year quarter.
• Adjusted EBITDA (non-GAAP) was $7.7 million, an increase from $4.7 million in the prior year quarter.
• Gross margin rate (inclusive of occupancy costs) was 47.9%, up from 45.2% in the prior year quarter.
• Merchandise margin increased 340 basis points, partially offset by a 70 basis point increase in occupancy costs.
• SG&A expenses were 41.0% of sales, down from 41.1% in the prior year quarter, with a dollar decrease of $1.8 million.
• Cash and investments totaled $20.1 million as of August 1, 2026, down from $33.5 million as of August 2, 2025.
• The company had no outstanding debt for either period.
• Cash flow from operations for the first six months of fiscal 2026 was $(2.8) million, compared to $(2.1) million in the prior year period.
• Free cash flow (non-GAAP) for the first six months of fiscal 2026 was $(8.7) million, an improvement from $(14.2) million in the prior year period.

Guidance and Future Outlook

• Management expects fiscal 2026 marketing costs to be approximately 5.8% of sales.
• Fiscal 2026 capital expenditures are expected to range from $8.0 million to $10.0 million, net of tenant incentives, a decrease from the previous estimate of $9.0 million to $12.0 million.
• Capital spend is expected to primarily support technology-related projects and maintenance of the existing store portfolio and distribution center.
• Management estimates that if current tariffs remain in effect without additional tariffs, the impact on gross margin for fiscal 2026 (exclusive of refunds) will be approximately 100 basis points.
• Management anticipates continued sequential improvement in comparable sales trends and confidence in driving performance improvements over the remainder of the year.

Business Segments and Product Lines

• Direct business sales were $30.9 million (27.8% of total sales) in the second quarter, compared to $31.8 million (27.5%) in the prior year quarter.
• FiTMAP® technology is available in 188 stores, with over 150,000 customers engaged since launch; users show stronger conversion, higher average order values, greater purchase frequency, and lower return rates.
• The company is investing in AI initiatives to improve product data quality, enrich item-level attributes, and enhance discoverability across AI-enabled platforms.
• The company is broadening select assortments in smaller sizes in response to customer usage of GLP-1 and similar weight-loss medications.
• During the first six months of fiscal 2026, the company closed one DXL retail store and one Casual Male XL outlet store.

Market and Competitive Landscape

• The company maintains a leadership position in the Big + Tall men's clothing and footwear market.
• Comparable sales trends were pressured by lower traffic across stores and digital, driven by consumer caution due to inflation, higher energy costs, global conflict, and economic uncertainty.
• Consumer confidence remains pressured, though promotional activity helped offset traffic declines in June and July.
• The company views GLP-1 medication usage as a structural change in customer demand, presenting both near-term challenges and long-term opportunities for retention and reactivation.

Risks and Challenges

• Volatility around trade discussions creates uncertainty regarding the potential impact of continuing tariffs on fiscal 2026 financial results.
• The company faces ongoing pressure on discretionary spending from macroeconomic factors.
• The company has fully reserved against deferred tax assets, resulting in an effective tax rate of (1.6)% for the quarter, which does not reflect a normal tax provision.
• The proposed merger with FullBeauty is no longer advisable due to FullBeauty's declining operating performance, increased indebtedness, potential negative equity value, and substantial economic dilution for DXL stockholders.

Management Commentary and Tone

• Lionel F. Conacher, Chairman and Interim CEO, stated that the company has a strong brand, loyal customer base, and clear understanding of customer priorities.
• Management expressed confidence that their disciplined operating approach and focus on execution will drive continued performance improvements.
• The company views the sequential improvement in comparable sales (from -5.7% in May to -1.9% in July) as encouraging.
• Management emphasized the importance of FiTMAP and AI as long-term growth drivers.

Other Key Points

• The DXL Board has determined that the merger with FullBeauty is no longer in the best interests of DXL and its stockholders and recommends stockholders vote "AGAINST" the issuance proposal.
• An Amendment No. 1 to the Preliminary Proxy Statement regarding the merger was filed with the SEC on September 2, 2026.
• The company has exclusive rights to its FiTMAP® fit technology platform until 2030.
• The credit facility availability was $61.7 million as of August 1, 2026, with no borrowings outstanding; the facility matures on August 13, 2030.
• Inventory decreased $3.4 million to $75.5 million, with clearance inventory at 9.8% of total inventory.
• Transaction-related costs for the quarter were $1.8 million, primarily related to fees for professional services in connection with the proposed merger.