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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our financial condition and results of operations for fiscal 2023 as compared to fiscal 2022. Our Annual Report on Form 10-K for the year ended January 28, 2023 (fiscal 2022) includes a discussion and analysis of our financial condition and results of operations comparing fiscal 2022 to fiscal 2021 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

As noted above in Part 1, this section also contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed below and elsewhere in this report, particularly in “Risk Factors” and “Forward-Looking Statements.” The following discussion and analysis of our financial condition and results of operations should be read in light of those risks and uncertainties and in conjunction with our accompanying Consolidated Financial Statements and Notes thereto.

Certain figures discussed below may not foot due to rounding.

Segment Reporting

We have two principal operating segments: our stores and direct business. We consider our stores and direct business segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into one reportable segment, retail segment, consistent with our integrated commerce approach. The Company’s wholesale business was a third operating segment until the first quarter of fiscal 2022, when the Company ended its relationship with its primary wholesale customer. Due to the immateriality of the wholesale segment’s revenues, profits and assets, its operating results were aggregated with the retail segment in fiscal 2022.

Comparable Sales and E-Commerce (Direct) Sales Definition

Our 2023 fiscal year included 53 weeks compared with 52 weeks in fiscal 2022. Accordingly, year-over-year comparisons of total sales for the fourth quarter and full year are affected by an extra week of sales in fiscal 2023. However, for comparable sales, the Company is reporting on a comparable weeks basis (i.e. the 14 and 53 weeks ended February 3, 2024 compared with the 14 and 53 weeks ended February 4, 2023, respectively).

Our customer’s shopping experience continues to evolve across multiple channels and we are continually adapting to meet the customer's needs. The majority of our stores have the capability of fulfilling online orders if merchandise is not available in the warehouse. As a result, we continue to see more transactions that begin online but 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 or at curbside. We define store sales as sales that originate and are fulfilled directly at the store level. E-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, our Guest Engagement Center, or through a third-party marketplace.

Stores that have been open for 13 months are included in comparable sales. Stores that have been remodeled or re-located 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. 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.

Non-GAAP Measures

We monitor certain non-GAAP financial measures on a regular basis in order to track the progress of our business. These measures include free cash flow, adjusted net income, adjusted net income per share, adjusted EBITDA and adjusted EBITDA margin. We believe these measures provide helpful information with respect to the Company’s operating performance and that the inclusion of these non-GAAP measures is important to assist investors in comparing our performance in fiscal 2023 to fiscal 2022. However, these measures may not be comparable to similar measures used by other companies and should not be considered superior to or as a substitute for net income, net income per diluted share or cash flow from operating activities in accordance with GAAP. See “Non-GAAP Reconciliations” below for additional information on these non-GAAP financial measures and reconciliations to comparable GAAP measures.

RESULTS OF OPERATIONS

Our fiscal year is a 52- or 53-week period ending on the Saturday closest to January 31. Fiscal 2023 was a 53-week period and fiscal 2022 was a 52-week period.

EXECUTIVE OVERVIEW

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

Adjusted net income (Non-GAAP) 32.3 42.5

Adjusted EBITDA (Non-GAAP) 55.9 73.8

Per diluted share:

Adjusted net income (Non-GAAP) $ 0.50 $ 0.63

As a percentage of sales:

Operating margin 8.0 % 10.7 %

Adjusted EBITDA margin (Non-GAAP) 10.7 % 13.5 %

Liquidity:

Cash flow from operating activities $ 49.6 $ 59.9

Free cash flow (Non-GAAP) $ 32.2 $ 50.3

Fiscal 2023 proved to be a challenging year and our results fell short of our expectations. Our comparable sales for fiscal year 2023 decreased 4.6%, with comparable sales from our stores down 4.5% and our direct business down 4.8%. Despite the year-over-year decline in sales, fiscal 2023 proved to be the second highest year of sales in the history of our Company, only behind fiscal 2022. We were pleased with our operational discipline which allowed us to maintain a solid gross margin, manage our operating expenses, and generate net income of $0.43 per diluted share and an adjusted EBITDA margin (a non-GAAP measure) of 10.7%.

Net income for fiscal 2023 of $0.43 per diluted share included a non-recurring pretax charge of $5.7 million recognized in connection with our decision to terminate our frozen retirement plans during fiscal 2023. Given the high interest rates, we saw this as an opportunistic use of excess cash to eliminate these variable liabilities. Net income for fiscal 2022 included a tax benefit of $31.6 million, or $0.47 per diluted shares, attributable to the release of substantially all of the valuation allowance against our deferred tax assets. Assuming a normalized tax rate of 27% for both fiscal years and adjusting for the loss from the retirement plan terminations, asset impairments (gains) and tax benefits or gains, if any, adjusted net income for fiscal 2023, was $0.50 per diluted share as compared to adjusted net income of $0.63 per diluted share for fiscal 2022.

We continued to strengthen our financial position in fiscal 2023, as we generated cash flow from operations of $49.6 million and free cash flow of $32.2 million. We used $24.5 million of that free cash flow to repurchase 5.4 million shares of our common stock. We successfully managed our inventory levels, which were down 12.9% as compared to the end of fiscal 2022. We ended fiscal 2023 with cash and investments totaling $60.0 million as compared to $52.1 million at January 28, 2023. We had no borrowings under our credit facility during fiscal 2023 and at February 3, 2024 our availability under our credit facility was $69.8 million. As we transition into fiscal 2024, we are focused on our long-term growth initiatives that we announced earlier in the year and are discussed above in Part I, Item 1, Business Strategy. Fiscal 2024 will be a year of investment and learning, but we feel strongly that the investments we are making in marketing, store expansion and digital are necessary to change the growth trajectory of our company and gain greater market share. We have selected creative and media agencies to help us curate and execute our vision and are planning a multi-channel campaign, with a multi-market test launch expected in early summer of 2024. We have also identified lease locations for another 8

DXL stores in addition to the three new stores we opened this year. Building stronger brand awareness is our overarching goal and we believe we need to invest in these initiatives to achieve that goal.

SALES

Wholesale segment — 399

For fiscal 2023, total sales decreased 4.4% to $521.8 million from $545.8 million for fiscal 2022. Comparable sales decreased 4.6%, with stores down 4.5% and the direct business down 4.8%. During fiscal 2023, we saw a gradual slowdown in store traffic across all regions of the country as consumer spending continued to be negatively impacted by the economic uncertainty and inflationary pressures. The decrease in comparable sales was partially offset by sales for the 53rd week of $7.1 million.

GROSS MARGIN

For fiscal 2023, gross margin, inclusive of occupancy costs, was 48.4% compared to 49.9% for fiscal 2022. The decrease of 150 basis points was due to a decrease in merchandise margins of 70 basis points and an 80 basis point increase in occupancy costs. The decrease in merchandise margin was due to cost pressures on certain private-label merchandise, increased direct-to-consumer shipping costs and costs related to our loyalty program. The 80 basis point increase in occupancy costs was due to a combination of the deleveraging of sales and increased rents as a result of lease extensions. For 2024, we expect our gross margin rate to experience some occupancy deleverage in the first half due to lower sales expectations and for the year we expect gross margin rates to be approximately 30 to 40-basis points lower than fiscal 2023.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses as a percentage of sales were 37.7% for fiscal 2023, as compared to 36.4% in fiscal 2022.

On a dollar basis, SG&A expenses decreased by $2.3 million for fiscal 2023 as compared to fiscal 2022. The decrease was primarily due to a decrease in marketing costs and a decrease in performance-based incentive accruals, partially offset by an increase in payroll-related costs from new positions added in the past year to support our long-range growth initiatives and costs for the 53rd week of approximately $2.7 million.

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 operating costs, represented 21.3% of sales for fiscal 2023 as compared to 20.8% of sales for fiscal 2022. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 16.4% of sales for fiscal 2023 as compared to 15.6% of sales for fiscal 2022. Marketing costs for fiscal 2023 were 5.9% of sales.

IMPAIRMENT (GAIN) OF ASSETS

Asset impairment charges primarily represent the write-down of operating lease right-of-use assets and the write-down of store property and equipment, where the carrying value exceeds fair value. In addition, any subsequent gains recognized in connection with a store closure related to a previously recorded operating lease right-of-use asset impairment will be included as an offset to impairment charges, with the remainder of the gain included as a reduction in store occupancy costs.

For fiscal 2023, the Company recorded a total asset impairment charge of $0.1 million, which included a write-down for certain store property and equipment and operating lease right-of-use assets.

For fiscal 2022, the Company recorded a non-cash gain of $0.6 million on the reduction of its operating lease liability in connection with its decision to close certain retail stores, which resulted in a revaluation of the lease liability. Of the total non-cash gain of $0.6 million, $0.4 million related to leases where the right-of-use assets had previously been impaired, and therefore was recorded as a reduction of the previously recorded impairment charge with the remaining $0.2 million recorded as a reduction to occupancy costs.

The fiscal 2022 impairment gain of $0.4 million was partially offset by a $0.2 million impairment charge for the write-down of store property and equipment. The net gain of $0.2 million is included as Impairment (Gain) of Assets on the Consolidated Statement of Operations for fiscal 2022.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense for fiscal 2023 was $13.8 million, as compared to $15.4 million in fiscal 2022. Our depreciation expense decreased over the past few years, as many of our assets have become fully depreciated and we have had modest capital spending over the past several years.

LOSS FROM TERMINATION OF RETIREMENT PLANS

During fiscal 2023, we identified an opportunity to eliminate a variable liability by taking advantage of the high-interest rate environment and terminate the frozen pension plan and SERP. Through the purchase of nonparticipating annuities, we completed a final settlement of the SERP in the third quarter and a final settlement of the pension plan in the fourth quarter.

For fiscal 2023, we recognized a charge of $5.7 million representing the recognition of the unrealized loss that was part of Accumulated Other Comprehensive Loss on the Consolidated Balance Sheet.

INTEREST INCOME/EXPENSE, NET

Net interest income for fiscal 2023 was $2.1 million, as compared to net interest expense of $0.3 million for fiscal 2022. We started investing excess cash in short-term, US government-backed investments in the fourth quarter of fiscal 2022, which generated a net interest income position in fiscal 2023. Interest costs for both fiscal years were immaterial because we had no outstanding debt and no borrowings under our credit facility during any period.

INCOME TAXES

As a result of releasing substantially all of the valuation allowance against our deferred tax assets during fiscal 2022, we have returned to a normal tax provision for fiscal 2023.

Since the end of fiscal 2013, we had maintained a full valuation allowance against our deferred tax assets. During the second quarter of fiscal 2022, we determined that it was more likely than not that we would be able to realize the benefit of substantially all of our deferred tax assets in the United States. In reaching this determination, we considered the cumulative three years of profitability, our expectations regarding the generation of future taxable income as well as the overall improvement in our business and our current market position. As a result, in fiscal 2022, the valuation allowance against the Company's deferred tax assets decreased by $47.6 million, of which $31.6 million was recorded as a non-recurring tax benefit related to the release of the valuation allowance on deferred tax assets expected to be realized in future periods.

At February 3, 2024, we continued to provide a valuation allowance of $2.2 million, primarily against certain state and foreign net operating losses ("NOLs").

Realization of our deferred tax assets, which relate principally to federal net operating loss carryforwards, of which approximately $3.6 million will expire in fiscal 2037, is dependent on generating sufficient taxable income. In addition, there are $39.9 million of federal net operating loss carryforwards that do not expire. For state income tax purposes, we have $51.8 million of net operating losses that are available to offset future taxable income, the majority of which will expire from fiscal 2024 through fiscal 2045. The utilization of our NOLs reduces our taxable income and, as a result, we have minimal cash taxes.

For fiscal year 2023, the Company’s effective tax rate was 27.4%. For fiscal 2022, we recorded an income tax benefit of $30.8 million, which included a current income tax provision of $0.8 million, primarily related to income tax in states with statutory limitations on the usage of NOLs, and a non-recurring tax benefit of $31.6 million related to the release of the valuation allowance against the deferred tax assets. See Note F to the Consolidated Financial Statements.

NET INCOME

Net income for fiscal 2023 was $27.9 million, or $0.43 per diluted share, as compared to a net income for fiscal 2022 of $89.1 million, or $1.33 per diluted share.

Net income for fiscal year 2023 included net income for the 53rd week, which was approximately $1.2 million, and also included a loss from the termination of retirement plans of $5.7 million.

Net income for fiscal 2022 included the reversal of $31.6 million, or $0.47 per diluted share, of our deferred tax asset valuation allowance.

On a non-GAAP basis, assuming a normalized tax rate of 27% and adjusting for the loss from the termination of the retirement plans, actual income tax provision (benefit) and asset impairment (gain), if any, adjusted net income for fiscal year 2023 was $32.3 million, or $0.50 per diluted share, as compared to adjusted net income of $42.5 million, or $0.63 per diluted share for fiscal 2022.

SEASONALITY

A comparison of sales in each quarter of the past two fiscal years is presented below. The amounts shown are also not necessarily indicative of actual trends, because such amounts also reflect the addition of new stores and the remodeling and closing of other stores during these periods. Consistent with the retail apparel industry, our business is seasonal. (Certain columns may not foot due to rounding.)

(in millions, except percentages) Fiscal 2023 Fiscal 2022

EFFECTS OF INFLATION

During fiscal 2023, we continued to see the effect of inflationary pressures on raw materials, services and labor. While there seems to be improvement, we cannot be certain of the effect inflation (or deflation) may have on our results of operations in the future.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are our cash and cash equivalents, cash generated from operations and availability under our credit facility, which is discussed below. We believe these sources of liquidity will be sufficient to fund our working capital requirements, commitments, capital expenditures and our stock repurchase program. 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, 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. We also believe that cash flows from operating activities and cash on hand will be sufficient to satisfy our capital requirements in the longer-term, however, 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.

At February 3, 2024 our material contractual obligations primarily consisted of our operating lease obligations, as disclosed in Note E, Leases, to the Consolidated Financial Statements. In addition to our lease obligations, at February 3, 2024, we were also contractually committed pursuant to a merchandise purchase obligation to meet minimum purchases of $10.0 million annually through fiscal 2028.

The following table sets forth financial data regarding our liquidity position at the end of the past two fiscal years:

Cash flow from operating activities $ 49.6 $ 59.9

Capital expenditures (17.4 ) (9.6 )

Free Cash Flow (Non-GAAP) $ 32.2 $ 50.3

Cash, cash equivalents and short-term investments, at year end $ 60.0 $ 52.1

Total debt, net of unamortized debt issuance costs $ - $ -

Unused excess availability under Credit Facility $ 69.8 $ 78.4

For fiscal 2023, cash flow from operations decreased to $49.6 million as compared to $59.9 million for fiscal 2022. Free cash flow, a non-GAAP measure, decreased to $32.2 million for fiscal 2023 as compared to $50.3 million for fiscal 2022. The decrease in free cash flow was due primarily to a decrease in operating income and an increase in capital expenditures.

Cash flow used for investing activities increased by $39.5 million for fiscal 2023 as compared fiscal 2022, primarily due to the purchase of short-term investments, net of maturities, of $31.9 million and an increase in capital expenditures of $7.8 million.

Cash flow used for financing activities for fiscal 2023 and fiscal 2022 of $24.9 million and $13.7 million, respectively, was primarily for the repurchase of our common stock.

Credit Facility

On October 28, 2021, we entered into a $125.0 million revolving credit agreement with Citizens Bank, N.A., with a maturity date of October 28, 2026. On April 20, 2023, the Company entered into the First Amendment to Credit Agreement which provided for the replacement of the London Interbank Offering Rate (“LIBOR”) interest rate options with the secured overnight financing rate ("SOFR") based options (as amended, the "Credit Facility"). The Credit Facility includes a sublimit of $20.0 million for commercial and standby letters of credit and a sublimit of up to $15.0 million for swingline loans. Effective April 20, 2023, borrowings under the Credit Facility bear interest at either a Base Rate or Daily Simple SOFR rate, at the Company's option. Base Rate loans will bear interest at a rate equal to (i) the greater of: (a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50% per annum and (c) the Daily Simple SOFR rate plus 1.00% per annum (provided the Base Rate shall never be less than the Floor (as defined in the Credit Facility)), plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25% or 0.50% (the “Applicable Margin”). Daily Simple SOFR loans will bear interest at a rate equal to (i) the Daily Simple SOFR rate plus an adjustment of 0.10% (provided the Daily Simple SOFR rate shall never be less than the Floor), plus (ii) the Applicable Margin. Any swingline loan will continue to bear interest at a rate equal to the Base Rate plus the Applicable Margin.

We had no outstanding borrowings under the Credit Facility at February 3, 2024. At February 3, 2024, outstanding standby letters of credit were $4.3 million and outstanding documentary letters were credit of $1.0 million. The Credit Facility was not utilized during the year, resulting in average unused excess availability during fiscal 2022 of $84.5 million. Unused excess availability at February 3, 2024 was $69.8 million. Our obligations under the Credit Facility are secured by a lien on substantially all of our assets. The Company was subject to an unused line fee of 0.25% of the total commitment less average outstanding letters of credit.

Our Credit Facility is described in more detail in Note D to the Consolidated Financial Statements.

Stock Repurchase Program

In March 2023, our Board of Directors approved a stock repurchase program. Under the stock repurchase program, we were initially authorized to repurchase up to $15.0 million of its common stock through open market and privately negotiated transactions. In November 2023, the Board of Directors approved an amendment to the stock repurchase program to increase the amount authorized for repurchase from $15.0 million to $25.0 million.

During fiscal 2023, we repurchased 5.4 million shares at a total cost, including fees, of $24.5 million. Shares of repurchased common stock are held as treasury stock. The stock repurchase program was completed subsequent to the end of the fiscal year.

INVENTORY

At February 3, 2024, total inventories decreased to $81.0 million from $93.0 million at January 28, 2023. Inventory at February 3, 2024 was approximately 12.9% lower than the prior year. Managing our inventory remains a primary focus for us as we strive to be efficient with our working capital. Based on the unfavorable sales trends we started to see in March 2023, we began taking proactive measures to manage our inventory and adjust our receipt plan. At February 3, 2024, our clearance inventory was 9.5% of our inventory, as compared to 7.9% at January 28, 2023, and below our historical benchmark of approximately 10.0%. Since 2019, we have reduced our inventory by 21% and improved our inventory turnover rate by over 30%. Given the ongoing macro-economic concerns around inflation and consumer spending, managing our inventory will remain a primary focus for us in fiscal 2024.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements as defined by 303(a)(4) of Regulation S-K.

CAPITAL EXPENDITURES

The following table sets forth the open stores and related square footage at February 3, 2024 and January 28, 2023 respectively:

Store Concept Number ofStores SquareFootage Number ofStores SquareFootage

(square footage in thousands)

During fiscal 2023, we opened three new DXL stores, we completed the conversion of 11 Casual Male stores to the DXL store format, completed the remodel of one existing DXL store and closed one DXL outlet. Below is a summary of the store activity from January 28, 2023 to February 3, 2024:

New stores 3 — — — 3

Conversion in place 11 — (11 ) — —

Closed retail stores — (1 ) — — (1 )

Our capital expenditures for fiscal 2023 were $17.4 million, as compared to $9.6 million in fiscal 2022. The capital expenditures for fiscal 2023 primarily related to stores, information technology projects, distribution center and facilities.

We believe that our store portfolio is a vital asset to our business strategy and we expect to invest in stores over the next several years as we strengthen the store portfolio. Over the next three to five years, we believe we could potentially open approximately 50 net new DXL stores across the country, which could average 6,000 square feet or 300,000 sq. ft. in total, a 15% increase over our current square footage. For fiscal 2024, our plan is to open 8 new stores, convert 5 of our remaining Casual Male XL stores to DXL stores and remodel 5 of our existing DXL stores. We expect our capital expenditures to range from $22.0 million to $25.0 million in fiscal 2024.

Non-GAAP Reconciliations

We monitor certain non-GAAP financial measures on a regular basis in order to track the progress of our business, including the measures below. We believe these measures provide helpful information with respect to the Company’s operating performance to shareholders, investors and analysts, and that the inclusion of these non-GAAP measures is important to assist investors in comparing our performance in fiscal 2023 to fiscal 2022, on a comparable basis. However, these measures may not be comparable to similar measures used by other companies and should not be considered superior to or as a substitute for operating net income, net income per diluted share or cash flows from operating activities in accordance with GAAP. (Certain amounts in the following tables may not foot due to rounding.)

Free Cash Flow

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 maintain liquidity while supporting its capital projects and new store growth. We calculate free cash flow as cash flow provided by operating activities less capital expenditures. Free cash flow excludes the mandatory and discretionary repayment of debt. The following table provides a reconciliation of free cash flow:

Cash flow from operating activities (GAAP) $ 49.6 $ 59.9

Capital expenditures (17.4 ) (9.6 )

Free cash flow (non-GAAP) $ 32.2 $ 50.3

Adjusted Net Income and Adjusted Net Income Per Diluted Share

Adjusted net income and adjusted net income per diluted share is calculated by excluding any asset impairment charge (gain) and the loss from the termination of retirement plans, subtracting the actual income tax provision (benefit) and applying an effective tax rate of 27%. The Company believes that this comparability is useful in comparing the actual results period to period. Adjusted net income per diluted share is then calculated by dividing the adjusted net income by the weighted average shares outstanding for the respective

period, on a diluted basis. The following table is a reconciliation of net income on a GAAP basis to adjusted net income, on a non-GAAP basis, for each fiscal year:

$ Per dilutedshare $ Per dilutedshare

(in thousands, except per share data)

Adjust:

Loss from termination of retirement plans 5.7 —

Impairment (gain) of assets 0.1 (0.2 )

Add back actual income tax provision (benefit) 10.5 (30.8 )

Income tax provision, assuming normal tax rate of 27% (11.9 ) (15.7 )

Adjusted net income, non-GAAP basis $ 32.3 $ 0.50 $ 42.5 $ 0.63

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and adjusted EBITDA margin are presented because we believe that these measures are useful to investors in evaluating our performance. Management uses adjusted EBITDA as a key metric to measure profitability and economic productivity. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation and amortization and before any impairment (gain) of assets and the loss on termination of retirement plans. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by sales.

The following table is a reconciliation of net income on a GAAP basis to adjusted EBITDA and adjusted EBITDA margin, on a non-GAAP basis, for each fiscal year:

(in thousands, except percentages) Fiscal 2023 Fiscal 2022

Net income, on a GAAP basis $ 27.9 $ 89.1

Add back:

Impairment (gain) of assets 0.1 (0.2 )

Loss on termination of retirement plans 5.7 —

Provision (benefit) for income taxes 10.5 (30.8 )

Interest (income) expense, net (2.1 ) 0.3

Depreciation and amortization 13.8 15.4

Adjusted EBITDA, on a non-GAAP basis $ 55.9 $ 73.8

Adjusted EBITDA margin, on a non-GAAP basis: 10.7 % 13.5 %

CRITICAL ACCOUNTING POLICIES; USE OF ESTIMATES

Our financial statements are based on the application of significant accounting policies, many of which require our management to make significant estimates and assumptions (see Note A to the Consolidated Financial Statements). We believe that the following items involve some of the more critical judgments in the application of accounting policies that currently affect our financial condition and results of operations.

Long-Term Incentive Plans

Stock awards are primarily granted pursuant to our Long-Term Incentive Plans (“LTIPs”). During fiscal 2023, we had three active LTIPs: the 2021-2023 LTIP, the 2022-2024 LTIP and the 2023-2025 LTIP. See Note H to the Consolidated Financial Statements for additional discussion of our LTIPs. Awards under each LTIP consist of 50% time-based awards and 50% performance-based awards. All time-based awards are amortized over each LTIP’s respective vesting periods.

The performance-based component of each LTIP is a dollar-denominated award, settled in a variable number of equity awards and/or cash awards. Any award will only be granted if such performance targets are achieved. Accordingly, each quarter the Company

reviews its expected achievement against such performance targets to assess whether an accrual is necessary. The performance metric for each of these LTIPs is a three-year total shareholder return against peers. As such, the accruals are based on projections that extend beyond a year and are subject to change quarter to quarter based on actual performance. All accruals are recorded as a liability. If performance targets are achieved and equity awards are granted, the related cost of those awards will be reclassified from the accrual to stock-based compensation on grant date.

The performance targets under the 2021-2023 LTIP were achieved at the end of fiscal 2023. Awards granted pursuant to this achievement will be subject to further vesting through August 31, 2024. Accordingly, at February 3, 2024, $2.5 million of the expected $3.0 million award was accrued. With respect to the performance-based component of the 2022-2024 LTIP and the 2023-2025 LTIP, which approximate $2.4 million and $2.5 million, respectively, at target, awards will be granted at the end of the respective performance period if the performance targets are achieved. Through the end of fiscal 2023, we accrued approximately $1.6 million for performance under the 2022-2024 LTIP, and there was no accrual for performance under the 2023-2025 LTIP.

Impairment of Long-Lived Assets

We evaluate property and equipment and operating lease right-of-use assets for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable. Our judgment regarding the identification of impairment indicators is based on operational performance at the store level. Factors considered by us that could result in an impairment triggering event include significant changes in the use of assets, a current period operating or cash flow loss, underperformance of a store relative to historical or expected operating results, and an accumulation of costs significantly in excess of the amount originally expected for the construction of the long-lived store assets. We will recognize an impairment when the undiscounted cash flow estimated to be generated by those assets is less than the assets’ carrying amount. If actual market conditions are less favorable than management’s projections, future write-offs may be necessary. The model for undiscounted future cash flows includes assumptions, at the individual store level, with respect to expectations for future sales and gross margin rates as well as an estimate for occupancy costs used to estimate the fair value of the respective store’s operating lease right-of-use asset. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company’s average cost of funds.

In addition, any subsequent gains recognized in connection with a store closure related to a previously recorded operating lease right-of-use asset impairment will be included as an offset to impairment charges, with the remainder of the gain included as a reduction in store occupancy costs. See Note A to the Consolidated Financial Statements.

For fiscal 2023 and fiscal 2022, we recorded an impairment charge (gain) of $0.1 million and $(0.2) million, respectively, within Impairment (Gain) of Assets on the Consolidated Statements of Operations.

RECENT ACCOUNTING PRONOUNCEMENTS

We have reviewed accounting pronouncements and interpretations thereof that have effective dates during the periods reported and in future periods. See Note A to the Consolidated Financial Statements included in this report for information on recent accounting pronouncements and the impact of impending standards on our future filings.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, our financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of these and other potential exposures.

Interest Rates

Our exposure to market risk for changes in interest rates relates primarily to our investments, which consists of cash equivalents and short-term investments at February 3, 2024. The primary objective of our investment activities is to preserve principal. This is accomplished by investing in money market accounts and U.S. treasury bills. We do not use derivative financial instruments. Due to the nature of our investments, we do not expect our operating results or cash flows to be affected to any significant degree by any change in market interest rates.

At February 3, 2024, approximately $6.0 million of our cash equivalents were invested in U.S. treasury bills and $17.2 million in money market accounts. At February 3, 2024, we also had $32.5 million in short-term investments, invested in U.S. treasury bills.

During fiscal 2023, we utilized cash from operations to fund our working capital needs. We have a Credit Facility that can also be used, if needed. The Credit Facility is not used for trading or speculative purposes. In addition, under our Credit Facility we have available letters of credit as sources of financing for our working capital requirements. Borrowings under the Credit Facility, which expires October 28, 2026, bear interest at variable rates based on the prime rate or Daily Simple SOFR rate, as defined in the Credit Agreement. At February 3, 2024, we had no outstanding borrowings under the Credit Facility.

Item 8. Financial Statements and Supplementary Data

Destination XL Group, Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Consolidated Financial Statements:

Consolidated Balance Sheets at February 3, 2024 and January 28, 2023 39

Notes to Consolidated Financial Statements 44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

Destination XL Group, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Destination XL Group, Inc. and subsidiaries (the Company) as of February 3, 2024 and January 28, 2023, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity (deficit), and cash flows for each of the fiscal years in the three-year period ended February 3, 2024, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 3, 2024 and January 28, 2023, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended February 3, 2024, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 21, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment of long-lived store assets

As discussed in Note A to the consolidated financial statements, the Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company’s judgment regarding the identification of impairment indicators is based on operational performance at the store level. Factors considered by the Company that could result in an impairment triggering event include significant changes in the use of assets, a current period operating or cash flow loss, underperformance of a store relative to historical or expected operating results, and an accumulation of costs significantly in excess of the amount originally expected for the construction of the long-lived store assets. At February 3, 2024, the Company had property and equipment and operating lease right-of-use assets of $43.2 million and $138.1 million, respectively.

We identified the assessment of impairment triggering events related to long-lived store assets, specifically property and equipment and operating lease right-of-use assets, as a critical audit matter. A high degree of auditor judgment was required to evaluate the Company’s assessment of (1) stores with current period operating or cash flow losses, and (2) underperforming stores based on current period operating or cash flow results relative to their respective historical results.

The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process of identifying and evaluating potential

impairment triggering events. This included a control related to the Company’s assessment of (1) stores with current period operating or cash flow losses, and (2) underperforming stores relative to historical operating results. For certain stores, we evaluated the Company’s analysis of potential impairment triggering events by comparing actual operating and cash flow results to historical results and the remaining net book value of store assets. We also reviewed Board of Directors' meeting minutes and available analyst information to assess the Company’s identification and evaluation of potential triggering events.

/s/ KPMG LLP

We have served as the Company’s auditor since2013.

Boston, Massachusetts

March 21, 2024

DESTINATION XL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

February 3, 2024 and January 28, 2023

(In thousands, except share data)

ASSETS

Current assets:

Short-term investments 32,459 —

Prepaid expenses and other current assets 8,308 7,214

Noncurrent assets:

Deferred income taxes, net of valuation allowance 21,533 31,455

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accrued expenses and other current liabilities 35,302 36,875

Long-term liabilities:

Commitments and contingencies

Stockholders' equity:

Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued — —

Accumulated other comprehensive loss - (4,928 )

Total liabilities and stockholders' equity $ 357,741 $ 350,598

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the fiscal years ended February 3, 2024, January 28, 2023 and January 29, 2022

(In thousands, except per share data)

Expenses:

Loss from termination of retirement plans (5,690 ) — —

Net income per share - basic $ 0.46 $ 1.42 $ 0.89

Net income per share - diluted $ 0.43 $ 1.33 $ 0.83

Weighted-average number of common shares outstanding:

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the fiscal years ended February 3, 2024, January 28, 2023 and January 29, 2022

(In thousands)

Other comprehensive income (loss) before taxes:

Recognition of accumulated foreign currency translation adjustment — 66 —

Foreign currency translation — (7 ) (62 )

Recognized loss from termination of retirement plans 5,690 — —

Other comprehensive income before taxes 5,523 763 696

Tax provision related to items of other comprehensive income (595 ) (166 ) —

Other comprehensive income, net of tax 4,928 597 696

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the fiscal years ended February 3, 2024, January 28, 2023 and January 29, 2022

(In thousands)

Accumulated

Additional Other

Common Stock Paid-in Treasury Stock Accumulated Comprehensive

Shares Amounts Capital Shares Amounts Deficit Income (Loss) Total

Stock compensation expense — — 1,229 — — — — 1,229

Issuance of common stock, upon RSUs and PSUs release 788 8 (8 ) — — — — —

Board of directors' compensation 233 2 372 — — — — 374

Accumulated other comprehensive income (loss):

Unrecognized gain associated with Pension Plan — — — — — — 758 758

Foreign currency — — — — — — (62 ) (62 )

Stock compensation expense — — 1,384 — — — — 1,384

Issuance of common stock, upon RSUs release 584 6 (6 ) — — — — —

Board of directors' compensation 104 1 500 — — — — 501

Accumulated other comprehensive income (loss):

Unrecognized gain associated with Pension Plan, net of taxes — — — — — — 538 538

Foreign currency, net of taxes — — — — — — (7 ) (7 )

Stock compensation expense — — 2,496 — — — — 2,496

Issuance of common stock, upon RSUs release 538 5 (5 ) — — — — —

Board of directors' compensation 89 1 442 — — — — 443

Other comprehensive income — — — — — — 4,928 4,928

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the fiscal years ended February 3, 2024, January 28, 2023 and January 29, 2022

(In thousands)

Cash flows from operating activities:

Loss from retirement plan terminations 5,690 — —

Recognition of accumulated foreign currency translation adjustment — 66 —

Amortization and write-off of deferred debt issuance costs 77 76 1,179

Gain on sale of equipment (107 ) — —

Deferred taxes, net of valuation allowance 9,329 (31,624 ) —

Board of directors' stock compensation 443 501 374

Changes in operating assets and liabilities:

Prepaid expenses and other current assets (1,094 ) (599 ) (2,926 )

Cash flows from investing activities:

Additions to property and equipment, net (17,418 ) (9,642 ) (5,272 )

Proceeds from sale of equipment 145 — —

Purchase of short-term investments (79,883 ) — —

Maturity of short-term investments 48,010 — —

Net cash used for investing activities (49,146 ) (9,642 ) (5,272 )

Cash flows from financing activities:

Proceeds from new FILO loan — — 17,500

Repayment of FILO loans — — (32,500 )

Borrowings under credit facility — — 40,297

Repayments under credit facility — — (100,030 )

Debt extinguishment costs — — (1,111 )

Debt issuance costs — — (1,200 )

Proceeds from the exercise of stock options 368 839 776

Tax withholdings paid related to net share settlements (759 ) (1,845 ) (1,867 )

Net increase (decrease) in cash and cash equivalents (24,484 ) 36,568 (3,491 )

Cash and cash equivalents:

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 3, 2024

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Destination XL Group, Inc. (collectively with its subsidiaries referred to as the “Company”) is the largest specialty retailer in the United States of big & tall men’s clothing and shoes. The Company operates under the trade names of Destination XL®, DXL®, DXL Men’s Apparel, DXL Outlets®, Casual Male XL® and Casual Male XL Outlets. At February 3, 2024, the Company operated 232 DXL stores, 17 Casual Male XL stores, 19 Casual Male XL outlets and 15 DXL outlets located throughout the United States, including an e-commerce site, www.dxl.com, and a mobile app.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts, transactions and profits are eliminated.

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from estimates.

Segment Reporting

The Company has two principal operating segments: its stores and its direct business. The Company considers its stores and direct operating segments to be similar in terms of economic characteristics, production processes and operations, and has therefore aggregated them into one reportable segment, retail segment, consistent with its integrated commerce business approach.

Fiscal Year

The Company’s fiscal year is a 52-week or 53-week period ending on the Saturday closest to January 31. Fiscal 2023 was a 53-week period which ended on February 3, 2024. Fiscal 2022 and fiscal 2021 were each 52-week periods, which ended on January 28, 2023, January 29, 2022, respectively.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in banks and short-term investments, which have a maturity of ninety days or less when acquired. Included in cash equivalents are credit card and debit card receivables from banks, which generally settle within two to four business days.

Short-Term Investments

Short-term investments consist of those investments that have a maturity date, when acquired, that is greater than three months and twelve months or less. These investments are classified as held-to-maturity and are carried at amortized cost, which approximates fair value due to the short period between purchase and maturity.

Concentration of Credit Risk

Cash and cash equivalents include amounts due from third party financial institutions, which from time to time, may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company is potentially exposed to a concentration of credit risk when cash and cash equivalent deposits in these financial institutions are in excess of FDIC limits. The Company considers the credit risk associated with these financial instruments to be minimal as cash and cash equivalents are held by financial institutions with high credit ratings and it has not historically sustained any credit losses associated with our cash and cash equivalents balances. In addition, its cash and cash equivalents and short-term investments include money market accounts with Citizens Bank, N.A. and investments in U.S. government-backed securities.

Accounts Receivable

Accounts receivable primarily include amounts due for rebates from certain vendors. For fiscal 2023, fiscal 2022 and fiscal 2021, the Company did not incur any losses on its accounts receivable.

Fair Value of Financial Instruments

Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these instruments. See Note K - Fair Value Measurement for information regarding the fair value of certain financial assets.

ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.

The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related asset or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.

Stores that have indicators of impairment and fail the recoverability test (based on undiscounted cash flows) are measured for impairment by comparing the fair value of the assets against their carrying value. Fair value of the assets is estimated using a projected discounted cash flow analysis and is classified within Level 3 of the valuation hierarchy. See Impairment of Long-Lived Assets below.

Inventories

All inventories are valued at the lower of cost or market, using a weighted-average cost method.

Property and Equipment

Property and equipment are stated at cost. Major additions and improvements are capitalized while repairs and maintenance are charged to expense as incurred. Upon retirement or other disposition, the cost and related accumulated depreciation of the assets are removed from the accounts and the resulting gain or loss, if any, is reflected in the results of operations. Depreciation is computed on the straight-line method over the assets’ estimated useful lives as follows:

Furniture and fixtures Five to ten years

Equipment Five to ten years

Leasehold improvements Lesser of useful lives or related lease term

Hardware and software Three to seven years

Intangibles

Domain Name

In fiscal 2018, the Company purchased the rights to the domain name “dxl.com.” The domain name has a carrying value of $1.2 million and is considered an indefinite-lived asset. At each reporting period, management analyzes current events and circumstances to determine whether the indefinite life classification continues to be valid.

Advertising Costs

The Company expenses in-store advertising costs as incurred. Creative production costs, if any, are expensed in the period in which the advertising is first aired and media costs are expensed as incurred. Direct response advertising costs, if any, are expensed in the period in which the mailing occurs. There were no deferred direct response costs at February 3, 2024 and January 28, 2023. Advertising expense, which is included in selling, general and administrative expenses, was $30.9 million, $32.5 million and $24.0 million for fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

Revenue Recognition

The Company’s accounting policies with respect to revenue recognition are discussed in Note B, “Revenue Recognition.”

Foreign Currency Translation

During fiscal 2022, the Company closed its store located in Toronto, Canada. Assets and liabilities for this store were translated into U.S. dollars at the exchange rates in effect at each balance sheet date. Stockholders’ equity was translated at applicable historical exchange rates. Income, expense and cash flow items were translated at average exchange rates during the period. Resulting translation adjustments were reported as a separate component of stockholders’ equity. Accordingly, in the fourth quarter of fiscal 2022, the Company recognized $66,000 related to the accumulated foreign currency transaction adjustment. See “Accumulated Other Comprehensive Income (Loss) – (“AOCI”)” below.

Accumulated Other Comprehensive Income (Loss) – (“AOCI”)

Other comprehensive income (loss) includes amounts related to foreign currency and pension plans and is reported in the Consolidated Statements of Comprehensive Income (Loss). Other comprehensive income (loss) and reclassifications from AOCI for fiscal 2023, fiscal 2022 and fiscal 2021 are as follows:

(in thousands)

(1)

In fiscal 2023, the Company terminated its pension plan and SERP and all obligations were settled through the purchase of nonparticipating annuities. Accordingly, the Company recognized the unrealized loss of its pension plans of $5.7 million, which is reflected in the "Loss from Termination of Retirement Plans" on the Consolidated Statement of Operations. The corresponding tax effect of $0.6 million, was recognized and is reflected as part of the income tax provision.

(2)

In connection with the Company’s closing of its remaining store in Toronto, Canada, in fiscal 2022, the Company recognized the accumulated foreign currency translation adjustment as an expense.

(3)

Includes the amortization through the date of settlement of the unrecognized (gain)/loss on retirement plans, which was charged to selling, general and administrative expense on the Consolidated Statements of Operations for all periods presented. The amortization of the unrecognized loss was $102,000, with a corresponding tax benefit of 27,000 for fiscal 2023. For fiscal 2022

and fiscal 2021, the Company recognized income of $39,000 and $41,000, respectively, as a result of a change in amortization from average remaining future service to average remaining lifetime. The corresponding tax provision for fiscal 2022 was $9,000. There was no related tax effect for fiscal 2021.

Income Taxes

Deferred income taxes are provided to recognize the effect of temporary differences between tax and financial statement reporting. Such taxes are provided for using enacted tax rates expected to be in place when such temporary differences are realized. A valuation allowance is recorded to reduce deferred tax assets if it is determined that it is more likely than not that the full deferred tax asset would not be realized. If it is subsequently determined that a deferred tax asset will more likely than not be realized, a credit to earnings is recorded to reduce the allowance. See Note F, Income Taxes.

ASC Topic 740, Income Taxes (“ASC 740”) clarifies a company’s accounting for uncertain income tax positions that are recognized in its financial statements and also provides guidance on a company’s de-recognition of uncertain positions, financial statement classification, accounting for interest and penalties, accounting for interim periods, and disclosure requirements. In accordance with ASC 740, the Company will recognize the benefit from a tax position only if it is more likely than not that the position would be sustained upon audit based solely on the technical merits of the tax position. The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense in its Consolidated Statement of Operations. The Company has not accrued or paid interest or penalties in amounts that were material to its results of operations for fiscal 2023, fiscal 2022 and fiscal 2021.

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for years through fiscal 2001, with remaining fiscal years subject to income tax examination by federal tax authorities.

Net Income Per Share

Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the respective period. Diluted earnings per share is determined by giving effect to unvested shares of deferred stock and restricted stock units (RSUs) and the exercise of stock options using the treasury stock method. The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share:

FISCAL YEARS ENDED

(in thousands)

Common stock outstanding:

The following potential common stock equivalents were excluded from the computation of diluted earnings per share in each year because the exercise price of such options was greater than the average market price per share of common stock for the respective periods or because the unearned compensation associated with either stock options, RSUs, or deferred stock had an anti-dilutive effect.

FISCAL YEARS ENDED

(in thousands, except exercise prices)

RSUs (time-vested) 39 104 —

Excluded from the computation of basic and diluted earnings per share were 573,000 shares for fiscal 2023 and 240,000 shares in fiscal 2022 and fiscal 2021 of unvested performance stock units. These performance-based awards will be included in the computation of basic and diluted earnings per share if, and when, the respective performance targets are achieved. In addition, deferred stock of 435,568 shares for all three fiscal periods were excluded from basic earnings per share. Outstanding shares of deferred stock are not considered

issued and outstanding until the vesting date of the deferral period and are excluded from basic earnings per share until such shares are issued.

Stock-based Compensation

ASC Topic 718, Compensation – Stock Compensation, requires measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). As required under the accounting rules, the Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The value derived from using the Black-Scholes model is recognized as expense over the vesting period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires judgment. Actual results, and future changes in estimates, may differ from the Company’s current estimates.

During fiscal 2023, the Company granted performance stock units. The fair value and derived service periods of the award were calculated using the Monte Carlo model. See Note I "Stock Compensation Plans" for more discussion regarding the performance metrics and the valuation assumptions used to calculate the fair value and derived service periods.

The Company recognized total stock-based compensation expense of $2.5 million, $1.4 million and $1.2 million for fiscal 2023, fiscal 2022 and fiscal 2021, respectively. The increase in stock-based compensation in fiscal 2023 was primarily due to the grant of performance stock units in August 2023 that are being expensed over the derived service period, which was determined to be an average of 12.5 months.

The total stock-based compensation cost related to time-vested awards not yet recognized as of February 3, 2024 was approximately $3.4 million and will be expensed over a weighted average remaining life of approximately 22 months.

The total grant-date fair value of awards vested was $1.2 million, $2.5 million and $1.7 million for fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

Any excess tax benefits resulting from the exercise of stock options or the release of restricted shares were recognized as a component of income tax expense in the period in which they occurred.

Valuation Assumptions - Stock Compensation

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model based on the following assumptions in the table. The fair value of each non-vested share is equal to the closing price of the Company’s stock on the date of grant. The weighted-average fair value of options granted and non-vested shares granted shown below does not include shares granted to directors in lieu of compensation.

Dividend rate - - -

Weighted average fair value of options granted $3.24 $3.58 $0.47

Weighted average fair value of non-vested shares granted $4.47 $5.28 $0.66

Expected volatilities are based on historical volatilities of the Company’s common stock; the expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and historical exercise patterns; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

Impairment of Long-Lived Assets

The Company recorded an impairment charge of $0.1 million in fiscal 2023 and recorded a net gain of $0.2 million and $2.3 million in fiscal 2022 and fiscal 2021, respectively.

The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company’s judgment regarding the identification of impairment indicators is based on operational performance at the store level. Factors considered by the Company that could result in an impairment triggering event include significant changes in the use of assets, a current period operating or cash flow loss, underperformance of a store relative to historical or expected operating results, and an accumulation of costs significantly in excess of the amount originally expected for the construction of the long-lived store assets. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The model for undiscounted future cash flows includes assumptions, at the individual store level, with respect to expectations for future sales and gross margin rates as well as an estimate for occupancy costs used to estimate the fair value of the respective store’s operating lease right-of-use asset. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company’s average cost of funds. With respect to the impairment charges taken on operating lease right-of-use assets, if the Company subsequently makes a decision to close previously impaired stores and a gain is realized as a result of the reevaluation of the existing lease liabilities, to the extent the gain related to previously recorded impairment charges against the right-of-use assets, the gain will be included as an offset to asset impairment charges with the remainder included as a reduction in store occupancy costs.

For fiscal 2023, the Company recorded a total asset impairment charge of $0.1 million, which included a write-down for certain store and operating lease right-of-use assets. For fiscal 2022 and fiscal 2021, the Company recognized non-cash gains of $0.6 million and $2.7 million, respectively, related to the Company's decision to close certain retail stores, with $0.4 million and $2.3 million, respectively, of the gains included as an offset to asset impairment charges and the remaining $0.2 million and $0.4 million, respectively, of the gains included as a reduction of store occupancy costs. Partially offsetting the gain of $0.4 million for fiscal 2022, was an impairment charge of $0.2 million related to the write-down of store assets.

Leases

The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments, initial direct costs and any lease incentives are included in the value of those ROU assets. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate, based on information available at the lease measurement date, to determine the present value of future payments. The Company elected the lessee non-lease component separation practical expedient, which permits the Company to not separate non-lease components from the lease components to which they relate. The Company also made an accounting policy election that the recognition requirement of ASC 842 will not be applied to certain, if any, non-store leases, with a term of 12 months or less, recognizing those lease payments on a straight-line basis over the lease term. At February 3, 2024, the Company had no short-term leases.

The Company’s store leases typically contain options that permit renewals for additional periods of up to five years each. In general, for store leases with an initial term of 10 years or more, the options to extend are not considered reasonably certain at lease commencement. For store leases with an initial term of 5 years, the Company evaluates each lease independently and, when the Company considers it reasonably certain that it will exercise an option to extend, the associated payment of that option will be included in the measurement of the ROU asset and lease liability.Renewal options are not included in the lease term for automobile and equipment leases because they are not considered reasonably certain of being exercised at lease commencement. Renewal options were not considered for the Company’s corporate headquarters and distribution center lease, which was entered into in 2006 and was for an initial 20-year term. At the end of the initial term, the Company will have the opportunity to extend this lease for six additional successive periods of five years.

For store leases, the Company accounts for lease components and non-lease components as a single lease component. Certain store leases may require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance and insurance, and are expensed as incurred as variable lease costs. Other store leases contain one periodic fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the ROU assets and lease liabilities. Tenant allowances are included as an offset to the right-of-use asset and amortized as reductions to rent expense over the associated lease term.

See Note E "Leases" for additional information.

Recently Issued Accounting Pronouncements - Adopted

In September 2022, the FASB issued Accounting Standards Update ("ASU") 2022-04, Liabilities – Supplier Finance Programs, which is intended to enhance the transparency surrounding the use of supplier finance programs in connection with the purchase of goods and services. The guidance requires companies that use supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated rollforward information. The new standard does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. ASU 2022-04 was adopted in the first quarter of fiscal 2023, with the exception of the rollforward information, which is not effective until fiscal 2024. The adoption of ASU 2022-04 did not have a material effect on the Company's Consolidated Financial Statements as the Company does not participate in supplier finance programs.

Recently Issued Accounting Pronouncements - Not Yet Adopted

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock, which amends or supersedes various SEC paragraphs within the Accounting Standards Codification to conform to past SEC announcements and guidance issued by the SEC. The ASU does not provide any new guidance, and as such, there is no transition effective date. ASU 2023-03 is not expected to have a material impact on the Company's Consolidated Financial Statements.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative. ASU-2023-06 incorporates several disclosure and presentation requirements currently residing in the SEC Regulations S-X and S-K. The amendments will be applied prospectively and are effective when the SEC removes the related requirements from Regulations S-X or S-K. Any amendments the SEC does not remove by June 30, 2027 will not be effective. The ASU is not expected to have a material impact on our consolidated financial statements or related disclosures because the Company is currently subjected to the reporting requirements of Regulations S-X and S-K.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), which requires all public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for our annual financial statements starting in fiscal 2025 and interim periods starting in fiscal 2026, with early adoption permitted. We are currently evaluating the impact of this accounting standard.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid and to improve the effectiveness of income tax disclosures. This ASU will be effective for fiscal year 2025, and allows for adoption on a prospective basis, with a retrospective option. Early adoption is permitted. We are currently evaluating the effect of adopting this new accounting standard.

No other new accounting pronouncements, issued or effective during fiscal 2023, have had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.

B. REVENUE RECOGNITION

Revenue is recognized in accordance with ASC 606, Revenue from Contracts with Customers. The Company operates as a retailer of big and tall men’s clothing, which includes sales through its stores and direct channels. Revenue is recognized by the operating segment that initiates a customer’s order. Store sales are defined as sales that originate and are fulfilled directly at the store level. Direct sales are defined as sales that originate online, including those initiated online at the store level, on its website or on third-party marketplaces. Sales from the wholesale business, which the Company operated until the first quarter of fiscal 2022, were defined as sales made to wholesale customers pursuant to the terms of each customer’s contract with the Company. Generally, all revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration in exchange for those goods. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included as part of accrued expenses on the Consolidated Balance Sheets.

Unredeemed Loyalty Coupons. The Company offers a free loyalty program to its customers for which points accumulate based on the purchase of merchandise. Under ASC 606, these loyalty points provide the customer with a material right and a distinct performance obligation with revenue deferred and recognized when the points are redeemed. The cycle of earning and redeeming loyalty points is generally under one year in duration. The loyalty accrual, net of breakage, was $1.7 million and $1.6 million at February 3, 2024 and January 28, 2023, respectively.

Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers. Upon issuance of a gift card, gift certificate, or credit voucher, a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Based on historical redemption patterns, the Company can reasonably estimate the amount of gift cards, gift certificates, and credit vouchers for which redemption is remote, which is referred to as "breakage". Breakage is recognized over two years in proportion to historical redemption trends and is recorded as sales in the Consolidated Statements of Operations. The gift card liability, net of breakage, was $3.2 million and $3.4 million at February 3, 2024 and January 28, 2023, respectively.

Shipping. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales for all periods presented. Amounts related to shipping and handling that are billed to customers are recorded in sales, and the related costs are recorded in cost of goods sold including occupancy costs, in the Consolidated Statements of Operations.

Disaggregation of Revenue

As noted above under Segment Information in Note A, the Company’s business at February 3, 2024 consists of one reportable segment, its retail segment. Substantially all of the Company’s revenue is generated from its stores and direct businesses. In the first quarter of fiscal 2022, the Company ended its relationship with its primary wholesale customer. Accordingly, the Company has determined that the following sales channels depict the nature, amount, timing, and uncertainty of how revenue and cash flows are affected by economic factors for each of the following fiscal years:

C. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at the dates indicated:

Total property and equipment, net $ 43,238 $ 39,062

Depreciation expense was $13.8 million, $15.4 million and $17.2 million for fiscal 2023, fiscal 2022, and fiscal 2021, respectively.

Additions to property and equipment that were included in accounts payable and accrued expenses at February 3, 2024, January 28, 2023 and January 29, 2022 were $2.3 million, $1.7 million, and $1.1 million, respectively.

D. DEBT OBLIGATIONS

Credit Agreement with Citizens Bank, N.A.

On October 28, 2021, the Company entered into a credit facility with Citizens Bank, N.A. On April 20, 2023, the Company entered into the First Amendment to Credit Agreement which provided for the replacement of the London Interbank Offering Rate (“LIBOR”) interest rate options with the secured overnight financing rate ("SOFR") based options (as amended, the "Credit Facility").

The Credit Facility provides for a $125.0 million secured, asset-based credit facility with a maturity date of October 28, 2026. The maximum committed borrowing of $125.0 million includes a sublimit of $20.0 million for commercial and standby letters of credit and a sublimit of up to $15.0 million for swing line loans. The Company’s ability to borrow under the Credit Facility is determined using an availability formula based on eligible assets.

Effective April 20, 2023, borrowings under the Credit Facility bear interest at either a Base Rate or Daily Simple SOFR rate, at the Company's option. Base Rate loans will bear interest at a rate equal to (i) the greater of: (a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50% per annum and (c) the Daily Simple SOFR rate plus 1.00% per annum (provided the Base Rate shall never be less than the Floor (as defined in the Credit Facility)), plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25% or 0.50% (the “Applicable Margin”). Daily Simple SOFR loans will bear interest at a rate equal to (i) the Daily Simple SOFR rate plus an adjustment of 0.10% (provided the Daily Simple SOFR rate shall never be less than the Floor), plus (ii) the Applicable Margin. Any swingline loan will continue to bear interest at a rate equal to the Base Rate plus the Applicable Margin. The Company is subject to an unused line fee of 0.25%.

The Company’s obligations under the Credit Facility are secured by a lien on substantially all of its assets. If the Company’s availability under the Credit Facility at any time is less than the greater of (i) 10% of the Revolving Loan Cap (the lesser of the aggregate revolving commitments or the borrowing base) and (ii) $7.5 million, then the Company is required to maintain a minimum consolidated fixed charge coverage ratio of 1.0:1.0 until such time as availability has exceeded the greater of (1) 10% of the Revolving Loan Cap and (2) $7.5 million for 30 consecutive days.

At February 3, 2024, the Company had no borrowings outstanding and availability of $69.8 million under the Credit Facility. There were no borrowings under the Credit Facility during fiscal 2023, resulting in an average unused excess availability of approximately $84.5 million. Outstanding standby letters of credit were $4.3 million and outstanding documentary letters were $1.0 million at February 3, 2024. At February 3, 2024, the Company's prime interest rate was 8.75%.

Interest and Fees

The Company paid interest and fees totaling $0.3 million, $0.4 million and $3.2 million for fiscal 2023, fiscal 2022 and fiscal 2021, respectively. Included in the $3.2 million for fiscal 2021 was a prepayment penalty of $1.1 million associated with the prepayment of its long-term FILO loan.

E. LEASES

The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, under operating leases. The store leases typically have initial terms of 10 years, with options that usually permit renewal for additional five-year periods. The initial term of the lease for the corporate headquarters is for 20 years, with the opportunity to extend for six additional consecutive periods of five years, beginning in fiscal 2026. The Company also leases certain equipment and other assets under operating leases, typically with initial terms of 3 to 5 years. The Company is generally obligated for the cost of property taxes, insurance and common area maintenance fees relating to its leases, which are considered variable lease costs and are expensed as incurred.

ASC 842 requires the assessment of any lease modification to determine if the modification should be treated as a separate lease and if not, modification accounting would be applied. Lease modification accounting requires the recalculation of the ROU asset, lease liability and lease expense over the respective lease term. As of February 3, 2024, the Company’s operating leases liabilities represent the present value of the remaining future minimum lease payments updated based on concessions and lease modifications, as applicable.

Lease costs related to store locations are included in cost of goods sold including occupancy costs on the Consolidated Statements of Operations, and expenses and lease costs related to the corporate headquarters and equipment leases are included in selling, general and administrative expenses on the Consolidated Statements of Operations.

The following table is a summary of the Company’s components of lease costs for fiscal 2023, fiscal 2022 and fiscal 2021:

(in thousands)

(1)

Variable lease costs include the cost of property taxes, insurance and common area maintenance fees related to its leases.

Supplemental cash flow and balance sheet information related to leases for fiscal 2023, fiscal 2022 and fiscal 2021 is as follows:

Cash paid for amounts included in the measurement of lease liabilities:

Non-cash operating activities:

Weighted average remaining lease term 4.9 yrs. 4.3 yrs. 4.3 yrs.

Weighted average discount rate 6.52 % 6.39 % 6.91 %

The table below reconciles the undiscounted cash flows for each of the next five years and thereafter to the operating lease liabilities recorded on the Consolidated Balance Sheet as of February 3, 2024:

(in thousands)

Total minimum lease payments $ 181,287

Less: amount of lease payments representing interest 26,750

Present value of future minimum lease payments $ 154,537

Less: current obligations under leases 37,221

Noncurrent lease obligations $ 117,316

As of February 3, 2024, the Company had entered into a ten-year store lease that has not yet commenced with aggregated estimated future lease payments of approximately $1.2 million, which are not included in the above table. The lease is expected to commence in the first quarter of fiscal 2024.

F. INCOME TAXES

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Under ASC Topic 740, deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The accounting standards require current recognition of net deferred tax assets to the extent it is more likely than not such net assets will be realized. To the extent that the Company believes its net deferred tax assets will not be realized, a valuation allowance must be recorded against those assets.

Until the second quarter of fiscal 2022, the Company had maintained a full valuation allowance against its deferred tax assets since fiscal 2013. During the second quarter of fiscal 2022, the Company determined that it was more likely than not that it would be able to realize the benefit of substantially all of its deferred tax assets in the United States. In reaching this determination, the Company considered the cumulative three years of profitability, its six consecutive quarters of sales growth and profitability at the time of the assessment, its expectations regarding the generation of future taxable income and the ability to utilize the Company’s net operating loss (“NOLs”) carryforwards as well as the overall improvement in the Company's business, brand repositioning and current market position. As a result, for fiscal 2022, the valuation allowance against the Company's deferred tax assets decreased by $47.6 million, of which $31.6 million was recorded as a non-recurring tax benefit in fiscal 2022 related to the release of the valuation allowance on deferred tax assets expected to be realized in future periods. As a result of releasing substantially all of the valuation allowance against its deferred tax assets during fiscal 2022, the Company returned to a normal tax provision for fiscal 2023. At February 3, 2024 and January 28, 2023, the Company continued to provide a valuation allowance of $2.2 million and $2.4 million, respectively, primarily against certain state and foreign NOLs.

As of February 3, 2024, for federal income tax purposes, the Company had net operating loss carryforwards of $3.6 million, which will expire in fiscal 2037 and net operating loss carryforwards of $39.9 million that are not subject to expiration. For state income tax purposes, the Company had $51.8 million of net operating losses that are available to offset future taxable income, the majority of which will expire from fiscal 2024 through fiscal 2045. Additionally, the Company has $5.3 million of net operating loss carryforwards related to the Company’s operations in Canada, which will expire from fiscal 2025 through fiscal 2041.

The utilization of net operating loss carryforwards and the realization of tax benefits in future years depends predominantly upon having taxable income. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carryforwards and tax credit carryforwards, which may be used in future years. As of February 3, 2024, there has been no such ownership change.

The components of the net deferred tax assets as of February 3, 2024 and January 28, 2023 were as follows (in thousands):

Deferred tax assets, net:

Goodwill and intangibles (103 ) (62 )

Unrecognized loss on pension and pension expense — 1,714

Foreign tax credit carryforward 486 486

Federal wage tax credit carryforward 824 824

Operating lease right-of-use assets (35,937 ) (32,583 )

Property and equipment (985 ) (2,672 )

For fiscal 2023, the Company had total deferred tax assets of $60.8 million, total deferred tax liabilities of $37.0 million and a valuation allowance of $2.2 million.

The provision (benefit) for income taxes consisted of the following:

FISCAL YEARS ENDED

(in thousands)

Current:

Federal $ — $ — $ —

Deferred:

Foreign — — —

The following is a reconciliation between the statutory and effective income tax rates in dollars for the provision (benefit) for income tax:

FISCAL YEARS ENDED

(in thousands)

State taxes, net of federal tax benefit 1,000 656 721

State deferred taxes, net of federal benefit 1,418 1,558 —

Taxes stranded in OCI released with termination of retirement plans 890 — —

(1)

The change in the valuation allowance at January 28, 2023 included a non-recurring income tax benefit of $31.6 million in connection with the Company’s substantial release of the valuation allowance in fiscal 2022 related to the deferred tax assets expected to be realized in future periods.

As discussed in Note A, the Company’s financial statements reflect the expected future tax consequences of uncertain tax positions that the Company has taken or expects to take on a tax return, based solely on the technical merits of the tax position.

The following table shows the liability for unrecognized tax benefits that were associated with a prior tax position related to exiting the Company’s direct business in Europe during fiscal 2013. The amount of unrecognized tax benefits was presented as a reduction in the reported amounts of the Company’s federal and state net operating losses carryforwards. No penalties or interest were accrued on this liability. In fiscal 2023, the Company changed this position in its tax return and determined that the liability was no longer necessary.

FISCAL YEARS ENDED

(in thousands)

Balance at the beginning of the fiscal year $ 2,000 $ 2,000 $ 2,000

Changes due to tax positions from current year — — —

Changes due to tax positions from prior years (2,000 ) — —

Changes due to lapsing of statute of limitations — — —

Balance at the end of the fiscal year $ — $ 2,000 $ 2,000

The Company made tax payments of $1.6 million, $0.5 million, and $0.6 million for fiscal 2023, fiscal 2022, and fiscal 2021, respectively.

The Inflation Reduction Act of 2022, which was signed into law in 2022, contains a provision that includes a 1% excise tax on certain stock buybacks after December 31, 2022. At February 3, 2024, the Company has accrued $0.2 million for excise taxes payable.

G. COMMITMENTS AND CONTINGENCIES

At February 3, 2024 the Company was obligated under operating leases covering store and office space, and certain equipment for future minimum rentals. See Note E, “Leases” for the schedule of future remaining lease obligations. In addition to its lease obligations, the Company is also contractually committed pursuant to a merchandise purchase obligation to meet minimum purchases of $10.0 million annually through fiscal 2028.

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. When a loss is considered probable, the Company records an accrual based on the reasonably estimable loss or range of loss. Costs related to such legal proceedings are expensed and reported in selling, general and administrative expenses in the Consolidated Statements of Operations. The Company believes its accruals at February 3, 2024 are adequate in light of the probable and estimable liabilities. The Company does not believe that any identified claims or litigation will be material to its results of operations, cash flows, or financial condition.

H. LONG-TERM INCENTIVE PLANS

The following is a summary of the Company’s Long-Term Incentive Plan (“LTIP”). All equity awards granted under these long-term incentive plans were issued from the Company’s stockholder-approved 2016 Incentive Compensation Plan. See Note I, “Stock Compensation Plans.”

At February 3, 2024, the Company has three active LTIPs: 2021-2023 LTIP, 2022-2024 LTIP and 2023-2025 LTIP. Each participant in the plan participates based on that participant’s “Target Cash Value” which is defined as the participant’s annual base salary (on the participant’s effective date) multiplied by his or her LTIP percentage. Under each LTIP, 50% of each participant’s Target Cash Value is subject to time-based vesting and 50% is subject to performance-based vesting. The time-based awards under the 2021-2023 LTIP were granted in a combination of 25% stock options and 75% cash, and the time-based awards under the 2022-2024 LTIP and the 2023-2025 LTIP were granted in a combination of 50% RSUs and 50% cash.

Performance targets for the 2021-2023 LTIP, 2022-2024 LTIP and the 2023-2025 LITP were established and approved by the Compensation Committee on March 8, 2021, April 9, 2022 and May 1, 2023, respectively. The performance period for each LTIP is three years. Awards for any achievement of performance targets will not be granted until the performance targets are achieved and then will be subject to additional vesting through August 31, 2024, August 31, 2025 and August, 31, 2026, respectively. The time-based awards under the 2021-2023 LTIP, 2022-2024 LTIP and 2023-2025 LTIP vest in four equal installments through April 1, 2025, April 1, 2026, and April 1, 2027, respectively.

Assuming that the Company achieves the performance targets at target levels and all time-based awards vest, the compensation expense associated with the 2021-2023 LTIP, 2022-2024 LTIP and 2023-2025 LTIP is estimated to be approximately $4.1 million, $4.8 million and $5.1 million, respectively. Approximately half of the compensation expense for each LTIP relates to the time-based awards, which are being expensed straight-line over 49 months, 48 months and 47 months, respectively.

At February 3, 2024, the Company accrued $1.6 million for the performance awards under the 2022-2024 LTIP and no accrual for the performance-based awards under the 2023-2025 LTIP.

I. STOCK COMPENSATION PLANS

The Company has one active stock-based compensation plan: the 2016 Incentive Compensation Plan (as amended, the “2016 Plan”). A grant of a stock option award or stock appreciation right will reduce the outstanding reserve on a one-for-one basis, meaning one share for every share granted. A grant of a full-value award, including, but not limited to, restricted stock, restricted stock units and deferred stock, will reduce the outstanding reserve by a fixed ratio of 1.9 shares for every share granted. At February 3, 2024, 15,120,538 shares were authorized under the 2016 Plan, of which 2,177,876 shares remain available for grant.

In accordance with the terms of the 2016 Plan, any shares outstanding under the previous 2006 Incentive Compensation Plan (the “2006 Plan”) at August 4, 2016 that subsequently terminate, expire or are cancelled for any reason without having been exercised or paid are added back and become available for issuance under the 2016 Plan, with stock options being added back on a one-for-one basis and full-value awards being added back on a 1 to 1.9 basis. At February 3, 2024, there were 75,487 stock options that remain outstanding under the 2006 Plan.

The 2016 Plan is administered by the Compensation Committee. The Compensation Committee is authorized to make all determinations with respect to amounts and conditions covering awards. Options are not granted at a price less than fair value on the date of the grant. Except with respect to 5% of the shares available for awards under the 2016 Plan, no award will become exercisable or otherwise forfeitable unless such award has been outstanding for a minimum period of one year from its date of grant.

Stock Option Activity

The following tables summarize the stock option activity under the Company’s 2006 Plan and 2016 Plan, on an aggregate basis, for fiscal 2023:

Stock Options

Non-Vested Share Activity

The following table summarizes activity for non-vested shares under the Company’s 2006 Plan, 2016 Plan and Inducement Awards, on an aggregate basis, for fiscal 2023:

(1)

During fiscal 2023, the Company granted RSUs for the achievement of performance metrics under the 2020-2022 LTIP that were subject to additional vesting through August 31, 2023 and time-based RSUs under its LTIPs. See Note H, Long-Term Incentive Plans. As a result of net share settlements, of the 537,685 RSUs that vested, only 385,073 shares of common stock were issued.

(2)

Represents compensation to certain directors, in lieu of cash, in accordance with their irrevocable elections. The outstanding deferred shares will be issued upon the director’s separation from service.

(3)

On August 11, 2023, the Company granted 573,000 performance share units ("PSUs") in connection with the extension of Mr. Kanter's employment agreement. The award consists of nine tranches, with the first tranche vesting if and when the 30-day volume-weighted closing price of the Company's common stock is equal to or greater than $6.50 per share. Each subsequent tranche will vest upon achievement of the 30-day volume-weighted closing price of the Company's common stock in $0.25 installments with the ninth tranche vesting when such price is equal to or greater than $8.50 per share. The PSUs are subject to a one-year minimum vesting period, and any unvested PSUs will expire on August 11, 2026.The respective fair value and derived service period assigned to each tranche of the PSUs were determined using a Monte Carlo model based on: a weighted historical volatility of 57.8%, a term of 3 years, stock price on the date of grant of $4.98 per share, a risk-free rate of 4.6% and a cost of equity of 11.0%. The $2.4 million fair value is being expensed over the respective derived service periods of each tranche which range from 12 to 13 months.

(4)

Represents compensation, with a fair value of $141,742, to certain directors, who are required to receive shares, in lieu of cash, in order to satisfy their minimum equity ownership under the Non-Employee Director Plan. Voluntary shares received, in lieu of cash, are reported below under Non-Employee Director Compensation Plan.

Non-Employee Director Compensation Plan

In January 2010, the Company established a Non-Employee Director Stock Purchase Plan to provide a convenient method for its non-employee directors to acquire shares of the Company’s common stock at fair market value by voluntarily electing to receive shares of common stock in lieu of cash for service as a director. The substance of this plan is now encompassed within the Company’s Seventh Amended and Restated Non-Employee Director Compensation Plan, as amended, the "Non-Employee Director Compensation Plan."

The plan requires a minimum equity ownership requirement which requires each director to receive at least 60% of their annual retainers in shares of common stock until the value of their equity ownership is equal to at least three times the annual retainer. Any shares issued to satisfy the minimum equity ownership were granted from the 2016 Plan. All other shares were granted under the Non-Employee Director Compensation Plan.

The following shares of common stock, with the respective fair value, were issued from the Non-Employee Director Compensation Plan to its non-employee directors as compensation for fiscal 2023, fiscal 2022 and fiscal 2021:

Number of shares ofcommon stock issued Fair value ofcommon stock issued

At February 3, 2024, 634,534 shares remained available for grant under the Non-Employee Director Compensation Plan.

J. EMPLOYEE BENEFIT PLANS

The Company accounted for its employee benefit plans in accordance with ASC Topic 715, Compensation – Retirement Benefits. ASC Topic 715 requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur.

Noncontributory Pension Plan

In connection with the Casual Male acquisition in May 2002, the Company assumed the assets and liabilities of the Casual Male Noncontributory Pension Plan “Casual Male Corp. Retirement Plan”, which was previously known as the J. Baker, Inc. Qualified Plan (the “Pension Plan”). Casual Male Corp. froze all future benefits under this plan on May 1, 1997.

On May 3, 2023, the Audit Committee approved the termination of the Pension Plan, which was then approved and ratified by the Board of Directors on May 4, 2023 with a final termination approval on June 8, 2023. By the end of fiscal 2023, the Company completed the settlement of all plan assets. Results for fiscal 2023, included a charge of $5.6 million, representing recognition of the of the unrealized loss in "Accumulated Other Comprehensive Loss" on the Consolidated Balance Sheet.

The following table sets forth the Pension Plan’s funded status at February 3, 2024 and January 28, 2023:

in thousands

Change in benefit obligation:

Benefits and expenses paid (347 ) (818 )

Actuarial (gain) loss (524 ) (2,145 )

Balance at end of year $ — $ 11,454

Change in fair value of plan assets:

Balance at beginning of period $ 9,591 $ 11,293

Actual return on plan assets (34 ) (1,050 )

Benefits and expenses paid (347 ) (818 )

Balance at end of period $ — $ 9,591

Reconciliation of funded status:

Projected benefit obligation $ — $ 11,454

Fair value of plan assets — 9,591

Unfunded status $ — $ (1,863 )

Balance sheet classification:

Other long-term liabilities $ — $ 1,863

Total plan expense and other amounts recognized in accumulated other comprehensive loss for the years ended February 3, 2024, January 28, 2023 and January 29, 2022 include the following components:

Net pension cost: (in thousands)

Interest cost on projected benefit obligation $ 294 $ 414 $ 373

Expected return on plan assets (325 ) (723 ) (728 )

Net pension cost $ 102 $ (39 ) $ (41 )

Other changes recognized in other comprehensive loss, before taxes:

Unrecognized losses at the beginning of the year $ 5,490 $ 6,132 $ 6,914

Net periodic pension cost (102 ) 39 41

Recognition of the unrealized loss (5,631 ) — —

Change in plan assets and benefit obligations (1,863 ) (1,205 ) (1,445 )

Unrecognized losses at the end of year $ — $ 5,490 $ 6,132

In connection with the partial settlement in the second quarter of fiscal 2023, a remeasurement of the pension obligation was completed as of June 30, 2023. Assumptions used to determine the benefit obligations as of February 3, 2024, June 30, 2023 and January 28, 2023 include a discount rate of 5.14%, 5.21% and 4.79%, respectively. Assumptions used to determine the net periodic benefit cost for the six months ended February 3, 2024, for the six months ended June 30, 2023 and for the fiscal years ended January 28, 2023 and January 29, 2022 included a discount rate of 5.21%, 4.79%, 3.00% and 2.39%, respectively.

The expected long-term rate of return for plan assets was assumed to be 5.10% and 6.50% at the beginning of fiscal 2023 and fiscal 2022, respectively. The expected long-term rate of return for plan assets was assumed to be 6.00% at June 30, 2023. The expected long-term rate of return assumption was developed considering historical and future expectations for returns for each asset class.

Plan Assets

There were no plan assets at the end of fiscal 2023. The fair values of the Company’s noncontributory defined benefit retirement plan assets at the end of fiscal 2022, by asset category, was as follows:

Fair Value Measurement

Asset category:

Mutual Funds:

Supplemental Executive Retirement Plan

In connection with the Casual Male acquisition, the Company also assumed the liability of the Casual Male Supplemental Retirement Plan (the “SERP”).

On May 3, 2023, the Audit Committee approved the termination of the SERP, which was then approved and ratified by the Board of Directors on May 4, 2023. During fiscal 2023, the Company completed the termination of the SERP though the purchase of a nonparticipating annuity. In connection with that termination, the Company made a cash contribution of $0.4 million and recognized a loss on the termination of the plan of $57,000, which included the recognition of the unrealized loss of $31,000 in Accumulated Other Comprehensive Loss.

The following table sets forth the SERP’s funded status at February 3, 2024 and January 28, 2023:

in thousands

Change in benefit obligation:

Balance at beginning of period $ 427 $ 514

Benefits and expenses paid (27 ) (40 )

Settlements (385 ) —

Actuarial (gain) loss (28 ) (61 )

Balance at end of year $ — $ 427

Change in fair value of plan assets:

Balance at beginning of period $ — $ —

Employer contributions 466 40

Settlements (439 ) —

Benefits and expenses paid (27 ) (40 )

Balance at end of period $ — $ —

Projected benefit obligation $ — $ 427

Reconciliation of funded status:

Projected benefit obligation $ — $ 427

Fair value of plan assets — —

Unfunded Status $ — $ (427 )

Balance sheet classification:

Other long-term liabilities $ — $ 427

Other changes recognized in other comprehensive loss, before taxes (in thousands):

in thousands

Other changes recognized in other comprehensive loss, before taxes:

Unrecognized losses at the beginning of the year $ 31 $ 95 $ 120

Net periodic pension cost (13 ) (17 ) (16 )

Recognized loss from settlement (57 ) — —

Change in benefit obligations (427 ) (87 ) (49 )

DXLG US Equity

DXLG · 10-K · period ended 2024-02-03

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

DXLG US Equity☆

DXLG · 10-K · period ended 2024-02-03

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

DXLG US Equity