Item 1A. Risk Factors
The following risk factors are the important factors that we are aware could cause actual results, performance or achievements to differ materially from those expressed in any of our forward-looking statements. We operate in a continually changing business environment and new risk factors emerge from time-to-time. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. We cannot assure you that our projected results or events will be achieved or will occur.
Strategic Risks That May Affect Our Business
We may not be successful in executing our long-term strategy and growing our market share.
For us to be successful in the future and maintain growth, we must be able to grow our share of the big + tall men’s apparel market. Our growth is dependent on our ability to continue to build upon our DXL brand, maintain our existing customers and attract new customers. We have developed and are implementing long-term strategic initiatives to grow our business, but the timeline of these initiatives is dependent, to a degree, on overall market conditions.
Our failure to execute our long-term strategy successfully could prevent or delay us from growing our market share, which could have a material adverse effect on our results of operations, cash flows and financial position, including if we are unable to:
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grow our store portfolio;
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build brand awareness to drive increased store and online traffic;
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build successful collaborations and alliances, similar to our alliances with UNTUCKit and Nordstrom;
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grow our DXL digital business;
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maintain a state-of-the-art website;
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predict and respond to fashion trends, while offering our customers a broad selection of merchandise in an extended selection of sizes;
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grow our existing customer base;
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hire qualified store management and store associates;
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grow and then sustain the number of transactions, units-per-transaction and share of wallet; and
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operate at appropriate operating margins.
Our marketing programs and efforts to drive traffic and convert that traffic into an increased loyal customer base are critical to achieving market share growth within the big + tall men’s apparel market and may not be successful.
Our ability to increase our share of the big + tall men’s apparel market is largely dependent on effectively marketing our brand and merchandise to all of our target customers in several diverse market segments so that they will become loyal shoppers who spend a greater portion of their wallets on our product offerings. In order to grow our market share, we depend on the success of our marketing and advertising in a variety of ways, including streaming media advertising, advertising events, our loyalty program, direct mail, and digital marketing, including social media and customer prospecting. Our business is directly impacted by the success of these efforts and those of our vendors. Future marketing efforts by us, our vendors or our other licensors, may be more costly than prior years and, if not successful, may negatively affect our ability to meet our sales goals and gain market share.
If our marketing campaigns and strategies are unable to drive traffic to our stores and website, the marketing costs incurred will have a negative impact on the Company's profitability.
Our direct business is a component of our growth strategy and the failure to develop our digital infrastructure could disrupt our business and negatively impact our sales.
We have made significant investments in capital spending and labor to develop our direct channels and increased investments in digital marketing to attract new customers. The growth of our overall sales is dependent on customers’ continuing to expand their online purchases in addition to in-store purchases. While it is our objective to continue to grow this business, there can be no assurance that this growth will continue or be sustainable.
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Our success in growing our direct business will depend in part upon our development of an increasingly sophisticated e-commerce experience and infrastructure. Increasing sophistication requires that we provide additional website features, functionality and messaging in order to be competitive in the marketplace and maintain market share. By the end of fiscal 2024, we were in the final stages of launching our new updated e-commerce platform. There can be no assurance that this change will drive additional traffic and conversion or that our customers will respond positively to the changes.
In addition, we are vulnerable to additional risks and uncertainties associated with e-commerce sales, including security breaches, cyber-attacks, consumer privacy concerns, changes in state tax regimes and government regulation of internet activities. Our failure to respond to these risks and uncertainties appropriately could reduce our direct sales, increase our costs and diminish our growth prospects, which could negatively affect our operating results.
If we are unable to develop and implement our integrated commerce initiatives successfully, our market share and financial results could be adversely affected.
Our customer’s shopping behavior continues to evolve across multiple channels and we are working to meet his needs, with real time store inventory visibility, our mobile app, and BOPIS (buy online pick-up in stores). We consider ourselves a customer-centric integrated commerce retailer, and we continue to make ongoing investments in our information technology systems to support these evolving capabilities.
Integrated commerce is rapidly evolving and our success depends on our ability to anticipate and implement innovations in sales and marketing technology and logistics in order to appeal to existing and potential customers who increasingly rely on multiple channels to meet their shopping needs. Our competitors are also investing in these initiatives, some of which may be more successful than our initiatives.
If the investment in our integrated commerce initiatives is not successful, if our systems are unable to support such initiatives, or if our competitors are more successful, our financial results and our market penetration may be adversely affected.
Our business may be adversely affected if we are unable to manage and grow our store portfolio successfully.
We lease all of our store locations. Renewing and renegotiating these leases at acceptable lease terms is critical to the profitability of our stores. We worked closely with our landlords to renegotiate and restructure a majority of our lease portfolio from the onset of the COVID-19 pandemic; however, many of these renegotiated lease terms have renewed or are due to renew at higher rates than we had during the COVID-19 pandemic. If we are unable to renegotiate terms to optimize a store's profitability, we may choose not to renew certain locations when the opportunity arises.
One of our long-term strategic initiatives is to grow our store portfolio over the next several years and we have identified multiple white space opportunities in new or underpenetrated markets. We are also actively reviewing opportunities to relocate or convert the majority of our remaining Casual Male XL stores to DXL. If we are unable to find locations or obtain favorable lease terms, we may not be able to grow or maintain our current store base and the lack of store growth could negatively affect our ability to grow revenue and market share. Depending on market conditions and our Company's performance, the pace at which we open store locations may have to be slowed or paused.
Operational Risks That May Affect Our Business
Our business may be adversely affected due to disruptions in the global supply chain.
Disruptions in the global supply chain in foreign ports, the impact of climate change and shortages of vessels and shipping containers may impact our ability to import inventory in a timely manner. Instability in the Middle East has made accessing the Suez Canal a risk, thereby prompting vessels to avoid this route, which adds time and cost. In addition, statements from the current administration regarding potential tariffs, sanctions, import/export restrictions and future actions may have a negative impact on the supply chain and may limit the availability of certain raw materials and result in an increase of associated cost. In the event that commercial transportation is curtailed or substantially delayed, we may not be able to maintain adequate inventory levels of important merchandise on a consistent basis, which would negatively impact our sales and potentially erode the confidence of our customer base, leading to loss of sales and an adverse impact on our results of operations. Furthermore, we may continue to incur incremental freight costs, which could negatively harm our gross margin rates.
The recent discussion of tariffs on various products by the United States and other countries may create greater uncertainty with respect to trade policies and government regulations affecting trade between the United States and other countries. Furthermore, it is possible that other forms of trade restriction, including tariffs, quotas and customs restrictions, will be put into place in the United
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States or in countries from which we source our products. We cannot predict whether any of the countries in which our merchandise currently is manufactured or may be manufactured in the future will be subject to additional trade restrictions imposed by the United States or other foreign governments, including the likelihood, type, or effect of any such restrictions. Any of these actions, if ultimately enacted, could adversely affect our results of operations or profitability. Further, any emerging nationalist trends in specific countries could alter the trade environment and consumer purchasing behavior which, in turn, could have a material effect on our financial condition and results of operations.
The loss of, or disruption in, our centralized distribution center could negatively impact our business and operations.
The majority of our merchandise for our stores and e-commerce operations is received into our centralized distribution center in Canton, Massachusetts, where it is then processed, sorted and shipped to our stores or directly to our customers. We depend in large part on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of the distribution center. Although we believe that our receiving and distribution process is efficient and well-positioned to support our strategic plans, events beyond our control, such as disruptions in operations due to fire or other catastrophic events, employee matters or shipping problems, labor shortages, severe weather, the impact of climate change or disruptions in our distribution center, could result in delays in the delivery of merchandise to our stores or directly to our customers.
With all of our management information systems centralized in our corporate headquarters, any disruption or destruction of our system infrastructure could materially affect our business. This type of disaster would be mitigated by our offsite storage and disaster recovery plans, but we would still incur business interruption that may impact our business for a significant period of time.
Although we maintain business interruption and property insurance, we cannot be sure that our insurance will be sufficient or that insurance proceeds will be timely paid to us in the event that our distribution center is shut down for any reason or we incur higher costs and longer lead times in connection with a disruption relating to our distribution center.
We are dependent on third parties to manufacture the merchandise that we sell.
We do not own or operate any manufacturing facilities and are therefore entirely dependent on third parties to manufacture the merchandise we sell. Without adequate supplies of merchandise to sell to our customers in the merchandise styles and fashions demanded by our particular customer base, sales would decrease materially and our business would suffer. We are dependent on these third parties’ ability to fulfill our merchandise orders and meet our delivery terms. In the event that manufacturers are unable or unwilling to ship products to us in a timely manner or continue to manufacture products for us, we would have to rely on other current manufacturing sources or identify and qualify new manufacturers. We might not be able to identify or qualify such manufacturers for existing or new products in a timely manner and such manufacturers might not allocate sufficient capacity to us in order to meet our requirements. Our inability to secure adequate and timely supplies of private-label merchandise would negatively impact proper inventory levels, sales and gross margin rates, and ultimately, our results of operations.
In addition, even if our current manufacturers continue to manufacture our products, they may not maintain adequate controls with respect to product specifications and quality and may not continue to produce products that are consistent with our standards. If we are forced to rely on manufacturers who produce products of inferior quality, then our brand and customer satisfaction would likely suffer which would negatively impact our business. These manufacturers may also increase the cost to us of the products we purchase from them.
The United States Treasury Department has placed sanctions on China’s Xinjiang Production and Construction Corporation ("XPCC") for serious human rights abuses against ethnic minorities in China’s Xinjiang Uyghur Autonomous Region. In addition, in January 2021, the U.S. Customs and Border Protection issued a Withhold Release Order on products made in Xinjiang. In response to the problems in Xinjiang, we developed a Compliance Certificate of Traceability for our cotton vendors. Although we prohibit our vendors from doing business with XPCC, we could be subject to penalties, fines or sanctions and our brand could be harmed if any of the vendors from which we purchase product is found to have done business, directly or indirectly, with XPCC.
We work with a third-party audit vendor to ensure a responsible and ethical supply chain. We are and will continue to pursue our corporate responsibilities and create a positive effect on human rights as well as the environment. The Company publishes a Vendor Code of Conduct, which is a part of every agreement requiring compliance by the manufacturing facilities. If, despite third-party audits, the manufacturing facilities engage in workplace or human rights violations and we are unable to identify or correct it, it may negatively affect our business and harm our brand.
Our business is highly competitive, and competitive factors may reduce our revenues and profit margins.
The United States big + tall men’s apparel market is highly competitive with many national and regional department stores, mass merchandisers, specialty apparel retailers, discount stores and online retailers offering a broad range of apparel products similar to the products that we sell. Besides retail competitors, we consider any manufacturer of big + tall men’s merchandise operating in outlet
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malls throughout the United States to be a competitor. It is also possible that another competitor, either a mass merchant or a men’s specialty store or specialty apparel catalog, could gain market share in big + tall men’s apparel due to more favorable pricing, locations, brand and fashion assortment and size availability. Many of our competitors and potential competitors may have substantially greater financial, manufacturing and marketing resources than we do.
The presence in the marketplace of various fashion trends and the limited availability of shelf space also can affect competition. We may not be able to compete successfully with our competitors in the future and could lose market share. A significant loss of market share would adversely affect our revenues and results of operations.
In addition, we maintain exclusivity arrangements with several of the brands that we carry. If we were to lose any of these exclusivity arrangements or brands altogether, our revenues may be adversely affected.
Our business may be negatively impacted and we may be liable if third parties misappropriate proprietary information of our customers and breach our security systems.
We may be harmed by security risks that we face in connection with our electronic processing and transmission of confidential customer information. The majority of our retail sales are settled through credit and debit card transactions. While our Board has a Cybersecurity and Data Privacy Committee (the “Cyber Committee”) to oversee the monitoring and management of cyber risk and data privacy for our Company, and we have not had any security breaches to date, any breach could expose us to risks of loss, litigation, and liability and could adversely affect our operations. Any breach could also cause our shoppers to stop shopping with us as a result of their lack of confidence in the security of their personally identifiable information, which could have a negative impact on our sales and profitability. We attempt to limit exposures to security breaches and sensitive customer data through the use of “tokenization” in connection with both in-store and online credit card transactions, which eliminates the storage of credit card numbers. Like many retailers, we have seen an increase in cyber-attack attempts, predominantly through phishing and social engineering scams, and in particular, ransomware. While none of these attempts has been successful, there can be no assurance that our continued security measures will be effective or sufficient in the future. If third parties are able to penetrate our network security or otherwise misappropriate the personal information or credit card information of our customers, or if third parties gain unauthorized and improper access to such information, we could be subject to liability. Such liability could include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims, or claims for other misuses of personal information, including unauthorized marketing purposes, and could ultimately result in litigation. Liability for misappropriation of this information could be significant.
Further, if a third party were to use this proprietary customer information in order to compete with us, it could have a material adverse impact on our business and could result in litigation.
Our ability to operate and expand our business and to respond to changing business and economic conditions depends on the availability of adequate capital.
The operation of our business, the rate of our expansion and our ability to respond to changing business and economic conditions all depend on the availability of adequate capital, which in turn depends on cash flow generated by our business and, if necessary, the availability of equity or debt capital.
The amount that we are able to borrow and have outstanding under our credit facility at any given time is determined using an availability formula based on eligible assets. As a result, our ability to borrow is subject to certain risks and uncertainties, such as advance rates and the amount and quality of inventory, which could reduce the funds available to us under our credit facility. In addition, because of the disruptions in the supply chain, inventory levels may be lower than expected. This directly impacts our borrowing base and there can be no assurance that we can effectively manage the balance of maintaining inventory and sufficient availability, especially during peak selling periods.
We cannot make assurances that our cash flow from operations or cash available under our credit facility will be sufficient to meet our needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we incur additional indebtedness, that indebtedness may contain financial and other covenants that may significantly restrict our operations, and we cannot ensure that we would be able to obtain refinancing or that such additional financing would be on favorable terms.
We may be unable to predict fashion trends and customer preferences successfully.
Customer tastes and fashion trends are volatile and tend to change rapidly. Our success depends in large part upon our ability to predict effectively and respond to changing fashion tastes and consumer demands and to translate market trends to appropriate saleable product offerings. If we are unable to predict or respond to changing styles or trends successfully and misjudge the market for
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products or any new product lines, our sales will be impacted and we may be faced with a substantial amount of unsold inventory or missed opportunities. In response, we may be forced to rely on additional markdowns or promotional sales to dispose of excess, slow-moving inventory, which would decrease our revenues and margins. In addition, the failure to satisfy consumer demand, specifically in our DXL stores and from our website, could have serious long-term consequences on our business, such as an adverse impact on our brand value and the loss of market share to our competitors.
The loss of any of our key trademarks or licenses could adversely affect demand for our products.
We own and use a number of trademarks and operate under several trademark license agreements. We believe that certain of these trademarks have significant value and are instrumental in our ability to create and sustain demand for and to market our products. We cannot be certain that these trademarks and licensing agreements will remain in effect and enforceable or that any license agreements, upon expiration, can be renewed on acceptable terms or at all. In addition, any future disputes concerning these trademarks and licenses may cause us to incur significant litigation costs or force us to suspend use of the disputed trademarks.
Fluctuations in the price, availability and quality of raw materials and finished goods could increase costs.
Due to the inflationary pressures, we are seeing cost increases in labor, occupancy and raw materials. We have secured raw materials in key item programs to reduce the impact on our gross margin. Fluctuations in the price, the imposition of tariffs, the availability and quality of fabrics or other raw materials used in the manufacturing of our merchandise could have a material adverse effect on our gross margin or on our ability to meet our customers’ demands. Several factors may affect our costs for raw materials including, among other things, demand, currency fluctuations, political instability, inflationary pressures, tariffs, fuel prices and weather, including the impact of global climate change. To the extent that we cannot offset cost increases with other cost reductions or efficiencies, such increased costs will need to be passed on to our customers. Such increased costs could lead to reduced customer demand, which could have a material adverse effect on our results of operations and cash flow.
If our long-lived assets become impaired, we may need to record significant non-cash impairment charges.
Periodically, we review our long-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Specifically, if an individual store location is unable to generate sufficient future cash flows, we may be required to record a partial or full impairment of that store’s right-of-use assets and its property and equipment. In addition, significant negative industry or general economic trends, disruptions to our business and unexpected significant changes or planned changes in our use of the assets (such as store relocations or closures) may also result in impairment charges. If any such impairment charges are significant, it could adversely affect our financial position and results of operations.
Risks Related to Environmental, Social and Governance Issues
The effects of climate change may adversely impact our business.
The concern that a gradual rise in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases ("GHG") in the atmosphere is very real and the belief that this will cause significant changes in weather patterns is widely held. This appears to be resulting in an increase in the frequency, severity, and duration of extreme weather conditions and natural disasters, as well as water scarcity and poor water quality. These events could adversely impact the availability and price of cotton and other raw materials, disrupting the supply chain and our ability to secure merchandise. Further, extreme weather conditions caused by climate change could negatively impact our financial results if our retail locations are unable to open, customers are unable to travel or our distribution center is unable to fulfill orders or delivery inventory. These events could also create adverse economic conditions and impact consumer confidence and discretionary spending. As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations. We are working to develop policies, standards and goals to help mitigate these risks, including working closely with our vendors and business partners to help identify such risks, develop standards and improve processes.
We may be unable to achieve our environmental, social and governance objectives.
We are committed to corporate social responsibility and sustainability, and we recognize the importance of environmental, social and governance ("ESG") issues. Our Sustainability and Governance Committee, comprising a cross-discipline of corporate management, has engaged a third-party firm to assist us in the development of the Company's policies and initiatives. The ability to achieve our objectives is subject to risks and uncertainties, and we may fail to achieve our objectives. We may also incur additional costs and require additional resources to implement such policies and initiatives.
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Our business is subject to evolving regulations and expectations with respect to environmental, social and governance matters that may expose us to increased risks.
An increased focus by local, state, regional, national, and international regulatory bodies on GHG emissions and climate change issues increases the risk to our business if we are unable to comply with the multiple and evolving policy changes. For example, in March 2024, the SEC adopted rules to enhance and standardize climate-related disclosures by public companies so that there is more consistent, comparable, and reliable information about the financial effects of climate-related risks on a public company’s operations and how it manages those risks. In addition, in October 2023, California enacted the Climate Corporate Data Accountability Act and the Climate Related Financial Risk Act that require large public and private companies that do business within the state to disclose their Scopes 1, 2, and 3 GHG emissions, with third-party assurance of GHG emissions information for certain entities, and issue public reports on their climate-related financial risk and related mitigation measures.
Investor advocacy groups, certain institutional investors, investment funds, other market participants, stockholders, and customers have focused increasingly on the ESG or sustainability practices of companies, including those associated with climate change. If our ESG practices do not meet investor or other industry stakeholder expectations and standards, which continue to evolve, our brand, reputation and employee retention may be negatively impacted. Any disclosures that we make may include our policies and practices on a variety of social and ethical matters, including corporate governance, environmental compliance, employee health and safety practices, human capital management, product quality, supply chain management, and workforce inclusion and diversity. It is possible that stakeholders may not be satisfied with our environmental, social and governance practices or the speed of their adoption.
General Risks That May Affect Our Business
Our business is seasonal and is affected by general political and economic conditions.
Our business is seasonal. Historically, a significant portion of our operating income has been generated during our second and fourth quarters. If, for any reason, we miscalculate the demand for our products during these quarters, our sales in that quarter could decline, resulting in higher labor costs as a percentage of sales, lower margins and excess inventory, which could cause our annual operating results to suffer. Due to our seasonality, the possible adverse impact from such risks is potentially greater if any such risks occur during our second and fourth quarters.
In addition, our operations may be negatively affected by local, regional or national political and economic conditions, such as levels of disposable consumer income, inflation, consumer debt, interest rates, consumer confidence and other macro issues. The volatile political environment increases the chance of other legislative and regulatory changes at both the federal and state level that could affect us in ways we cannot predict. In addition, global economies, conflicts, trade negotiations and policies may directly or indirectly affect our business.
The global impact of a health pandemic, similar to the COVID-19 pandemic, may have an adverse effect on our business, financial results, liquidity, supply chain and workforce.
The COVID-19 pandemic and its variants caused global uncertainty and disruption and had a material impact on our business, predominately in fiscal 2020 and early fiscal 2021, but had a lingering negative effect on the global economy that directly impacted our business, specifically as it related to the economy, rising interest rates, labor shortages, increased material costs, global supply chain issues, inflationary pressures, and changes in consumer spending behaviors beyond the initial COVID-19 pandemic. With concerns about RSV, influenza, the measles, and avian flu in the news, another health pandemic could materially affect our financial results, access to sources of liquidity and inventory.
Our success depends significantly on our key personnel and our ability to attract and retain additional personnel.
Our success is dependent on the personal efforts, performance and abilities of our key management, which includes our executive officers as well as members of our senior management. The loss of any of our senior management may result in a loss of organizational focus, poor operating execution, an inability to identify and execute strategic initiatives, an impairment in our ability to identify new store locations, and an inability to consummate possible acquisitions. The competition is intense for the type of highly skilled individuals with relevant industry experience that we require, and we may not be able to continue to attract and retain new employees of the caliber needed to achieve our objectives.
Labor shortages or increases in labor costs due to new regulations could harm our business.
Any labor shortage, particularly those of which occur in our distribution facility and our stores or during peak-selling periods, may negatively impact our ability to process inventory in a timely manner and effectively staff our stores. Because of the tight labor
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market, our hourly rates have increased to attract candidates. If we are unable to pass on these higher costs through price increases or reduced workforce hours, our margins and profitability may be adversely impacted, which could have a material adverse effect on our business, results of operations or financial condition.
The failure to comply with laws, rules and regulations could negatively affect our business operations and financial performance.
Our business is subject to federal, state, and increasing local rules and regulations, such as state and local wage and hour laws, the Employee Retirement Income Security Act (“ERISA”), securities laws, import and export laws (including customs regulations), state privacy and information security regulations, unclaimed property laws, and many others. Some of these laws and regulations may increase the cost of doing business and have a material impact on our earnings. In addition, the complexity of the regulatory environment in which we operate and the related cost of compliance are both increasing due to legal and regulatory requirements and increased enforcement. We may also be subject to investigations or audits by governmental authorities and regulatory agencies, which can occur in the ordinary course of business or result from increased scrutiny from a particular agency towards an industry, country or practice. If we fail to comply with laws, rules and regulations or the manner in which they are interpreted or applied, we may be subject to government enforcement action, class action or other litigation, damage to our reputation, civil and criminal liability, damages, fines and penalties, and increased costs of regulatory compliance, any of which could adversely affect our results of operations and financial performance.
Risks Related to Our Corporate Structure and Stock
Our stock price has been and will likely continue to be volatile and fluctuate substantially.
The market price of our common stock has been and will likely continue to fluctuate substantially as a result of many factors, some of which are beyond our control. For example, from September 8, 2021, when we relisted on the Nasdaq Global market, through February 1, 2025, the reported price of our common stock has ranged from a low of $2.15 on December 19, 2024, to a high of $8.99 on November 17, 2021. Factors that could cause fluctuations in the market price of our common stock include the following:
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overall changes in the economy and general market volatility, including the effects of inflation and/or recession;
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news announcements regarding our quarterly or annual results of operations;
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quarterly comparable sales;
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acquisitions;
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competitive developments;
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governmental regulation (such as increased wage and paid benefits laws);
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litigation affecting us; or
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market views as to the prospects of the Company or the retail clothing industry generally.
Our certificate of incorporation, as amended, limits transfers of our common stock and may, along with state law, inhibit potential acquisition bids that could be beneficial to our stockholders.
Our certificate of incorporation, as amended, contains provisions that restrict any person or entity from attempting to purchase our stock, without prior permission from the Board, to the extent that such transfer would (i) create or result in an individual or entity becoming a five-percent stockholder of our stock, or (ii) increase the stock ownership percentage of any existing five-percent stockholder. These provisions provide that any transfer that violates such provisions shall be null and void and would require the purported transferee, upon demand by us, to transfer the shares that exceed the five percent limit to an agent designated by us for the purpose of conducting a sale of such excess shares. These provisions would make the acquisition of our Company more expensive to the acquirer and could significantly delay, discourage, or prevent third parties from acquiring our Company without the approval of our Board.
In addition, we are subject to certain provisions of Delaware law, which could also delay or make more difficult a merger, tender offer or proxy contest involving us. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in certain business combinations with any interested stockholder for a period of three years unless specific conditions are met. In addition, certain provisions of Delaware law could have the effect of delaying, deferring or preventing a change in control of our Company, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock. Such provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.
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Item 1B. Unresolved Staff Comments
None.
Item 1C.Cybersecurity
Risk Management and Strategy
We recognize the critical importance of maintaining the trust and confidence of our customers and employees. Consequently, we maintain a comprehensive security incident response plan ("SIRP") and we assess, identify, and manage material risks associated with cybersecurity threats. Our SIRP includes immediate actions to mitigate the impact and long-term strategies for remediation and prevention of future incidents.
We have integrated cybersecurity risk management into our broader risk management framework through various mechanisms, including (i) our updates to the Cyber Committee, which was created by the Board in 2016 and meets at least quarterly, (ii) our annual enterprise risk management update to the Board, and (iii) our information technology and security related internal controls, including vulnerability management programs.
We train employees to understand their role in attempting to protect the Company from cybersecurity attacks. Our information security training program for employees includes acknowledgement of our information security policies, regular internal communications, and testing to measure the effectiveness of our information security program. For example, we conduct regular phishing awareness campaigns designed to emulate current threats and provide immediate feedback and, as necessary, additional training or remedial action.
In addition, we engage third parties to assist in assessing, identifying, and remediating material risks from cybersecurity threats. Our key cybersecurity controls are regularly tested by third-party service providers, which we retain to help identify vulnerabilities in our systems and to help maintain compliance to standards and regulatory requirements. Other third-party service providers are enlisted by the Company for security operations center services to augment our teams’ monitoring capabilities and to assist with our investigation and response to alerts on emerging and ongoing threats.
Further, our cybersecurity team continuously evaluates and addresses cybersecurity risks in alignment with our business objectives and operational needs. We use various security tools and processes to help prevent, identify, escalate, investigate, resolve and recover from identified vulnerabilities and security incidents in a timely manner, including, but not limited to, risk assessment network security controls, detection and response tools and a vulnerability management program.
The complexity and evolving nature of cybersecurity threats requires that we engage with a range of external experts, including cybersecurity assessors and consultants, in evaluating and testing our risk management systems. This enables us to leverage specialized knowledge and insights to be confident that our cybersecurity strategies and processes are consistent with industry best practices. Our collaboration with these third parties includes regular threat assessments and consultation on security enhancements.
In order to mitigate data or security incidents that may originate from third-party vendors or suppliers, we conduct both privacy and security assessments to properly identify, prioritize, assess and remediate any third-party risks, and we require security and privacy addenda to our contracts where applicable. We currently maintain a cyber insurance policy that provides coverage for security breaches; however, such insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks, or other related breaches.
The nature of our business exposes us to cybersecurity threats and attacks that can lead to the unauthorized acquisition or access, compromise, loss, misuse or theft of our data, including personal information, confidential information or intellectual property. To date, risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected the Company, including our business strategy, results of operations, or financial condition. Also see Part I, Item 1A, Risk Factors, in this Annual Report for a discussion of cybersecurity risks.
Governance
Our Board is ultimately responsible for the risk oversight of the Company, including cybersecurity and privacy risks. Our Board has delegated day-to-day responsibility for oversight of cybersecurity risks to the Cyber Committee. The Cyber Committee is composed of members of our Board who have diverse expertise, including risk management, technology, and finance, equipping them to oversee cybersecurity risks effectively.
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Pursuant to its charter, our Cyber Committee:
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assists our Board in fulfilling its risk oversight responsibilities with respect to the protection of the Company’s assets, including confidential, proprietary and personal information, reputation and goodwill in all forms;
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supervises and monitors the soundness of our cybersecurity and data protection strategies and practices;
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oversees and monitors our material compliance with applicable information security, privacy and data protection laws, industry standards and contractual requirements;
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promotes and furthers the integrity, adoption and coordination of our data security processes across the Company to help ensure that data and system security is a Company-wide business objective and priority; and
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oversees our cybersecurity and data protection performance and the overall implementation of our cybersecurity and data protection strategy.
At the management level, our Chief Technology Officer and our Senior Vice President, Technology and Innovation, as well as our technology staff, are primarily responsible for identifying, assessing, monitoring and managing our cybersecurity. Our Chief Technology Officer reports directly to our President and Chief Executive Officer and meets at least quarterly with the Cyber Committee.Our current Chief Technology Officer has over 35 years of industry experience, including service as a Chief Technology Officer/Chief Information Officer for over seven years and extensive experience in developing and leading technology risk management programs. Our Senior Vice President, Technology and Innovation reports directly to the Chief Technology Officer and has over 32 years of industry experience with the Company. He has led the Company’s cybersecurity team and overseen PCI certification for the past seven years, ensuring compliance with industry standards and strengthening the organization's security posture. Additionally, our technology staff holds multiple industry-standard security certifications, including Cisco Certified Network Associate, PCI Internal Security Assessor, and Certified Ethical Hacker.
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Item 2. Properties
Our corporate offices and retail distribution center are located at 555 Turnpike Street in Canton, Massachusetts. The property consists of a 755,992 gross square foot building located on approximately 27.3 acres. We owned the property until January 30, 2006, at which time we entered into a sale-leaseback transaction, whereby we entered into a 20-year lease agreement for an initial annual rent payment of $4.6 million, with periodic increases every fifth anniversary of the lease.
As of February 1, 2025, we operated 247 Destination XL retail stores, 15 Destination XL outlet stores, 7 Casual Male XL retail stores and 19 Casual Male XL outlet stores. We lease all of these stores directly from owners of several different types of centers, including lifestyle centers, shopping centers, freestanding buildings, outlet centers and downtown locations. The store leases generally have an initial term of 5 to 10 years and typically contain renewal options that permit extending the initial term by 5 to 10 years. Following this discussion is a listing by state of all store locations open as of February 1, 2025.
Sites for new stores are selected based on several factors, including population and density levels, the demographic profile of the area in which the site is located, the types of stores and other retailers in the area, the location of the store within the center and the attractiveness of the store layout. We also utilize financial models to project the profitability of each location using assumptions such as the center’s sales per square foot averages, sales to invested capital ratio and return on investment requirements.
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Store count by state at February 1, 2025
United States DXL retail andoutlet stores Casual Male XLretail and outlet stores
Alabama 2 1
Arizona 6 —
Arkansas — 1
Colorado 4 —
Connecticut 3 —
Delaware 2 —
Georgia 5 1
Idaho 1 —
Indiana 6 2
Iowa 3 —
Kansas 2 —
Kentucky 3 —
Louisiana 3 1
Maine 2 —
Maryland 7 1
Massachusetts 7 —
Minnesota 4 —
Mississippi 1 1
Missouri 6 1
Montana 1 —
Nebraska 2 —
Nevada 3 —
New Hampshire 3 —
New Mexico 1 —
North Carolina 4 1
North Dakota 1 —
Oklahoma 2 —
Oregon 3 —
Pennsylvania 14 3
Rhode Island 1 —
South Carolina 4 —
South Dakota 1 —
Tennessee 7 —
Utah 1 —
Virginia 7 1
Washington 6 —
West Virginia 1 0
Wisconsin 5 —
Item 3. Legal Proceedings
From time to time, we are subject to various legal proceedings and claims that arise in the ordinary course of business. Management believes that the resolution of these matters will not have a material adverse impact on our future results of operations or financial position.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed for trading on the Nasdaq Global Market under the symbol “DXLG”.
Holders
As of March 15, 2025, based upon data provided by the transfer agent for our common stock, there were approximately 68 holders of record of our common stock. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agent.
Issuer Purchases of Equity Securities
On September 3, 2024, our Board approved a stock repurchase program pursuant to which the Company was authorized to repurchase up to $15.0 million of its common stock through open market and privately negotiated transactions. The timing and the amount of any repurchases of common stock were determined based on the Company’s evaluation of market conditions and other factors. The stock repurchase program expired on February 1, 2025.
Stock repurchase activity during the three months ended February 1, 2025 was as follows:
(1) Average price paid per share and the approximate dollar value of shares that may yet be purchased under the plan excludes the accrual of excise tax of $0.1 million as of February 1, 2025.
Stock Performance Graph
The following performance graph compares our cumulative stockholder return with a broad market index (S&P 500) and one published industry index (Dow Jones U.S. Apparel Retailers) for each of the most recent five years ended January 31. The cumulative stockholder return for shares of our common stock (“DXLG”) and each of the indices is calculated assuming that $100 was invested on January 31, 2020. We paid no cash dividends during the periods shown. The performance of the indices is shown on a total return (dividends reinvested) basis. The graph lines merely connect January 31 of each year and do not reflect fluctuations between those dates. In addition, we have provided below a chart of the annual percentage return of our common stock, the S&P 500 and the Dow Jones U.S. Apparel Retailers.
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Annual Return Percentage
Year ended
Dow Jones U.S. Apparel Retailers 6.2 % 8.1 % 8.6 % 13.4 % 22.6 %
Indexed Returns
Base Period
Company/Index
The performance graph above shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This performance graph will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Item 6.Reserved
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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 2024 as compared to fiscal 2023. Our Annual Report on Form 10-K for the year ended February 3, 2024 (fiscal 2023) includes a discussion and analysis of our financial condition and results of operations comparing fiscal 2023 to fiscal 2022 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
As noted above in Part I, 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 Annual 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 we have therefore aggregated them into one reportable segment consistent with our integrated commerce approach.
Comparable Sales and E-Commerce (Direct) Sales Definition
Fiscal 2024 included 52 weeks as compared to fiscal 2023, which included 53 weeks. 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 13 and 52 weeks ended February 1, 2025 compared with the 13 and 52 weeks ended February 3, 2024).
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 to fulfill 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 Financial Measures
We monitor certain financial measures other than those that are in accordance with U.S. generally accepted accounting principles (“GAAP”) on a regular basis in order to track the progress of our business. These non-GAAP financial measures include free cash flow, free cash flow before capital expenditures for store development, adjusted net income, adjusted net income per share, adjusted EBITDA and adjusted EBITDA margin. We believe that these measures provide helpful information with respect to the Company’s operating performance and that the inclusion of these measures is important to assist investors in comparing our performance in fiscal 2024 to fiscal 2023. 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 regarding these non-GAAP financial measures and reconciliations to comparable GAAP financial measures.
RESULTS OF OPERATIONS
Our fiscal year is a 52-week or 53-week period ending on the Saturday closest to January 31. Fiscal 2024 was a 52-week period and fiscal 2023 was a 53-week period.
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EXECUTIVE OVERVIEW
(in millions, except for percentage of sales and per share data)
Adjusted net income (Non-GAAP) 4.3 32.1
Adjusted EBITDA (Non-GAAP) 19.9 55.9
Per diluted share:
Adjusted net income (Non-GAAP) $ 0.07 $ 0.50
As a percentage of sales:
Operating margin 0.8 % 8.0 %
Adjusted EBITDA margin (Non-GAAP) 4.3 % 10.7 %
Liquidity:
Cash flow from operating activities $ 29.6 $ 49.6
Free cash flow (Non-GAAP) $ 1.9 $ 32.2
Our financial results for fiscal 2024 were below expectations given a difficult men’s apparel sector that negatively impacted traffic levels to our stores and online conversion. We believe that our customers have pulled back from shopping for apparel and when they do shop, they have been very price conscious, gravitating toward our more moderate and entry-level price points. Our comparable sales for fiscal 2024 decreased 10.6%, with comparable sales from our stores down 9.6% and our direct business down 12.8%. Despite the disappointing sales performance, we have maintained our disciplined operating regimen and improved our merchandise margin, thereby enabling us to maintain profitability and positive free cash flow. Despite our diligence to manage operating expenses, certain elements of our cost structure, including occupancy expense, were deleveraged by the sales shortfall.
Net income for fiscal 2024 of $0.05 per diluted share included an impairment charge of $1.3 million and a non-recurring accrual for estimated legal settlement costs of $1.0 million. 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 the termination of our frozen retirement plans and an impairment charge of $0.1 million. Adjusting for these non-recurring charges and impairment charges, adjusted net income for fiscal 2024 was $0.07 per diluted share as compared to $0.50 per diluted share for fiscal 2023.
We have maintained a strong balance sheet with cash and investments of $48.4 million and a healthy inventory position, which was down 6.8% to fiscal 2023. We had no borrowings under our credit facility during fiscal 2024, and at February 1, 2025 our availability under our credit facility was $64.7 million. We generated cash flow from operations of $29.6 million and utilized $27.7 million for capital expenditures, resulting in free cash flow for fiscal 2024 of $1.9 million. Approximately $13.7 million of our $27.7 million in capital expenditures was spent on store development with the balance used primarily for technology projects, including our new e-commerce site. During fiscal 2024, we used our free cash flow, together with available cash on hand, to repurchase approximately $13.7 million, or 4.9 million shares of our common stock.
We have not observed any improvement in the men's apparel market, and as we head into fiscal 2025 we believe that we will likely remain in a down sales cycle through at least the early half of fiscal 2025. As such, we are taking a measured and balanced approach to our business in fiscal 2025. Although we have a responsibility to grow the business, we are seeking to find the right balance between growth and a minimum level of profitability. While this orientation in balancing growth levels against profit is critical, it does force us to further prioritize our strategic objectives appropriately and with rigor. We believe that consumer sentiment among Big + Tall consumers will recover over time and protecting the foundational infrastructure of the operations we have built will benefit top-line and bottom-line performance in the future.
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We are monitoring the emerging situation with tariffs, and we have minimal exposure in China, Mexico and Canada. Collectively, these three countries represent less than 5% of our own-sourced product and we expect that the impact on gross margin in fiscal 2025 would be less than 10 basis points. However, our exposure could grow if tariffs become more widespread.
SALES
For fiscal 2024, total sales decreased 10.5% to $467.0 million from $521.8 million for fiscal 2023. The decrease was primarily due to a decrease in comparable sales of 10.6%, with stores down 9.6% and the direct business down 12.8% and the impact of the 53rd week in fiscal 2023, partially offset by an increase in non-comparable store sales and reduced loyalty program costs. Sales for the 53rd week of fiscal 2023 were $7.1 million.
GROSS MARGIN
For fiscal 2024, gross margin, inclusive of occupancy costs, was 46.5% compared to 48.4% for fiscal 2023. The decrease of 190 basis points was due to an increase of 230 basis points in occupancy costs, as a percentage of sales, primarily due to the deleveraging from lower sales and increased rents from lease extensions. Merchandise margin for fiscal 2024 increased 40 basis points due to favorable outbound shipping costs, a shift in product mix, and a decrease in loyalty expense partially offset by an increase in markdown activity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (“SG&A”) expenses were $198.3 million, or 42.5% of sales, for fiscal 2024 as compared to $196.5 million, or 37.7% of sales, for fiscal 2023. Despite a modest increase of $1.8 million, or 0.9%, SG&A expenses, as a percentage of sales, were deleveraged by 480 basis point due to the lower sales base. The increase of $1.8 million was due to an increase in marketing costs, which included our brand campaign in the second quarter, an increase in healthcare costs and technology costs as well as a $1.0 million accrual for estimated non-recurring legal settlement costs. SG&A expenses for fiscal 2023 also included costs for the 53rd week of approximately $2.7 million.
For fiscal 2024, marketing costs were 6.8% of sales as compared to 5.9% in fiscal 2023. For fiscal 2025, we expect our marketing costs to be approximately 6.0% of sales, and we do not plan to pursue our brand awareness campaign at this time.
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 24.1% of sales for fiscal 2024 as compared to 21.3% of sales for fiscal 2023. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 18.4% of sales for fiscal 2024 as compared to 16.4% of sales for fiscal 2023.
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 2024, the Company recorded a total asset impairment charge of $1.3 million for certain store property. 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.
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DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for fiscal 2024 was $13.9 million, as compared to $13.8 million in fiscal 2023. The slight increase in depreciation and amortization expense reflects the increase in capital expenditures over the past few years as we invest in our stores, e-commerce and other technology projects.
LOSS FROM TERMINATION OF RETIREMENT PLANS
During fiscal 2023, we terminated the frozen Casual Male Noncontributory Pension Plan “Casual Male Corp. Retirement Plan,” which was previously known as the J. Baker, Inc. Qualified Plan (the “Pension Plan”) and the frozen Casual Male Supplemental Executive Retirement Plan (the “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, NET
Net interest income for fiscal 2024 and fiscal 2023 was $2.1 million for each period. We invest excess cash in short-term, US government-backed investments. Interest costs for both fiscal years were immaterial because we had no outstanding debt and no borrowings under our credit facility during either period.
INCOME TAXES
For fiscal 2024 and fiscal 2023, the Company’s effective tax rate was 47.5% and 27.4%, respectively. The increase in the effective tax rate in fiscal 2024 was primarily due to permanent book-to-tax differences combined with a lower pretax income as compared to fiscal 2023. See Note F to the Consolidated Financial Statements.
At February 1, 2025, we have a valuation allowance of $1.5 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 $3.4 million will expire in fiscal 2037 and $39.9 million that do not expire, is dependent on generating sufficient taxable income. For state income tax purposes, we have $38.3 million of net operating losses that are available to offset future taxable income, the majority of which will expire from fiscal 2025 through fiscal 2045. The utilization of our NOLs reduces our taxable income and, as a result, we have minimal cash taxes.
NET INCOME
Net income for fiscal 2024 was $3.1 million, or $0.05 per diluted share, as compared to a net income for fiscal 2023 of $27.9 million, or $0.43 per diluted share. Net income for fiscal 2023 included net income for the 53rd week, which was approximately $1.2 million.
On a non-GAAP basis, adjusting for any asset impairment (gain), accrual for estimated non-recurring legal settlement costs and the loss from the termination of the retirement plans, adjusted net income for fiscal 2024 was $4.3 million, or $0.07 per diluted share, as compared to adjusted net income of $32.1 million, or $0.50 per diluted share for fiscal 2023.
SEASONALITY
A comparison of sales in each quarter of the past two fiscal years is presented below. The amounts shown are 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 2024 Fiscal 2023
(1) Fiscal 2023 was a 53-week year as compared to fiscal 2024, which was a 52-week year and, as such, the fourth quarter of fiscal 2023 included an additional week of sales of $7.1 million.
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EFFECTS OF INFLATION
During fiscal 2024, we continued to see the effect of inflationary pressures on raw materials, services and labor and consumer spending. While there seems to be improvement, we cannot be certain of the effect that 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 that these sources of liquidity will be sufficient to fund our working capital requirements, commitments and capital expenditures. 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 long 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 1, 2025 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 1, 2025, 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 (GAAP basis) $ 29.6 $ 49.6
Capital expenditures, excluding store development $ (14.5 ) $ (8.1 )
Capital expenditures for store development (13.2 ) (9.3 )
Free Cash Flow (non-GAAP basis) $ 1.9 $ 32.2
Cash, cash equivalents and short-term investments, at year end $ 48.4 $ 60.0
Total debt, net of unamortized debt issuance costs $ - $ -
Unused excess availability under Credit Facility $ 64.7 $ 69.8
For fiscal 2024, cash flow from operations decreased to $29.6 million as compared to $49.6 million for fiscal 2023. Free cash flow, a non-GAAP measure, decreased to $1.9 million for fiscal 2024 as compared to $32.2 million for fiscal 2023. 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 was $31.3 million for fiscal 2024 as compared to $49.1 million for fiscal 2023. The decrease in cash flow used for investing activities was primarily due to a reduction in purchases of short-term investments, net of maturities, of $28.2 million, partially offset by an increase in capital expenditures of $10.3 million.
Cash flow used for financing activities for fiscal 2024 and fiscal 2023 of $13.9 million and $24.9 million, respectively, was primarily for the repurchase of our common stock.
Credit Facility
On October 28, 2021, the Company 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.
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We had no outstanding borrowings under the Credit Facility at February 1, 2025. At February 1, 2025, outstanding standby letters of credit were $4.2 million. There were no outstanding documentary letters of credit at February 1, 2025. The Credit Facility was not utilized during fiscal 2024, resulting in average unused excess availability during fiscal 2024 of $73.6 million. Unused excess availability at February 1, 2025 was $64.7 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
During the first quarter of fiscal 2024, the Company repurchased 52,802 shares at a total cost, including fees, of $0.2 million, completing its stock repurchase program that was approved by the Board in March 2023.
On September 3, 2024, the Board approved a new stock repurchase program pursuant to which the Company was authorized to repurchase up to $15.0 million of its common stock, including excise tax, through open market and privately negotiated transactions. The stock repurchase program expired on February 1, 2025. During fiscal 2024, the Company repurchased 4.8 million shares at a total cost, including fees, of $13.5 million under this stock repurchase program.
INVENTORY
At February 1, 2025, total inventories decreased to $75.5 million from $81.0 million at February 3, 2024, which was a 6.8% decrease. We continue to take proactive measures to manage our inventory and adjust our receipt plan given the ongoing macroeconomic factors affecting consumer retail spending. At February 1, 2025, our clearance inventory was 8.6% of our inventory, as compared to 9.5% at February 3, 2024, and below our historical benchmark of approximately 10.0%. Our inventory has decreased by over 26% and our inventory turnover rate has improved by over 30% from fiscal 2019.
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 1, 2025 and February 3, 2024, respectively:
Store Concept Number ofStores SquareFootage Number ofStores SquareFootage
(square footage in thousands)
During fiscal 2024, we opened seven new DXL stores, re-located two DXL stores, converted eight Casual Male XL stores to the DXL format, completed five DXL remodels, and closed two Casual Male XL stores. Below is a summary of the store activity from February 3, 2024 to February 1, 2025:
New stores 7 — — — 7
Conversions to DXL format 8 — (8 ) — —
Closed retail stores — — (2 ) — (2 )
Our capital expenditures for fiscal 2024 were $27.7 million, as compared to $17.4 million in fiscal 2023. The capital expenditures for fiscal 2024 primarily related to stores, information technology projects, distribution center and facilities.
For fiscal 2025, we expect our capital expenditures to range from $19.0 million to $21.0 million, net of tenant incentives. Our store development plans for fiscal 2025 include opening eight new DXL stores and converting two Casual Male XL stores to the DXL
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format. We could potentially open approximately 50 net new DXL stores across the country, which could average 5,000 square feet or 250,000 square feet in total, which would be a 15% increase over our current square footage. Store expansion continues to be a key component of our long-term growth strategy; however, until the men's retail apparel business improves and consumer demand increases, we plan to pause the opening of new stores in fiscal 2026.
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 that these measures provide helpful information with respect to the Company’s operating performance to stockholders, investors and analysts, and that the inclusion of these non-GAAP measures is important to assist investors in comparing our performance in fiscal 2024 to fiscal 2023, 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 that 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. Free cash flow is calculated as cash flow from operating activities, less capital expenditures and excludes the mandatory and discretionary repayment of debt. Free cash flow before capital expenditures for store development is calculated as cash flow from operating activities less capital expenditures other than capital expenditures for store development. Capital expenditures for store development includes capital expenditures for new stores, conversions of Casual Male XL stores to DXL and remodels. Capital expenditures related to store relocations and maintenance are not included in store development. The following table provides a reconciliation of free cash flow:
Cash flow from operating activities (GAAP basis) $ 29.6 $ 49.6
Capital expenditures, excluding store development (14.5 ) (8.1 )
Capital expenditures for store development (13.2 ) (9.3 )
Free cash flow (non-GAAP basis) $ 1.9 $ 32.2
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), accrual for estimated non-recurring legal settlement costs and the loss from the termination of retirement plans. 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:
Impairment of assets 1.3 0.1
Accrual for estimated non-recurring legal settlement costs 1.0 —
Loss from termination of retirement plans — 5.7
Income tax effect of adjustments (1) (1.1 ) (1.6 )
Adjusted net income (non-GAAP basis) $ 4.3 $ 0.07 $ 32.1 $ 0.50
(1) The income tax effect of pre-tax adjustments to net income was calculated using the applicable effective tax rate for each respective year.
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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, accrual for estimated non-recurring legal settlement costs and the loss on termination of retirement plans. The accrual for estimated non-recurring legal settlement costs is excluded from adjusted EBITDA due to its unusual and non-recurring nature. 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 2024 Fiscal 2023
Net income, on a GAAP basis $ 3.1 $ 27.9
Add back:
Impairment of assets 1.3 0.1
Accrual for estimated non-recurring legal settlement costs 1.0 -
Loss on termination of retirement plans - 5.7
Provision for income taxes 2.8 10.5
Interest income, net (2.1 ) (2.1 )
Depreciation and amortization 13.9 13.8
Adjusted EBITDA, on a non-GAAP basis $ 19.9 $ 55.9
Adjusted EBITDA margin, on a non-GAAP basis: 4.3 % 10.7 %
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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 2024, we had three active LTIPs: the 2022-2024 LTIP, the 2023-2025 LTIP and the 2024-2026 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 2022-2024 LTIP were achieved at the end of fiscal 2024. Awards granted pursuant to this achievement will be subject to further vesting through August 31, 2025. Accordingly, at February 1, 2025, $2.0 million of the expected $2.4 million award was accrued. With respect to the performance-based component of the 2023-2025 LTIP and the 2024-2026 LTIP, which approximate $2.6 million and $2.7 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 2024, we accrued approximately $0.3 million for performance under the 2024-2026 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 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, the 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. If the first step of the long-lived asset impairment test concludes that the carrying amount of the asset is not recoverable, we perform the second step of the long-lived asset impairment test by comparing the fair value of the asset to its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value. To estimate the fair value of an asset, we rely on a discounted cash flow approach estimated to be generated by those assets. The fair value of a right-of-use ("ROU") asset is estimated using an income approach based on management’s forecast of future cash flows that could be derived based on the sublease market rent. If actual market conditions are less favorable than management’s projections, future write-offs may be necessary. The model for undiscounted future cash flows in step one 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 2024, fiscal 2023 and fiscal 2022, we recorded an impairment charge (gain) of $1.3 million, $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 Annual Report for information on recent accounting pronouncements and the impact of impending standards on our future filings.
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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 consisted of cash equivalents and short-term investments at February 1, 2025. 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 1, 2025, we had $36.5 million in short-term investments, which were invested in U.S. treasury bills, and $8.2 million invested in money market accounts.
During fiscal 2024, 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 1, 2025, we had no outstanding borrowings under the Credit Facility.
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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 1, 2025 and February 3, 2024 40
Notes to Consolidated Financial Statements 45
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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 1, 2025 and February 3, 2024, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended February 1, 2025, 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 1, 2025 and February 3, 2024, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended February 1, 2025, 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 1, 2025, 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 20, 2025 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 1, 2025, the Company had property and equipment and operating lease right-of-use assets of $57.0 million and $171.1 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
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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 the remaining net book value of store assets. We also inspected 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.
Minneapolis, Minnesota
March 20, 2025
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DESTINATION XL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
February 1, 2025 and February 3, 2024
(In thousands, except share data)
ASSETS
Current assets:
Prepaid expenses and other current assets 6,355 8,308
Noncurrent assets:
Deferred income taxes, net of valuation allowance 19,343 21,533
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other current liabilities 30,432 35,302
Long-term liabilities:
Other long-term liabilities 341 1,596
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued — —
Accumulated other comprehensive loss — —
Total liabilities and stockholders' equity $ 380,955 $ 357,741
The accompanying notes are an integral part of the consolidated financial statements.
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DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the fiscal years ended February 1, 2025, February 3, 2024 and January 28, 2023
(In thousands, except per share data)
Expenses:
Loss from termination of retirement plans — (5,690 ) —
Net income per share - basic $ 0.05 $ 0.46 $ 1.42
Net income per share - diluted $ 0.05 $ 0.43 $ 1.33
Weighted-average number of common shares outstanding:
The accompanying notes are an integral part of the consolidated financial statements.
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DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the fiscal years ended February 1, 2025, February 3, 2024 and January 28, 2023
(In thousands)
Other comprehensive income (loss) before taxes:
Recognition of accumulated foreign currency translation adjustment — — 66
Foreign currency translation — — (7 )
Recognized loss from termination of retirement plans — 5,690 —
Other comprehensive income before taxes — 5,523 763
Tax provision related to items of other comprehensive income — (595 ) (166 )
Other comprehensive income, net of tax — 4,928 597
The accompanying notes are an integral part of the consolidated financial statements.
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DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the fiscal years ended February 1, 2025, February 3, 2024 and January 28, 2023
(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 — — 1,384 — — — — 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 ) — — — — —
Excise taxes accrued on repurchase of common stock (210 ) (210 )
Board of directors' compensation 89 1 442 — — — — 443
Other comprehensive income — — — — — — 4,928 4,928
Stock compensation expense — — 2,614 — — — — 2,614
Issuance of common stock, upon RSUs release 164 2 (2 ) — — — — —
Exercise of stock options 140 1 79 — — — — 80
Excise taxes accrued on repurchase of common stock — — — — (118 ) — — (118 )
Board of directors' compensation 92 1 446 — — — — 447
The accompanying notes are an integral part of the consolidated financial statements.
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DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended February 1, 2025, February 3, 2024 and January 28, 2023
(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 77 76
Gain on sale of equipment (12 ) (107 ) -
Board of directors' stock compensation 447 443 501
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 1,953 (1,094 ) (599 )
Accrued expenses and other liabilities (7,240 ) (4,564 ) 1,852
Cash flows from investing activities:
Proceeds from sale of equipment 12 145 —
Purchase of short-term investments (48,011 ) (79,883 ) —
Cash flows from financing activities:
Payment of excise tax on repurchased shares of common stock (205 ) —
Proceeds from the exercise of stock options 80 368 839
Tax withholdings paid related to net share settlements (78 ) (759 ) (1,845 )
Net increase (decrease) in cash and cash equivalents (15,689 ) (24,484 ) 36,568
Cash and cash equivalents:
The accompanying notes are an integral part of the consolidated financial statements.
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DESTINATION XL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 2025
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 footwear. The Company operates under the trade names of Destination XL®, DXL®, DXL® Big + Tall, DXL Men’s Apparel, DXL Outlets®, Casual Male XL® and Casual Male XL Outlets. At February 1, 2025, the Company operated 247 DXL stores, 7 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 consistent with its integrated commerce business approach. See Note M, Segment Disclosures.
Fiscal Year
The Company’s fiscal year is a 52-week or 53-week period ending on the Saturday closest to January 31. Fiscal 2024 and fiscal 2022 were each 52-week periods, which ended on February 1, 2025 and January 28, 2023, respectively. Fiscal 2023 was a 53-week period, which ended on February 3, 2024.
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.
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Accounts Receivable
Accounts receivable primarily include amounts due for rebates from certain vendors. For fiscal 2024, fiscal 2023 and fiscal 2022, 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 fair value 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.
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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 1, 2025 and February 3, 2024. Advertising expense, which is included in selling, general and administrative expenses, was $31.8 million, $30.9 million and $32.5 million for fiscal 2024, fiscal 2023 and fiscal 2022, 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). In the fourth quarter of fiscal 2023, the Company terminated its frozen retirement plans, which was the only AOCI activity. As a result, there was no remaining AOCI as of February 3, 2024.
Other comprehensive income (loss) and reclassifications from AOCI for fiscal 2023 and fiscal 2022 were as follows:
(in thousands)
Retirement Plans Retirement Plans Foreign Currency Total
Balance at beginning of fiscal year $ (4,928 ) $ (5,466 ) $ (59 ) $ (5,525 )
Recognition of accumulated foreign currency translation adjustment (2) — — 66 66
Other comprehensive income (loss) for the period 4,928 538 59 597
Balance at end of fiscal year $ — $ (4,928 ) $ — $ (4,928 )
(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,
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the Company recognized income of $39,000, with a corresponding tax provision of $9,000, as a result of a change in amortization from average remaining future service to average remaining lifetime.
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 2024, fiscal 2023 and fiscal 2022.
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 stock options, RSUs, or deferred stock had an anti-dilutive effect.
FISCAL YEARS ENDED
(in thousands, except exercise prices)
Stock options (time-vested) 21 85 102
Excluded from the computation of basic and diluted earnings per share were 573,000 shares of unvested performance stock units for fiscal 2024 and fiscal 2023 and 240,000 shares in fiscal 2022. Performance-based awards are 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 479,700 shares in fiscal 2024 and 435,568 shares in fiscal 2023 and fiscal 2022 were excluded from basic earnings per share. Outstanding shares of
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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.
The Company has outstanding performance stock units. The fair value and derived service periods of the performance stock units 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 $2.6 million, $2.5 million and $1.4 million for fiscal 2024, fiscal 2023 and fiscal 2022, respectively. The increase in stock-based compensation in fiscal 2024 and fiscal 2023 was primarily due to the grant of performance stock units in August 2023 that were 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 1, 2025 was approximately $2.2 million and will be expensed over a weighted average remaining life of approximately 30 months.
The total grant-date fair value of awards vested was $1.3 million, $1.2 million and $2.5 million for fiscal 2024, fiscal 2023 and fiscal 2022, 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