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 2025 as compared to fiscal 2024. Our Annual Report on Form 10-K for the year ended February 1, 2025 (fiscal 2024) includes a discussion and analysis of our financial condition and results of operations comparing fiscal 2024 to fiscal 2023 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
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 (loss), adjusted net income (loss) 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 2025 to fiscal 2024. 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 (loss), net income (loss) 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 2025 and fiscal 2024 were each a 52-week period.
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EXECUTIVE OVERVIEW
(in millions, except for percentage of sales and per share data)
Net income (loss) (GAAP) (35.9 ) 3.1
Adjusted net income (loss) (Non-GAAP) (11.5 ) 4.3
Adjusted EBITDA (Non-GAAP) 1.6 19.9
Per diluted share:
Net income (loss) $ (0.66 ) $ 0.05
Adjusted net income (loss) (Non-GAAP) $ (0.21 ) $ 0.07
As a percentage of sales:
Operating margin (4.2 )% 0.8 %
Adjusted EBITDA margin (Non-GAAP) 0.4 % 4.3 %
Liquidity:
Cash flow from operating activities $ 2.1 $ 29.6
Free cash flow (Non-GAAP) $ (18.0 ) $ 1.9
Our results for fiscal 2025 reflect continuing challenges facing the big + tall retail sector, which negatively impacted sales, across both our stores and direct channels. A weaker macroeconomic environment and pressured consumer sentiment led to reduced discretionary spending, lower shopping frequency, and increased emphasis on essentials and lower price points. While difficult to quantify, we believe that the increased use of GLP-1 medications also negatively impacted demand. As a result, our comparable sales for fiscal 2025 were down 8.4%. In addition, the imposition of tariffs created a significant headwind weighing on merchandise margin, particularly in the second half of the year. In response, we remained disciplined, carefully managed expenses, and proactively controlled inventory.
Despite the sales decline, we made meaningful progress on key sales initiatives. We expanded our private brand offerings, refined our value‐driven national brand assortment, expanded the roll out of FiTMAP®, launched a new loyalty program, and strengthened our strategic relationship with Nordstrom. Operationally, we continued to diversify our sourcing base and drove cost efficiencies to mitigate tariff pressures.
For fiscal 2025, we reported a net loss of $(0.66) per diluted share as compared to a net income of $0.05 per diluted share in fiscal 2024. Fiscal 2025 results included a charge of $20.4 million to establish a full valuation allowance against our net deferred tax assets and $4.2 million of transaction-related costs associated with the pending Merger with FullBeauty, which is discussed in more detail below and under Item 1, Business - Recent Developments.
On an adjusted basis, excluding the charge to establish a full valuation allowance, transaction-related costs, impairment charges and a non-recurring legal accrual recorded in fiscal 2024, the adjusted net loss for fiscal 2025 was $(0.21) per diluted share as compared to adjusted net income of $0.07 per diluted share for fiscal 2024. The decrease was driven primarily by the sales shortfall.
We maintained a strong liquidity position, ending fiscal 2025 with $28.8 million in cash and investments as compared to $48.4 million in fiscal 2024. We improved our inventory position, which was down 2.6%, as compared to fiscal 2024. During fiscal 2025, we amended our credit facility to extend the maturity of the facility from October 28, 2026 to August 13, 2030. We had no borrowings under our credit facility during fiscal 2025, and at January 31, 2026, our availability under our credit facility was $55.1 million. The strength of our balance sheet gives us flexibility and resilience as we continue to navigate a challenging big + tall retail sector.
Recent Developments
As discussed above under Item 1, Business, Recent Developments, in December 2025, we announced a proposed Merger with FullBeauty. We believe bringing DXL together with FullBeauty's inclusive women's brands and KingSize would create a comprehensive and diverse size-inclusive brand portfolio spanning value to premium price points across lifestyles and occasions. By leveraging complementary strengths across gender, product and channels, we believe the combined company will be positioned to
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accelerate growth, improve operational efficiency and enhance customer experience through a comprehensive, innovative, multi-channel strategy.
We are currently preparing a proxy statement that we plan to distribute to the stockholders of DXL in connection with their votes on the approval of the Merger and the issuance of DXL Common Stock in connection with the Merger, as well as other matters to be voted upon in connection with the approval of the Merger. The transaction is expected to close in the second quarter of fiscal 2026, subject to customary closing conditions and approval by DXL stockholders.
SALES
For fiscal 2025, total sales decreased 6.9% to $435.0 million from $467.0 million for fiscal 2024. The decrease was primarily due to a decrease in comparable sales of 8.4%, with stores down 6.9% and the direct business down 11.8%. These decreases were partially offset by an increase in non-comparable sales.
A decrease in traffic continued to be the primary driver for the decrease in comparable sales. While conversion rate was up slightly, our dollars per transaction were down, partly due to the shift in product mix toward more value-driven merchandise, as our customers continue to be price sensitive due to reduced discretionary spending. During the fourth quarter of fiscal 2025, our comparable sales were down 7.3%, with stores down 8.6% and the direct business down 4.3%. Our direct business saw a marked improvement in the fourth quarter as compared to the previous three quarters of fiscal 2025, where comparable sales for the direct business were down double digits. We believe this improvement was driven by more effective digital marketing spend that drove improved traffic during the holiday season.
While we saw positive results from our loyalty program, Price Match Guarantee, FiTMAP, and our Heroes discount in fiscal 2025, our total active customer file continued to be under pressure as customers were spending less and shopping less frequently in the current environment.
Through the first month of fiscal 2026, we have seen improvement in traffic and average order value, both of which contributed to an improvement in sales during February. Comparable sales in February were down 1.3%, with our direct business being up 3.4%, partially offset by our stores, which were down 3.1%.
GROSS MARGIN
For fiscal 2025, gross margin, inclusive of occupancy costs, was 43.4% as compared to 46.5% for fiscal 2024. The decrease of 310 basis points was primarily due to an increase of 220 basis points in occupancy costs, as a percentage of sales, primarily due to the deleveraging from lower sales and increased rents from lease extensions. Occupancy costs, on a dollar basis, increased $5.3 million, or 8.5%, as compared to fiscal 2024, as a result of new stores and lease extensions. Merchandise margin for fiscal 2025 decreased 90 basis points, as compared to fiscal 2024, primarily due to the impact of tariffs and increased markdown activity and promotional offers associated with our marketing initiatives. For fiscal 2025, the impact of tariffs on merchandise margins was estimated to be approximately 50 basis points, as a percentage of sales. These increased costs were partially offset by an improvement in merchandise margins as a result of a shift in product mix toward our private brand merchandise.
There remains significant volatility with respect to evolving trade policies and the imposition of tariffs globally. On February 20, 2026, the U.S. Supreme Court ruled that certain tariffs imposed by the current administration under the International Emergency Economic Powers Act in 2025, including tariffs on global imports from China, Canada, and Mexico, were unlawful. However, not all tariffs imposed in 2025 will be impacted by this decision. Following the U.S. Supreme Court’s ruling, the current administration issued a presidential proclamation imposing additional tariffs under U.S. trade laws, which can remain in effect for up to 150 days unless further extended by the U.S. Congress. Through vendor negotiations, sourcing diversification and cost mitigation programs, such as the First Sale program, we have and will continue to take proactive measures to mitigate the impact of tariffs and trade restrictions on our business and our customers. Given the volatility that currently exists around trade discussions, it is difficult to determine the potential impact that tariffs may have on our financial results for fiscal 2026. However, if currently enacted rates remain in effect throughout fiscal 2026, and no additional tariffs, including those under U.S. trade laws, are added, we estimate that the impact of tariffs on gross margin will be approximately 150 basis points.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (“SG&A”) expenses were $187.4 million, or 43.1% of sales, for fiscal 2025 as compared to $198.3 million, or 42.5% of sales, for fiscal 2024. SG&A expenses, as a percentage of sales, were deleveraged due to the lower sales base.
On a dollar basis, SG&A expenses decreased $10.9 million due to a decrease in marketing costs, incentive-based compensation and supporting payroll. In addition, results for fiscal 2024 included an accrual for estimated non-recurring legal settlement costs of $1.0 million.
For fiscal 2025, marketing costs were 6.1% of sales as compared to 6.8% in fiscal 2024.
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 24.8% of sales for fiscal 2025 as compared to 24.1% of sales for fiscal 2024. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 18.2% of sales for fiscal 2025 as compared to 18.4% of sales for fiscal 2024.
Transaction-Related Costs
Transaction-related costs for fiscal 2025 were $4.2 million and primarily related to fees paid for professional services in connection with the Company's pending Merger.
IMPAIRMENT 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 2025 and fiscal 2024, the Company recorded a total asset impairment charge of $0.2 million and $1.3 million, respectively, for certain store property.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for fiscal 2024 was $15.3 million, as compared to $13.9 million in fiscal 2024. The increase in depreciation and amortization expense reflects the increase in capital expenditures over the past two years as we invest in our stores, e-commerce and other technology projects.
INTEREST INCOME, NET
Net interest income for fiscal 2025 and fiscal 2024 was $0.8 million and $2.1 million, respectively. We invest excess cash in short-term, U.S. government-backed investments. The decrease in interest income for fiscal 2025 as compared to the prior year was primarily due to the decrease in the average balance of investments as well as a decrease in interest rates. 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
In the fourth quarter of fiscal 2025, we recorded a charge of $20.4 million to establish a full valuation allowance against our net deferred tax assets. Over the past two years, the big + tall sector has been adversely affected by general economic weakness, including inflation and rising costs, which has reduced discretionary consumer spending. Consistent with these trends, the Company has experienced declining revenue over the past two fiscal years and generated a net operating loss in fiscal 2025. Realization of our deferred tax assets, which primarily relate to net operating loss carryforwards, depends on the generation of future taxable income. Federal net operating losses include $4.4 million that will expire by fiscal 2037 and $59.7 million that do not expire. State net operating losses were $46.1 million, some of which will expire from fiscal 2026 through 2046. While we believe that profitability will return over the long term, we are forecasting operating losses in the near term. Management concluded that this negative evidence outweighs available positive evidence regarding realizability of its deferred tax assets.
The effective tax rate for fiscal 2025, before the $20.4 million charge to establish a full valuation allowance, was 10.7% as compared to 47.5% for fiscal 2024. This decrease in the effective tax rate reflects the impact of certain discrete items and permanent book-to-tax differences as well as the impact of adjustments to our net operating losses reflected in our tax returns filed in fiscal 2025. See Note F to the Consolidated Financial Statements.
At January 31, 2026, we have a full valuation allowance against our net deferred tax assets of $21.8 million.
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NET INCOME (LOSS)
Net loss for fiscal 2025 was $(35.9) million, or $(0.66) per diluted share, as compared to net income for fiscal 2024 of $3.1 million, or $0.05 per diluted share.
The decrease in earnings for fiscal 2025 as compared to fiscal 2024 was driven primarily by a decrease in sales as well as a charge to establish a full valuation allowance against our net deferred tax assets. Results for fiscal 2025 included a non-cash charge of $20.4 million to establish a full valuation allowance against net deferred tax assets, transaction-related costs of $4.2 million and an impairment charge against certain store assets of $0.2 million. Results for fiscal 2024 included an impairment charge of $1.3 million against certain store assets and a charge of $1.0 million for an accrual for estimated non-recurring legal settlement costs.
On a non-GAAP basis, adjusting for the non-cash charge to establish a valuation allowance against net deferred tax assets, transaction-related costs, accrual for estimated non-recurring legal settlement costs, and asset impairments, adjusted net loss for fiscal 2025 was $(11.5) million, or $(0.21) per diluted share, as compared to adjusted net income of $4.3 million, or $0.07 per diluted share, for fiscal 2024.
SEASONALITY
Consistent with the retail apparel industry, our business experiences seasonal fluctuations in sales due to the timing of certain holidays and key retail shopping periods. Accordingly, our sales results for a particular quarter may not be indicative of the sales results we expect for the full year.
EFFECTS OF INFLATION
During fiscal 2025, 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, short-term investments, 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 January 31, 2026, 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 January 31, 2026, 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) $ 2.1 $ 29.6
Capital expenditures, excluding store development $ (11.3 ) $ (14.5 )
Capital expenditures for store development (8.8 ) (13.2 )
Free Cash Flow (non-GAAP basis) $ (18.0 ) $ 1.9
Cash, cash equivalents and short-term investments, at year end $ 28.8 $ 48.4
Total debt, net of unamortized debt issuance costs $ - $ -
Unused excess availability under Credit Facility $ 55.1 $ 64.7
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For fiscal 2025, cash flow from operations decreased to $2.1 million as compared to $29.6 million for fiscal 2024, primarily due to the decrease in operating income in fiscal 2025. Free cash flow, a non-GAAP measure, decreased to $(18.0) million for fiscal 2025 as compared to $1.9 million for fiscal 2024.
Cash flow provided by (used for) investing activities was $10.4 million as compared to $(31.3) million for fiscal 2024. The increase in cash flow provided by investing activities was primarily due to an increase in the maturity of short-term investments, net of purchases, of $34.1 million and a decrease in capital expenditures of $7.6 million.
Cash flow used for financing activities for fiscal 2025 and fiscal 2024 was $0.6 million and $13.9 million, respectively. The use of cash in fiscal 2024 was primarily due to the repurchase of our common stock.
Credit Facility
During fiscal 2025, we amended our revolving credit agreement with Citizens Bank, N.A. by entering into the Second Amendment to Credit Facility (as amended, the "Credit Facility"). As a result of the amendment, the maturity date of the Credit Facility was extended from October 28, 2026 to August 13, 2030 and the revolving commitments under the Credit Facility were reduced from $125.0 million to $100.0 million, to more closely align with our average inventory levels, which serve as the primary borrowing base for the Credit Facility. In addition, the sublimit for swing-line loans under the Credit Facility was reduced from $15.0 million to $10.0 million. The Credit Facility continues to include a sublimit of $20.0 million for commercial and standby letters of credit. Our availability under the Credit Facility did not materially change as a result of the amendment.
Borrowings under the Credit Facility bear interest at either a Base Rate or Daily Simple SOFR rate, at our option. Base Rate loans will bear interest at a rate equal to (i) the greater of: (a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50% per annum and (c) the Daily Simple SOFR rate plus 1.00% per annum (provided the Base Rate shall never be less than the Floor (as defined in the Credit Facility)), plus (ii) a varying percentage, based on our average excess availability, of either 0.25% or 0.50% (the “Applicable Margin”). Daily Simple SOFR loans will bear interest at a rate equal to (i) the Daily Simple SOFR rate plus an adjustment of 0.10% (provided the Daily Simple SOFR rate shall never be less than the Floor), plus (ii) the Applicable Margin. Any swingline loan will continue to bear interest at a rate equal to the Base Rate plus the Applicable Margin. We are subject to an unused line fee of 0.25%.
We had no outstanding borrowings under the Credit Facility at January 31, 2026. At January 31, 2026, outstanding standby letters of credit were $3.6 million. There were no outstanding documentary letters of credit at January 31, 2026. The Credit Facility was not utilized during fiscal 2025, resulting in average unused excess availability during fiscal 2025 of $70.7 million. Unused excess availability at January 31, 2026 was $55.1 million as compared to $64.7 million at February 1, 2025. The decrease in availability under the Credit Facility at January 31, 2026 was the result of the 2.6% decrease in inventory and a decrease in other eligible assets as well as a slightly lower appraised value as a result of current market conditions. 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.
INVENTORY
At January 31, 2026, total inventories decreased to $73.5 million from $75.5 million at February 1, 2025, which was a 2.6% decrease. We continue to take proactive measures to manage our inventory and adjust our receipt plan given the ongoing macroeconomic factors affecting consumer spending, while at the same time, continuing to evaluate our sourcing strategy to minimize the impact of tariffs. At January 31, 2026, our clearance inventory was 9.9% of our inventory, as compared to 8.6% at February 1, 2025, and below our historical benchmark of approximately 10.0%. 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 Item 303(a)(4) of Regulation S-K.
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CAPITAL EXPENDITURES
The following table sets forth the open stores and related square footage at January 31, 2026 and February 1, 2025, respectively:
Store Concept Number ofStores SquareFootage Number ofStores SquareFootage
(square footage in thousands)
Casual Male XL Retail 5 15 8 25
During fiscal 2025, we opened eight new DXL stores, converted two Casual Male XL retail stores and one Casual Male XL outlet to DXL retail stores and converted two Casual Male XL outlets to DXL outlets. Below is a summary of the store activity from February 1, 2025 to January 31, 2026:
New stores 8 — — — 8
Conversions to DXL format 3 2 (2 ) (3 ) —
Closed retail stores — — (1 ) — (1 )
Our capital expenditures for fiscal 2025 were $20.1 million, as compared to $27.7 million in fiscal 2024. The capital expenditures for fiscal 2025 primarily related to stores, information technology projects, distribution center and facilities.
For fiscal 2026, we expect our capital expenditures to range from $8.0 million to $12.0 million, net of tenant incentives. The expected decrease in capital expenditures for fiscal 2026 is primarily due to our decision to pause new store openings given the current economic headwinds. Our store development plans for fiscal 2026 will be limited to conversions of a few remaining Casual Male XL stores to the DXL format, store relocations and other capital projects necessary to maintain our existing store portfolio and distribution center. The remainder of our expected capital spend for fiscal 2026 will primarily be for technology-related projects to support our business initiatives. While we have paused our store openings, we continue to believe we could potentially open approximately 50 net new DXL stores across the country when economic conditions and the overall traffic within the big + tall sector improves.
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 2025 to fiscal 2024, 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 (loss), net income (loss) 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:
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Cash flow from operating activities (GAAP basis) $ 2.1 $ 29.6
Capital expenditures, excluding store development (11.3 ) (14.5 )
Capital expenditures for store development (8.8 ) (13.2 )
Free cash flow (non-GAAP basis) $ (18.0 ) $ 1.9
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Diluted Share
Adjusted net income (loss) and adjusted net income (loss) per diluted share is calculated by excluding any asset impairment charge (gain), the charge to establish a full valuation allowance against deferred tax assets, transaction-related costs and an accrual for estimated non-recurring legal settlement costs. The Company believes that this comparability is useful in comparing the actual results period to period. Adjusted net income (loss) per diluted share is then calculated by dividing the adjusted net income (loss) by the weighted average shares outstanding for the respective period, on a diluted basis. The following table is a reconciliation of net income (loss) on a GAAP basis to adjusted net income (loss), on a non-GAAP basis, for each fiscal year:
$ Per dilutedshare $ Per dilutedshare
(in millions, except per share data)
Net income (loss) (GAAP basis) $ (35.9 ) $ (0.66 ) $ 3.1 $ 0.05
Adjust:
Impairment of assets 0.2 1.3
Transaction-related costs 4.2 —
Accrual for estimated non-recurring legal settlement costs — 1.0
Income tax effect of above adjustments (1) (0.5 ) (1.1 )
Adjusted net income (loss) (non-GAAP basis) $ (11.5 ) $ (0.21 ) $ 4.3 $ 0.07
(1) The income tax effect of pre-tax adjustments to net income (loss) was calculated using the applicable effective tax rate for each respective year. For fiscal 2025, the applicable effective tax rate, before the charge to establish a full valuation allowance against deferred tax assets, was 10.7%.
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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, transaction-related costs and an accrual for estimated non-recurring legal settlement costs. 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 (loss) on a GAAP basis to adjusted EBITDA and adjusted EBITDA margin, on a non-GAAP basis, for each fiscal year:
(in millions, except percentages) Fiscal 2025 Fiscal 2024
Net income (loss), on a GAAP basis $ (35.9 ) $ 3.1
Add back:
Impairment of assets 0.2 1.3
Transaction-related costs 4.2 —
Accrual for estimated non-recurring legal settlement costs — 1.0
Provision for income taxes 18.6 2.8
Interest income, net (0.8 ) (2.1 )
Depreciation and amortization 15.3 13.9
Adjusted EBITDA, on a non-GAAP basis $ 1.6 $ 19.9
Adjusted EBITDA margin, on a non-GAAP basis: 0.4 % 4.3 %
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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 2025, we had three active LTIPs: the 2023-2025 LTIP, the 2024-2026 LTIP and the 2025-2027 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 target under the 2023-2025 LTIP was not achieved at the end of fiscal 2025. With respect to the performance-based component of the 2024-2026 LTIP and the 2025-2027 LTIP, which each approximate $2.4 million 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 2025, there was no accrual for performance under either LTIP. If the Merger with FullBeauty closes, the performance awards under the 2024-2026 LTIP and the 2025-2027 LTIP will be cancelled and each participant will receive a payout, if any, based on the actual performance, on a pro-rated basis, through the date of closing.
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 an asset group, 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 an asset group is not recoverable, we perform the second step of the long-lived asset impairment test by comparing the fair value of the asset group 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 group, we rely on a discounted cash flow approach estimated to be generated by that asset group. 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, excluding rent payments associated with any operating lease right-of-use (“ROU”) 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. The fair value of a 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.
In addition, any subsequent gains recognized in connection with a store closure related to a previously recorded operating lease ROU 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 2025, fiscal 2024 and fiscal 2023, we recorded an impairment charge of $0.2 million, $1.3 million and $0.1 million, respectively, within Impairment 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 January 31, 2026. 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 January 31, 2026, we had $5.0 million in short-term investments and $11.1 million in cash and cash equivalents, which were invested in U.S. treasury bills, and $9.3 million invested in money market accounts.
During fiscal 2025, 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 August 13, 2030, bear interest at variable rates based on the prime rate or Daily Simple SOFR rate, as defined in the Credit Agreement. At January 31, 2026, 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 January 31, 2026 and February 1, 2025 42
Notes to Consolidated Financial Statements 47
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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 January 31, 2026 and February 1, 2025, 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 January 31, 2026, 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 January 31, 2026 and February 1, 2025, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended January 31, 2026, in conformity with U.S. generally accepted accounting principles.
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 Public Company Accounting Oversight Board (United States) (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
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 January 31, 2026, the Company had property and equipment and operating lease right-of-use assets of $60.0 million and $194.1 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
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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 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 since 2013.
Minneapolis, Minnesota
March 19, 2026
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DESTINATION XL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
January 31, 2026 and February 1, 2025
(In thousands, except share data)
ASSETS
Current assets:
Prepaid expenses and other current assets 6,747 6,355
Noncurrent assets:
Deferred income taxes, net of valuation allowance — 19,343
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other current liabilities 26,628 30,432
Long-term liabilities:
Other long-term liabilities 57 341
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued — —
Total liabilities and stockholders' equity $ 366,947 $ 380,955
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 January 31, 2026, February 1, 2025 and February 3, 2024
(In thousands, except per share data)
Expenses:
Transaction-related costs 4,228 — —
Loss from termination of retirement plans — — (5,690 )
Net income (loss) per share — basic $ (0.66 ) $ 0.05 $ 0.46
Net income (loss) per share — diluted $ (0.66 ) $ 0.05 $ 0.43
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 January 31, 2026, February 1, 2025 and February 3, 2024
(In thousands)
Other comprehensive income (loss) before taxes:
Retirement plans — — (167 )
Recognized loss from termination of retirement plans — — 5,690
Other comprehensive income before taxes — — 5,523
Tax provision related to items of other comprehensive income — — (595 )
Other comprehensive income, net of tax — — 4,928
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 January 31, 2026, February 1, 2025 and February 3, 2024
(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 — — 2,496 — — — — 2,496
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 release of RSUs 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
Stock compensation expense — — 1,398 — — — — 1,398
Issuance of common stock, upon release of RSUs 982 10 (10 ) — — — — —
Exercise of stock options 3 — 2 — — — — 2
Board of directors' compensation 288 3 512 — — — — 515
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 January 31, 2026, February 1, 2025 and February 3, 2024
(In thousands)
Cash flows from operating activities:
Loss from retirement plan terminations — — 5,690
Amortization and write-off of deferred debt issuance costs 113 77 77
Gain on sale of equipment — (12 ) (107 )
Board of directors' stock compensation 515 447 443
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (450 ) 1,953 (1,094 )
Accrued expenses and other liabilities (1,451 ) (7,240 ) (4,564 )
Cash flows from investing activities:
Proceeds from sale of equipment — 12 145
Net cash provided by (used for) investing activities 10,436 (31,339 ) (49,146 )
Cash flows from financing activities:
Payment of debt issuance costs (322 ) — —
Payment of excise tax on repurchased shares of common stock (123 ) (205 ) —
Proceeds from the exercise of stock options 2 80 368
Tax withholdings paid related to net share settlements (152 ) (78 ) (759 )
Net increase (decrease) in cash and cash equivalents 11,906 (15,689 ) (24,484 )
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
JANUARY 31, 2026
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 January 31, 2026, the Company operated 258 DXL stores, 5 Casual Male XL stores, 15 Casual Male XL outlets and 17 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 L, 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 2025 and fiscal 2024 were each a 52-week period, which ended on January 31, 2026 and February 1, 2025, 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 2025, fiscal 2024 and fiscal 2023, 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
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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. Management has the option to perform a qualitative assessment of whether it is more likely than not that the indefinite-lived intangible asset’s fair value is less than its carrying value before performing a quantitative impairment test. The indefinite-lived asset is tested for impairment using a relief from royalty method by comparing the estimated fair values of the indefinite-lived asset with the carrying value. The estimates used in the determination of fair value are subjective in nature and involve the use of significant assumptions, including revenue growth rate, terminal growth rate, discount rate and royalty rate, which requires significant management judgment. The assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy.
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 January 31, 2026 and February 1, 2025. Advertising expense, which is included in selling, general and administrative expenses, was $26.7 million, $31.8 million and $30.9 million for fiscal 2025, fiscal 2024 and fiscal 2023, respectively.
Revenue Recognition
The Company’s accounting policies with respect to revenue recognition are discussed in Note B, Revenue Recognition.
Accumulated Other Comprehensive Income (Loss) – (“AOCI”)
Other comprehensive income (loss) for fiscal 2023 included amounts related to the Company's terminated 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, as of February 3, 2024 there was no remaining AOCI.
Other comprehensive income, recognition of loss and reclassification from AOCI for fiscal 2023 were as follows:
(in thousands)
Balance at beginning of fiscal year $ (4,928 )
Recognition of loss on retirement plan terminations, net of taxes (1) 5,052
Other comprehensive income, net of taxes 4,928
Balance at end of fiscal year $ —
(1)
In fiscal 2023, the Company terminated its pension plan and supplemental executive retirement plan 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)
Included 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. The amortization of the unrecognized loss was $102,000, with a corresponding tax benefit of $27,000 for fiscal 2023.
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.
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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 2025, fiscal 2024 and fiscal 2023.
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 2021, with remaining fiscal years subject to income tax examination by federal tax authorities.
Net Income (Loss) Per Share
Basic earnings per share are computed by dividing net income (loss) 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:
(1) Common stock equivalents of 2.0 million for fiscal 2025 were excluded from the determination of diluted weighted average common shares outstanding due to the net loss reported for the period.
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) 44 21 85
Excluded from the computation of basic and diluted earnings per share for all periods were 573,000 shares of unvested performance share units ("PSUs"). PSUs 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 589,357 shares, 479,700 shares and 435,568 shares in fiscal 2025, fiscal 2024, and fiscal 2023, respectively, were excluded from basic earnings per share. Outstanding shares of deferred stock are not considered issued and outstanding until the vesting date of the deferral period and are excluded from basic earnings per share until such shares are issued.
Stock-based Compensation
ASC Topic 718, Compensation – Stock Compensation requires measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). As required under the accounting rules, the Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The value derived from using the Black-Scholes model is recognized as expense over the vesting period, net of estimated
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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 PSUs. The fair value and derived service periods of the PSUs 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 $1.4 million, $2.6 million and $2.5 million for fiscal 2025, fiscal 2024 and fiscal 2023, respectively. Stock-based compensation expense in fiscal 2024 and fiscal 2023 included the expense associated with the grant of PSUs, as discussed above.
The total stock-based compensation cost related to time-vested awards not yet recognized as of January 31, 2026 was approximately $1.7 million and will be expensed over a weighted average remaining life of approximately 26 months.
The total grant-date fair value of awards vested was $2.2 million, $1.3 million and $1.2 million for fiscal 2025, fiscal 2024 and fiscal 2023, respectively.
Any excess tax benefits resulting from the exercise of stock options or the release of restricted shares were recognized as a component of income tax expense in the period in which they occurred.
Valuation Assumptions - Stock Compensation
The fair value of each non-vested share is equal to the closing price of the Company’s stock on the date of grant.
There were no grants of stock options in fiscal 2025 or fiscal 2024. For fiscal 2023, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions in the table below.
Expected volatility - - 86.3% - 92.1%
Risk-free interest rate - - 3.71%-4.42%
Expected life (in years) - - 2.5
Dividend rate - - -
Weighted average fair value of options granted - - $3.24
Weighted average fair value of non-vested shares granted $1.45 $3.48 $4.47
Expected volatilities are based on historical volatilities of the Company’s common stock; the expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and historical exercise patterns; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.
Impairment of Long-Lived Assets
The Company recorded an impairment charge of $0.2 million, $1.3 million and $0.1 million in fiscal 2025, fiscal 2024 and fiscal 2023, respectively.
The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company’s judgment regarding the identification of impairment indicators is based on operational performance at the store level. Factors considered by the Company that could result in an impairment triggering event include significant changes in the use of assets, a current period operating or cash flow loss, 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. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The model for undiscounted future cash flows includes assumptions, at the individual store level, with respect to expectations for future sales and gross margin rates as well as an estimate for occupancy costs, excluding rental payments related to the respective store’s operating lease right-of-use ("ROU") asset. If the first step of the long-lived asset impairment test concludes that the carrying amount of the asset group, which includes any ROU asset, is not recoverable, we perform the second step of the long-lived asset impairment test by comparing the fair value of the asset group to its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value. 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 and is limited to the amount by which the asset group’s carrying value exceeds the fair value of
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its individual assets. The fair value of ROU assets 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. With respect to the impairment charges taken on operating lease ROU assets, if the Company subsequently makes a decision to close previously impaired stores and a gain is realized as a result of the reevaluation of the existing lease liabilities, to the extent the gain related to previously recorded impairment charges against the ROU assets, the gain will be included as an offset to asset impairment charges originally recorded on that ROU asset, with the remainder included as a reduction in store occupancy costs.
The impairment charge of $0.2 million and $1.3 million for fiscal 2025 and fiscal 2024, respectively, related to the write-down of certain store assets. The impairment charge of $0.1 million in fiscal 2023 related to the write-down of certain stores assets and operating lease ROU assets.
Leases
The Company determines if an arrangement contains a lease at the inception of a contract. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments, initial direct costs and any lease incentives are included in the value of those ROU assets. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate, based on information available at the lease measurement date, to determine the present value of future payments. The Company elected the lessee non-lease component separation practical expedient, which permits the Company to not separate non-lease components from the lease components to which they relate. The Company also made an accounting policy election that the recognition requirement of ASC Topic 842, Lessors – Certain Leases with Variable Lease Payments will not be applied to certain, if any, non-store leases, with a term of 12 months or less, recognizing those lease payments on a straight-line basis over the lease term. At January 31, 2026, the Company had no short-term leases.
The Company’s store leases typically contain options that permit renewals for additional periods of up to five years each. In general, for store leases with an initial term of 10 years or more, the options to extend are not considered reasonably certain at lease commencement. For store leases with an initial term of 5 years, the Company evaluates each lease independently and, when the Company considers it reasonably certain that it will exercise an option to extend, the associated payment of that option will be included in the measurement of the ROU asset and lease liability.Renewal options are not included in the lease term for automobile and equipment leases because they are not considered reasonably certain of being exercised at lease commencement. As discussed in Note 4, Leases, during the second quarter of fiscal 2025, the Company amended the lease agreement for its corporate headquarters and distribution center to extend the initial term for an additional period of seven years commencing on February 1, 2026 and ending on January 31, 2033. At the end of the extension term, the Company will have the option to further extend the term for three additional successive periods of five years each. The extension options were not considered reasonably certain at the time of the lease remeasurement.
For store leases, the Company accounts for lease components and non-lease components as a single lease component. Certain store leases may require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance and insurance, and are expensed as incurred as variable lease costs. Other store leases contain one periodic fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the ROU assets and lease liabilities. Tenant allowances are included as an offset to the ROU asset and amortized as reductions to rent expense over the associated lease term.
See Note E, Leases for additional information.
Recently Issued Accounting Pronouncements – Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740) (“ASU 2023-09”), which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information and includes other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. Accordingly, the Company adoptedASU 2023-09 for fiscal 2025, on a prospective basis. Prior year disclosures for fiscal 2024 and fiscal 2023 have not been adjusted to reflect the new disclosure requirements. See Note F, Income Taxes.
Recently Issued Accounting Pronouncements – Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”). ASU 2023-06 incorporates several disclosure and presentation requirements currently residing in Regulations S-X and S-K. The amendments will be applied prospectively and will be effective when the SEC removes the related requirements from Regulations S-X and S-K. Any amendments the SEC does not remove by June 30, 2027 will not be effective. ASU 2023-06 is not expected to have a material impact on the Company’s Consolidated Financial Statements or related disclosures because the Company is currently subject to the reporting requirements of Regulations S-X and S-K.
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In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03"), which will require disclosure, in the notes to financial statements, of specified information about certain costs and expenses, including disclosure of amounts for (a) purchases of inventory, (b) employee compensation, (c) depreciation and (d) intangible asset amortization, included in each relevant expense caption. In January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”). ASU 2024-03, as clarified by ASU 2025-01, will be effective for the Company's annual financial statements beginning in fiscal 2027 and interim periods beginning in fiscal 2028. The Company is currently evaluating the impact of ASU 2024-03 and ASU 2025-01 on its financial statement presentation and related disclosures.
No other new accounting pronouncements issued or effective during fiscal 2025 have had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.
B. REVENUE RECOGNITION
The Company operates as a retailer of big + tall men’s clothing, which includes sales through its stores and direct channels. Revenue is recognized by the operating segment that initiates a customer’s order. Store sales are defined as sales that originate and are fulfilled directly at the store level. Direct sales are defined as sales that originate online, including those initiated online at the store level, on the Company's website or on third-party marketplaces. Generally, all revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration in exchange for those goods. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included as part of accrued expenses on the Consolidated Balance Sheets.
Unredeemed Loyalty Coupons. The Company offers a free loyalty program to its customers for which points accumulate based on the purchase of merchandise. Under ASC 606, these loyalty points provide the customer with a material right and a distinct performance obligation with revenue deferred and recognized when the points are redeemed. The cycle of earning and redeeming loyalty points is generally under one year in duration. The Company's legacy loyalty program ended at the end of fiscal 2024 and all unused loyalty points and certificates were expired. As a result, there was no loyalty accrual at February 1, 2025. The Company's new loyalty program launched at the start of fiscal 2025. The loyalty accrual, net of breakage, at January 31, 2026 was $0.4 million.
Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers. Upon issuance of a gift card, gift certificate or credit voucher, a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Based on historical redemption patterns, the Company can reasonably estimate the amount of gift cards, gift certificates and credit vouchers for which redemption is remote, which is referred to as "breakage". Breakage is recognized over two years in proportion to historical redemption trends and is recorded as sales in the Consolidated Statements of Operations. The gift card liability, net of breakage, was $3.1 million and $3.3 million at January 31, 2026 and February 1, 2025, respectively.
Shipping. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales for all periods presented. Amounts related to shipping and handling that are billed to customers are recorded in sales, and the related costs are recorded in cost of goods sold including occupancy costs, in the Consolidated Statements of Operations.
Disaggregation of Revenue
As noted above under Segment Reporting in Note A, the Company’s business at January 31, 2026 consists of one reportable segment. Substantially all of the Company’s revenue is generated from its stores and direct businesses. The Company has determined that the following sales channels depict the nature, amount, timing and uncertainty of how revenue and cash flows are affected by economic factors for each of the following fiscal years:
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C. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at the dates indicated:
Total property and equipment, net $ 60,010 $ 56,982
Depreciation expense was $15.3 million, $13.9 million and $13.8 million for fiscal 2025, fiscal 2024, and fiscal 2023, respectively.
Additions to property and equipment that were included in accounts payable and accrued expenses at January 31, 2026, February 1, 2025 and February 3, 2024 were $2.0 million, $3.5 million, and $2.3 million, respectively.
D. DEBT OBLIGATIONS
Credit Agreement with Citizens Bank, N.A.
The Company has a credit facility with Citizens Bank, N.A., which was amended during the third quarter of fiscal 2025 (as amended, the "Credit Facility"). As amended, the borrowing commitment under the Credit Facility was reduced from $125.0 million to $100.0 million and the maturity date of the Credit Facility was extended to August 13, 2030.
The Credit Facility includes a sublimit of $20.0 million for commercial and standby letters of credit and a sublimit of up to $10.0 million for swing line loans, which was reduced from $15.0 million as part of the amendment on August 13, 2025. The Company’s ability to borrow under the Credit Facility is determined using an availability formula based on eligible assets.
Borrowings under the Credit Facility bear interest at either a Base Rate or Daily Simple SOFR rate, at the Company's option. Base Rate loans will bear interest at a rate equal to (i) the greater of: (a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50% per annum and (c) the Daily Simple SOFR rate plus 1.00% per annum (provided the Base Rate shall never be less than the Floor (as defined in the Credit Facility)), plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25% or 0.50% (the “Applicable Margin”). Daily Simple SOFR loans will bear interest at a rate equal to (i) the Daily Simple SOFR rate plus an adjustment of 0.10% (provided the Daily Simple SOFR rate shall never be less than the Floor), plus (ii) the Applicable Margin. Any swingline loan will continue to bear interest at a rate equal to the Base Rate plus the Applicable Margin. The Company is subject to an unused line fee of 0.25%.
The Company’s obligations under the Credit Facility are secured by a lien on substantially all of its assets. If the Company’s availability under the Credit Facility at any time is less than the greater of (i) 10% of the Revolving Loan Cap (the lesser of the aggregate revolving commitments or the borrowing base) and (ii) $7.5 million, then the Company is required to maintain a minimum consolidated fixed charge coverage ratio of 1.0:1.0 until such time as availability has exceeded the greater of (1) 10% of the Revolving Loan Cap and (2) $7.5 million for 30 consecutive days.
At January 31, 2026, the Company had no outstanding borrowings and availability of $55.1 million under the Credit Facility. There were no borrowings under the Credit Facility during fiscal 2025, resulting in an average unused excess availability of approximately $70.7 million. Outstanding standby letters of credit were $3.6 million at January 31, 2026. At January 31, 2026, the Company's prime interest rate was 7.00%.
Interest and Fees
The Company paid interest and fees totaling $0.3 million, $0.4 million and $0.3 million for fiscal 2025, fiscal 2024 and fiscal 2023, respectively.
E. LEASES
The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, under operating leases. The store leases typically have initial terms of 5 years to 10 years, with options that usually permit renewal for additional five-year periods.
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In the second quarter of fiscal 2025, the Company extended the lease term of its corporate headquarters from February 1, 2026 to January 31, 2033, with the opportunity to extend for three additional consecutive periods of five years. In connection with the lease amendment to extend the term of the lease, the landlord provided the Company with an improvement allowance in an amount up to $4.7 million, which has been included as an offset to the ROU asset and will be amortized as a reduction to rent expense over the lease term.
The Company also leases certain equipment and other assets under operating leases, typically with initial terms of 3 to 5 years. The Company is generally obligated for the cost of property taxes, insurance and common area maintenance fees relating to its leases, which are considered variable lease costs and are expensed as incurred.
ASC 842 requires the assessment of any lease modification to determine if the modification should be treated as a separate lease and if not, modification accounting would be applied. Lease modification accounting requires the recalculation of the ROU asset, lease liability and lease expense over the respective lease term. As of January 31, 2026, the Company’s operating leases liabilities represent the present value of the remaining future minimum lease payments updated based on concessions and lease modifications, as applicable.
Lease costs related to store locations are included in Cost of goods sold including occupancy costs on the Consolidated Statements of Operations, and expenses and lease costs related to the corporate headquarters and equipment leases are included in Selling, general and administrative expenses on the Consolidated Statements of Operations.
The following table is a summary of the Company’s components of lease costs for fiscal 2025, fiscal 2024 and fiscal 2023:
(in thousands)
(1)
Variable lease costs include the cost of property taxes, insurance and common area maintenance fees related to its leases.
Supplemental cash flow and balance sheet information related to leases for fiscal 2025, fiscal 2024 and fiscal 2023 are as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Non-cash operating activities:
Weighted average remaining lease term 5.6 yrs. 5.4 yrs. 4.9 yrs.
Weighted average discount rate 6.52 % 6.33 % 6.52 %
The table below reconciles the undiscounted cash flows for each of the next five years and thereafter to the operating lease liabilities recorded on the Consolidated Balance Sheet as of January 31, 2026:
(in thousands)
Total minimum lease payments $ 253,614
Less: amount of lease payments representing interest 44,387
Present value of future minimum lease payments $ 209,227
Less: current obligations under leases 35,881
Noncurrent lease obligations $ 173,346
As of January 31, 2026, the Company had no leases that have not yet commenced.
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During the third quarter of fiscal 2025, the landlord for one of the store locations exercised its right under the lease agreement to terminate the lease effective April 1, 2026. As consideration for the landlord's right to terminate prior to the end of the lease term, the landlord will pay the Company a termination fee of approximately $1.4 million, which will be recognized by the Company upon the termination of the lease and once the Company has vacated the leased premises.
F. INCOME TAXES
The Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires recognition of deferred tax assets and liabilities for temporary differences using enacted tax rates expected to apply when those differences reverse. Deferred tax assets are recognized only to the extent that their realization is considered more‐likely‐than‐not. If it is more‐likely‐than‐not that some portion or all of the deferred tax assets will not be realized, a valuation allowance must be established.
The Company’s deferred tax assets primarily relate to federal and state net operating loss carryforwards. Realization of these assets depends on the generation of future taxable income. Over the past two years, the big + tall sector has been adversely affected by general economic weakness, including inflation and rising costs, which has reduced discretionary consumer spending. Consistent with these trends, the Company has experienced declining revenue over the past two fiscal years and generated a net operating loss in fiscal 2025.
In addition, deteriorating macroeconomic factors have contributed to a decline in the Company’s market capitalization. While the Company believes that profitability will return over the long term, the Company is forecasting operating losses in the near term. Management concluded that this negative evidence outweighs available positive evidence regarding realizability of its deferred tax assets. Accordingly, in the fourth quarter of fiscal 2025, the Company recorded a non-cash charge of $20.4 million to establish a full valuation allowance against its net deferred tax assets. At January 31, 2026 and February 1, 2025, the valuation allowance was $21.8 million and $1.5 million, respectively.
As of January 31, 2026, for federal income tax purposes, the Company had net operating loss carryforwards of $4.4 million, which will expire by fiscal 2037, and net operating loss carryforwards of $59.7 million that are not subject to expiration. For state income tax purposes, the Company had $46.1 million of net operating loss carryforwards that are available to offset future taxable income, some of which will expire from fiscal 2026 through fiscal 2046. Additionally, the Company has $5.0 million of net operating loss carryforwards related to the Company’s operations in Canada, which will expire from fiscal 2026 through fiscal 2041.
The utilization of net operating loss carryforwards and the realization of tax benefits in future years depends predominantly upon having taxable income. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carryforwards and tax credit carryforwards, which may be used in future years. As of January 31, 2026, there has been no such ownership change. See Note M, Agreement and Plan of Merger.
The components of the net deferred tax assets as of January 31, 2026 and February 1, 2025 were as follows (in thousands):
Deferred tax assets, net:
Goodwill and intangibles (142 ) (122 )
Foreign tax credit carryforward 52 102
Federal wage tax credit carryforward 888 861
State tax credits 51 51
Operating lease right-of-use assets (50,113 ) (44,212 )
Net deferred tax assets $ — $ 19,343
For fiscal 2025, the Company had total deferred tax assets of $74.8 million, total deferred tax liabilities of $53.0 million and a valuation allowance of $21.8 million.
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Income (loss) before provision for income taxes was as follows:
FISCAL YEARS ENDED
(in thousands)
Income (loss) before provision for income taxes $ (17,349 ) $ 5,816 $ 38,391
The provision for income taxes consisted of the following:
FISCAL YEARS ENDED
(in thousands)
Current:
Deferred:
Foreign — — —
The following is a reconciliation between the statutory and effective income tax rates in dollars and percentage for the provision for income tax for fiscal 2025, after the adoption of ASU 2023-09:
FISCAL YEAR ENDED
January 31, 2026 as a percentage of pre-tax income
(dollars in thousands)
Federal income tax at the statutory rate $ (3,599 ) 20.7 %
State and local taxes, net of federal benefit (1)(3) 3,620 (20.9 %)
Foreign tax effects (2) 5 --- %
Effect of changes in tax law or rates enacted in the current year — --- %
Effect of cross-border tax laws 10 (0.1 %)
Tax credits (34 ) 0.2 %
Change in valuation allowance (3) 16,514 (95.2 %)
Nondeductible items:
Other nondeductible items 990 (5.6 %)
Other, net — --- %
(1)
Texas was the only state or local jurisdiction that contributed to the majority (greater than 50%) of the tax effect in this category.
(2)
Includes the expiration of a net operating loss, which was fully offset by the release of the corresponding $0.2 million valuation allowance.
(3)
In the fourth quarter of fiscal 2025, the Company recorded an aggregate charge of $20.4 million, or 117.7% as a percentage of pre-tax income, to establish a full valuation allowance against its net deferred tax assets.
The following is a reconciliation between the statutory and effective income tax rates in dollars for the provision for income tax for
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fiscal 2024 and fiscal 2023, before the adoption of ASU 2023-09:
FISCAL YEARS ENDED
(in thousands)
Federal income tax at the statutory rate $ 1,223 $ 8,086
State taxes, net of federal tax benefit 264 1,000
State deferred taxes, net of federal benefit 353 1,418
Permanent items (66 ) (199 )
Taxes stranded in OCI released with termination of retirement plans — 890
Change in valuation allowance (1) 8 (179 )
(1)
The change in the valuation allowance during the fiscal year ended February 1, 2025 excludes the portion of the change in the valuation allowance that related to expired NOLs that were previously fully reserved.
As discussed in Note A, the Company’s financial statements reflect the expected future tax consequences of uncertain tax positions that the Company has taken or expects to take on a tax return, based solely on the technical merits of the tax position.
The amount of cash income taxes paid in fiscal 2025 was as follows:
FISCAL YEAR ENDED
(in thousands)
Federal $ -
State and local:
California 14
Michigan (43 )
Pennsylvania (36 )
All other states and local jurisdictions (32 )
Income taxes paid, net of refunds $ 34
The Company made tax payments of $1.1 million and $1.6 million for fiscal 2024 and fiscal 2023, respectively.
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G. COMMITMENTS AND CONTINGENCIES
At January 31, 2026, the Company was obligated under operating leases covering store and office space, and certain equipment for future minimum rentals. See Note E, Leases for the schedule of future remaining lease obligations. In addition to its lease obligations, the Company is also contractually committed pursuant to a merchandise purchase obligation to meet minimum purchases of $10.0 million annually through fiscal 2028.
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. When a loss is considered probable, the Company records an accrual based on the reasonably estimable loss or range of loss. Costs related to such legal proceedings are expensed and reported in selling, general and administrative expenses in the Consolidated Statements of Operations. The Company believes its accruals at January 31, 2026 are adequate in light of the probable and estimable liabilities. The Company does not believe that any identified claims or litigation will be material to its results of operations, cash flows, or financial condition.
H. LONG-TERM INCENTIVE PLANS
The following is a summary of the Company’s Long-Term Incentive Plan (“LTIP”). All equity awards granted under these long-term incentive plans were issued from the Company’s stockholder-approved 2016 Incentive Compensation Plan. See Note I, Stock Compensation Plans.
At January 31, 2026, the Company has three active LTIPs: the 2023-2025 LTIP, the 2024-2026 LTIP and the 2025-2027 LTIP. Each participant in any LTIP participates based on that participant’s “Target Cash Value,” which is defined as the participant’s annual base salary (on the participant’s effective date) multiplied by his or her LTIP percentage. Under each LTIP, 50% of each participant’s Target Cash Value is subject to time-based vesting and 50% is subject to performance-based vesting. The time-based awards under each of the LTIPs were granted in a combination of 50% RSUs and 50% cash.
Performance targets for the 2023-2025 LTIP, the 2024-2026 LTIP and the 2025-2027 LTIP were established and approved by the Compensation Committee on May 1, 2023, April 1, 2024 and April 1, 2025, respectively. The performance period for each LTIP is three years. Awards for any achievement of performance targets will not be granted until the performance targets are achieved and then will be subject to additional vesting through August 31, 2026, August 31, 2027 and August 31, 2028, respectively. The time-based awards under the 2023-2025 LTIP, the 2024-2026 LTIP and the 2025-2027 LTIP vest in four equal installments through April 1, 2027, April 1, 2028, and April 1, 2029, respectively. If the Company completes the Merger, as discussed in Note M, Agreement and Plan of Merger, the performance-based awards would be cancelled and a payout equal to actual achievement, on a pro-rated basis, on the date of closing would be made to eligible participants.
The performance target under the 2023-2025 LTIP, which ended on January 31, 2026, was not achieved and as a result there were no awards granted. Assuming that the Company achieves the performance targets at target levels and all time-based awards vest, the compensation expense associated with the 2024-2026 LTIP and the 2025-2027 LTIP is estimated to be approximately $4.9 million for each LTIP. Approximately half of the targeted compensation expense for each LTIP relates to the time-based awards, which are being expensed straight-line over approximately 49 months. At January 31, 2026, there isno accrual for performance-based awards under the 2024-2026 LTIP or the 2025-2027 LTIP.
I. STOCK COMPENSATION PLANS
The Company has one active stock-based compensation plan, which is the Second Amended and Restated 2016 Incentive Compensation Plan (the “2016 Plan”). A grant of a stock option award or stock appreciation right will reduce the outstanding reserve on a one-for-one basis, meaning one share for every share granted. A grant of a full-value award, including, but not limited to, restricted stock, restricted stock units and deferred stock, will reduce the outstanding reserve by a fixed ratio of 1.9 shares for every share granted. At the Company's Annual Meeting of Stockholders held on August 8, 2024, the Company's stockholders approved an increase of 6,150,000 shares authorized for future grant under the 2016 Plan. At January 31, 2026, 21,270,538 shares were authorized under the 2016 Plan, of which 4,068,502 shares remain available for grant.
The 2016 Plan is administered by the Compensation Committee. The Compensation Committee is authorized to make all determinations with respect to amounts and conditions covering awards. Options are not granted at a price less than fair value on the date of the grant. Except with respect to 5% of the shares available for awards under the 2016 Plan, no award will become exercisable or otherwise forfeitable unless such award has been outstanding for a minimum period of one year from its date of grant.
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Stock Option Activity
The following table summarizes the stock option activity for fiscal 2025:
Stock Options
Options granted — — —
Options forfeited (504 ) 5.43 —
Non-Vested Share Activity
The following table summarizes activity for non-vested shares for fiscal 2025:
Shares
Shares expired — — — — — —
(1)
During fiscal 2025, grants primarily related to the grant of time-based RSUs under the 2025-2027 LTIP and the grant of awards under the 2022-2024 LTIP in connection with the achievement of the performance target in fiscal 2024. See Note H, Long-Term Incentive Plans. As a result of net share settlements, of the 981,833 RSUs that vested, 870,253 shares of common stock were issued.
(2)
The 109,657 shares of deferred stock, with a fair value of $144,991 represent director compensation in lieu of cash, in accordance with the director's irrevocable election. The shares of deferred stock will be issued upon the director's separation from service.
(3)
On August 11, 2023, the Company granted 573,000 PSUs in connection with the extension of Mr. Kanter's employment agreement. The award consists of nine tranches, with the first tranche vesting if and when the 30-day volume-weighted closing price of the Company's common stock is equal to or greater than $6.50 per share. Each subsequent tranche will vest upon achievement of the 30-day volume-weighted closing price of the Company's common stock in $0.25 increments with the ninth tranche vesting when such price is equal to or greater than $8.50 per share. Any unvested PSUs will expire on August 11, 2026, or earlier if there is a separation of service in accordance with the terms of the agreement.The $2.4 million fair value was expensed over the respective derived service periods of each tranche which ranged from 12 to 13 months. The respective fair value and derived service periods assigned to the PSUs were determined using a Monte Carlo model based on a weighted historical volatility of 57.8%, a term of 3 years, stock price on the date of grant of $4.98 per share, a risk-free rate of 4.6% and a cost of equity of 11.0%.
(4)
Represented compensation, with a fair value of $263,240, to certain directors, who are required to receive shares, in lieu of cash, in order to satisfy their minimum equity ownership under the Non-Employee Director Compensation Plan. Voluntary shares received, in lieu of cash, are reported below under Non-Employee Director Compensation Plan
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Non-Employee Director Compensation Plan
The Company's Seventh Amended and Restated Non-Employee Director Compensation Plan, as amended, the "Non-Employee Director Compensation Plan," provides a convenient method for its non-employee directors to acquire shares of the Company’s common stock at fair market value by voluntarily electing to receive shares of common stock in lieu of cash for service as a director.
The Non-Employee Director Compensation Plan requires a minimum equity ownership requirement which requires each director to receive at least 60% of their annual retainers in shares of common stock until the value of their equity ownership is equal to at least three times the annual retainer. Any shares issued to satisfy the minimum equity ownership were granted from the 2016 Plan. All other shares were granted under the Non-Employee Director Compensation Plan.
The following shares of common stock, with the respective fair value, were issued from the Non-Employee Director Compensation Plan to its non-employee directors as compensation for fiscal 2025, fiscal 2024 and fiscal 2023:
Number of shares ofcommon stock issued Fair value ofcommon stock issued
At January 31, 2026, 517,333 shares remained available for grant under the Non-Employee Director Compensation Plan.
J. EMPLOYEE BENEFIT PLANS
Defined Contribution Plan
The Company has one defined contribution plan, the Destination XL Group, Inc. 401(k) Savings Plan (the “401(k) Plan”). Under the 401(k) Plan, the Company offers a qualified automatic contribution arrangement with the Company matching 100% of the first 1% of deferred compensation and 50% of the next 5% (with a maximum contribution of 3.5% of eligible compensation). Employees who are 21 years of age or older are eligible to make deferrals after 6 months of employment and are eligible to receive a Company match after one year of employment and 1,000 hours.
The Company recognized $2.4 million, $2.3 million and $2.4 million of expense under the 401(k) Plan in fiscal 2025, 2024 and 2023, respectively.
Termination of Retirement Plans
In connection with the acquisition of Casual Male Corp. in May 2002, the Company assumed the assets and liabilities of the frozen Casual Male Noncontributory Pension Plan “Casual Male Corp. Retirement Plan,” which was previously known as the J. Baker, Inc. Qualified Plan and the frozen Casual Male Supplemental Executive Retirement Plan. In the second quarter of fiscal 2023, the Company's Board of Directors approved the termination of these frozen plans. Results for fiscal 2023 included a charge of $5.7 million, which represented the recognition of the unrealized loss.
K. FAIR VALUE MEASUREMENT
At January 31, 2026 and February 1, 2025, the Company held U.S. treasury bills, which were classified as held-to maturity and carried at amortized cost as follows:
Fair Value
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L. SEGMENT DISCLOSURES
The Company sells clothing, footwear and accessories to big + tall men through its 295 store locations and its direct business, which includes its website, mobile app and certain marketplaces. The Company has identified its stores and its direct business as two separate operating segments. Resources are allocated and performance is assessed by our President and Chief Executive Officer, whom we have determined to be our Chief Operating Decision Maker (the "CODM").
The CODM evaluates the performance of its operating segments and allocates resources based on sales performance, merchandise margins and 4-wall contribution (a non-GAAP measure). The accounting policies are the same as those described in the “Summary of Significant Accounting Policies” for the Company. The Company defines 4-wall contribution, which the CODM considers the performance measure for segment profitability, as segment revenues less cost of goods sold, occupancy costs and selling expenses.
We aggregate our two operating segments because they are economically similar. Both segments sell the same merchandise, at the same pricing, and share the same customer base, production, advertising spend and distribution. Our distribution channels are available to our customers regardless of how they initiate their transaction. Through our mobile app or website, a customer can initiate a purchase online and that purchase could be filled either by the distribution center or one of our stores. Similarly, a customer also has the option to pick up in store or have the merchandise shipped directly to them. The 4-wall contribution margin for each segment is materially similar, further supporting the economic similarity of these two operating segments and that no additional value would be provided by reporting the segments separately.
The following table is a summary of our segment disclosures and a reconciliation of 4-wall contribution (a non-GAAP measure) to net income (a GAAP measure):
(in thousands)
Transaction-related costs (4,228 ) — —
Loss from termination of retirement plans — — (5,690 )
The CODM does not receive information about assets at the segment level because the Company's assets are managed at a consolidated level by department as opposed to by segment.
M. AGREEMENT AND PLAN OF MERGER
On December 11, 2025, the Company, Divine Merger Sub I, Inc., a Delaware corporation and wholly owned direct subsidiary of the Company (“Merger Sub”), and FBB Holdings I, Inc., a Delaware corporation (“FBB” or "FullBeauty Brands"), entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into FBB, with FBB continuing as the surviving corporation as a wholly owned subsidiary of the Company (the “Merger”).
At the effective time of the Merger, each share of common stock, par value $0.01 per share, of FBB (“FBB Common Stock”) will be converted into the right to receive that number of fully paid and nonassessable shares of the common stock, par value $0.01 per share, of the Company (the “DXL Common Stock”) equal to the Exchange Ratio, as defined in the Merger Agreement. A holder of FBB
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Common Stock who would otherwise be entitled to receive a fraction of a share of DXL Common Stock will have such fractional share rounded up to one whole share of DXL Common Stock. Following the consummation of the Merger, holders of FBB Common Stock will own 55% of the combined company and holders of DXL Common Stock will own 45% of the combined company.
The Merger, which is expected to close during the second quarter of fiscal 2026, is subject to customary closing conditions, including approval by our stockholders. Costs incurred in connection with this Merger, primarily related to professional service fees, of $4.2 million, were included in "Transaction-related costs" on the Consolidated Statement of Operations for fiscal 2025.
N. Nasdaq Notification of Non-Compliance
The Company’s common stock is publicly traded and listed on The Nasdaq Global Market (“Nasdaq”) under the symbol “DXLG". Nasdaq has continued listing standards that the Company must maintain to avoid delisting, including, among others, a minimum consolidated closing bid price requirement of $1.00 per share. On February 4, 2026, the Company received a notice from the Listing Qualifications staff of Nasdaq notifying the Company that, based upon the closing bid price of its common stock for the last 30 consecutive trading days, the Company was not in compliance with Nasdaq Listing Rule 5450(a)(1), as the minimum bid price for the Company’s common stock was less than $1.00 per share for the previous 30 consecutive trading days. The Company has been provided a compliance period of 180 calendar days, or until August 3, 2026, to regain compliance with the minimum bid price requirement.
The notice does not result in the immediate delisting of the Company’s common stock from Nasdaq. The Company intends to monitor the closing bid price of the Company’s common stock to allow a reasonable period for the price to rebound from its recent decline and will continue to consider its available options to regain compliance. There can be no assurance that the Company will be able to regain compliance with the minimum bid price requirement or maintain compliance with the other listing requirements.
O. SUBSEQUENT EVENT
On February 20, 2026, the U.S. Supreme Court ruled that certain tariffs imposed by the current administration under the International Emergency Economic Powers Act (“IEEPA”) were unlawful. Following the ruling, the current administration indicated it would discontinue collection of such IEEPA‐based duties and announced its intent to impose additional tariffs under other statutory authorities, including newly announced temporary global tariffs in addition to existing non‐IEEPA tariffs. The availability, timing, and amount of any potential refunds of previously paid IEEPA‐related duties remain uncertain and may depend on further legal, regulatory, and administrative processes. The duration, scope, and rates of existing and newly announced tariff measures, as well as the potential for modifications, suspensions, or additional retaliatory actions, are also uncertain and could affect the Company’s operations, supply chain, and cost structure. The Company is monitoring these developments and assessing their potential impact on its business, financial condition, and results of operations.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Management’s Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of January 31, 2026. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of January 31, 2026, our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurances with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the design and effectiveness of our internal control over financial reporting as of January 31, 2026. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).