SEC Form 10-Q filed by Destination XL Group Inc.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 15, 2025, the registrant had
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
DESTINATION XL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
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May 3, 2025 |
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February 1, 2025 |
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(Fiscal 2025) |
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(Fiscal 2024) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Non-current assets: |
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Property and equipment, net of accumulated depreciation and amortization |
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Operating lease right-of-use assets |
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Deferred income taxes, net of valuation allowance |
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Intangible assets |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Operating leases, current |
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Total current liabilities |
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Long-term liabilities: |
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Operating leases, non-current |
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Other long-term liabilities |
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Total long-term liabilities |
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Stockholders' equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock at cost, |
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Accumulated deficit |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
2
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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For the Three Months Ended |
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May 3, 2025 |
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May 4, 2024 |
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(Fiscal 2025) |
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(Fiscal 2024) |
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Sales |
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$ |
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$ |
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Cost of goods sold including occupancy costs |
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Gross profit |
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Expenses: |
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Selling, general and administrative |
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Depreciation and amortization |
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Total expenses |
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Operating income (loss) |
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Interest income, net |
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Income (loss) before provision (benefit) for income taxes |
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Provision (benefit) for income taxes |
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Net income (loss) |
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$ |
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$ |
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Net income (loss) per share - basic |
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$ |
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$ |
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Net income (loss) per share - diluted |
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$ |
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$ |
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Weighted-average number of common shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of the consolidated financial statements.
3
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
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Additional |
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Common Stock |
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Paid-in |
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Treasury Stock |
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Accumulated |
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Shares |
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Amounts |
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Capital |
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Shares |
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Amounts |
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Deficit |
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Total |
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Balance at February 1, 2025 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Board of directors' compensation |
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— |
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— |
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— |
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— |
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Stock compensation expense |
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— |
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— |
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— |
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— |
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— |
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Restricted stock units (RSUs) granted for achievement of performance-based |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock, upon RSUs release |
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— |
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— |
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— |
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— |
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Shares withheld for taxes related to net share settlement |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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Balance at May 3, 2025 |
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$ |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
4
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
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Additional |
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Common Stock |
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Paid-in |
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Treasury Stock |
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Accumulated |
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Shares |
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Amounts |
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Capital |
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Shares |
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Amounts |
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Deficit |
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Total |
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Balance at February 3, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Board of directors' compensation |
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— |
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— |
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— |
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Stock compensation expense |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock, upon RSUs release |
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— |
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— |
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— |
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— |
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Shares withheld for taxes related to net share settlement |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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Repurchase of common stock |
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— |
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— |
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— |
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( |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Balance at May 4, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
5
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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May 3, 2025 |
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May 4, 2024 |
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(Fiscal 2025) |
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(Fiscal 2024) |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
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$ |
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Adjustments to reconcile net income (loss) to net cash used for operating activities: |
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Amortization of deferred debt issuance costs |
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Gain from the sale of equipment |
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Depreciation and amortization |
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Deferred taxes, net of valuation allowance |
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Stock compensation expense |
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Board of directors' stock compensation |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Other assets |
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Accounts payable |
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Operating leases, net |
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Accrued expenses and other liabilities |
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( |
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Net cash used for operating activities |
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Cash flows from investing activities: |
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Additions to property and equipment, net |
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Proceeds from sale of equipment |
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Purchase of short-term investments |
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Maturity of short-term investments |
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Net cash provided by (used for) investing activities |
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Cash flows from financing activities: |
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Repurchase of common stock, excluding excise taxes |
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Tax withholdings paid related to net share settlements |
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Proceeds from the exercise of stock options |
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Net cash used for financing activities |
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Net decrease in cash and cash equivalents |
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Cash and cash equivalents: |
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Beginning of period |
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End of period |
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$ |
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$ |
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Supplemental Disclosures of Cash Flow Information: |
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Cash paid during the period for income taxes |
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$ |
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$ |
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Cash paid during the period for interest |
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$ |
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$ |
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Non-cash activity during the period: |
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Capital expenditures incurred but not yet paid |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
6
DESTINATION XL GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
In the opinion of management of Destination XL Group, Inc., a Delaware corporation (collectively with its subsidiaries, referred to as the “Company”), the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited Consolidated Financial Statements for the fiscal year ended February 1, 2025 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission ("SEC") on March 20, 2025.
The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.
The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2025 and fiscal 2024 are both 52-week periods ending on January 31, 2026 and February 1, 2025, respectively.
Segment Information
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 to 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 insurance 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 its cash and cash equivalents balances. In addition, the Company's cash and cash equivalents include money market accounts with Citizens Bank, N.A. and investments in U.S. government-backed securities held with Fidelity Investments.
Fair Value of Financial Instruments
ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. 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.
7
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 assets 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.
Stock-Based Compensation
All share-based payments, including grants of employee stock options and restricted stock, are recognized as an expense in the Consolidated Statements of Operations based on their fair values and vesting periods. 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”). 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 values derived from using the Black-Scholes model are recognized as an expense over the vesting period, net of estimated forfeitures. The estimation of stock-based awards that will ultimately vest requires judgment. Actual results and future changes in estimates may differ from the Company’s current estimates.
There were
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company’s judgment regarding the identification of impairment indicators is based on operational performance at the store level. Factors considered by the Company that could result in an impairment triggering event include significant changes in the use of assets, a current period operating or cash flow loss, underperformance of a store relative to historical or expected operating results, and an accumulation of costs significantly in excess of the amount originally expected for the construction of the long-lived store assets. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The model for undiscounted future cash flows includes assumptions, at the individual store level, with respect to expectations for future sales and gross margin rates as well as an estimate for occupancy costs used to estimate the fair value of the respective store’s operating lease right-of-use ("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.
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. Advertising expense, which is included in selling, general and administrative expenses, was $
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. Lease incentives are included in the value of the 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
8
information available at the lease measurement date, to determine the present value of future payments. The Company elected the lessee non-lease component separation practical expedient, which permits the Company to not separate non-lease components from the lease components to which they relate. The Company also made an accounting policy election that the recognition requirement of ASC 842 will not be applied to certain, if any, non-store leases, with a term of 12 months or less, recognizing those lease payments on a straight-line basis over the lease term. At May 3, 2025, the Company had
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 4, Leases for additional information.
Recently Issued Accounting Pronouncements - Not Yet Adopted
In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-06, Disclosure Improvements: Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative. ASU-2023-06 incorporates several disclosure and presentation requirements currently residing in SEC 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 or S-K. Any amendments the SEC does not remove by June 30, 2027 will not be effective. The ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements or related disclosures because the Company is currently subjected to the reporting requirements of Regulations S-X and S-K.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid and to improve the effectiveness of income tax disclosures. This ASU will be effective with our annual disclosures for fiscal 2025. The ASU allows for adoption on a prospective basis, with a retrospective option. We are currently evaluating the impact of adopting this accounting standard on our financial statements or related disclosures.
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 our annual financial statements beginning in fiscal 2027 and interim periods beginning in fiscal 2028. We are currently evaluating the impact of this accounting standard on our financial statement presentation and its related disclosures.
There were no other new accounting pronouncements, issued or effective during the first three months of fiscal 2025, which had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.
9
2. Revenue Recognition
The Company operates as a retailer of big and tall men’s clothing, which includes stores and direct. Revenue is recognized by the operating segment that initiates a customer’s order. Store sales are defined as sales that originate and are fulfilled directly at the store level. Direct sales are defined as sales that originate online, including those initiated online at the store level, on its website or on third-party marketplaces. 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 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 $
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, Revenue from Contracts with Customers, these loyalty points provide the customer with a material right and a distinct performance obligation with revenue deferred and recognized when the points are expected to be redeemed or expire. The cycle of earning and redeeming loyalty points is generally under
The Company's legacy loyalty program ended at the end of fiscal 2024 and all unused loyalty points and certificates were expired. The Company's new loyalty program launched at the start of fiscal 2025. As such, at February 1, 2025 there was
Shipping. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales for all periods presented. Amounts related to shipping and handling that are billed to customers are recorded in sales, and the related costs are recorded in cost of goods sold, including occupancy costs, in the Consolidated Statements of Operations.
Disaggregation of Revenue
As noted above under Segment Information in Note 1, Basis of Presentation, the Company’s business consists of
|
|
For the Three Months Ended |
|
|
|||||
(in thousands) |
|
May 3, 2025 |
|
|
May 4, 2024 |
|
|
||
Store sales |
|
$ |
|
$ |
|
||||
Direct sales |
|
|
|
|
|
||||
Total sales |
|
$ |
|
|
$ |
|
|
||
3. Debt
Credit Agreement with Citizens Bank, N.A.
The Company has a credit facility with Citizens Bank, N.A, which provides for a $
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
10
At May 3, 2025, the Company had
4. 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
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 May 3, 2025, the Company’s operating leases liabilities represent the present value of the remaining future minimum lease payments updated based on concessions and lease modifications.
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 net lease cost for the three months ended May 3, 2025 and May 4, 2024:
|
|
For the three months ended |
|
|||||
|
|
May 3, 2025 |
|
|
May 4, 2024 |
|
||
(in thousands) |
|
|
|
|
|
|
||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Variable lease costs(1) |
|
|
|
|
|
|
||
Total lease costs |
|
$ |
|
|
$ |
|
||
Supplemental cash flow and balance sheet information related to leases as of and for the first three months ended May 3, 2025 and May 4, 2024 was as follows:
|
|
|
|
|
|
|
||
(dollars in thousands) |
|
For the three months ended |
|
|||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
May 3, 2025 |
|
|
May 4, 2024 |
|
||
Operating cash flows for operating leases (1) |
|
$ |
|
|
$ |
|
||
Non-cash operating activities: |
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for operating lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
|
|
As of |
|
|||||
|
|
May 3, 2025 |
|
|
May 4, 2024 |
|
||
Weighted average remaining lease term |
|
|
|
|
||||
Weighted average discount rate |
|
|
% |
|
|
% |
||
11
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the Consolidated Balance Sheet as of May 3, 2025:
(in thousands) |
|
|
|
|
2025 (remaining) |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total minimum lease payments |
|
$ |
|
|
Less: amount of lease payments representing interest |
|
|
|
|
Present value of future minimum lease payments |
|
$ |
|
|
Less: current obligations under leases |
|
|
|
|
Long-term lease obligations |
|
$ |
|
|
As of May 3, 2025, the Company had entered into
5. Long-Term Incentive Plans
The following is a summary of the Company’s Long-Term Incentive Plan (“LTIP”). All equity awards granted under long-term incentive plans are issued from the Company’s stockholder-approved 2016 Plan. See Note 6, Stock-Based Compensation.
The LTIPs are granted annually and each LTIP covers a three-year performance period. Each participant in the 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,
2022-2024 LTIP
The performance target for the Company’s 2022-2024 LTIP was approved by the Compensation Committee of the Board of Directors (the "Compensation Committee”) on April 9, 2022, and covered a
On March 19, 2025, the Compensation Committee approved a grant of awards, effective April 1, 2025, equal to $
Active LTIPs
At May 3, 2025, the Company had three active LTIPs: the 2023-2025 LTIP, the 2024-2026 LTIP and the 2025-2027 LTIP. The time-based awards under each LTIP were granted in a combination of
Performance targets for the 2023-2025 LTIP, the 2024-2026 LTIP and the 2025-2027 LTIP were established and approved by the Compensation Committee with an effective date of May 1, 2023, April 1, 2024, and April 1, 2025, respectively.
12
At May 3, 2025, the Company had accrued $
6. Stock-Based Compensation
The Company has one active stock-based compensation plan: 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
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.
The following tables summarize the share activity and stock option activity for the first three months of fiscal 2025:
|
|
RSUs (1) |
|
|
Deferred |
|
|
Performance |
|
|
Fully-Vested |
|
|
Total Number |
|
|
Weighted- |
|
||||||
Shares |
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
||||||
Outstanding non-vested shares at beginning of year |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
$ |
|
|||||
Shares granted |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
$ |
|
|||||
Shares vested and/or issued |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
$ |
|
|
Shares expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares forfeited |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
$ |
|
|
Outstanding non-vested shares at end of quarter |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
$ |
|
|||||
13
|
|
Number of |
|
|
Weighted- |
|
|
Weighted- |
|
|
Aggregate |
|
||||
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding options at beginning of year |
|
|
|
|
$ |
|
|
|
— |
|
|
$ |
|
|||
Options granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Options exercised |
|
|
( |
) |
|
$ |
|
|
|
— |
|
|
|
|
||
Options expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Options forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding options at end of quarter |
|
|
|
|
$ |
|
|
|
|
$ |
|
|||||
Options exercisable at end of quarter |
|
|
|
|
$ |
|
|
|
|
$ |
|
|||||
Non-Employee Director Compensation Plan
The Company granted
Stock Compensation Expense
The Company recognized total stock-based compensation expense of $
7. Equity and Earnings per Share
The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share:
|
|
For the three months ended |
|
|||||
|
|
May 3, 2025 |
|
|
May 4, 2024 |
|
||
(in thousands) |
|
|
|
|
|
|
||
Common stock outstanding: |
|
|
|
|
|
|
||
Basic weighted average common shares outstanding |
|
|
|
|
|
|
||
Common stock equivalents – stock options, restricted stock units and deferred stock (1) |
|
|
— |
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
|
|
|
|
||
(1) Common stock equivalents of
The following potential common stock equivalents were excluded from the computation of diluted earnings per share in each period, 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 and restricted stock units had an anti-dilutive effect.
|
|
For the three months ended |
|
|||||
|
|
May 3, 2025 |
|
|
May 4, 2024 |
|
||
(in thousands, except exercise prices) |
|
|
|
|
|
|
||
Stock options |
|
|
|
|
|
|
||
Restricted stock units and deferred stock |
|
|
|
|
|
|
||
Range of exercise prices of such options |
|
$ |
|
|
$ |
|
||
The above options, which were outstanding at May 3, 2025, expire from
Excluded from the computation of basic and diluted earnings per share were
14
2025 and May 4, 2024, respectively, were excluded from the computation of basic earnings per share. Shares of deferred stock are not considered issued and outstanding until the vesting date of the deferral period.
8. Income Taxes
The Company's income tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any. Each quarter, the Company updates its estimate of the annual effective tax rate and makes a year-to-date adjustment to the provision.
For the first three months of fiscal 2025 and 2024, the Company’s effective tax rate was
9. Fair Value Measurement
At May 3, 2025 and February 1, 2025, the Company held U.S. treasury bills which were classified as held-to maturity and carried at amortized cost.
|
|
|
|
Fair Value |
|
||||||||||
(in thousands) |
Carrying value |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant Unobservable |
|
||||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
||||
At May 1, 2025 |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
At February 1, 2025 |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
10. Segment Disclosures
The Company sells clothing, footwear and accessories to big + tall men through its stores and direct business, which includes its website, mobile app and certain marketplaces. The Company has identified its stores and its direct business as
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:
15
|
|
For the three months ended |
|
|||||
|
|
May 3, 2025 |
|
|
May 4, 2024 |
|
||
(in thousands) |
|
|
|
|
|
|
||
Sales |
|
$ |
|
|
$ |
|
||
Cost of goods sold |
|
|
( |
) |
|
|
( |
) |
Occupancy costs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Store compensation |
|
|
( |
) |
|
|
( |
) |
Other selling expenses |
|
|
( |
) |
|
|
( |
) |
4-wall contribution (non-GAAP) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Advertising |
|
|
( |
) |
|
|
( |
) |
Corporate G&A |
|
|
( |
) |
|
|
( |
) |
Distributing and supporting G&A |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Interest income, net |
|
|
|
|
|
|
||
Income (loss) before provision (benefit) for income taxes |
|
$ |
( |
) |
|
$ |
|
|
Provision (benefit) for income taxes |
|
|
( |
) |
|
|
|
|
Net income (loss) (GAAP) |
|
$ |
( |
) |
|
$ |
|
|
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect” or “anticipate” or the negatives thereof, variations thereon or similar terminology. The forward-looking statements contained in this Quarterly Report are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but may be found in other locations as well, and include statements regarding our belief that our performance was due to the challenges present in the current economic downcycle and does not reflect on the opportunity in our total addressable market or the longer-term potential for our brand; our belief that the broader macroeconomic challenges and uncertainty within the apparel industry are impacting consumer sentiment and discretionary spending; our belief that our customers are trading down from national designer brands to our private label brands; our belief that our targeted promotions and the introduction of new value-driven brands have had a positive impact on our store traffic; our belief that our recently implemented initiatives will help to drive enhanced value and affinity for our brand; our belief that the impact of current tariffs on our financial results for fiscal 2025 could be an increase in costs of less than $2.0 million, or approximately 40 basis points as a percentage of sales; our ability to manage inventory; our belief that our FiTMAP technology will enhance customer engagement, attract new customers and establish DXL as a technology leader in men’s big + tall apparel; our expected expansion of FiTMAP to additional stores by the end of fiscal 2025 and the end of fiscal 2027; expected marketing costs; expected capital expenditures in 2025; expected store openings and store conversions for the remainder of fiscal 2025; and our expectations regarding liquidity needs for the next 12 months. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. The forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and notes to those statements included elsewhere in this Quarterly Report and our audited Consolidated Financial Statements for the year ended February 1, 2025, included in our Annual Report on Form 10-K for the year ended February 1, 2025, as filed with the Securities and Exchange Commission ("SEC") on March 20, 2025 (our “Fiscal 2024 Annual Report”).
Numerous factors could cause our actual results to differ materially from such forward-looking statements. The Company encourages readers to refer to its filings with the SEC that set forth certain risks and uncertainties that may have an impact on future results and direction of our Company, including risks related to changes in consumer spending in response to economic factors, the impact of current tariffs, the impact of any further increases in tariffs, the Company's ability to proactively react to the potential changes in tariffs to minimize risk, rising costs, high interest rates; the impact of ongoing worldwide conflicts on the global economy; and the Company’s ability to execute on its marketing, digital, store and collaboration strategies, ability to grow its market share, predict customer tastes and fashion trends, compete successfully in the United States men’s big + tall apparel market, and the other risks and uncertainties as set forth in the “Risk Factors” section in Part I, Item 1A of our Fiscal 2024 Annual Report.
All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. These forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances in which the forward-looking statement is based.
BUSINESS SUMMARY
Destination XL Group, Inc., together with our consolidated subsidiaries (the “Company”), is the largest specialty retailer of big + tall men’s clothing with retail and direct operations in the United States. We operate under the trade names of Destination XL®, DXL®, DXL Outlets, Casual Male XL® and Casual Male XL Outlets. At May 3, 2025, we operated 251 Destination XL stores, 15 DXL outlet stores, 6 Casual Male XL retail stores, 18 Casual Male XL outlet stores and a digital business, including an e-commerce site at dxl.com and a mobile site, m.destinationXL.com, mobile app and third-party marketplaces.
Unless the context indicates otherwise, all references to “we,” “our,” “us” and “the Company” refer to Destination XL Group, Inc. and our consolidated subsidiaries. We refer to our fiscal years, which end on January 31, 2026 and February 1, 2025 as "fiscal 2025" and “fiscal 2024,” respectively. Both fiscal years were 52-week periods.
SEGMENT REPORTING
We currently have two operating segments: our stores and our direct business. We consider our stores and direct business segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into one reportable segment consistent with our omni-channel business approach.
17
COMPARABLE SALES
Our customer’s shopping experience continues to evolve across multiple channels, and we are continually adapting to meet the guest’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, certain transactions that begin online 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 and at curbside. We define store sales as sales that originate and are fulfilled directly at the store level. Digital 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 or through a third-party marketplace.
Stores that have been open for at least 13 months are included in comparable sales. Stores that have been remodeled or relocated 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. If a store is temporarily closed for more than 7 days, it is removed from the calculation of comparable sales until it reopens and upon its anniversary is once again removed from the calculation until the reopen date. 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.
RECENT DEVELOPMENTS - TARIFFS
The U.S. economy continues to encounter considerable disruptions that have directly affected the retail sector and increased uncertainty as it relates to consumer spending. In light of the implications of new tariffs, many companies, including ours, have had to reassess their global sourcing strategy in an effort to minimize the impact of these tariffs. The frequent changes and unpredictability surrounding tariffs and trade policies has resulted in substantial uncertainty for companies’ operational management and their ability to forecast with confidence. This unpredictability has disrupted strategic planning cycles and added complexity to supply chain and cost management efforts. See “Risk Factors” section in Part I, Item 1A of our Fiscal 2024 Annual Report for further disclosure of the risks associated with the imposition of existing and new tariffs.
EXECUTIVE SUMMARY
|
|
For the three months ended |
|
|||||||
|
|
May 3, 2025 |
|
|
May 4, 2024 |
|
|
|
||
(in millions, except percentage of sales and per share data) |
|
|
|
|
|
|
|
|
||
Sales |
|
$ |
105.5 |
|
|
$ |
115.5 |
|
|
|
Net income (loss) |
|
$ |
(1.9 |
) |
|
$ |
3.8 |
|
|
|
Adjusted EBITDA (non-GAAP basis) |
|
$ |
0.1 |
|
|
$ |
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
||
Gross margin, as a percentage of sales |
|
|
45.1 |
% |
|
|
48.2 |
% |
|
|
SG&A expenses, as a percentage of sales |
|
|
45.0 |
% |
|
|
41.1 |
% |
|
|
Adjusted EBITDA margin (non-GAAP basis) |
|
|
0.1 |
% |
|
|
7.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
||
Per diluted share: |
|
|
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
(0.04 |
) |
|
$ |
0.06 |
|
|
|
We are currently managing our business through an economic downcycle, and our performance does not reflect the opportunity in our total addressable market or the longer-term potential for our brand. We believe the broader macroeconomic challenges and uncertainty within the apparel industry are further impacting consumer sentiment and discretionary spending. We have observed many customers trading down from national designer brands to our private label brands, which have lower average retail prices but higher margins. Despite these macroeconomic headwinds, we saw a slight improvement in sales over the quarter, largely driven by our stores, which showed improvements in store traffic and conversion versus prior trends.
Our comparable sales for the first quarter of fiscal 2025 were down 9.4%, but we saw gradual improvement over the course of the quarter with comparable sales down 13.9% in February, down 8.2% in March, and further improving to down 7.2% in April. We remain focused on key initiatives aimed specifically to appeal to our value-driven customers who are more price sensitive and less inclined to shop during this downward economic cycle. In late 2024, we implemented our price match guarantee, and during the first quarter of fiscal 2025, we launched fit exchange, a first responder program and our new loyalty program, all of which we believe is helping to drive affinity for our brand. We are also very excited about our FiTMAP sizing technology program, which allows customers to engage with our brand in a much more personalized manner using full body scanning technology. We have an exclusive license until 2030 for this proprietary FiTMAP Sizing Technology for big + tall men.
18
Although our overall sales performance was below expectations, we saw some improvement in sales velocity, while still maintaining a healthy merchandise margin and controlling costs. Our net loss for the first quarter was $(0.04) per diluted share, primarily driven by the sales shortfall.
The situation with tariffs is very fluid and we continue to monitor trade discussions and changes to policy as they develop. We are leaning into relationships with our vendors and suppliers around the world and we are working very hard to mitigate the cost of those tariffs. Our discussions with our private label vendors have been productive. On the domestic side, we are also having dialogue with our national brands as we all try to navigate this environment. Where possible, we also accelerated the receipt of inventory within the quarter, ahead of certain tariffs, to minimize cost and ensure that we are well positioned ahead of Father's Day. Looking forward, we will continue to monitor these evolving trade discussions and look for opportunities to proactively mitigate the potential impact of such tariffs.
As of May 3, 2025, we had cash and investments of $29.1 million as compared to $53.2 million at May 4, 2024 with no debt outstanding and unused excess availability of $77.1 million. Since May 4, 2024, we have used $13.6 million of our available cash to repurchase shares of our common stock. Our cash and investments balance also reflects a seasonal inventory build. We continued to maintain our strong financial position, successfully managing our liquidity and our inventory levels, which were down 6.3% to May 4, 2024.
RESULTS OF OPERATIONS
Sales
The following table presents sales by segment for the three months ended May 3, 2025 and May 4, 2024:
|
|
For the Three Months Ended |
|
|
|||||
(in thousands) |
|
May 3, 2025 |
|
|
May 4, 2024 |
|
|
||
Store sales |
|
$ |
76,471 |
|
72.5% |
$ |
80,848 |
|
70.0% |
Direct sales |
|
|
29,062 |
|
27.5% |
|
34,641 |
|
30.0% |
Total sales |
|
$ |
105,533 |
|
|
$ |
115,489 |
|
|
Total sales for the first quarter of fiscal 2025 were $105.5 million, as compared to $115.5 million in the first quarter of fiscal 2024. The decrease in total sales was primarily attributable to a decrease in comparable sales for the first quarter of 9.4%, partially offset by an increase in non-comparable sales. Sales trends improved month over month, with comparable sales down 13.9% in February, down 8.2% in March, and down 7.2% in April. Overall, the first quarter decline was consistent with the sales trend in fiscal 2024, as customers are continuing to pull back on discretionary spending. We continued to see customers shift toward our private-label merchandise and value-driven brands.
The first quarter comparable sales decrease of 9.4% consisted of a comparable sales decrease of 6.6% from stores and a comparable decrease of 16.2% from our direct business. While store traffic remained negative for the first quarter of fiscal 2025, there was a gradual improvement over the course of the first quarter. We believe that our targeted promotions, which include our Fit Exchange by DXL, our Hero/First Responder discounts as well as the introduction of new value-driven brands, have had a positive impact on our store traffic. The direct business, which includes our website, app and marketplaces, struggled during the first quarter of fiscal 2025 and was challenged by decreases in online traffic and average order value, while conversion was relatively flat. In addition, in connection with our website conversion, we identified and corrected certain functionalities which we believe likely had a negative impact on sales in the beginning of the first quarter.
Gross Margin Rate
For the first quarter of fiscal 2025, our gross margin rate, inclusive of occupancy costs, was 45.1% as compared to a gross margin rate of 48.2% for the first quarter of fiscal 2024.
Our gross margin rate decreased by 310 basis points, which was driven by an increase of 280 basis points in occupancy costs, as a percentage of sales, due to the deleveraging from lower sales and increased rents from new stores and lease extensions. Merchandise margin for the first quarter decreased by 30 basis points, as compared to the first quarter of fiscal 2024, primarily due to an increase in markdown activity and promotional offers associated with our new marketing initiatives, including the new loyalty program, as well as an increase in freight costs associated with the acceleration of inventory receipts. These increases were partially offset by an increase in merchandise margins as a result of a shift in product mix.
There remains significant uncertainty with respect to evolving trade policies and the enactment of additional tariffs globally. We are proactively taking measures to mitigate the impact of such tariffs and trade restrictions on our business. Given the volatility that currently exists around these trade discussions, it is difficult to determine the potential impact that these tariffs may have on our financial results. However, if currently enacted rates remain in effect throughout this fiscal year, we estimate that the impact on our
19
financial results for fiscal 2025 could be an increase in costs of less than $2.0 million, or approximately 40 basis points as a percentage of sales.
Selling, General and Administrative Expenses
As a percentage of sales, selling, general and administrative ("SG&A") expenses for the first quarter of fiscal 2025 were 45.0% as compared to 41.1% for the first quarter of fiscal 2024.
On a dollar basis, SG&A expenses decreased by $0.1 million for the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024. The decrease was primarily due to a decrease in marketing and incentive-based compensation, partially offset by an increase in store payroll and healthcare costs. On a percentage of sales basis, SG&A expenses increased due to the decrease in sales for the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024.
Marketing costs were 6.1% of sales for the first quarter of fiscal 2025 as compared to 6.3% of sales for the first quarter of fiscal 2024. For fiscal 2025, marketing costs are expected to be approximately 5.9%.
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 and direct operating costs, represented 25.2% of sales in the first quarter of fiscal 2025 as compared to 23.0% of sales in the first quarter of fiscal 2024. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 19.8% of sales in the first quarter of fiscal 2025 as compared to 18.1% of sales in the first quarter of fiscal 2024.
Depreciation and Amortization
Depreciation and amortization for the first quarter of fiscal 2025 increased slightly to $3.6 million as compared to $3.3 million for the first quarter of fiscal 2024. Our capital expenditures have increased in fiscal 2025 due to the opening of new store locations and investments in certain other infrastructure and technology projects.
Interest Income, Net
Net interest income for the first quarter of fiscal 2025 was $0.3 million as compared to $0.6 million for the first quarter of fiscal 2024. For both periods, interest income was earned from investments in U.S. government-backed investments and money market accounts. The decrease in interest income was due to the decrease in the average balance of investments during the first quarter of fiscal 2025 as compared to the prior year period. Interest costs for both periods were minimal because we had no outstanding debt and no borrowings under our credit facility.
Income Taxes
Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any. Each quarter, we update our estimate of the annual effective tax rate and make a year-to-date adjustment to the provision.
For the first quarter of fiscal 2025 and fiscal 2024, our effective tax rate was 39.7% and 30.4%, respectively. The increase in the effective tax rate for the first quarter of fiscal 2025, as compared to the first quarter of fiscal 2024, was primarily due to permanent book-to-tax differences. While in dollars, these permanent book-to-tax differences are down, the impact as a percentage of our estimated annual pretax income is greater.
Net Income (Loss)
For the first quarter of fiscal 2025, we recorded a net loss of $1.9 million, or $(0.04) per diluted share, as compared to net income of $3.8 million, or $0.06 per diluted share, for the first quarter of fiscal 2024. The decrease in earnings for the first quarter of fiscal 2025 was driven primarily by the decrease in sales.
Inventory
As of May 3, 2025, our inventory decreased by approximately $5.8 million to $85.5 million, as compared to $91.2 million at May 4, 2024. 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, accelerating certain receipts to avoid the impact of potential tariffs. At May 3, 2025, our clearance inventory was 9.5% of our total inventory, as compared to 9.7% at May 4, 2024. Our inventory position is very strong and our clearance levels are in line with our benchmark of 10% even with the 6.3% decrease in total inventory. Our inventory turnover rate has improved by over 30% from fiscal 2019.
20
SEASONALITY
Historically, and consistent with the retail industry, we have experienced seasonal fluctuations as it relates to our operating income, net income, and free cash flow. Traditionally, a significant portion of our operating income, net income, and free cash flow is generated in the second and fourth quarters. Our inventory is typically at peak levels by the end of the third quarter, which represents a significant use of cash, which is then relieved in the fourth quarter as we sell-down our inventory through the holiday shopping season.
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. At May 3, 2025, we had no outstanding debt, including no borrowings under our credit facility during the first three months of fiscal 2025. 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 and cash equivalent balances, short-term investments, cash generated from operations, and borrowings available to us under our credit facility will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months. However, we remain cautious regarding the effect that the current macroeconomic conditions may have on consumer spending, including geopolitical conflicts around the world, the imposition of tariffs, inflation and high interest costs. We also believe that cash flows from operating activities and cash on hand will be sufficient to satisfy our current capital requirements and our stock repurchase program. In the longer term, to the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we anticipate that working capital will be financed by our credit facility.
For the first three months of fiscal 2025, cash flow from operations was $(12.0) million as compared to $(1.1) million for the first three months of fiscal 2024. The decrease in cash flow from operations was primarily due to a decrease in earnings and the timing of payables associated with the acceleration of inventory receipts during the first quarter of fiscal 2025. We operate in a seasonal business that typically includes greater uses of cash in the first quarter as we build inventory in anticipation of the summer selling season.
Free cash flow, before capital expenditures for store development, a non-GAAP measure, was $(14.5) million for the first three months of fiscal 2025 as compared to $(4.6) million for the first three months of fiscal 2024. Free cash flow, a non-GAAP measure, was $(18.8) million for the first three months of fiscal 2025 as compared to $(7.0) million for the first three months of fiscal 2024.
|
|
For the three months ended |
|||||||
(in millions) |
|
May 3, 2025 |
|
|
May 4, 2024 |
|
|
||
Cash flow from operating activities (GAAP basis) |
|
$ |
(12.0 |
) |
|
$ |
(1.1 |
) |
|
Capital expenditures, excluding store development |
|
|
(2.4 |
) |
|
|
(3.5 |
) |
|
Free Cash Flow before capital expenditures for store development (non-GAAP basis) |
|
$ |
(14.5 |
) |
|
$ |
(4.6 |
) |
|
Capital expenditures for store development |
|
|
(4.3 |
) |
|
|
(2.4 |
) |
|
Free Cash Flow (non-GAAP basis) |
|
$ |
(18.8 |
) |
|
$ |
(7.0 |
) |
|
Cash flow provided by investing activities was $8.3 million as compared to cash flow used for investing activities of $10.0 million for the first three months of fiscal 2024. The increase in cash flow provided by investing activities of $18.3 million was primarily due to the maturity, net of purchases, of short-term investments, partially offset by an increase in capital expenditures.
Credit Facility
The Company has a $125.0 million revolving credit agreement with Citizens Bank, N.A., with a maturity date of October 28, 2026 (the "Credit Facility"). The Credit Facility includes a sublimit of $20.0 million for commercial and standby letters of credit and a sublimit of up to $15.0 million for swingline loans. Borrowings under the Credit Facility bear interest at either a Base Rate or Daily Simple SOFR rate, at the Company's option. Base Rate loans will bear interest at a rate equal to (i) the greater of: (a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50% per annum and (c) the Daily Simple SOFR rate plus 1.00% per annum (provided the Base Rate shall never be less than the Floor (as defined in the Credit Facility)), plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25% or 0.50% (the “Applicable Margin”). Daily Simple SOFR loans will bear interest at a rate equal to (i) the Daily Simple SOFR rate plus an adjustment of 0.10% (provided the Daily Simple SOFR rate shall never be less than the Floor), plus (ii) the Applicable Margin. Any swingline loan will continue to bear interest at a rate equal to the Base Rate plus the Applicable Margin. We are subject to an unused line fee of 0.25%.
We had no outstanding borrowings under the Credit Facility at May 3, 2025 and no borrowings during the first three months of fiscal 2025. At May 3, 2025, outstanding standby letters of credit were $4.2 million. The average unused excess availability during the first three months of fiscal 2025 was approximately $68.7 million and the unused excess availability at May 3, 2025 was $77.1 million.
21
Capital Expenditures
The following table sets forth the open stores and related square footage at May 3, 2025 and May 4, 2024, respectively:
|
|
May 3, 2025 |
|
|
May 4, 2024 |
|
|
||||||||||
Store Concept |
|
Number of |
|
|
Square |
|
|
Number of |
|
|
Square |
|
|
||||
(square footage in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
DXL Retail |
|
|
251 |
|
|
|
1,814 |
|
|
|
233 |
|
|
|
1,732 |
|
|
DXL Outlets |
|
|
15 |
|
|
|
76 |
|
|
|
15 |
|
|
|
76 |
|
|
Casual Male XL Retail |
|
|
6 |
|
|
|
18 |
|
|
|
17 |
|
|
|
55 |
|
|
Casual Male Outlets |
|
|
18 |
|
|
|
53 |
|
|
|
19 |
|
|
|
57 |
|
|
Total Stores |
|
|
290 |
|
|
|
1,961 |
|
|
|
284 |
|
|
|
1,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
During the first three months of fiscal 2025, we opened two new DXL stores and converted one Casual Male XL retail store and one Casual Male XL outlet to DXL stores. We expect to open six additional DXL stores during fiscal 2025 and expect our capital expenditures to range from $19.0 million to $21.0 million, net of tenant incentives.
FiTMAP®
Over the past two years, we have been working with and testing a proprietary FiTMAP Sizing Technology for which we have an exclusive license for big + tall men until 2030. This innovative, contactless, digital scanning technology captures 242 unique measurements and offers custom clothing options for all our customers, and size recommendations across the variety of brands for a great fit. FiTMAP offers a unique experience for our customers, whether selecting from our Ready-to-Wear clothing or opting for custom garments. This technology currently provides recommended sizes in all of our private label brands, as well as 15 of our exclusive national brands. We believe this technology will enhance customer engagement, attract new customers and establish DXL as a technology leader in men's big + tall apparel. To date, we have scanned over 20,000 customers. FiTMAP is currently in 52 DXL retail locations with a plan to end fiscal 2025 with 85 stores and to further expand to as many as 200 stores by the end of fiscal 2027.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to the critical accounting policies and estimates disclosed in our Fiscal 2024 Annual Report. See Note 1, Basis of Presentation to the Consolidated Financial Statements included in this Quarterly Report for information on recent accounting pronouncements and changes in accounting principles.
Non-GAAP Financial Measures
Free cash flow, free cash flow before capital expenditures for store development, adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures. These non-GAAP measures are not presented in accordance with GAAP and should not be considered superior to or as a substitute for net income (loss), net income (loss) per diluted share or cash flows from operating activities or any other measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, the non-GAAP measures presented in this Quarterly Report may not be comparable to similar measures used by other companies. We believe that inclusion of these non-GAAP measures helps investors gain a better understanding of our performance, especially when comparing such results to previous periods and that they are useful as an additional means for investors to evaluate our operating results, when reviewed in conjunction with our GAAP financial statements.
Reconciliations of these non-GAAP measures are presented in the following tables (certain columns may not foot due to rounding):
Free Cash Flow. We define free cash flow as cash flow from operating activities less capital expenditures. We define free cash flow before capital expenditures for store development as cash flow from operations activities less all capital expenditures except 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. Free cash flow excludes the mandatory and discretionary repayment of debt. Free cash flow is a metric that management uses to monitor liquidity. Management believes this metric is important to investors because it demonstrates the Company's ability to strengthen liquidity while supporting its capital projects and new store development. We expect to fund our ongoing capital expenditures with cash flow from operations.
The following table reconciles free cash flow:
22
|
|
For the three months ended |
|||||||
(in millions) |
|
May 3, 2025 |
|
|
May 4, 2024 |
|
|
||
Cash flow from operating activities (GAAP basis) |
|
$ |
(12.0 |
) |
|
$ |
(1.1 |
) |
|
Capital expenditures, excluding store development |
|
|
(2.4 |
) |
|
|
(3.5 |
) |
|
Free Cash Flow before capital expenditures for store development (non-GAAP basis) |
|
$ |
(14.5 |
) |
|
$ |
(4.6 |
) |
|
Capital expenditures for store development |
|
|
(4.3 |
) |
|
|
(2.4 |
) |
|
Free Cash Flow (non-GAAP basis) |
|
$ |
(18.8 |
) |
|
$ |
(7.0 |
) |
|
Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation and amortization and adding back impairment (gain) of assets and accrual for estimated non-recurring legal settlement costs, if any. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Sales. We believe that providing adjusted EBITDA and adjusted EBITDA margin is useful to investors in evaluating our performance and are key metrics to measure profitability and economic productivity. The following table reconciles adjusted EBITDA from net income and calculates adjusted EBITDA margin:
|
|
For the three months ended |
|
|
|
|||||
|
|
May 3, 2025 |
|
|
May 4, 2024 |
|
|
|
||
(in millions) |
|
|
|
|
|
|
|
|
||
Net income (loss) (GAAP basis) |
|
$ |
(1.9 |
) |
|
$ |
3.8 |
|
|
|
Add back: |
|
|
|
|
|
|
|
|
||
Provision (benefit) for income taxes |
|
|
(1.3 |
) |
|
|
1.7 |
|
|
|
Interest income, net |
|
|
(0.3 |
) |
|
|
(0.6 |
) |
|
|
Depreciation and amortization |
|
|
3.6 |
|
|
|
3.3 |
|
|
|
Adjusted EBITDA (non-GAAP basis) |
|
$ |
0.1 |
|
|
$ |
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
||
Sales |
|
$ |
105.5 |
|
|
$ |
115.5 |
|
|
|
Adjusted EBITDA margin (non-GAAP basis), as a percentage of sales |
|
|
0.1 |
% |
|
|
7.1 |
% |
|
|
Item 3. 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.
There have not been any material changes to our interest rate previously disclosed in Part II, Item 7A of our Fiscal 2024 Annual Report.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under 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 May 3, 2025. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of May 3, 2025, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
We have not experienced any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended May 3, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject to various legal proceedings and claims that arise in the ordinary course of business. Management currently believes that the resolution of these matters will not have a material adverse impact on our future results of operations or financial position.
Item 1A. Risk Factors.
There have been no material changes to the risk factors as previously disclosed in Part I, Item 1A of our Fiscal 2024 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the three months ended May 3, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended)
Item 6. Exhibits.
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Document. |
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104 |
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Cover Page Interactive Data File – The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. |
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* Filed herewith. |
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
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DESTINATION XL GROUP, INC. |
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Date: May 29, 2025 |
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By: |
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/s/ John F. Cooney |
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John F. Cooney |
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Senior Vice President, Chief Accounting Officer and Corporate Controller (Duly Authorized Officer and Chief Accounting Officer)
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