Destination XL (US:DXLG)2025-08-27 11:54Executive Summary & Business Overview Second Quarter Financial Highlights Destination XL Group reported a challenging Q2 fiscal 2025 with sales down 7.5% and a net loss, reflecting sector softness Second Quarter Fiscal 2025 Financial Highlights | Metric | Q2 Fiscal 2025 | Q2 Fiscal 2024 | Change (YoY) | | :-------------------------------- | :------------- | :------------- | :----------- | | Total Sales | $115.5 million | $124.8 million | -7.5% | | Comparable Sales | -9.2% | N/A | -9.2% | | Net Income (Loss) | $(0.3) million | $2.4 million | -112.5% | | Diluted EPS | $0.00 | $0.04 | -100% | | Adjusted EBITDA | $4.6 million | $6.5 million | -29.2% | | Cash and Investments (as of Aug 2, 2025) | $33.5 million | $63.2 million | -47.0% | - The company extended its credit facility through August 13, 2030, providing access to up to $100 million of future borrowing capacity16 Management's Comments Management acknowledged sector softness and macroeconomic challenges, focusing on private brands and refining promotions - Consumer behavior is shifting towards lower-priced goods and select promotions, indicating careful spending4 - The company is focusing on private brands to offer higher quality, lower price points, and greater value, aiming to better control margins5 - A reframed promotional strategy prioritizes relevance, competitiveness, and a stronger perception of value, including programs like Fit Exchange and Heroes Discount5 Strategic Priorities Destination XL Group is implementing several strategic initiatives to address market challenges and drive long-term growth Promotional Strategy - The promotional strategy is being reframed around a disciplined, strategic framework to prioritize relevance, competitiveness, and value, treating promotions as a managed category to maximize return on markdown dollars8 Assortment - The company plans to strategically shift its assortment over the next two years to prioritize private brands, aiming to increase private brand sales penetration from 56.5% to over 60% in 2026 and over 65% in 20279 - Investment in underperforming national brands will be reduced to drive higher profitability and leverage strategic promotions for customer acquisition9 FiTMAP Technology - DXL holds an exclusive license for FiTMAP® Sizing Technology until 2030, a contactless digital scanning technology capturing 243 unique measurements for custom clothing options and fit recommendations10 - FiTMAP was in 62 DXL retail locations at the end of Q2 fiscal 2025, expanded to 86 stores in August, and plans to reach up to 200 stores by the end of fiscal 202710 Second Quarter Financial Results Sales Performance Total sales for Q2 fiscal 2025 decreased to $115.5 million, down 7.5% year-over-year, driven by a 9.2% decline in comparable sales Sales Performance (Q2 Fiscal 2025 vs. Q2 Fiscal 2024) | Metric | Q2 Fiscal 2025 | Q2 Fiscal 2024 | Change (YoY) | | :-------------------- | :------------- | :------------- | :----------- | | Total Sales | $115.5 million | $124.8 million | -7.5% | | Comparable Sales | -9.2% | N/A | -9.2% | | Store Comparable Sales | -7.1% | N/A | -7.1% | | Direct Business Comparable Sales | -14.4% | N/A | -14.4% | - Comparable sales trends improved month-over-month in Q2, with May down 10.4%, June down 9.6%, and July down 7.0%, with August trends slightly better than July1115 - Direct business sales were challenged by decreases in online traffic and average order value, with additional issues from a new e-commerce platform being addressed14 Gross Margin The gross margin rate for Q2 fiscal 2025 decreased by 300 basis points to 45.2% due to higher occupancy costs and lower merchandise margin Gross Margin Rate (Q2 Fiscal 2025 vs. Q2 Fiscal 2024) | Metric | Q2 Fiscal 2025 | Q2 Fiscal 2024 | Change (YoY) | | :-------------------- | :------------- | :------------- | :----------- | | Gross Margin Rate | 45.2% | 48.2% | -300 bps | - Occupancy costs increased by 240 basis points as a percentage of sales due to deleveraging from lower sales and increased rents17 - Merchandise margin decreased by 60 basis points, primarily due to increased freight costs from accelerated inventory receipts (tariff mitigation) and promotional offers, partially offset by a shift to private brands17 Selling, General & Administrative (SG&A) SG&A expenses as a percentage of sales decreased to 41.2% in Q2 fiscal 2025, primarily driven by lower marketing and incentive compensation SG&A Expenses (Q2 Fiscal 2025 vs. Q2 Fiscal 2024) | Metric | Q2 Fiscal 2025 | Q2 Fiscal 2024 | Change (YoY) | | :-------------------------------- | :------------- | :------------- | :----------- | | SG&A as % of Sales | 41.2% | 43.0% | -180 bps | | SG&A (dollar basis) | N/A | N/A | -$6.1 million | | Marketing Costs as % of Sales | 6.1% | 8.8% | -270 bps | - The decrease in SG&A dollars was primarily driven by lower marketing and incentive-based compensation, partially offset by increased healthcare benefit costs19 Interest Income, Net Net interest income for Q2 fiscal 2025 decreased to $0.2 million, mainly due to a lower average balance of investments Net Interest Income (Q2 Fiscal 2025 vs. Q2 Fiscal 2024) | Metric | Q2 Fiscal 2025 | Q2 Fiscal 2024 | Change (YoY) | | :-------------------- | :------------- | :------------- | :----------- | | Net Interest Income | $0.2 million | $0.6 million | -66.7% | - The decrease in interest income was primarily due to a lower average balance of investments, partly tied to the stock buyback program in H2 fiscal 202423 Income Taxes The income tax provision for Q2 fiscal 2025 was $1.2 million, reflecting an estimated annual effective tax rate of 6.9% Income Tax Provision (Q2 Fiscal 2025 vs. Q2 Fiscal 2024) | Metric | Q2 Fiscal 2025 | Q2 Fiscal 2024 | Change (YoY) | | :-------------------- | :------------- | :------------- | :----------- | | Income Tax Provision | $1.2 million | $1.3 million | -7.7% | | Annual Effective Tax Rate Estimate | 6.9% | N/A | N/A | Net Income (Loss) For Q2 fiscal 2025, the company reported a net loss of $(0.3) million, a significant decline from net income in the prior year Net Income (Loss) (Q2 Fiscal 2025 vs. Q2 Fiscal 2024) | Metric | Q2 Fiscal 2025 | Q2 Fiscal 2024 | Change (YoY) | | :-------------------- | :------------- | :------------- | :----------- | | Net Income (Loss) | $(0.3) million | $2.4 million | -112.5% | | Diluted EPS | $0.00 | $0.04 | -100% | - The decrease in earnings was primarily driven by the decrease in sales26 Adjusted EBITDA Adjusted EBITDA for Q2 fiscal 2025 was $4.6 million, down from $6.5 million in the prior year, reflecting reduced profitability Adjusted EBITDA (Q2 Fiscal 2025 vs. Q2 Fiscal 2024) | Metric | Q2 Fiscal 2025 | Q2 Fiscal 2024 | Change (YoY) | | :-------------------- | :------------- | :------------- | :----------- | | Adjusted EBITDA | $4.6 million | $6.5 million | -29.2% | Cash Flow Cash flow from operations for the first six months of fiscal 2025 was negative $(2.