10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

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 a mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 20, 2024, the registrant had 58,257,724 shares of common stock, $0.01 par value per share, outstanding.

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

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 3, 2024 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 21, 2024.

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 2024 is a 52-week period ending on February 1, 2025 and fiscal 2023 was a 53-week period ending on February 3, 2024.

Segment Information

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

Cash and Cash Equivalents

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

Short-Term Investments

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

Concentration of Credit Risk

Cash and cash equivalents include amounts due from third party financial institutions, which from time to time, may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company is potentially exposed to a concentration of credit risk when cash and cash equivalent deposits in these financial institutions are in excess of FDIC limits. The Company considers the credit risk associated with these financial instruments to be minimal as cash and cash equivalents are held by financial institutions with high credit ratings and it has not historically sustained any credit losses associated with 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.

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.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these instruments. See Note 9 - Fair Value Measurement for information regarding the fair value of certain financial assets.

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

In the fourth quarter of fiscal 2023, the Company terminated its frozen retirement plans, which was the only AOCI activity. As a result, there was no remaining AOCI as of February 3, 2024.

For the first three and six months of fiscal 2023, other comprehensive income and reclassifications from AOCI was as follows:



in thousands	For the three months ended July 29, 2023			For the six months ended July 29, 2023
Balance at beginning of fiscal year	$	(4,879	)	$	(4,928	)

Other comprehensive income before reclassifications, net of taxes		23			29

Recognition of loss on retirement plan termination, net of taxes (1)		3,080			3,080

Amounts reclassified from accumulated other comprehensive income, net of taxes (2)		25			68

Other comprehensive income for the period		3,128			3,177

Balance at end of quarter	$	(1,751	)	$	(1,751	)

(1)

In connection with the Company's decision to terminate its pension plan, during the second quarter of fiscal 2023 the Company completed a partial settlement and accordingly recognized a pro-rated portion of AOCI in the amount of $4.2 million, or $3.1 million net of taxes.

(2)

Includes the amortization of the unrecognized loss on retirement plans, which was charged to “Selling, General and Administrative” Expense on the Consolidated Statements of Operations for the three and six months ended July 29, 2023. The Company recognized expense of $34,000, or $25,000 net of taxes, for the three months ended July 29, 2023 and expense of $92,000, or $68,000 net of taxes, for the six months ended July 29, 2023.

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 no grants of stock options in the first six months of fiscal 2024. For the first six months of fiscal 2023, the fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions in the table below as it relates to stock options granted.


	July 29, 2023
Expected volatility	86.3% - 92.1%
Risk-free interest rate	3.71%-4.42%
Expected term	2.5 yrs.
Dividend rate		—
Weighted average fair value of options granted	$	3.24

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 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.

There were no impairments or non-cash gains recognized in the first six months of fiscal 2024 and fiscal 2023.

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 $11.0 million and $7.1 million for second quarter of fiscal 2024 and fiscal 2023, respectively, and was $18.3 million and $14.0 million for the first six months of fiscal 2024 and fiscal 2023, respectively.

Leases

The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments, initial direct costs. 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 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 August 3, 2024, the Company had no short-term leases.

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

For store leases, the Company accounts for lease components and non-lease components as a single lease component. Certain store leases may require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance

and insurance, and are expensed as incurred as variable lease costs. Other store leases contain one periodic fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the ROU assets and lease liabilities. Tenant allowances are included as an offset to the 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 July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock, which amends or supersedes various SEC paragraphs within the Accounting Standards Codification to conform to past SEC announcements and guidance issued by the SEC. The ASU does not provide any new guidance, and as such, there is no transition effective date. ASU 2023-03 is not expected to have a material impact on the Company's Consolidated Financial Statements.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative. ASU-2023-06 incorporates several disclosure and presentation requirements currently residing in the SEC Regulations S-X and S-K. The amendments will be applied prospectively and are effective when the SEC removes the related requirements from Regulations S-X or S-K. Any amendments the SEC does not remove by June 30, 2027 will not be effective. The ASU is not expected to have a material impact on 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 November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), which requires all public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for our annual financial statements starting in fiscal 2024 and interim periods starting in fiscal 2025, with early adoption permitted. We are currently evaluating the impact of this accounting standard on our financial statements or related disclosures.

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 in fiscal 2025, and allows for adoption on a prospective basis, with a retrospective option. Early adoption is permitted. We are currently evaluating the impact of adopting this accounting standard on our financial statements or related disclosures.

There were no other new accounting pronouncements, issued or effective during the first six months of fiscal 2024, which had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.

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 $2.1 million and $3.2 million at August 3, 2024 and February 3, 2024, respectively.

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 one year in duration. The loyalty accrual, net of breakage, was $1.1 million and $1.7 million at August 3, 2024 and February 3, 2024, respectively.

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

Disaggregation of Revenue

As noted above under Segment Information in Note 1, the Company’s business consists of one reportable segment, its retail segment. Substantially all of the Company’s revenue is generated from its stores and direct businesses. Accordingly, the Company has determined that the following sales channels depict the nature, amount, timing, and uncertainty of how revenue and cash flows are affected by economic factors:


	For the Three Months Ended						For the Six Months Ended
(in thousands)	August 3, 2024			July 29, 2023			August 3, 2024				July 29, 2023
Store sales	$	87,845	70.4%	$	97,445	69.6%	$	168,693	70.2	%	$	184,742	69.6	%
Direct sales		36,975	29.6%		42,598	30.4%		71,616	29.8	%		80,743	30.4	%
Total sales	$	124,820		$	140,043		$	240,309			$	265,485


Delaware	04-2623104
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
555 Turnpike Street Canton, MA	02021
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	DXLG	The Nasdaq Stock Market LLC


	August 3, 2024			February 3, 2024
	(Fiscal 2024)			(Fiscal 2023)

ASSETS
Current assets:
Cash and cash equivalents	$	21,475		$	27,590
Short-term investments		41,732			32,459
Accounts receivable		898			3,920
Inventories		78,612			80,968
Prepaid expenses and other current assets		8,977			8,308
Total current assets		151,694			153,245

Non-current assets:
Property and equipment, net of accumulated depreciation and amortization		47,791			43,238
Operating lease right-of-use assets		163,246			138,118
Deferred income taxes, net of valuation allowance		19,403			21,533
Intangible assets		1,150			1,150
Other assets		484			457
Total assets	$	383,768		$	357,741

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	22,576		$	17,353
Accrued expenses and other current liabilities		25,505			35,302
Operating leases, current		35,155			37,221
Total current liabilities		83,236			89,876

Long-term liabilities:
Operating leases, non-current		141,479			117,316
Other long-term liabilities		2,099			1,596
Total long-term liabilities		143,578			118,912

Commitments and contingencies

Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued		—			—
Common stock, $0.01 par value, 125,000,000 shares authorized, 79,329,785 and 79,033,378 shares issued at August 3, 2024 and February 3, 2024, respectively		793			790
Additional paid-in capital		327,235			325,202
Treasury stock at cost, 21,094,463 shares at August 3, 2024 and 21,041,661 shares at February 3, 2024		(130,348	)		(130,137	)
Accumulated deficit		(40,726	)		(46,902	)
Total stockholders' equity		156,954			148,953
Total liabilities and stockholders' equity	$	383,768		$	357,741


	For the Three Months Ended					For the Six Months Ended
	August 3, 2024		July 29, 2023			August 3, 2024		July 29, 2023
	(Fiscal 2024)		(Fiscal 2023)			(Fiscal 2024)		(Fiscal 2023)

Sales	$	124,820	$	140,043		$	240,309	$	265,485
Cost of goods sold including occupancy costs		64,649		69,664			124,456		134,190
Gross profit		60,171		70,379			115,853		131,295

Expenses:
Selling, general and administrative		53,662		47,446			101,185		95,727
Depreciation and amortization		3,385		3,468			6,663		6,945
Total expenses		57,047		50,914			107,848		102,672

Operating income		3,124		19,465			8,005		28,623

Loss on termination of retirement plans		—		(4,174	)		—		(4,174	)
Interest income, net		551		505			1,121		844

Income before provision for income taxes		3,675		15,796			9,126		25,293
Provision for income taxes		1,292		4,163			2,950		6,693


Net income	$	2,383	$	11,633		$	6,176	$	18,600


Net income per share - basic	$	0.04	$	0.19		$	0.11	$	0.30
Net income per share - diluted	$	0.04	$	0.18		$	0.10	$	0.28

Weighted-average number of common shares outstanding:
Basic		58,233		61,977			58,135		62,334
Diluted		61,117		65,449			61,035		65,829


	For the Three Months Ended					For the Six Months Ended
	August 3, 2024		July 29, 2023			August 3, 2024		July 29, 2023
	(Fiscal 2024)		(Fiscal 2023)			(Fiscal 2024)		(Fiscal 2023)
Net income	$	2,383	$	11,633		$	6,176	$	18,600

Other comprehensive income before taxes:
Retirement plans		—		65			—		131
Recognized loss on termination of retirement plans		—		4,174			—		4,174
Other comprehensive income before taxes		—		4,239			—		4,305
Tax effect related to items of other comprehensive income		—		(1,111	)		—		(1,128	)
Other comprehensive income, net of tax		—		3,128			—		3,177
Comprehensive income	$	2,383	$	14,761		$	6,176	$	21,777


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


						Additional
	Common Stock					Paid-in			Treasury Stock						Accumulated
	Shares			Amounts		Capital			Shares			Amounts			Deficit			Total
Balance at February 3, 2024		79,033		$	790	$	325,202			(21,041	)	$	(130,137	)	$	(46,902	)	$	148,953
Board of directors' compensation		18			1		111			—			—			—			112
Stock compensation expense		—			—		875			—			—			—			875
Issuance of common stock, upon RSUs release		129			1		(1	)		—			—			—			—
Shares withheld for taxes related to net share settlement		(14	)		—		(48	)		—			—			—			(48	)
Exercise of stock options		132			1		75			—			—			—			76
Repurchase of common stock		—			—		—			(53	)		(211	)		—			(211	)
Net income		—			—		—			—			—			3,793			3,793
Balance at May 4, 2024		79,298		$	793	$	326,214			(21,094	)	$	(130,348	)	$	(43,109	)	$	153,550

Board of directors' compensation		23			—		112			—			—			—			112
Stock compensation expense		—			—		905			—			—			—			905
Exercise of stock options		8			—		4			—			—			—			4
Net income		—			—		—			—			—			2,383			2,383
Balance at August 3, 2024		79,329		$	793	$	327,235			(21,094	)	$	(130,348	)	$	(40,726	)	$	156,954


																			Accumulated
							Additional												Other
	Common Stock						Paid-in			Treasury Stock						Accumulated			Comprehensive
	Shares			Amounts			Capital			Shares			Amounts			Deficit			Loss			Total
Balance at January 28, 2023		78,230		$	782		$	321,516			(15,625	)	$	(105,386	)	$	(74,756	)	$	(4,928	)	$	137,228
Board of directors' compensation		15			—			108			—			—			—			—			108
Stock compensation expense		—			—			404			—			—			—			—			404
Restricted stock units (RSUs) granted for achievement of performance-based compensation, reclassified from liability to equity		—			—			1,146			—			—			—			—			1,146
Issuance of common stock, upon RSUs release		251			3			(3	)		—			—			—			—			—
Shares withheld for taxes related to net share settlement		(81	)		(1	)		(445	)		—			—			—			—			(446	)
Exercise of stock options		81			1			215			—			—			—			—			216
Other comprehensive income, net of taxes		—			—			—			—			—			—			49			49
Net income		—			—			—			—			—			6,967			—			6,967
Balance at April 29, 2023		78,496		$	785		$	322,941			(15,625	)	$	(105,386	)	$	(67,789	)	$	(4,879	)	$	145,672

Board of directors' compensation		25			—			112			-			—			—			—			112
Stock compensation expense		—			—			411			-			—			—			—			411
Exercise of stock options		85			1			48			-			—			—			—			49
Repurchase of common stock, including excise tax		—			—			—			(2,249	)		(10,905	)		—			—			(10,905	)
Other comprehensive income, net of taxes		—			—			—			—			—			—			3,128			3,128
Net income		—			—			—			—			—			11,633						11,633
Balance at July 29, 2023		78,606		$	786		$	323,512			(17,874	)	$	(116,291	)	$	(56,156	)	$	(1,751	)	$	150,100