Earnings call transcript: Destination XL Group Q2 2025 results beat EPS expectations

Destination XL Group reported its Q2 2025 financial results, surpassing EPS expectations with an actual EPS of $0.0223, compared to a forecasted loss of $0.03. This significant beat resulted in a pre-market stock price surge of 15.38%, reaching $1.5. The stock has faced significant pressure, down over 50% year-to-date, with a current market capitalization of approximately $70 million. The company faced challenges with a decline in net sales and comparable sales.

InvestingPro analysis reveals 12 key investment tips for DXLG, including insights on the company’s volatility patterns and management’s share buyback activities. Subscribers can access the complete analysis on the platform.

Key Takeaways

• Destination XL Group beat EPS expectations, reporting $0.0223 against a forecasted -$0.03.
• Pre-market stock price increased by 15.38% to $1.5.
• Net sales declined to $115.5 million from $124.8 million year-over-year.
• Strategic shift towards private brands aims to improve margins.
• Expansion of Nordstrom partnership continues.

Company Performance

Destination XL Group reported a challenging quarter with a 9.2% decline in comparable sales and a reduction in gross margin rate to 45.2% from 48.2% the previous year. The company is navigating tepid demand in the apparel sector and increased competition in the big and tall market. According to InvestingPro data, the company maintains a current ratio of 1.45, indicating sufficient liquidity to meet short-term obligations. The company’s overall Financial Health Score stands at 1.6, labeled as "WEAK" by InvestingPro’s comprehensive analysis system.

Financial Highlights

• Revenue: $115.5 million, down from $124.8 million last year.
• Earnings per share: $0.0223, significantly above the forecasted -$0.03.
• Gross margin rate: 45.2%, down from 48.2% last year.
• EBITDA: $4.6 million, compared to $6.5 million in the previous year.

Earnings vs. Forecast

Destination XL Group’s EPS of $0.0223 beat the forecast of -$0.03, marking a surprise of -174.33%. This unexpected positive result highlights the company’s effective cost management and strategic initiatives, contrasting with the forecasted loss.

Market Reaction

Following the earnings announcement, Destination XL Group’s stock saw a pre-market increase of 15.38%, reaching $1.5. This upward movement reflects investor optimism in response to the company’s earnings beat and strategic direction. Analyst consensus suggests potential upside, with price targets ranging from $1.30 to $2.00. Based on InvestingPro’s Fair Value analysis, the stock appears to be currently undervalued. For more insights on undervalued opportunities, visit our Most Undervalued Stocks list.

Outlook & Guidance

The company is prioritizing free cash flow and pausing new store openings. It aims to mitigate potential tariff impacts through pricing strategies and vendor negotiations. The strategic shift towards private brands is expected to enhance margins, with a target of over 60% private brand mix by 2026.

Executive Commentary

"Our objective is to try to understand these shifts and maneuver our plans and tactics in response to changing consumer behavior," stated CEO Harvey Kanter. He emphasized the value creation potential in private brands over national brands. CFO Peter Stratton noted the company’s strategy of investing excess cash in U.S. Government treasury bills to preserve liquidity.

Risks and Challenges

• Declining sales and gross margins could pressure future profitability.
• Macroeconomic uncertainty may affect consumer spending.
• Increased competition in the big and tall market presents challenges.
• Potential tariff impacts, though being mitigated, could affect costs.
• Operational adjustments, such as headcount reductions, may impact morale.

Q&A

During the earnings call, analysts inquired about the private brand strategy and its impact on margins. Discussions also covered the potential tariff impacts and maintenance capital expenditures, which are expected to range between $5 million and $12 million annually.

Full transcript - Destination XL Group Inc (DXLG) Q2 2026:

Conference Operator: Day, everyone, and welcome to the Destination XL Group, Inc. Second Quarter Fiscal twenty twenty five Financial Results Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to Ms. Shelly Mokas, Vice President of Financial Reporting and SEC Compliance at DXL.

Please go ahead,

Shelly Mokas, Vice President of Financial Reporting and SEC Compliance, Destination XL Group: Thank you, operator, and good morning, everyone. Thank you for joining us on Destination XL Group’s second quarter fiscal twenty twenty five earnings call. On our call today are our President and Chief Executive Officer, Harvey Kanter and our Chief Financial Officer, Peter Stratton. During today’s call, we will discuss some non GAAP metrics to provide investors with useful information about our financial performance. Please refer to our earnings release, which was filed this morning and is available on our Investor Relations website at investor.dxl.com for an explanation and reconciliation of such measures.

Today’s discussion also contains certain forward looking statements concerning the company’s strategic priorities, potential impact of current tariffs and other expectations for fiscal twenty twenty five. Such forward looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those assumptions mentioned today due to a variety of factors that affect the company. Information regarding risks and uncertainties is detailed in the company’s filings with the Securities and Exchange Commission. I would now like to turn the call over to our CEO, Harvey Kanter. Harvey?

Harvey Kanter, President and Chief Executive Officer, Destination XL Group: Thank you, Shelly, and good morning, everyone. I appreciate all of you joining us today to hear about our business and given the timing being just prior to the upcoming long weekend. There has been a lot going on at DXL for the past few months, and I’m hoping to provide a comprehensive update to you today. As most of you have likely already seen in our earnings release, which was published earlier this morning, our financial results continue to be under pressure. Sales demand for apparel has been tepid all year and we believe our big and tall sector customers continue to hold very tight to their wallets as we observed negative comparable sales trend across the business in the second quarter.

We began to see this trend over a year ago and our average customer continues to gravitate towards lower priced goods and select promotions, signaling a consumer who is carefully choosing where and how he spends his money. The objective for us is to try to understand these shifts and maneuver our plans and tactics in response to changing consumer behavior. I am pleased to let you know that our results in July were better than June and in August, we’ve seen an uptick in business with results month to date better than July. Our store traffic has begun to improve and our comp sales results for August are coming in month to date with a modest improvement from July’s negative 7% and from Q2 in total, which was negative 9.2%. The macro environment continues to be dynamic right now and full of uncertainty.

As such, it is challenged for us to provide clarity around its behavior and hence what we expect to deliver. Despite the difficult sales environment we posted in the second quarter, I must say we remain optimistic for our business with a strong conviction for upside when the current down cycle begins to turn. We still have half a year to go in 2025 and preparations for 2026 are well underway. To kick things off today, let me get through a few specifics on the quarterly results. We’ll start with comparable sales, which I just mentioned declined 9.2% for the second quarter.

Stores outperformed direct with comparable store sales down 7.1%, while direct was down 14.4%. Collectively, we saw sequential improvement in comp sales throughout the quarter. In May, we saw that total comp sales declined 10.4%. In June, comp sales improved to a negative 9.6%. And in July, comp sales improved again to negative 7%.

In stores, the primary reason for the comp sales decline remained traffic, while dollars per transaction continued to see downward pressure with slight improvement in conversion. In the direct business, we’ve had some challenges with the new e commerce platform for our website, and we continue to work through these issues and conduct a thorough audit of our website UIUX and operating elements. This examination has helped us to identify further opportunities for performance enhancements across our tech stack. The technology and product leaders have started work on eight different work streams designed to further improve overall site speed, user experience and conversion. I’m happy to report that we are seeing greater stability with the website and conversion rates are improving.

Traffic continues to be challenging along with continued pressure on average order value within the digital side of the business. Our digital customer continues to be price sensitive, and we believe he is cross shopping largely on item and price. Given this orientation around item and price, we’ve been making changes in our promotional strategy and cadence to address this sensitivity. One example would be from Memorial Day weekend, where we promoted Polo, but did not repeat the large assortment of designer brands from 2024. This decision contributed to one of the softer periods of the quarter, but we felt this was appropriate as we are leaning in more to our private brands.

Conversely, we also offered 20% off as a promotional test at the June, which allowed customers to capitalize on the entire assortment, which resulted in one of the strongest periods of the quarter for both the web and app and gave us momentum heading into July. We are not only executing promotions, but we are also testing and using an AB type framework to assess incrementality to ensure there is a payout for the margin hit embedded in the promotion uptick we’ve begun to execute. I just touched on a couple of examples around promotions, but this is certainly an area worth further elaborating on. We have started to reframe our promotional strategy around a more disciplined strategic framework that prioritizes relevance, competitiveness and a stronger perception of value. Our customer has been telling us that we need to create greater levels of value and go forward as we approach and treat promotions like managed categories with a clear and deliberate intent around timing, product focus and purpose to drive sales, engagement and brand equity.

Historically, promotions were often reactive, used primarily to clear aging or excess inventory, resulting in margin erosion and training customers to wait for markdowns. As I noted, we’re using a level of process, structure and discipline to drive promotional offers using sales per markdown dollar, unit velocity and customer engagement metrics, which we believe will end in promotions, which drive incremental sales and margin dollars, albeit at a reduced margin rate. With improved instrumentation, we are better positioned to maximize the return on every markdown dollar, better align with strategic imperatives and precisely target specific customer cohorts. The level of promotion has increased, but merchandise margins are still above pre pandemic averages. We feel like we have struck the right balance, still not as aggressive as many other apparel retailers, but with greater acknowledgment and actions in our promotional strategy, giving the consumer and ourselves a better business outcome.

That said, our promotions will continue to evolve based on the consumer and our results. We are also responding to changes in customer behavior by taking a hard look at our assortment and addressing barriers to entry. All of our customers are expecting better value. For some, that manifests through lower price points and more promotions. For others, it is better service and access to all the great brands that he loves.

The initial area that we are attacking is shifting our core assortment to provide a greater breadth and depth to our private brand assortment. In our private brands, we own the product, we own the design, and we can control better the margins that we can with our national brand, designer brands. We have been observing a migration from designer brands to private brands for over a year now, and this brings us to perhaps the most significant strategic shift that we have undertaken in quite some time. Over the course of the next two years, we will be strategically shifting our assortment to prioritize private brands. To support this focus, we are reducing investment in underperforming national brands, which will create a realignment to drive higher profitability and enable us to leverage strategic promotions to fuel customer acquisition and sales growth.

Our private brand portfolio is designed to combine a balance between trend right fashion and core essentials, while offering the agility to respond to quickly emerging trends, capitalize on overperforming categories and address underperforming businesses. Our intent is to grow private brand sales penetration from today’s 56.5% to greater than 60% in 2026 and greater than 65% in 2027, depending on customer response and brand resonance. We are confident with the strength of our assortment, enhanced storytelling and strategic marketing efforts, we can drive greater customer loyalty and position our private brands as a primary reason customers choose DXL. To support this initiative, we are reducing the space and investment allocated to national brands that have experienced declining customer demand and underwhelming sales performance. We will continue to rigorously evaluate our national brand portfolio, eliminating those that no longer resonate with our customer.

To be clear, national brands will remain a key lever for customer acquisition, but we are strategically evaluating their performance to determine future eliminations. One great example of a brand driving greater customer acquisition opportunity has been the launch of TravisMathew. We will continue to add national brands on a selected basis when it addresses a gap in the assortment. So we’re going to see more leverage on the private brand side as we review opportunities that create the same draw and loyalty once delivered by national designer brands. One example here is athleisure, where we believe there are opportunities to bolster our assortment with new product lines.

By intentionally shifting towards private brands, we gain greater control over design, inventory flow and profitability, allowing us to margin opportunities to invest greater in strategic promotions that drive customer acquisition, create differentiation and accelerate sales growth. Let me also touch on the competitive landscape in the big and tall space, which we believe is becoming increasingly competitive as other men’s apparel retailers appear to be expanding their big and tall exposure and encroaching on our end of rack sizes. As the macro environment is also difficult for apparel retailers who trade in traditional sizing, more competitors are dipping the toe into the big and tall space. Expanding into extended sizes is an easy modification for traditional size retailers with customers having more choices across different price points and different styles. We are seeing increased competition from mass and general retailers competing on price, while direct to consumer brands attract customers with fresh marketing and storytelling.

Off price and warehouse retailers are also in the mix, competing on convenience and value. The increase in competition is further fragmenting customer loyalty and possibly contributing to some of the decline we are seeing in our business. The question is what DXL is doing about it and I’m happy to start detailing some of those tactics now. One of the areas that we’ve talked about before and we are scaling up now is our FitMap initiative. We have been engaging on a much deeper level with our guests and we are making a bigger commitment to FitMap.

First, we are making a bigger commitment with training. We have recently promoted someone internally into a newly created position of Vice President of Digital Fit Technology and Business Development. This initiative is going to transform the customer experience, drive operational excellence and position the company at the forefront of personalized retail. Our DXL associates can now access customer fit profiles, style preferences and purchase history, enabling more confident recommendations and deeper customer engagement. Since the inception of this program over a year ago, we have recorded over 23,000 fit profile scans.

Our FitMap technology is currently deployed in 62 stores with an additional 24 locations set to launch by the August, bringing the protected total to 86 operational sites ahead of the seasonal peak. We are seeing a greater acceleration in the number of scans now that we are dedicating resources to this full time. We are getting much better reporting on engagement across our customer file, existing, new to file and reactivated. We are carefully analyzing customer value, average order value, customer spend and Net Promoter Score. FitMap allows us to align innovation with customer centricity.

DXL is building a smarter and more agile and more personalized retail experience that sets a new standard in the big and tall apparel industry. Next, I want to touch on a subject that is on everyone’s mind and is providing some color on tariffs and how we see tariffs impacting our business. First of all, like everyone else on this call, we’ve been closely monitoring this tariff situation and are evaluating our options to mitigate the situation. At the current time, we have estimated that if currently enacted tariffs remain in effect through year end, they could increase our inventory cost by just under $4,000,000 in fiscal year twenty twenty five. This estimate is net of substantial cost concessions from our private brand vendors.

We’ve also planned to take retail price increases over the remainder of fiscal twenty twenty five and into 2026 to offset some of the tariff risk. We are also aggressively pursuing cost saving measures across the supply chain. One such opportunity involves leveraging tariff exemptions for garments that contain a minimum of 20% American made materials. DXL has explored this option for its Supima dress shirt program, which currently includes a 19.12% American made fiber. Efforts are underway to modify the fabric composition to meet the exemption threshold, although the feasibility of this approach remains under evaluation.

Conversations with our national brands are ongoing, but upcoming cost and retail increases remain unclear at this time. This evolving and unpredictable tariff landscape poses significant challenges to operational efficiency and financial performance for both retailers and manufacturers. With sourcing already diversified across multiple regions, DXL is actively evaluating strategic production shifts in response to ongoing trade negotiations. In the next few months, we’re going to be implementing strategic pricing adjustments across certain product lines. To that end, DXL is conducting a comprehensive review of the pricing architecture for all private brands.

The objective is to identify opportunities to adjust retail prices without adversely affecting product performance or customer demand. The pricing adjustments will manifest through both promotional lines such as our twofour pricing program and through the increase in certain ticket prices. We are expediting the reticketing process across all retail locations, our distribution center and our vendor networks. This exercise is projected to take approximately eight weeks to execute and is designed to minimize the negative financial impact for the current fiscal year and strengthen the company’s position for the year ahead. We believe the global tariff situation will result in the MSRP increases for our national brands and accelerate migration and customer demand to our private brand assortment.

I do also want to share a few comments on some of the elements that we believe we have controlled well and despite the challenging environment around us. We believe we are running a clean business and doing a respectable job by controlling those elements around us that are within our control. Our operating expenses are down year over year. We continue to rationalize our corporate overhead to mitigate our sales challenges. Headcount corporate headcount is down 15% since the pandemic.

And our inventory balance at the end of Q2 was 78,900,000.0 as compared to $78,600,000 last year or a modest increase of $300,000 And in comparison, our inventory was down 28.5% as compared to 2019. The increase in inventory was due to our acceleration of receipts to help mitigate the impact of tariffs. It is worth reiterating that our focus on controllable elements of the business such as inventory is a testament to our operating regimen. Despite the weak sales demand, our clearance penetration at 10.2% remains in line with our long term target of 10% and is down slightly from 10.4% in the 2024. When conditions open up and demand accelerates, we believe there’s an opportunity to leverage our operating costs.

Next, I want to give you a quick update on store development. Through the end of the second quarter, we have opened six new stores in different white space markets across the country. We expect to open two more stores in the third quarter of this year, which will bring our total to 18 new stores opened in the past two years. Although there are some bright spots, collectively our new stores are performing below our initial expectations. We attribute the soft results to the same issues playing the stores across the entire portfolio.

Weak customer demand for apparel and competing macroeconomic priorities. That being said, two weeks ago was the first week that new stores collectively for the first time exceeded sales plan. We still believe in these stores and the timing is everything as the saying goes. We opened these stores during a downturn in the sector and we cannot argue the results have been tough. We believe there are other white space markets across The U.

S. That are deserving of a DXL store, but we have deliberately put future store openings on hold as we prioritize strategic initiatives with a lower capital investment. Right now, we are maintaining an orientation towards generating free cash flow. Once our business stabilizes and we can reverse the comp sales trends, we will revisit our store development plan. The next topic that I want to update you on is our distribution alliance and collaboration with Nordstrom, which has been a great opportunity to expose more customers to the DXL assortment.

Nordstrom will still represent a small percentage of total sales, but we are motivated by what we believe is a new and meaningful opportunity to grow. Our top performing brands have been Vineyard Vines, TravisMathew and some of our private brands, including Harbor Bay, Oak Hill and True Nation. DXL participated in Nordstrom’s anniversary sale, which saw a very strong demand. We’ve been collaborating with the Nordstrom team on DXL marketing initiatives, and we are bringing more big and tall exposure to their site. We are excited about this initiative and are already having discussions with Nordstrom’s team about next year.

And now, I’m going to ask Peter to run you through the second quarter financials before I come back for some closing thoughts. Peter?

Peter Stratton, Chief Financial Officer, Destination XL Group: Thank you, Harvey, and good morning, everyone. I’ll start with some additional color around our second quarter financial performance. Net sales for the second quarter were $115,500,000 as compared to $124,800,000 in the second quarter of last year. The decrease in net sales was primarily due to a decrease in comparable sales of 9.2%, partially offset by an increase in non comparable sales from new stores. As Harvey noted, sales trends improved month over month with comparable sales down 10.4% in May, down 9.6% in June and down 7% in July.

Overall, the second quarter decline was consistent with the first quarter as customers continued to pull back on discretionary spending and shifted towards our value driven private brands, which sell at lower average unit retails but generate higher margins. However, the sequential improvement, which has continued into August, gives us hope that we can continue to close the gap in comp declines in the second half as we work towards getting back to positive comps and sales growth. Our gross margin rate, inclusive of occupancy costs, was 45.2% as compared to 48.2% in the second quarter of last year. The 300 basis point decrease was primarily due to a two forty basis point increase in occupancy costs from the deleveraging on lower sales and increased rents from new stores and lease extensions. Merchandise margins decreased by only 60 basis points as compared to the second quarter of last year, primarily due to a higher markdown rate from promotional offers and marketing initiatives and increased freight from accelerating inventory receipts ahead of planned tariff increases.

These negative factors were partially offset by a benefit from the shift in product mix from national brands to private brands. Arif had a minimal impact on our second quarter margins, approximately 20 basis points, but are expected to become more impactful in the second half of the year as the new higher rates take effect. Despite bringing in some receipts early, our total inventory levels are flat to last year, and we feel very good about our inventory position. Clearance levels remain at approximately 10%, which is in line with our target and with last year. Inventory management continues to be a critical strength, enabling us to navigate the current down sales cycle.

Moving on to selling, general and administrative expenses, our SG and A expense as a percentage of sales decreased to 41.2% as compared to 43% in the 2024. On a dollar basis, SG and A expenses decreased 6,100,000 primarily due to lower marketing spend and lower performance incentive accruals, partially offset by an increase in employee health care benefits. Last year’s Q2 results included $3,600,000 of brand advertising spend, which we did not anniversary in 2025. As a result, our ad to sales ratio for Q2 decreased to 6.1% from 8.8%. For the full year, we still expect to spend approximately 5.9% of our sales on marketing costs.

Our EBITDA for the quarter came in at 4,600,000 as compared to $6,500,000 for the second quarter of last year. The decrease in earnings was primarily driven by our lower sales, partially offset by reductions in operating expenses. Next, I’ll turn to cash flow and liquidity. We continue to feel very good about the overall strength of our balance sheet. We finished the quarter with cash and short term investments of $33,500,000 as compared to $63,200,000 a year ago, with no outstanding debt in either period and availability of $70,100,000 under our revolving credit facility.

The decrease in cash from a year ago includes a share repurchase equivalent to $13,600,000 and $14,600,000 of capital spent on new store development over the past twelve months. For the six months year to date, our free cash flow, which we define as cash flow from operating activities less capital expenditures, was a use of $14,200,000 of cash as compared to cash generation of $3,200,000 last year. Most of that decrease was driven by our lower earnings and the timing of payables associated with the acceleration of inventory receipts in the first half of the year. We continue to keep our excess cash invested in S.

Government treasury bills to earn interest while preserving liquidity. I’d like to conclude this quarter’s financial update by highlighting two recent big wins for DXL that will help to provide financial stability for the next several years. First, in June, we signed a seven year lease extension of our corporate headquarters and distribution center in Canton, Massachusetts. This is the sole location from which we fulfill all of our direct to consumer and store replenishment orders. Our old lease was set to expire at the end of this fiscal year, and extending at this location made good financial sense and provide certainty for our base of operations going forward.

Second, earlier this month, we signed a five year extension of our credit facility with Citizens Bank. The new credit facility includes terms and rates that are substantially the same as our old facility, which we were very pleased to secure in the current lending environment. As before, our availability under the credit facility is primarily supported by our inventory and our availability calculation before and after this amendment was unchanged. Based on the lower inventory levels with which we have been able to operate over the past few years And based on our future projections, we reduced the size of the credit facility from 125,000,000 to $100,000,000 which will save us money on unused line fees. Although we currently have no need to borrow under the credit facility, securing this extension for five more years provides available capital and financial security for the future.

This extension also represents a strong endorsement from our bankers who are choosing to be an important part of the DXL story as we move forward. Now I’d like to just turn the call back over to Harvey for some closing comments.

Harvey Kanter, President and Chief Executive Officer, Destination XL Group: Thanks, Peter. Before we take questions and although likely the single most repetitive comment I make, I must once again thank the DXL team that I work with every day. Their hard work and dedication in the stores, in the distribution center, in the corporate office and the guest engagement center provide a level of optimism for the opportunity ahead. Their passion and commitment as a team has served our underserved customer well and is our reason for being, our purpose and why we do what we do. It is because of the great team and culture that we’ve created that I want to get up every morning and keep moving on this journey.

Thank you for all your hard work and commitment in our pursuit of serving big and tall men and making DXL the place where they can choose their style and wear what they want. And with that, operator, we will now take questions.

Conference Operator: Thank you. Our first question comes from Jeremy Hamblin with Craig Hallum Capital Group. Your line is open.

Jeremy Hamblin, Analyst, Craig Hallum Capital Group: Good morning and thanks for taking the questions. I wanted to come back to the strategy of shifting to more private brands. And if you could just walk us through again where your mix is on private brands today and what you’re expecting that to migrate to over the next couple of years. And then just a reminder of what the product margin difference is between the national brand average product margin versus the private brands.

Harvey Kanter, President and Chief Executive Officer, Destination XL Group: Jeremy, great question. It’s Harvey Kanter. Why we’re doing what we’re doing and then try to back into really what you’ve asked for. We believe that given the product quality that we can create on our private brand scenario, And I’ll remind you that we are in factories that specialize in big and tall, that have unique and distinctly different characteristics than a traditional factory in terms of the lay down and the quality. So based on the quality, based on the ability to create a proprietary fit and bring it to market in the way that we have that continue to do, and then ultimately even with tariffs, the belief and knowledge that the value we can create in our private brands is demonstrably greater than national brands.

And obviously, a national brand is the reason we abandoning that, but there are distinct differences. We believe that the customers’ migration, which we are actually seeing now live take place, it’s something we want to lean into. We’ve already started that process. I’ll remind you that it’s hard to believe I’ve been here now in my seventh year, but way back when our private brands were under 50%, 48%, 49% something like that with 52 quickly becoming the penetration of net. And then today we’re at 56.5%.

So we’ve already seen a meaningful migration over the past couple of years and as consumers hunt for value and being more discerning about what they buy, they are looking for absolute lower price points. And in some respects not only looking to not lose quality, but in our case with the better quality. We believe it’s an opportunity to really lean in. And ultimately, your last question or the last part of your question about margin is really apropos here because while we would tell you that we’re in the low 50s typically on a national brand on an IMU basis, we’re probably in the upper 60s to mid 70s on an IMU basis for private brands. So we start out with a distinctly different IMU.

We don’t necessarily end up at the same place because we have the wherewithal to use our private brands promotionally in a strategic way that allows us to do that and still margin out above national brands, but not with that level of gap at the end, just at the beginning. And then obviously still a meaningful gap on merch margin and gross margin when we’re done, but not as great as we had initially started with IMU. So hopefully I’ve helped you appreciate some of the I wouldn’t even call them nuances, big strategic levers and the reason for our actions and belief that over the next couple of years the opportunity is yet ahead to really bring that to market not just on margin but on quality and the consumer’s response.

Jeremy Hamblin, Analyst, Craig Hallum Capital Group: That’s helpful. There was a little bit of feedback. I wanted to just confirm. So a couple of years from now, I think what you said is today you’re at like 56.5% private brand and that total is going towards like maybe 65% over the next The couple of

Harvey Kanter, President and Chief Executive Officer, Destination XL Group: way we’ve articulated is we expect that by fall of next year, we will be over 60% coming from really today over 56%. And by 2027, in the year of 2027, we’re expecting to be north of 65%.

Jeremy Hamblin, Analyst, Craig Hallum Capital Group: Okay, great. And it sounds like there’s well over 1,000 basis point differential or benefit to margin.

Harvey Kanter, President and Chief Executive Officer, Destination XL Group: Yes, think when all is said and done on a merchant margin basis, there is something in the realm of what you just talked about. The IMU is greater initially, but then to the point I talked about strategic promotion, yes, you end up at a merchant margin more similar to what you just defined.

Jeremy Hamblin, Analyst, Craig Hallum Capital Group: Got it. That’s great. Okay. And then I wanted to come back to tariffs here for a second, still obviously an important point. I know it’s a volatile and fluid situation.

But if the impact that you’re anticipating is about $4,000,000 for fiscal twenty twenty five, at this point, do you have kind of a range of what you think it might look like for 2026, all else being equal? I mean, I’m sure there’s mitigating factors that you’re looking at, additional vendor negotiations, etcetera. But do you have kind of a range of what you think the

Harvey Kanter, President and Chief Executive Officer, Destination XL Group: Jeremy, think I would love to lean in and give you an answer to your question, but I don’t know if you’ll appreciate this. But the reality is our range in 2025 has already been from literally $1,000,000 in change to something north of $5,000,000 and we’re now obviously telling you we’re just under $4,000,000 The degree to which the unfortunate reality of the execution of tariffs changes daily is something that doesn’t give us great confidence that I can articulate the answer the question you asked for ’26. So rather than try to give you a range that I think is just kind of sort of almost irrelevant, I gave you just a range just now that literally real time has been between 1,000,000 and 6,000,000 and we’re hovering south of $4,000,000 at this moment. But no different than literally India just executed the Russian tariff increase because of the gas going into India. These various kind of movements left and right almost daily make it almost impossible to articulate with a great deal of confidence real time, yet alone 12 from now.

Jeremy Hamblin, Analyst, Craig Hallum Capital Group: Fair point. Let me shift gears then and talk about kind of capital plans. You’ve got obviously, you’ve got a couple more stores that you’re opening this year. Know you’re not planning to do that in 2026. But wanted to see if you could provide an outline of where you think your CapEx budget might be for 2026?

Or at least maybe kind of what you expect maintenance CapEx to

Harvey Kanter, President and Chief Executive Officer, Destination XL Group: be?

Peter Stratton, Chief Financial Officer, Destination XL Group: Sure. So let me take that one, Jeremy. You’re right. We’re putting a pause on store development. So we have two more stores to open.

And actually, think we just opened one store. So there’s one more still to go in September. And then we’ll be to 18 stores really since we started building new stores after the pandemic, we’re putting a pause on that really to wait for the business to stabilize and keep our focus on free cash flow. With your question regarding maintenance CapEx, yes, every year, there is always some level of infrastructure CapEx where we’re making investments in our technology infrastructure, our distribution infrastructure and so forth. Typically, that’s running it could be anywhere from 5,000,000 to $10,000,000 $12,000,000 a year.

I’m not going to give you a number yet for 2026. We’re still kind of working on those plans, and a lot of that will be dependent on how the second half of the year comes together. But that gives you some general sense of yes, there’s always some level of maintenance CapEx that we typically have. And it’s usually up towards, I would say, the $10,000,000 mark.

Jeremy Hamblin, Analyst, Craig Hallum Capital Group: Great. Thanks so much for taking my questions. Appreciate it.

Conference Operator: Thank you. And our next question comes from Bryce Butler with RockBot. Your line is open.

Bryce Butler, Analyst, RockBot: Hi. Thanks everyone for allowing the questions. My question is in regard to retail in store retail media. With the projected spend of retail media set to be about $1,000,000,000 by 2028 and with more apparel brands leaning into retail media, I was curious to hear, does the company have a current strategy or future strategy when it comes to in store media and retail media promotions through their in store media?

Harvey Kanter, President and Chief Executive Officer, Destination XL Group: Bryce, I think I needed to be a little clear on what you’re referring to as in store media. So, maybe I can answer the question better.

Bryce Butler, Analyst, RockBot: Sure. I’m talking ads or messaging that pushes through the audio or appears on the screens through digital signage that’s promoting brands and opportunities within the store. So for any private brand or any public brand, pushing that messaging out to your consumer base within the store, giving them an opportunity to see promotions that may lead to purchases?

Harvey Kanter, President and Chief Executive Officer, Destination XL Group: Yeah. We do have both in store audio. It’s mostly music, but there is in store audio where we populate it with messages that are appropriate for our brand’s positioning. Typically, it talks about things like fit and not so typically about brands. There are selective mentions of some of our most important brands like Polo Ralph Lauren, but there are select brands that we talk about occasionally.

In addition to that, probably more relevant, and you may or may not know this, we do have digital TVs in nearly every store and we create distinct content for those TVs in store that play and that shows both our customer in our clothes and some level of advertising around our brands. But what we don’t do is we don’t specifically promote via audio or the in store media, things like promotion, once they’re in the store. It’s really about the experience that is most important to us, our Net Promoter Score, which I don’t know how familiar you are with the brand, but the 80s in the Net Promoter Score is a rather remarkable number, and it’s all based on the experience. And typically, our guests know our store manager and store team, and our team knows our guests. And so it’s really about less about selling them stuff and understanding why they came in and can we help them.

For lack of a better way to say it, it may seem odd, but in some many cases they are friends. They literally know each other and shop with us for a very long period of time. They’re less about a client and more about just, hey, I was in the market, wanted to see what you had in today, and they pop in. So again, less promotional, less direct marketing once they’re in the store, but certainly a level of positioning that we think reinforces the relevance of DXL in terms of fit and sizes that we carry in some of the really more important national brands that the consumer finds relevant in addition to our private brands.

Bryce Butler, Analyst, RockBot: Great. Thank you for that answer. I appreciate it.

Harvey Kanter, President and Chief Executive Officer, Destination XL Group: You bet. Operator, it looks like that is the extent of our questions. We will regroup in about ninety days at the end of the third quarter and hopefully look forward to everyone joining us then for our updated quarterly results. And with that, I’ll wish everyone a safe holiday this holiday weekend. Stay cool And thank you for your attendance today.

Have a great, great fall.

Conference Operator: Thank you. This does conclude the program. You may now disconnect. Good day.

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