Destination XL Group (NASDAQ:DXLG) reported second-quarter fiscal 2026 net sales of $111.6 million, down 3.4% from a year earlier, while adjusted EBITDA rose to $7.7 million, or 6.9% of sales, from $4.7 million in the prior-year quarter.
Adjusted earnings per share were $0.05, compared with $0.01 a year earlier. Comparable sales declined 3.5%, with store comparable sales down 4.3% and direct-business comparable sales down 1.6%.
Sales Trends Improve Sequentially
Chief Financial Officer Peter Stratton said monthly comparable-sales trends improved through the quarter, moving from a 5.7% decline in May to declines of 2.8% in June and 1.9% in July. He said store traffic remained the company’s largest challenge, though strong conversion rates and dollars per transaction partially offset the traffic pressure.
In the direct business, Stratton cited improved conversion following enhancements to the company’s app, website experience and site speed. Direct results also benefited from clearance-product performance, primarily online. The company generated demand through paid search, paid social and programmatic marketing, he said.
DXL said it has seen higher customer-acquisition rates since the fourth quarter, though repeat and lapsed customers have remained more cautious in their spending. Customer surveys indicated that reduced traffic reflected a mix of weight-loss journeys, changing spending priorities and delayed purchasing decisions, according to Stratton.
The company said it is emphasizing private brands, particularly Harbor Bay, as an opening-price and value offering. DXL also is shifting its promotional calendar toward higher-margin and higher-inventory-risk categories in an effort to stimulate demand while protecting profitability and reducing inventory exposure.
Tariff Refund Lifts Gross Margin
Gross margin, including occupancy costs, was 47.9%, up 270 basis points year over year. Stratton said the increase was primarily driven by a $4.6 million refund received during the quarter after DXL submitted an IEEPA tariff-refund claim through the U.S. Customs and Border Protection portal near the end of the first quarter.
Excluding the tariff refund, merchandise margin would have been approximately 70 basis points below the prior-year level, primarily due to higher markdowns on slower-moving seasonal products and increased shipping costs from fuel surcharges. Occupancy costs were flat in dollars but deleveraged as a percentage of sales because of lower revenue.
Selling, general and administrative expenses represented 41% of sales. Advertising expense was 6.1% of sales, generally consistent with the prior year.
DXL ended the quarter with $20.1 million of cash and investments, no debt and $61.7 million of excess availability. Stratton said inventory was clean and stable, turnover remained strong, and clearance levels were in line with the company’s 10% target. The company has paused nonessential cash uses while continuing to fund priority initiatives.
Store Portfolio Review and Growth Strategy
DXL is reviewing its store portfolio as part of an effort to improve return on assets. Stratton said the company is assessing markets with multiple locations where it may be able to close a store and transfer volume to a nearby location. Three stores are expected to close this year, while a few dozen leases are due for renewal next year. Decisions on those locations will be made on a case-by-case basis over the next six months, he said.
The store-rationalization work is expected to have limited impact in fiscal 2026 but could reduce occupancy and store-operating costs beginning in 2027. The company also said it is seeking to defer technology upgrades where possible, while continuing required platform updates and investments in its distribution center.
Jimmy Olsson, DXL’s newly appointed Chief Growth Officer, outlined a four-part internal strategy called “Fit for Growth,” focused on fit authority, private-brand growth, brand awareness and customer acquisition.
Olsson said DXL has scanned more than 150,000 customers through its FITMAP® program. In the company’s most recent 12-month cohort, scanned customers showed stronger conversion, higher average order value, more visits and lower return rates than non-scanned customers, according to Olsson.
He also said DXL is developing communications for customers using GLP-1 medications, based on survey findings that some customers pause apparel purchases during weight-loss periods but intend to return once their size stabilizes.
Private-brand demand for the company’s THERMACHILL™ product franchise rose 56% year to date from the prior year, Olsson said. The company is also reallocating, rather than increasing, its advertising budget toward mid- and upper-funnel channels such as YouTube and programmatic marketing. Brand awareness among its core demographic of consumers ages 35 to 64 with household income above $100,000 increased to 49% from 40% over seven months, he said.
Board Reverses Merger Recommendation
Conacher also provided an update on DXL’s proposed merger with FullBeauty. DXL filed an updated preliminary proxy statement on Sept. 2 and said FullBeauty’s operating performance, financial results and balance-sheet position had deteriorated since the companies entered into their merger agreement in December.
DXL’s board determined that the transaction is no longer in the best interests of DXL and its stockholders, withdrew its prior recommendation supporting the merger and unanimously recommended that stockholders vote against the issuance proposal.
Conacher cited FullBeauty’s lower-than-expected sales, earnings, EBITDA and cash flow; a higher level of indebtedness; concerns over potential negative equity value; and the potential for substantial economic dilution to DXL stockholders under the current deal terms. DXL said it is awaiting Securities and Exchange Commission review of its amended preliminary proxy statement before filing and mailing definitive proxy materials.
About Destination XL Group (NASDAQ:DXLG)
Destination XL Group, Inc (NASDAQ: DXLG) is a specialty retailer focused on big and tall men’s apparel and accessories. Operating under its flagship DXL and Casual Male XL banners, the company offers an assortment of men’s clothing in larger sizes, including suits, dress shirts, casual wear, outerwear, activewear and underwear. In addition to its brick-and-mortar stores, Destination XL maintains a significant omnichannel presence through its e-commerce platform and direct mail catalog, enabling customers to shop for extended-size apparel across North America.
Founded in 1976 and headquartered in Canton, Massachusetts, the company began its operations as Casual Male XL and over time evolved its retail concept to the Destination XL format, which emphasizes an elevated, destination-style shopping experience.
