Destination XL Group, Inc. Aktie

Thank you. Good day, everyone, and welcome to Destination XL Group, Inc.'s conference call to discuss our second quarter fiscal 2026 financial results. 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.

Thank you, Operator, and good morning, everyone. We appreciate your joining us on Destination XL Group's second quarter fiscal 2026 earnings call. Joining me today are Lionel Conacher, our Interim Chief Executive Officer, Peter Stratton, our Chief Financial Officer, and Jimmy Olsen, our new Chief Growth Officer. During today's call, we will reference certain non-GAAP financial measures that we believe provide useful supplemental information regarding our performance. Please refer to our earnings release, which was filed this morning and is available on our investor relations website for additional information and reconciliation of those measures. Today's discussion will also include forward-looking statements regarding the company's strategic initiatives, marketing strategies, store rationalization work, expectations for comparable sales, the share, update regarding the merger, and other expectations for fiscal 2026. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations.

Additional information regarding those risks and uncertainties is included in the company's filings with the Securities and Exchange Commission. With that, I will turn the call over to our Interim CEO, Lionel Conacher. Lionel?

Thank you, Shelly, and good morning, everyone. I'm honored to join today's call as DXL's Interim Chief Executive Officer at an important time for the company. I want to begin by recognizing Harvey Cantor for his leadership and contributions to DXL over more than 7 years as CEO. Harvey helped strengthen DXL's position as the leading specialty retailer in men's big and tall, and on behalf of the Board of Directors and the entire management team, I want to thank Harvey for his service and wish him well in retirement. Just a few words about myself. I've been involved with DXL as the director since 2018 and have served as Chairman since 2020. During my time with the DXL, I have developed a deep appreciation for the company, its people, and most importantly, the big and tall customer.

We have a strong brand, a loyal customer base, a clear understanding of our customers' priorities. The differentiated leadership position that we have established in this underserved market gives us a strong foundation on which to build, grounded in our commitment to serving the big and tall customer. Our priorities from here are straightforward. We are focused on increasing traffic and revenue, strengthening customer engagement, improving profitability, and advancing strategic initiatives that can support long-term growth. The second quarter earnings result we reported today are a testament to progress we are already making in these efforts. Our business continues to improve, and we see clear signs that a resumption in sales growth is imminent. Q2 sales performance was consistent with the progress we reported in the first quarter, which is a significant improvement over our prior year's results.

I'm incredibly excited about the opportunities ahead for DXL and proud to be speaking with you all about our momentum today. Before we dive into the quarter, I'd like to introduce Jimmy Olsen, who has worked with DXL in a consulting role for the past 12 months and recently joined us full-time as Chief Growth Officer. Jimmy comes to DXL with a deep background in retail strategy, brand elevation, and scaling omnichannel platforms through marketing, merchandising, and product development. This newly created role of Chief Growth Officer brings together the customer-facing levers of the business, and Jimmy's perspective will be instrumental as we execute against the traffic, assortment, promotional, and store experience opportunities in front of us. Jimmy has held leadership positions at a number of blue chip retailers, including Walmart, American Eagle, Tommy John, Todd Snyder, and The Gap. On behalf of the DXL Board of Directors, I am thrilled to welcome Jimmy to DXL. You will hear directly from Jimmy for a deeper dive into our growth priorities and initiatives.

To frame up the balance of today's remarks, in just a moment, I'm going to turn the call over to Peter to give you an update on our second quarter performance, sales trends, margin, and liquidity. After that, Jimmy's going to talk about our go-forward strategy and priorities before I come back to close things out. With that, I'm going to ask Peter to give you an update on our financial results. Peter?

Thank you, Lionel, and good morning, everyone. Our second quarter sales were generally in line with our expectations and remain consistent with the year-over-year improvement in trends that we saw in Q1. Net sales were $111.6 million, down 3.4% from last year. And our adjusted EBITDA was $7.7 million or 6.9% of sales compared with $4.7 million last year, while adjusted earnings per share was $0.05 compared with last year's $0.01 result. Comparable sales were down 3.5% for the quarter, with stores down 4.3%, and our direct business down 1.6%. Monthly comps increased sequentially from negative 5.7% in May to negative 2.8% in June and then negative 1.9% in July. Store traffic remains our most significant challenge, although we continue to be encouraged by strong conversion in dollars per transaction, which helped offset some of that traffic pressure.

In direct, we saw improvement in conversion driven by enhancements to the app and overall site experience, and we also benefited from solid performance and clearance product, primarily through the direct channel. More broadly, the direct business generated demand through paid search, paid social, and programmatic marketing, while ongoing improvements in app performance, site experience, and speed supported better conversion. We continue to evaluate our marketing allocation carefully to strike the right balance between attracting new customers, where we have seen acquisition rate increases since the fourth quarter, and reengaging repeat and lapsed customers where spending remains more cautious. Encouragingly, when new customers discover DXL, they continue to respond well to our assortment, fit, and value proposition. Based on customer surveys and related insights, the overall slowdown in customer traffic appears to reflect a combination of weight loss journeys, shifting spending priorities, and delayed purchasing decisions. Importantly, we believe the underlying affinity for the DXL experience remains strong. Although we still have meaningful work ahead, we are encouraged by the improvement in the quarter and confident that our turnaround efforts are beginning to gain traction.

Our merchandising efforts remain focused on sharpening value, strengthening private brands, and improving inventory flow to better align with current demand. We are leaning further into private brands, particularly Harbor Bay as an opening price point and value driver, while continuing to improve around storytelling, around quality, fit, and value across channels. Our creative and messaging have become more focused on essentials, cost per wear, and trusted fit, reinforcing our position with a more value-conscious customer. We are also rebalancing the promotional calendar toward higher margin and higher inventory risk categories so that promotions can help drive demand while protecting profitability and reducing future inventory exposure. Another topic that I'd like to touch on quickly is IEPA tariff refunds. Towards the end of the first quarter, we submitted a claim to the U.S. Customs and Border Protection online portal, and I'm pleased to report that we received a refund of $4.6 million during the second quarter. Which benefited merchandise margin and improved adjusted EBITDA versus plan.

Gross margin, inclusive of occupancy costs, was 47.9%, up 270 basis points to last year, primarily driven by this refund. Excluding the tariff refund, merchandise margin would have been approximately 70 basis points worse than last year, primarily due to a higher markdown rate to move through slower-moving seasonal product and increased shipping costs due to fuel surcharges. Occupancy costs were flat in dollars, but the leverage versus last year due to lower sales. Selling general and administrative expenses were 41% of sales with advertising expense coming in at 6.1% of sales, generally in line with last year. We continue to look very carefully at SG&A across the organization, reducing corporate expenses where appropriate, and rationalizing our store base over the next several years as leases expire or kick-out rates become available. The punchline here is we need to improve our return on assets. Targeting stores that have a high probability of transferring volume to another store allows us to make the total store portfolio more productive.

In certain markets, we believe there are opportunities to rationalize high occupancy stores and redirect customers to other stores in the market. The store rationalization work will have limited impact in 2026, but it is expected to reduce occupancy and store operating costs beginning in 2027 and beyond. This is a multi-year project that should improve sales per square foot and four-wall profit over time. I'll close with an update on the continued strength of our balance sheet. We ended Q2 with $20.1 million of cash and investments on hand, no debt, and excess availability of $61.7 million. Most importantly, our balance sheet gives us flexibility. Our inventory levels are clean and stable, inventory turnover is strong, and clearance levels are in line with our 10% targets.

Preserving working capital remains a priority, and we have paused all nonessential uses of cash while funding only the most important and required initiatives for the business. These targeted growth initiatives are already bearing fruit, as evidenced by this quarter's comparable sales result of negative 3.5%, the strongest we have delivered in the past 3 years. I'd now like to turn it over to Jimmy to talk more about those initiatives and elaborate on our marketing and merchandising strategies.

Thank you, Peter, and good morning, everyone. I'm excited to join DXL and to be leading our growth agenda across merchandising, marketing, direct, and stores. The second quarter reinforced both the strength of the DXL proposition and the work still ahead to drive more traffic, sharpen product storytelling, and create stronger reasons for customers to shop with us. I want to organize my comments on today's call around the internal growth strategy we are calling Fit for Growth. In the simplest terms, this strategy consists of four strategic pillars. Supercharging our fit authority, fueling growth in our private brands, building our brand awareness and go-to-market strategy, and lastly, driving new customer acquisition. Our first priority is supercharging our fit authority. This is the foundation of what makes DXL different, and it starts with the initiative that has positioned DXL at the leading edge of fit centricity, FitMap.

We've now scanned more than 150,000 customers, and our most recent 12-month cohort shows scanned customers spending more than they did before. For scanning with stronger conversions, higher AOV, increased visits, and a meaningfully lower return rate than non-scan customers. Scan penetration, simply getting more of our customer file measured, remains our single largest lever inside this program. Fit authority is also the right lens for how we're addressing a genuine structural shift in our customer with GLP-1 medication adoption. Based on our customer surveys, a meaningful portion of our customer base is currently using GLP-1 medications, indicated while they are on their weight loss journey, they stopped buying apparel altogether for a period. But a majority tell us that they intend to come back to DXL once they reach a stable size. We believe being the authority on fit means staying with this customer through that transition, not just at a single point in time. And we're building a specific communication journey tied to FitMap scan segments to do exactly that.

Our second priority is fueling growth in our private brands. Private brand penetration continues to grow year over year. Our ThermaChill franchise, which is a new product development technology built into our tech pants, shorts, and button-down shirt, is one of our cleanest growth bets inside this priority. ThermaChill features dual temperature regulation to keep you cool when it's hot outside and warmer when it cools down. Our year-to-date demand for ThermaChill product grew 56% over last year. Proof that when we invest ad spend in marketing behind a private brand franchise that's genuinely working, it scales. We also continue to see that targeted product-specific promotions outperform broad discounting.

That discipline is protecting merchandise margin, even as we work through a softer traffic environment, and it's a direct extension of what fueling private brand growth actually means in practice, winning through product and value, not through the depth of the discount. Our third priority is building our brand awareness and evolving our go-to-market strategy. As we continue to evolve our marketing investment from lower funnel spend toward mid and upper funnel tactics, we're running tests in select markets to get in front of him where he consumes media. Our brand awareness remains below the category average, and the current marketing mix has been heavily weighted toward bottom of funnel conversion. We are reallocating, not adding to, the advertising budget over time to support a more balanced funnel, including incremental testing in YouTube and programmatic channels. We're already seeing early proof points. Awareness in our core demographic of 35- to 64-year-olds with household incomes above $100,000 has moved from 40% to 49% in 7 months. Priority is also where our AI discoverability work sets.

Through a focused effort on generative and answer engine optimization, we've moved our Trustpilot sentiment score from 1.5 to 4.4, a concrete, inexpensive proof point that the go-to-market investment behind a GenTech and AI-initiated search is paying off before the larger infrastructure is even fully built. Our fourth priority is driving new customer acquisition. I want to be direct and transparent with you that this is the priority most exposed by this quarter's traffic mess. We are behind the pace we'd like on both new customer acquisitions and reactivation right now. This is why priorities 1 through 3 matter so much. Fit authority and FitMap give customers a differentiated reason to choose us and stay. Expanding private label lets us deliver more value, helping attract new customers and grow our base. Brand awareness is what actually gets a new or lapsed customer to notice us in the first place. Acquisition doesn't happen in isolation. It's the output of the other three priorities working together, and it's the priority we're most focused on moving over the balance of the year.

Before I turn the call back over to Lionel, I want to leave you with this one thread. Traffic and customer acquisition is the challenge underlying essentially everything I just described, and this Fit for Growth strategy is our coordinated response. Not four separate initiatives, but one solution viewed through four distinct lenses. I'd like to thank Lionel and the Board of Directors for this opportunity. I'm so excited to be working on solutions that are going to move the needle for DXL and the big and tall customer we are proud to serve.

Thanks, Jimmy. Before we open the line for questions, I want to provide a brief update on the status of our proposed merger with Full Beauty. September 2, DXL filed an updated preliminary proxy statement with respect to the merger. As detailed in this filing, conditions have changed since we first entered into the merger agreement in December. Causing Full Beauty's operating performance, financial results, and balance sheet positioning to deteriorate. Our board takes its fiduciary duties to our stockholders seriously and to that end has continued to evaluate the merger in light of these developments. Based on this evaluation, the board determined that the merger is no longer in the best interest of DXL and its stockholders. Accordingly, the board has withdrawn its prior recommendation in favor of the merger and now unanimously recommends that stockholders vote against the issuance proposal. There were several factors that contributed to this decision.

The increasingly challenging consumer environment since 2025 of December. Full Beauty's continuing decline in operating performance and financial results, including lower than expected net sales, earnings, EBITDA, and cash flow. The corresponding heightened risk that Full Beauty will not achieve its projections for the current fiscal year, their increased level of indebtedness, concerns regarding the potential negative equity value, and the substantial economic dilution that our stockholders would experience if the merger were consummated on its current terms. In terms of next steps in this process, we are currently awaiting SEC review of the amended preliminary proxy statement. Once we receive SEC clearance. We will file and mail definitive proxy materials to all stockholders eligible to vote at the special meeting, which will be held in a 20- to 25-day window following the definitive proxy filing. The proxy statement can be found on the landing page of our investor webpage at investor.dxl.com. We encourage stockholders to read the proxy statement carefully and in its entirety.

Beyond that, we are not commenting further on the merger at this time. We ask that you keep your questions on today's call focused on second quarter operational and financial performance. In closing, as you just heard, we're taking focused steps to advance the strategic priorities we believe can meaningfully strengthen the business over time. Three of the most important are FitMap, our application of AI, and our work to better understand GLP-1 related customer behavior. What connects these priorities is that each reflects a meaningful shift in how our customer shops, how he discovers product, and how we need to evolve to serve him more effectively. Together, these are strategic growth levers that we believe can improve customer engagement and sharpen our competitive position and create more durable long-term value. We have a differentiated position in an underserved market, a powerful relationship with a big and tall customer, and a team that understands how to serve him.

The actions we are taking to strengthen the business, drive growth, and improve profitability are beginning to translate into encouraging improvements in our performance, and our fortress balance sheet provides us with a strong underlying foundation for the growth engine we are building. And confident in our ability to capture the meaningful value creation opportunities ahead. With that, operator, we will now take questions.

Thank you. [Operator Instructions] Our first question comes from Joseph Midkiff of 226B Capital Partners. Your line is open.

Hey, good morning, guys, and thanks for the updates today. There was mention of reviewing store base as leases come due, particularly in markets with multiple locations. I was curious if we could clarify, um, how many leases would be coming up for renewal in total over the next 24 months and how many or what percentage of those might be potential candidates for closure or consolidation.

Sure, I'll take that one. This is Peter. So, you know, we've been spending a fair amount of time taking a look at the portfolio. And, you know, as I mentioned in my remarks, we need to make our assets more productive. So, in instances where we have more than one store in a market that we believe we can eliminate a store, drive that volume to the nearby sister store, it improves our return on assets, and that's really the big focus. For this year there's a handful of stores that are closing, I want to say 3 stores this year. Um, next year, the stores that are coming up for uh lease and renewal, Um, there's gonna be a few dozen that that are coming up. Now, those are not all closing.

We are going to be looking at those on a case-by-case basis. Um, and we'll be developing those plans really over the next 6 months to figure out how much more will be closing. But ultimately, it's about improving our sales per square foot in the existing portfolio and making sure that we can get the most return out of those assets.

Fantastic. Thank you so much. Excited to hear about the return on asset focus there. If I could follow up, you mentioned as well the potential for the potential for pausing any cash investments that can be deferred. Is that something that you could quantify the impacts of or speak at all to what specifically – what areas specifically have been targeted for pausing or removing?

So the um, the majority of our capital spend this year is in our technology, um, upgrades and improvements, our distribution center, um, and and there's a a a small amount in in stores. Um, the majority of that is going to be in uh distribution and and in technology. So, you know, we are, we have a number of projects going on right now to make sure we're staying current with the latest releases of all of our software platforms. But in some cases, we're going to try to push those out a little further. You know, when our vendors start taking platforms to end of life and we're required to upgrade, well, those are the situations that we're going to have to deal with, but we're trying to avoid any upgrades that will burn cash until we see more stability in our comp trends in the near future.

Well, awesome. Thanks, guys. I appreciate the tone of the call shifting to a realization of what's happening in the business, and I'll jump back in the queue. Thanks again, guys.

Thank you. I show no further questions at this time. I'd like to turn it back to Lionel Conacher for closing remarks.

Thank you, Operator, and thank you, everybody, for listening in today, and we appreciate your interest in DXL. And with that, we'll close out the meeting. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

This live transcript is auto-generated without human intervention or review.

Good day, everyone, and welcome to Destination XL Group, Inc.'s conference call to discuss our first quarter fiscal 2026 financial results. 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.

Thank you, Michelle, and good morning, everyone. We appreciate you joining us on Destination XL Group's First Quarter Fiscal 2026 Earnings Call. Joining me today are Harvey Kanter, our President and Chief Executive Officer; and Peter Stratton, our Chief Financial Officer.

During today's call, we will reference certain non-GAAP financial measures that we believe provide useful supplemental information regarding our performance. Please refer to our earnings release, which was filed this morning and is available on our Investor Relations website for additional information and reconciliations of those measures.

Today's discussion will also include forward-looking statements regarding the company's strategic initiatives, the potential impact of current tariffs and other expectations for fiscal 2026. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. Additional information regarding those risks and uncertainties is included in the company's filings with the Securities and Exchange Commission.

With that, I will turn the call over to our CEO, Harvey Kanter. Harvey?

Thank you, Shelly, and good morning, everyone. As always, we appreciate your time and interest in DXL. Before I get into our quarterly results, let me start by reiterating our confidence that DXL is well positioned for growth and value creation. DXL has a solid foundation built on the strength of our brand, loyal brand relationships with our customer and financial position. The changes we are making to our assortment, promotional strategy and customer experience to better align with today's value-conscious big and tall consumer are beginning to bear fruit. Our inventory levels are clean and stable. Inventory turnover is strong and clearance levels are in line with our 10% targets.

Additionally, we just delivered the strongest quarterly comparable sales result in the past 3 years at negative 3.8%. We are clear-eyed with respect to the headwinds in our market and continue to take decisive action to navigate these challenges. We are aligning our cost structure with our revenue structure by reviewing corporate overhead and our store portfolio. We are leaving no stone unturned and working with urgency to finalize and implement these cost-saving actions over the coming months.

Importantly, DXL has a fortress balance sheet with over $16 million of cash on hand, no debt and excess availability of $70 million, giving us flexibility as we continue strengthening our business for the future. We are pleased with the traction we are already driving through our growth initiatives, which we'll talk about shortly and believe we have a solid plan in place to return DXL to profitability.

And with that, let me turn to our first quarter results. I am pleased to report that our first quarter performance reflected improvement as we began fiscal 2026, which was due to the company-specific initiatives, which we have been implementing. Comparable sales were down 1.3% in February, down 2.7% in March and down 6.8% in April. While the shift in the Easter calendar had some effect on the comparison between March and April, we also believe softer April demand reflected broader macroeconomic pressure on consumer confidence and discretionary spending, including the current global conflict, higher fuel cost and inflation. We also believe the growing impact GLP-1 medications is contributing to structural change in demand within the big and tall category.

For the quarter, comparable sales were down 3.8% representing our best quarterly comp performance since the second quarter of 2023. Although we have still have meaningful work ahead, we are encouraged by the improvement in the quarter and believe it may indicate that our turnaround efforts are beginning to gain traction. For the quarter, store comparable sales were down 4.6% and our direct comparable sales down -- were down 1.6%. Store traffic remains our most significant challenge. Although we continue to be encouraged by the relative stability in conversion and dollars per transaction, which has helped offset a portion of that pressure.

In direct, we saw improvement in conversion driven by enhancements to the app and the overall site experience. And we also benefited from solid clearance performance primarily through the direct channel. More broadly, the direct business generated demand through paid search, paid social and programmatic marketing, while ongoing improvements in the app's performance, site experience and speed supported better conversion. We continue to carefully evaluate our marketing allocation to strike the right balance between attracting new customers, which has improved since the fourth quarter and reengaging repeat and lapsed customers where spending remains more cautious.

Encouragingly, when new customers discover DXL, they continue to respond well to our assortment, proprietary fit and value proposition. At the same time, many existing customers appeared to be shopping more on a need than on a discretionary want basis. Based on customer surveys and related insight, that behavior appears to reflect a combination of weight loss journeys, shifting spending priorities and delayed purchasing decisions.

Importantly, we believe the underlying affinity for the DXL experience remains very strong. Our merchandising efforts remain focused on sharpening value, strengthening private brands and improving inventory flow to better align with current demand. Private brands accounted for 65.9% of the first quarter sales compared with 65% in the prior period. We are also leaning further into private brands, particularly Harbor Bay as an opening price and value driver while continuing to improve storytelling around quality, fit and value across every channel. Our creative and messaging have become more focused on essentials, cost per wear and our trusted fit, reinforcing our position with a more value-conscious customer.

We are also rebalancing the promotional calendar towards higher margin and higher inventory risk categories so that promotions can help drive demand while protecting profitability and reducing future inventory exposure. Operationally, the team is actively managing supply chain and extended transit times that delayed certain key spring receipts. In response, our sourcing partners are working to pull forward production where possible vendors are booking containers earlier, and our flow and allocation strategies are being adjusted to better reflect current sales trends. At the same time, our Nordstrom's marketplace business continues to be building momentum.

With fourth quarter demand more than 20% versus last year, supported by stronger storytelling, improved product visibility, expanded placement in the high traffic categories and curated events such as the upcoming Father's Day Gifts guide.

Overall, our merchandising organization is responding proactively to softer recent sales, with a tighter, more focused approach to improve conversion, grow margin and improve inventory productivity.

A second topic that remains top of mind is tariffs. In April, the U.S. Customs and Border Protection launched an online portal through which companies may submit refund requests. During the first quarter, we submitted a claim seeking a refund of approximately $4 million related to tariffs previously paid. The timing and amount of event and recovery as uncertain, and we would recognize any recovery when considered realizable. Given the current volatility surrounding trade discussions, it remains difficult to determine the full impact tariffs may have on our fiscal 2026 results.

However, if currently enacted rates remaining up through fiscal 2026 and no additional tariffs are imposed, we estimate that the impact of tariffs on gross margin, exclusive of any refunds realized will be approximately 100 basis points, which is an improvement from our previous estimate of 150 basis points. As we look forward, we remain focused on a small number of strategic priorities that we believe can meaningfully strengthen the business over time. Three of the most important are fit map, our application of AI and our work to better understand GLP-1-related customer behavior.

What connects these priorities is that each reflects a meaningful shift in how our customer shops how he discovers product and how we need to evolve to serve him more effectively. These are not side initiatives. They are our strategic growth levers that we believe can improve customer engagement, sharpen our competitive position and create more durable long-term value.

First, FiTMAP. FiTMAP is a strong example of that strategy in action. We have exclusive rights to our FiTMAP technology platform until 2030. FiTMAP remains one of the company's most important strategic long-term growth drivers. During the quarter, we completed the rollout of FiTMAP across all 188 stores that we're rolling out to enhance the customer journey. Since launched, more than 100,000 customers have engaged with the platform and early results continue to reinforce its value. Customers who use FiTMAP have demonstrated stronger conversion, higher average order values, greater purchase frequency and lower return rates, underscoring the personalized fit element, which it can play in driving both customer satisfaction and profitable growth. Our focus now is on continuing to build adoption and extending the value of that FiTMAP more seamlessly across all channels and over time.

The second pillar is AI. We are sharpening our focus on artificial intelligence as consumer shopping behavior continues to evolve. As AI-powered search and discovery tools become increasingly important in e-commerce, we are investing to ensure that our products are in content are more visible, relevant and accessible across these emerging environments including conversational and agent-driven experiences that differ meaningfully from traditional keyword-based search.

During the quarter, we launched new AI initiatives to improve product quality, enrich item-level attributes and strengthen our ability to connect product, pricing and inventory information across AI and AVO platforms. These efforts are designed to improve discoverability support future commerce applications and position DXL to compete effectively as a digital shopping partner in the journey and become more conversational and increasingly agent assisted.

The third pillar is GLP-1, an area where we are working to be thoughtful, data-driven and proactive. We continue to deepen our understanding of how GLP-1 usage may be influencing consumer behavior and category demand. Our in-house research indicates that a meaningful portion of our customer base is currently using GLP-1 medications, contributing to more dynamic sizing needs over time. We are responding by broadening our select assortments in smaller sizes and using customer insights to inform future merchandising, marketing and reengagement strategies.

Importantly, we view this as both a near-term challenge and most importantly, a long-term opportunity. While some customers may cause apparel purchases during periods of rapid size change, many of our guests have indicated an intention to return once they reach a more stable size profile. By staying closely aligned with these evolving customer needs, we believe we can strengthen retention reactivation and lifetime value over time. Taken together, these three priorities reflect our broader effort and focus to evolve the Excel in Step with the way our customer is changing and to position the business for continued relevance and resilience.

And with that, I'll turn the call over to Peter for a view of our financial results. Peter?

Thank you, Harvey, and good morning, everyone. I'll begin with additional perspective on our first quarter financial performance. Net sales for the first quarter were $103.3 million compared with $105.5 million in the first quarter of last year. Comparable sales for the quarter were down 3.8% with store comps down 4.6% and direct comps down 1.6%. The decline in comparable sales was driven primarily by continued pressure on traffic, particularly in stores partially offset by improvements in conversion and dollars per transaction.

The direct business improved during the quarter, supported by demand generated through paid search, paid social and programmatic marketing. As well as enhancements to the website and app that contributed to improved conversion. For the first quarter of fiscal 2026, gross margin, inclusive of occupancy costs, was 44.3% compared with 45.1% in the first quarter of fiscal 2025. Gross margin declined 80 basis points, driven by a 100 basis point decrease in merchandise margin partially offset by a 20 basis point decrease in occupancy costs. The decline in merchandise margin was primarily due to the impact of tariffs, higher shipping costs resulting from fuel surcharges and increased markdown activity associated with clearance sales.

These pressures were partially offset by a shift in product mix toward private brand merchandise and favorable loyalty costs. Occupancy improved primarily due to a landlord payment associated with an early lease termination, partially offset by higher rents resulting from lease extensions. Selling, general and administrative expenses were 45% of sales compared with 44.9% in the first quarter of fiscal 2025.

On a dollar basis, SG&A decreased by $0.9 million versus the prior year, primarily due to lower supporting payroll costs in incentive-based compensation, partially offset by higher marketing expense. Marketing costs were 6.5% of sales in the quarter compared with 6.1% last year. And for fiscal 2026, we currently expect marketing costs to be approximately 5.8% of sales. Net loss for the quarter was $5.9 million or $0.11 per diluted share compared with a net loss of $1.9 million or $0.04 per diluted share in the first quarter of fiscal 2025. On a non-GAAP basis, adjusted net loss was $0.06 per diluted share compared with an adjusted net loss of $0.04 per diluted share last year. Adjusted EBITDA for the first quarter was a loss of $0.7 million compared with positive $0.2 million in the prior year period. We also incurred $1.2 million of merger-related transaction costs in the quarter, primarily related to professional service fees associated with the pending merger.

I will close with a few comments on liquidity and capital allocation. As of May 2, 2026, we had cash and investments of $16.2 million compared with $29.1 million a year ago, with no outstanding debt in either period. Availability under our credit facility was $70 million compared with $77.1 million last year, and continues to be driven primarily by available inventory. Inventory at quarter end was $81.4 million, down $4.1 million from a year ago, and we continue to take proactive steps to manage inventory and adjust receipt plans in light of the ongoing macroeconomic factors affecting consumer spending. Free cash flow for the first 3 months was a use of $12.7 million compared with a use of $18.8 million in the prior year period.

For fiscal 2026, we continue to expect capital expenditures to range from $8 million to $12 million net of tenant incentives with spending focused on select store projects, maintenance of our existing fleet and distribution center and technology-related initiatives that support our business priorities.

With that, I will turn the call back to Harvey for some closing remarks. Harvey?

Thank you, Peter. Before we open the floor to Q&A, there are a few additional topics we'd like to cover.

First, I'd like to address CEO succession planning. On a personal note, it is difficult to believe that I've now served as CEO of DXL for more than 7 years. What began as a 3-year commitment evolved because of the significant opportunity I believe, which exists in serving the big and tall consumer. I've been constantly inspired by the passion our team and leadership have for that mission and the strong culture that has been built across DXL.

While the path over the years has included both progress and volatility, our belief in the underserved addressable market and in DXL's long-term opportunity remains unchanged. It still drives me today and we'll continue to do so through the very end of my journey here. In terms of timing, as previously disclosed in our 8-K filing last month, my employment contract is expiring, and I believe the Board -- informed the Board of my intention to retire effective August 11, 2026. The Board and I have been discussing my retirement and succession planning for a while. This is something our Board takes very seriously, and the Board will ensure we have the right leadership in place to lead DXL beyond August 11. In the meantime, I am committed to leading the company as we continue to make a meaningful difference in our customers' life, return the business to growth and create long-term shareholder value.

Next, turning to our pending merger with FullBeauty. This morning, we announced that as part of ongoing fiduciary duties to stockholders, our Board has conducted a comprehensive reevaluation of the merger and believes that the existing terms of the merger agreement are not in the best interest of DXL stockholders. We are engaging with FullBeauty in very constructive discussions to determine the best path forward. With that said, we are not commenting further on the merger today. The purpose of today's call is to discuss our operational and financial performance for the first quarter. We would appreciate you keeping your questions focused on these topics.

And finally, I will close by saying that our team remains one of DXL's greatest assets. I continue to be energized by the commitment, the professionalism, our passion of our associates across the organization as we continue to work to serve the underserved big and tall guests. None of our progress would be possible without the dedication of our teams in our stores, in our distribution center, corporate office and guest engagement center. Their efforts together with the culture we have built continue to move this business forward.

I want to thank every member of the DXL team for their hard work and commitment to serving our customer and strengthening DXL's position as the place where men can find the fit, style and confidence they are looking for and wear what they want.

And with that, operator, we will now take questions.

[Operator Instructions] Our first question comes from [ Will Forsberg ] with Craig-Hallum.

I just wanted to start with comp trends. Curious if you can give us a sense for how comps have progressed to your quarter to date, what you've seen in terms of traffic versus basket? And then how you're thinking about an inflection in comps in the back half of the year?

Sure. I'll take that one. So as we mentioned, we were really happy with our comp in the first quarter. Since the end of the first quarter, we just closed May. And comps were roughly in the minus 5% to 6%. I think that what we started to see in April is we know our customer is sensitive to some of the issues that are going on more globally.

Most notably, I would say it's gasoline prices. And we know that we have -- our customer has the resilience, and we've got the flexibility to be able to work through short-term bumps like that. But I think with even at minus 5% to 6%, that's still an improvement of where we had been in the last couple of years. So I think we're happy with that. We do expect that trends will continue in the second half of the year, notwithstanding other macro events and war in Iran and things like that. But we are optimistic for the second half of the year.

All right. And then just wondering if you can provide any more color on the puts and takes of the decline in merch margin. I guess how much of that 100 basis points came from tariffs and fuel surcharges versus promotion? And then how would you expect that to play out kind of the balance of the year?

Yes. So tariffs, we had mentioned that tariffs are likely going to account for about 100 basis points of exposure this year versus last year. We have submitted for refunds through the portal. The amount that we've submitted for is approximately $4 million. So that will offset some of the exposure that we're going to see this year due to tariffs.

But overall, I think promotions have been relatively consistent with where we expected. We have some events planned for coming up to fathers with Father's Day where we're very excited about what we think we're going to be able to do in terms of generating demand as we head into the summer. But overall, we're relatively optimistic that we're going to be able to hold our margins and just very, very encouraged about the developments on tariffs in so far that we've seen in the first half of the year.

Okay. That's helpful. And then just last one for me. It seems like FiTMAP is gaining some strong traction. I think engagement is up another 60-plus percent sequentially. Just curious if you're able to kind of give us a sense of the difference in order values and conversion rates from those using the FiTMAP versus the rest of the customer base?

I can't tell you exactly what the number. I would say we're about 100 basis points. May be higher in conversion, something like that. But definitely seeing greater conversion across the 188 stores than the 105, I think it's 105 stores that don't have FiTMAP. And then the basket is up double digits and without telling you the exact number, it's -- I would say it's meaningfully up double digits. That's not like 80%, 90%, but it's not just 10% is meaningfully up.

And it is a reason across literally every metric that we can measure frequency at AUR, AOV, which is average order value, customer lifetime value, repeat rate across every metric, the customer that is getting size via FiTMAP, is materially higher in performance than the customer not getting it. And what we're interestingly measure is they're coming back and shopping with us if they get FiTMAP more such that the percentage of customers that we want to have basically scanned is literally one of our greatest focus is when a customer comes in the store, and they have now the ability to shop at home on the app in terms of using FiTMAP, and we have now mapped nearly 30 different brands.

So once they are actually mapped and scanned, they can figure out which size they are in over 30 brands. And the result of that is our return rate is actually down from online purchases made via the app once they've been scanned. So ultimately, why we're so optimistic about what this represents are basically what I've just kind of walked you through.

Well, with that, I want to thank you all for participating and listening to our earlier comments. We appreciate your support, and we look forward to getting back engaged with you at the end of Q2. you have a great day and a happy, healthy and warm summer.

Thank you for your participation. You may now disconnect.

Good day, everyone, and welcome to the Destination XL Group Fourth Quarter Fiscal 2025 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.

Thank you, and good morning, everyone. Thank you for joining us on Destination XL Group's Fourth Quarter Fiscal 2025 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 long-range strategic plan and expectations for comparable sales and other expectations for fiscal 2026. 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?

Thank you, Shelly, and good morning, everyone. I appreciate all of you joining us today for our fourth quarter 2025 earnings call. To begin, I want to provide a quick update on the merger agreement with FullBeauty Brands that we entered into on December 11, 2025. Since that date, we have been diligently working with our advisers, our attorneys and the FullBeauty team to work through key deliverables required between signing and closing. A proxy statement will outline the combined company pro forma financials, the background and rationale for this merger and other information useful to investors, will be one of the most critical elements to present to our shareholders as we seek their support for this merger.

One key gating element to completing the proxy is the filing for our fiscal 2025 Form 10-K, which we expect to be completed later today. We are hopeful that the preliminary proxy statement will be completed and filed within the next 30 days, and we expect the transaction to close in the second quarter of fiscal 2026, subject to customary closing conditions and shareholder approval. As we move through this process, we will continue to provide updates as appropriate. I want to thank all of our employees for the hard work and dedication to our company as we work through this transaction.

Now, the second topic that I want to talk about is our operating results, both year-end 2025 and early fiscal 2026. I expect many of you saw our press release from earlier this morning, where we reported for the fourth quarter of 2025 that our comparable sales decreased 7.3% and our full year comparable sales decreased 8.4% as compared to fiscal 2024. Prior to the severe Arctic weather event in mid-January, which disrupted much of our nearly 300 store fleet, our Q4 quarter-to-date comp sales were down 5.8%. As we moved into 2026, we are optimistic. Our optimism is driven by the improved sales momentum that continued into February and improved to a negative 1.3%, and March is following a similar trend.

Our expectations for 2026 are for continued comp sales improvement over the first 2 quarters, moving to breakeven before summer's end and turning positive later this year. We've seen improvements in traffic to stores and average order value, which are both contributing to our recent trends. While we are only halfway through the first quarter, we are encouraged by the trends we have observed quarter-to-date. The positive shift in sales is a welcome departure from the major storylines in fiscal 2025, which reflected the ongoing challenges faced in the big and tall retail sector.

Given the directionally improving sales shift, we are continuing to focus our efforts on our strategic initiatives: FiTMAP, assortment and strategic promotions, which are the elements we are believing will provide a reason for the more discerning consumer to shop and purchase at greater levels. At the same time, we are and will remain highly oriented around our regimen and the discipline we have as the core pillars for running DXL. Our disciplined regimen revolves around tightly managing our expenses, proactively driving very structured inventory receipt flow and investments, and our work to protect margins in response to tariffs and promotions. The fruits of this as we exited fiscal 2025 were a clean inventory position, no debt and $28.8 million in cash and investments, which provides flexibility and resilience as we navigate the year ahead.

As I noted earlier, we are continuing to focus our efforts on our strategic initiatives: FiTMAP, assortment and marketing, which we believe are the elements that matter most to our customer and our future. We've rolled out FiTMAP more broadly across the chain, expanded our private brand offerings and sharpened our promotional cadence. We have enhanced the launch of our customer loyalty program and deepened our strategic relationship with Nordstrom. We believe the actions taken throughout 2025 have positioned us to capture a larger share of big and tall demand over time as we move forward.

In 2026, at the highest level, our strategic focus remains to stabilize the business and continue to drive back to profitable growth. That means staying close to our customers, carefully controlling costs, leveraging our inventory and being prudent with how, where, and when we invest cash and our capital. We know we must drive top line revenue in the short term through tactics that deliver greater value while continuing to build the long-term growth drivers, brand building, improved access and convenience, and a continuously better digital and loyalty experience.

With that high-level voiceover now complete, I plan to focus on just 2 areas for the remainder of the call. First, I will provide a more detailed update about our performance in Q4 and highlight a very few specific areas where we have made progress against our strategic plan. And second, I'll outline in greater detail our plans, priorities and the catalysts that we either have launched or are in the process of launching in fiscal 2026. We are not providing specific forward-looking financial guidance for fiscal 2026 at this time, but we will revisit this after completion of the merger.

So let's start with a quick review of the fourth quarter in which our comparable sales declined 7.3%, with stores down 8.6% and direct down 4.3%. The progression in comp sales across the quarter was mixed with November down 5.3%, December down 6.1% and January down 12.9%. As I've already noted, our sales results in January were impacted by severe Arctic weather, but we have rebounded nicely in 2026. The sales story in Q4, was driven largely by traffic pressure in stores with conversion holding up better than traffic and average transaction value relatively steady, but with a small uptick.

In the digital business, performance was most impacted by a slight decline in conversion, reflecting both demand softness and a highly competitive promotional environment. During the holiday period, we again used targeted loyalty and strategic promotion events to provide customers with incremental value, and we saw periods where those offers helped improve engagement and sales efficiency. These results reinforce our view that to drive the top line improvement in the near term, we need a disciplined, surgical promotional approach in 2026, focused on the cohorts and categories where the returns are strongest while continuing to protect the long-term health of the brand.

Another element that we manage well and despite the challenging environment is inventory. Our inventory balance at the end of Q4 was $73.5 million, down 2.6% from $75.5 million last year and down approximately 28% from 2019. Our clearance penetration was 9.9% compared to 8.6% a year ago and remains below our historical benchmark of approximately 10%. Our volume strategy has remained deliberately cautious to mitigate risk while staying agile enough to flex up if demand improves. The team's discipline in receipt management and using selective markdowns to avoid any buildup of excess inventory, while working to protect merchandise margin continues to be an important strength for DXL.

When we look at our quarterly results through a merchandising lens, once again, we saw our private brands outperform our national collection brands. Casual pants, denim and tailored clothing were strong performers this quarter, and our Oak Hill Tech Pants continues to stand out. And as we move from Q1 into Q2, we are excited about the bigger launch of [ Thermo Chill ], which incorporates technical fabrics now more broadly than just the pants and shorts from the initial launch. Conversely, shorts, specifically sport shorts and knit shorts, were more challenging as a classification.

National collections did improve over the prior quarter, driven by more strategic use of promotion with a more focused and disciplined framework that emphasizes relevance and value. We must continue to evolve our promotional strategy to drive stronger engagement with those customers who are more influenced by pricing.

The next area I want to cover is new store openings. Our consumer research has consistently reinforced that better access to stores remains one of our more meaningful opportunities. Big and tall consumers tell us they don't shop with DXL, because there is no store near them or no store conveniently near them. Those insights continue to support a long-term opportunity to expand our footprint, which we have done over the last 24 months, and then opened 18 new stores in attractive white space and more highly penetrated markets across the U.S.

This past year, we continued to improve access by opening 8 new DXL stores, converting 2 Casual Male retail stores and 1 Casual Male outlet to DXL retail stores and converting 2 Casual Male outlets to DXL outlets. As we have shared in the last few earnings calls, given current economic headwinds, we paused further in new store openings for this year. Our short-term store development plans will be more focused on converting a few remaining Casual Male stores to the DXL format, store relocations and other capital projects needed to maintain our existing store portfolio and distribution center, along with technology-related projects that support our business.

For fiscal 2026, we expect capital expenditures to range from $8 million to $12 million, net of tenant incentives and primarily for technology and other infrastructure-related projects.

Another strategic initiative that we continue to be excited about is our alliance with Nordstrom. We remain active on Nordstrom's online marketplace and continue to refine our assortment, onboarding additional brands and styles as we learn what resonates with the Nordstrom consumer. Customers primarily discover our products through nordstrom.com, search and browse, and we continue to collaborate with Nordstrom's on a more robust go-to-market plan that includes personalized content and e-mail support. While this channel remains a relatively small percentage of total sales, we remain very optimistic about its long-term growth potential.

I'd now like to provide some color on the key strategic initiatives we're advancing in 2026 to strengthen our market position, improve the customer experience and drive more profitable growth over time. These initiatives are grounded in the work we've done across FiTMAP, assortment, marketing, and technology, and they're designed to address both the opportunities of big and tall category and the realities of today's environment, including heightened promotional pressure, tariffs, pricing headwinds and demand shifts tied to GLP-1 usage. I'll walk through each initiative now at a high level.

First is scaling FiTMAP, as a fleet-wide differentiator and activating marketing to increase adoption. Second, continuing to evolve our assortment, rebalancing our brand portfolio, expanding private brands and strengthening opening price points to enhance value perception. Third, marketing, a more disciplined promotional framework and an evolved CRM and loyalty approach. And lastly, a dedicated effort around the digital experience, driving improvements informed by a comprehensive UX audit across discovery, product and checkout.

Now let me turn to FiTMAP, which we believe is one of the most differentiated assets in the big and tall space. FiTMAP is our proprietary, contactless digital sizing technology and which we hold an exclusive license for big and tall men until 2030. It captures 243 unique measurements and provides personalized size recommendations across 29 brands, helping remove one of the biggest friction points in apparel shopping, uncertainty around fit. Over the past 3 years, we've developed and we've tested FiTMAP. And to date, we've scanned more than 63,000 customers. We've now completed our initial rollout, and FiTMAP is live in 188 stores and the mobile application is live as well with our latest size recommendation engine, aligning the in-store scan experience with the online fit recommendation tool. The result is a more seamless, consistent guest journey across channels.

In 2026, the focus shifts from rollout to activation, and we're approaching that through a few concrete strategies. First, we are working to increase guest level scanning penetration, both in stores and online, so more customers enter the FiTMAP ecosystem. Higher penetration supports better conversion, lower returns and increased multichannel engagement, that will require operational reinforcement, associated coaching and the right incentives to make scanning a natural part of the selling process.

Second, we're using some of our marketing dollars to launch a marketing campaign to build awareness of FiTMAP, highlighting the benefits of scanning and reinforcing DXL's leadership in fit innovation. We began with an e-mail program to generate early learnings and refine our messaging, and those insights now will inform the broader campaign. Third, we plan to test FiTMAP-enabled promotions using scanning insights for personalized offers, loyalty-driven incentives and targeted outreach to scan guests, so we better understand how FiTMAP can drive incremental revenue and strengthen loyalty. And we're already seeing promising signals in the data.

Using look-alike modeling, we continue to observe that scan guests deliver higher customer value and higher average order value than their control groups. Importantly, a meaningful driver of lift is what happens on the day of the scan, where associates are able to convert the fit moment into a broader outfitting moment, increasing units per transaction and average unit retail. We're also beginning to see a greater share of the incremental lift occur online after the scan experience, which is exactly the omnichannel behavior FiTMAP is designed to unlock.

The next initiative I want to cover is assortment, specifically how we are rebalancing our brand portfolio, expanding private brands and sharpening our opening price points to strengthen value perception. Over the next 2 years, we are strategically evolving the assortment to further prioritize private brands. Private brands deliver consistent fit, give us greater flexibility to balance trend-right fashion with core essentials, and enhance value for the customer while generating higher margins for DXL.

Our objective is to increase private label brand penetration from approximately 57% at the start of fiscal 2025 to more than 60% in fiscal 2026, and over 65% in fiscal 2027. To support that shift, we are reducing investment in underperforming national brands and redeploying that inventory and marketing capacity towards higher return opportunities. We're doing this in a more disciplined way, aligning sales and inventory, driving productivity and faster turns, and leaning into the categories where we see momentum such as casual bottoms, denim and activewear across key private brands. This portfolio rebalance improves inventory efficiency, supports stronger GMROI and gives us more control over storytelling and fit innovation, both in-store and online.

And within that assortment work, opening price points remain an important part of the strategy. We will continue to broaden a more comprehensive opening price point offer to lower barriers to entry, respond to shifts in buying behavior, and further improve overall price value perception. Combined with more intentional brand and product marketing, along with clear in-store presentation that reinforces each private brand's role, these actions are designed to build loyalty, drive customer acquisition and position DXL as the destination for big and tall men, who want great style, great fit and great value.

Now let me provide you a little greater color on marketing, starting with promotions then CRM and loyalty. Our view is to win a greater share of the big and tall market, we must show up with value in a way that is relevant and targeted without undermining the brand. Over the past year, we've been refining our promotional approach with a more strategic framework where promotions are managed as a distinct category with clear objectives around timing, product focus and customer targeting.

The goal is to maximize the return on every markdown while supporting our broader strategic priorities. Within that framework, you should expect 3 complementary motions. First is what we call always on value, everyday value driving initiatives aimed at specific cohorts available when the customer is ready to shop. We've intentionally moved away from broad, store-wide and site-wide discounting and toward offers that improve acquisition, increase shopping frequency and reinforce confidence that DXL is competitively priced.

Second is the surgical use of targeted promotions by leveraging customer segmentation and behavioral insights. In 2026, our CRM approach is focused on improving performance in key life cycle and behavioral segments, where we see potential to change probably behavior in a meaningful way. The intent is to deliver more personalized communications by brand, category and shopping mission, so that customers get offers that they feel are relevant and not generic.

Third is loyalty. We see loyalty as an important lever to increase repeat revenue and reward our best customers. While our top tiers are performing and we continue to test incremental benefits, we also recognize that engagement in our classic tier has been limited, addressing this challenge as part of the broader CRM work I just described, improving how we activate customers earlier in their life cycle and giving them clear reasons to come back.

Furthermore, we are continuing to build on enhancements to DXL Rewards, including capabilities to make it easier for customers to earn and redeem benefits and exploring additional tiering options over time. The key is to execute the vision, while driving discipline in markdowns and responsibly deploying promotion where the returns are greatest. We do expect some margin pressure from the incremental promotions, but we continue to view a portion of these markdowns as a form of marketing investment to acquire and retain customers.

Finally, let me shift to the digital experience. In 2026, our focus is to drive higher conversion and customer confidence through a simpler, more intuitive shopping journey. We're leveraging a comprehensive UX site audit to now prioritize the highest impact improvements and to further inform a focused road map across discovery, product detail and checkout. This is practical work, reducing friction, clarifying navigation and making it easier for customers to find the right product and the right size quickly.

A few specifics. We are elevating our visual presentation with updated photography standards that create a more aspirational and less clinical experience across key parts of the site. We're also prioritizing improvements that reduce checkout friction and support more seamless site to store behaviors. Over time, personalization and shopping assist capabilities, including thoughtful use of gen AI can help customers discover products faster and shop with greater confidence, especially in categories where fit drives decision-making. We're also reshaping our demand generation mix. We've transitioned to an affiliate agency at the end of the third quarter, and our new agency is helping overhaul the program from one that leans heavily on coupons and rewards to a more balanced approach that prioritizes reach and new customer acquisition. In parallel, we're building new affiliate and influencer programs designed to broaden awareness and introduce DXL to more big and tall men, who may not yet be in our ecosystem.

And now I'm going to ask Peter to run through the fourth quarter financials before I come back with some closing thoughts. Peter?

Thank you, Harvey, and good morning, everyone. I appreciate all of you joining us on the call today. I'm going to take a few minutes to provide you with some additional color on our fourth quarter and full year financial performance.

Let's start with sales for the fourth quarter, which came in at $112.1 million as compared to $119.2 million in the fourth quarter of fiscal 2024. Comparable sales decreased 7.3% for the quarter, with stores down 8.6% and the direct business down 4.3%. For the full year, total sales were $435 million compared to $467 million last year, and comparable sales decreased 8.4%, with stores down 6.9%, and direct down 11.8%. Moving past sales, our financial statements include some wins and some challenges, which I'll highlight for you next.

Starting with gross margin. For the fourth quarter of fiscal 2025, gross margin inclusive of occupancy costs was 40.8% compared to 44.4% in the fourth quarter of fiscal 2024. The rate declined primarily due to lower merchandise margin and occupancy deleverage on lower sales. For the full year, gross margin inclusive of occupancy was 43.4% compared to 46.5% last year, again, reflecting occupancy deleverage and the impact of tariffs and promotional markdown activity, partially offset by a favorable mix shift toward private brand merchandise. The impact of tariffs on merchandise margins was approximately 110 basis points in the fourth quarter and 50 basis points for the full year.

As we enter 2026, we are continuing to monitor the situation with tariffs. Our sourcing exposure to any single country remains limited, as we have always had a broad and diversified supplier network. We believe the direct impact from tariffs under currently understood scenarios is manageable. We are also staying close to our national brand partners to understand how they are navigating tariffs and what, if any, impact that could have on pricing. We have taken selective price increases on certain programs this year. We have renegotiated cost sharing with our suppliers, and we've remained agile to opportunistically relocate programs across the globe. Our sourcing and merchandising teams are actively tracking developments and preparing mitigating actions as needed.

Now moving on to SG&A. SG&A expense for the fourth quarter was 42.4% of sales compared with 41.7% in the fourth quarter of fiscal 2024. For the full year, SG&A expense was $187.4 million, down from $198.3 million or 5.5% as compared to fiscal 2024. As a percentage of sales, SG&A expenses were 43.1% of sales compared with 42.5% last year. Marketing costs were 6.3% of sales for the fourth quarter compared to 6.2% a year ago and 6.1% of sales for the full year compared to 6.8% last year. On a dollar basis, marketing costs were down $5.2 million for the year.

Adjusted EBITDA for the full year was $1.6 million compared to $19.9 million last year. We ended the year with $28.8 million of total cash and investments and no outstanding debt, with excess availability under our credit facility of $55.1 million.

I also want to call to your attention an important judgment that we made in Q4 regarding our deferred tax assets. As we've discussed, the challenges we've faced in the big and tall sector over the past 2 years have weighed heavily on our operating results and contributed to our net operating loss in fiscal 2025. Realization of our deferred tax assets, which primarily relate to net operating loss carryforwards, depends on the generation of future taxable income. While we believe that profitability will return over the longer term, our current year net operating loss, coupled with our near-term forecast presents sufficient negative evidence, which outweighs available positive evidence regarding realizability of our deferred tax assets. Accordingly, we took a non-cash charge of $20.4 million in the fourth quarter to establish a full valuation allowance against our deferred tax assets. The valuation allowance has no impact on our tax returns, cash taxes paid or our ability to utilize our NOLs.

I'm now going to turn it back over to Harvey for some closing thoughts. Harvey?

So hopefully, it's clear. And as I noted at the end of our prior earnings call, our team is working hard to navigate the cycle with discipline. We expect that the operating rigor we have in place and the foundational work we have completed will position us to benefit meaningfully when demand improves. We remain excited and optimistic about the proposed merger, the growth opportunities in the broader inclusive apparel sectors, and what we believe it will return to our shareholders.

And lastly, as I wrap up, and before we take questions, as I always do, I want to 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 in the Guest Engagement Center provides a level of optimism for the opportunity ahead. The passion and commitment our team has for our underserved consumers is our reason for being our purpose and why we do what we do. Thank you for all your hard work and your 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.

[Operator Instructions] Our first question comes from Jeremy Hamblin with Craig-Hallum.

And I wanted to ask a bit more about the FiTMAP technology, which I think you have the license here for the next 5 years. Just to give us a sense for the momentum that's building in that particular technology. I think you said you've scanned 63,000 customers to date. The rollout is in -- is live, I think, in 188 stores. Can you give us a sense for kind of the incremental velocity, like of the 63,000, how many were scanned in 2025? And what type of training needs to be offered for your sales associates managing stores to kind of maximize the opportunity behind that?

Jeremy, it's Harvey Kanter. I'll attempt to walk you through that, and then Peter will supply any greater level of insight beyond what I remember to share. We have had really FiTMAP moving forward in the most demonstrative way really probably since September, October of last year. I don't recall the exact specific cadence, but I'll remind you that generally, it was 25, 50, 62, 88 stores. That's kind of how it went down in terms of the stores. And then the 88 up to 188, which was the 100 more stores was really a February, March completion. I think we literally just finished the last 8 stores in the last 10 days. And we're now, if you will, at 188 stores, and that is what we expect to be maturity or at least for the time being.

The elements that we've been encouraged by as we've moved through this process, first is to get more people scanned, then from scanning to look at incremental revenue, the value of that consumer in the prior 12 months and in the post 12 months, which obviously that's literally 24 months of time. And for lack of a better way said, we've gone slow to go fast. And when I say that, we didn't get all frothy, if you will, with respect to what we thought would happen. We were pretty thoughtful. It's not overly intense in its capital or cash requirements to roll out to more stores.

But what is more intense is the training and the process of engagement, equally so, is bringing the technology forward in more meaningful ways, which we've now done inclusive of a mobile device. Initially, it was the iPhone, which is the majority of how consumers engage with us in a mobile setting. And then the Android in the last, I think, 30 days has been finalized. And the reason I walk you through some of these elements is there's a lot of moving parts. And the thing that is probably the most challenging is getting one trained and up to speed to ensure that our measurements, which are literally 243 digital measurements, standing there in your bike shorts, which takes less than 90 seconds, which is pretty remarkable. But if those measurements aren't right, whether it's the custom-made clothing, which is something that we're delivering typically in 3 to 4 weeks to consumers based on ordering, which they have the capacity to order just a whole different bunch of ways, lapels and buttons and cuts and trim, equally so, but is the application being used via the app and they're doing that at home.

And then in both cases, the 29 brands we're mapping to, which is basically, for lack of a better way to describe this, if you're buying something that might be Brooks Brothers, which is a more traditional block in terms of the way the style executes, you might be a 2X. But if you're buying Hugo Boss, which is a brand that's more European inspired and fit, you might be a 3X and the need to have each one of those independent sizes across all 243 measurements accurate, and then apply that to the mapping for the custom is a process, which we've really just begun in earnest to train our team about.

So our hope and expectation is incrementally, we see double-digit incremental revenue from each customer in the 12 months post scanning, the customer value post scanning is measurably improved. The average transaction value for that scan and each purchase is greater. The frequency of shopping with us is greater. The units per transaction is greater and the repeat rate of that customer coming back is greater. And directionally, the customer that has been scanned has directionally in the aggregate, done all of those things I just referred to. They are shopping more frequently. They are spending more money. They're buying more things. They are spending more money on day of visit. They are converting and they are being scanned in many cases, buying really custom-made clothing, which is delivered in 3 to 4 weeks. And those all add up over time, in our view, over the next 12 to 24 months to be a tremendous opportunity to grow the comp in those stores, and to determine whether or not in smaller stores with less traffic, we can still bring forward an incremental P&L outcome, but that would be the goal.

I think I've covered pretty much all of it, Peter. If there's something else that I missed, feel free, but there's a lot of ground there. And Jeremy, why we're most excited is the proprietary element through the period of time we've talked about and into 2030 gives us an ability, which actually the provider has done a podcast, which I remember him saying, we think we are so far ahead in the technology that by the time people catch up to where we are, we will be even farther down the road. And that was in response to a question in that podcast where the interviewer asked the interviewee, which was literally the founder of the company we partnered with.

And that founder said, look, we just think we're so far ahead that we're happy to share this, because it was built around a utilization of belief that people buy clothes and then throw them away and fill landfills and that's not great. And so his view was we're providing a way to get people to buy the clothes they want in the styles and sizes that fit in a way that no one else can. And we're happy to share that with others because by the time they catch up to us, our technology platform will be that much further down the road.

So it's a very interesting dynamic world we live in, but it represents a great opportunity for DXL and the exclusivity of what it provides to engage customers is pretty powerful.

That's intriguing. So I know it's been tough out there in the big and tall market overall, not just for DXL. But wanted to get a sense for, as we enter 2026, the promotional environment that you're seeing. You noted that your customers have been gravitating a bit more towards private brand and away from the national brands. Can you give us a sense for the kind of competitive responses that you're seeing from other retailers in the big and tall category at store level, but also in what you're seeing in the online channel of business?

Yes. It's Harvey Kanter again. I'll try to talk you through this, and then Peter can backfill again at a level that makes sense. But I think what we believe is that our customer who is in the sea of all apparel, and that's women's, kids, men's, men's big and tall. Men's big and tall is one of the categories that is probably most impacted by customer malaise and just general desire to spend money on lots of things, but not necessarily clothing. That's just plain and simply, he does not shop as frequently as a normal men's customer, certainly not as frequently as a women's customer.

When you think about the multiple elements that we're all living through and the volatility, whether it's tariffs, whether it's the impact of GLP drugs, which we do believe is having an impact in terms of the customers' weight and they're going up and down and how they're thinking about clothing or the price of gas and especially in today's environment. But the gas, while it has come down, it still meaningfully impacts both food, groceries, going out to eat. All those variables, we believe, are affecting the sector.

Our hope and belief we've shared before is at some point, he has to come back. He needs clothes he has shopped for need, not want. He may still be shopping for need, not want for a period of time. But at some point, he needs clothes. He's wearing them out. And we see certain elements like that, like it may be remarkable, but our underwear business is really good right now. That is one of the markers that we always look at to see, but he needs clothes and he hasn't bought them and he will come back. So there's a belief that he will come back in a period of time.

And obviously, the government subsidy and then lack thereof, the inflation, not as bad then far worse and improving today, interest rates, GLP drugs impact, there's a lot of moving components, including tariffs, and what we've had to do to try to navigate and offset at some level, which mind you, we haven't fully offset the impact of tariffs that, looking backwards 12 months and who knows what really is going to transpire in the next 12 months. When you put all that together, it is having an impact on a customer who doesn't love to shop.

But our view, and we can see that the reason we called out the Arctic challenge in January, literally, and you can see this, we just reported November, December, we were basically minus 6-ish. January became minus 12-ish. And that impacted a quarter that was looking more like minus 5% and change to become minus 7% and change. But we did see, as we reported this morning, a negative 1.3% in February, which is very encouraging. That's a 600 basis point improvement from the quarter or even 400 basis point improvement from the impact of the weather.

And although you haven't asked the question, I will lead you here. We are seeing some of the very same challenge right now, literally a 1,000 basis point difference in regionality in the Northeast and Southeast and Midwest, and moments in time as the storms pass through, and they've been pretty heroic. So there's a lot of moving parts. And unfortunately, I can't give you as black and white answers that I would love to give you, and I'm sure you would love to get. But that hopefully gives you a better sense of what we're navigating through, but we've also painted the picture that we expect it to move to breakeven hopefully before the summer and then throughout the summer improve to the point we're driving comps in the back half of the year. And it's 6 weeks in, but 6 weeks in, our business is definitely better than 6 months ago and even 4 or 5 weeks ago, end of January.

Got it. And then a question on the private label or private brand initiative. So going from 57% of inventory mix, private brand to 65% in '27, what would you expect the gross margin impact of that initiative to be over the course of years?

I'll talk about it at a high level, and then Peter probably will circle back on this one. The reality is our national brands on an IMU basis hover in the mid-50s. Our national brands on an IMU basis basically are in the mid-70s. And so there's a distinct starting point differential. The customer, the consumer is buying private brands mostly because they represent higher quality, a better fit, and that's because we are defining that very specific fit, whereas the national brands work with us, but they all have their own view of what that fit looks like. And then the value we're bringing to market, it is demonstrably lower price point on an absolute price point. And when you compare the quality and the fit, those values are enhanced.

And ultimately, that gives us the ability to the point you just really asked the question about, can we drive it? We're assorting more deeply. We're bringing in more inventory, and we do have the capacity to promote that product at some greater level in a profitable situation versus national brands. And the flip side is, equally so, national brands because they're unfortunately higher price point, and that's not to say we're getting out of national brands, but we're definitely trying to navigate a different view of national brands because those price points are really friction for the customer. And if we can't get them to buy at the level that we want to sell through prior to a markdown or liquidation, then that margin that is already initially short becomes that much shorter when you have to accelerate markdowns to manage that inventory.

Peter might any -- have some more specifics, but net-net, it starts out higher and it ends higher. And the mix, as you've alluded to, is going to move from 57% to hopefully 67% or greater. So that 10-point differential on what literally is a 15, 20-point differential in IMU does mean something to us.

And Harvey, yes, I think you more or less answered it. It's that there's going from mid-50s, 60-ish up to the mid-70s, is how I would think about it, Jeremy. I mean that's certainly going to vary depending on what the product is. But at a very high level, I think that's a fair way to represent it.

So just to clarify, I'm just looking at -- from a gross margin perspective, you would say maybe it could be 100 to maybe even 200 basis points to gross margin?

Yes. Well, it could be. I mean there's -- I don't want to put a number out there, so discretely like that, because as we've been talking about earlier, we've definitely been more promotional this year. You've certainly seen that in the merchandise margin. So there are some different puts and takes. But overall, we should end up in a net positive, the more that we're going to be shifting to private label.

Understood. All right. Last one for me. In terms of just looking at the store fleet today and kind of the pausing of opening new units, which makes sense, how should we be thinking about the fleet? Obviously, economics have been impacted negatively by the comps and the lower margins. What are we thinking in terms of kind of rightsizing the store fleet in 2026?

Yes. In 2026, we are that -- we are not moving anywhere. We will look and hopefully reengage in 2027 with consideration of greater stores. I think, Jeremy, the answer to the question is really based on the customer. And when I say that, we have direct shipments, and we can look at our direct business, which is still roughly 30% of our revenue, and look at are we shipping to places we don't have store representation. And then in other markets like Houston, which we've used before as an example, where Sugar Land in the Southwest corner of Houston was not a geography within the Houston area that we are covering very well. And we clearly did through our CRM analysis, see customers coming from there and how far they were traveling will then drive what we would call white space opportunities in markets that we exist already or in potentially markets that we don't exist vis-a-vis the direct business.

What we've articulated before is we don't have this belief that we're a 600, 700 store chain. We do have a belief that we could be 325, 350, maybe 400 stores. But we haven't defined that specifically as much as generally saying that based on our research was fact-driven that customers have told us literally nearly 50% of the reason they don't shop with us is there's no store near them or 1/3 of customers who don't shop with us said not conveniently near them. So that is direct feedback that says, if we open a store near you, we should see the market improve, and we do see that.

The other thing you mentioned, which I do want to comment and I want circle back to. You are correct. Our stores initially did not open at the level that we expected. We think that it is part and parcel of the overall sector challenges. But we can tell you with confidence and fact-driven data that our stores continue to move towards maturity. I think the maturity curve is probably longer than we had hoped for and believed, but they are not standing still. They are continuing to move based on awareness and then customer trial and then repeat rates, and improve as the performance of units overall with the 18 stores we've opened.

I think we're up to Keegan.

It's Mike Baker. Can you hear me? So first, let me ask you before I ask the question, are you guys willing to talk about anything around the FullBeauty transaction? Sometimes management teams just say, we're not talking about it until it's closed. If you are, I would ask a couple of questions on that.

Yes, Mike, that I would tell you, we've talked about the proxy coming out hopefully in a not-too-distant period of time in the future. And at the moment, that's the extent of what we're going to talk about relative to that. There's a lot of information in there, which I think will be quite informative, but nothing beyond that on today's call.

Yes. Okay. That is -- I just wanted to clarify that. Okay. Then a couple of other quick ones here. One, when you have these storm events like you saw in January, historically, you guys -- you're a Northeast retailer, you see these types of things a lot. What is the recapture rate? Or do you see a rebound? Or does that just typically end up being lost sales?

Yes. No, I think we see a rebound. I don't know that we can tell you it's one for one. But I can tell you when you literally don't open 124 stores on a day and in January, I know that number. It was 124. The next day was 84. 2 days in a row, like literally nearly 1/3 of the chain, we can see the customer rebound. We can see a little bit of movement online, but we can definitely see a rebound.

Would I say it's one for one, and we get it all back instantaneously? No, we don't. But I definitely would tell you we see a rebound. And the weather has been so drastic, like literally yesterday versus the day prior in the Southeast and the Northeast had just terrible wind. I don't -- Mike, I know you're in Boston, I don't know if you were there, but the winds are just amazing and the snow. And so we literally see thousands of basis point movement because of the stores not opening or not pulling.

Yes. No, I am in Boston, you're right. I felt that yesterday. Okay. Fair enough. One other one, I wanted to ask you, you had mentioned in the answer to one of the previous questions, an impact from GLP-1. So I remember at one point, the idea was customers would change sizes, but still be within the big and tall ecosystem. So it might actually be a positive. I'm not sure it's playing out like that. So can you talk about the impact of GLP-1, what you're seeing and how that compares to your original thesis?

Yes. I think it's definitely evolved. I was literally just in the stores last week traveling with our Chief Stores Officer and spent a lot of time in the California market. And we hear -- my commentary, just so you're clear, is anecdotal because we are unable yet to document some of the things we believe, and we've done primary research, we've bought secondary research. We've done consumer research. And none of it is really demonstrative at the greatest level that we feel, for lack of a better word, I'd say, has an R-square of 0.9. But when the day is done, anecdotally, what we've evolved is -- we didn't think it was going to be impacting the business as much at the level we think today it is. And I can't characterize what that means in basis points. It's not like 20% decline or anything like that.

But what we see is that our consumers coming in is definitely telling us he's more needs driven. He's on a weight loss journey. In some cases, he may have bought Polo and Psycho Bunny and now he's buying Harbor Bay. And when you asked the question, he said, look, I'm on my journey, and I don't want to -- he doesn't use that word, but he says, I'm losing weight on my GLP drugs, and he's actually not in any shape, uncomfortable telling us that. And he said, when I get done, I'll come back and buy Polo, but right now, I'm going to buy Harbor Bay because it's great quality and it's a great shirt. It's literally $20-some versus Ralph Lauren might be $120. And he's not done with his journey.

We are definitely also seeing some customers size out of our size or at least competitively, they can shop at Nordstrom, which is a partner of ours or Macy's or any other host of retailers they want to shop at because they're now a 1X as opposed to a 3X or 4X. But we're also seeing a lot of customers that might be a 6X that are now at 3X. So they are moving around. And we also have been told and see customers that are moving around, both moving down in size, but also for whatever reason, on the drugs and they decide to get off and they're moving back up.

So there's just a lot of volatility. I don't know that we're going to see what I would tell you some level of stabilization of the consumer relative to GLP drugs for some period of time. We think might be as much as 25% of our customers are using them. And typically, weight loss of any kind up or down is a friend of ours. But I think right now, we're in a pattern where they're losing weight and they're on a journey, and they're trying to not to buy clothes until they're done with that journey.

So we do think it will come back. We think there's -- it's a sector issue as opposed to we're doing something materially wrong or it's materially more competitive than it's been. And the reality is, though, that there's a lot of great benefits for our guests as well as just customers in general losing weight and being more healthy. So we're just trying to navigate through that.

And hopefully, I've answered at some level of your question. It's kind of a moving target, and I think that's really what you have to appreciate that there's not a black and white answer yet.

Well, thank you all for joining our call today. We will all talk with you next quarter, and I wish you the very best for spring and stay warm. Take care. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you for standing by and welcome to Destination XL Group's Third Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to John Cooney, Chief Accounting Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. As you saw earlier today, we announced a merger agreement between DXL and FullBeauty as well as our third quarter fiscal 2025 earnings results. Joining me today are Harvey Kanter, DXL's President and Chief Executive Officer; Peter Stratton, DXL's Chief Financial Officer; and Jim Fogarty, FullBeauty's Chief Executive Officer and incoming Chief Executive Officer of the combined company.

Today's discussion contains certain forward-looking statements concerning the announced merger between the company and FullBeauty, including an overview of the transaction and the future opportunities and expectations that the combination of these businesses will provide. 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.

During today's call, we will also discuss some non-GAAP metrics to provide investors with useful information about DXL's third quarter financial performance. Please refer to our earnings release, which was filed this afternoon and is available on our Investor Relations website at investor.dxl.com for an explanation and reconciliation of such measures. I would now like to turn the call over to DXL's CEO, Harvey Kanter. Harvey?

Thank you, John, and good afternoon, everyone. Today marks a pivotal step in redefining inclusive apparel as DXL and FullBeauty join forces to create a retailer that sets a new standard for choice, quality and customer experience. We are pleased to be speaking with you about the opportunities we see ahead for the combined company to accelerate growth, improve operational efficiency and deliver long-term value for our shareholders.

On our call today, Jim Fogarty and I will begin by sharing additional insights about our 2 companies and the compelling benefits of this combination. I will then turn it over to Peter to review DXL's financial results for the third quarter of 2025, which were announced today in a separate release.

I'll now begin by walking through why we believe our business fits so well together. It starts with our complementary missions and the ways in which we target underserved consumers and the fragmented markets that provide significant growth opportunities.

At DXL, we are driven by a mission of providing Big + Tall men the freedom to choose their own style. We offer the best brands through our broad and deep assortment of national and private brands, most of which are exclusive across styles that provide options for most any occasion. Our clothes are made with the highest standards of construction and quality. In our stores, our customers will find a level of service that gives them a better experience than they can get anywhere else, bar none.

We are solving problems for our customers. The Big + Tall man has largely been ignored by the apparel industry. There are few brands, fewer styles and even fewer sizing options out there at most other retailers. For the Big + Tall man, his clothes are largely chosen for him, not by what he likes, but purely by what exists. DXL fixes that. In so doing, we create significant growth opportunities for our business. And when the Big + Tall man shops at one of our stores, they are getting the brands, quality, style and experience that they simply cannot find anywhere else.

Jim will tell you more about FullBeauty's history, but they also solve this issue. They solve this issue by building on a business that has been dedicated to serving plus-size women and Big + Tall men since 1901. Their company's journey has been marked by transformation, evolution and purpose, adapting to new technology, platforms and customer behaviors.

FullBeauty today provides an unparalleled fit and experience with each product meticulously crafted to cater to the customers' needs. FullBeauty's broad and balanced portfolio offers thoughtfully curated assortments aligned with evolving customer preferences, fashion trends and a wide range of end use, price points, looks and styles. Through an unwavering focus on the brand experience and creating meaningful connections with their customers, FullBeauty has set itself apart in the market as a differentiated and reliable choice for plus size and midsized customers.

Our companies share a belief in the importance of rigorous design, sizing and manufacturing processes, and this focus has allowed both FullBeauty and DXL to distinguish themselves in the market and build strong loyalty with our respective customer bases.

The merger of equals we are announcing today creates a scaled category-defining retailer for inclusive apparel. Together, we have unmatched know-how, manufacturing facilities and proven capabilities to deliver high-quality bespoke pieces for our customers that are not merely just graded up but thoughtfully created with Big + Tall and plus-size individuals in mind from the very start. This is what has set each of us and our companies apart in the broader retail industry, and we are confident it will be foundational to our success as we enter this next phase.

By building on our combined strengths, we will meet the opportunity by creating a powerful engine for innovation, combining data science, digital scale, proprietary fit technology and differentiated store expertise. It also strengthens our financial position, providing us the profitability and flexibility to generate strong free cash flow. That financial strength, along with synergies we expect to capture will provide the resources to reinvest in our business and further reduce our leverage.

Ultimately, together with FullBeauty, we will be better positioned to create value for our shareholders by serving our customers across the plus size and Big + Tall apparel markets with more brands, more styles and more options, whether they shop with us in our stores or online.

And with that, I'll hand the mic over to Jim so he can share more about how this combination will create a scaled category-defining retailer. Jim?

Thank you, Harvey. This is an exciting day for both DXL and FullBeauty, and I'm pleased to be speaking with you all about this transaction. Today, we are creating a new entity that we believe is greater than the sum of its parts. Today's inclusive fashion market remains highly fragmented with few players offering comprehensive solutions for plus size and Big + Tall customers.

Together, we are building the first true scaled, profitable omnichannel platform that finally treat sizing inclusivity as a category, not a niche. This is not a merger to simply get bigger. It is a merger to become a category-defining leader and to create more value than either business could deliver on its own.

Despite the underserved market opportunity, the sector has traditionally lacked coordinated offerings, leaving many customers with limited choices and inconsistent shopping experiences. This merger positions us to address these gaps by bringing together 2 leading companies with complementary strengths, creating a retailer that delivers greater assortment, improved fit and a powerful omnichannel experience.

For DXL shareholders, this means owning a larger, more diversified company with higher EBITDA and stronger value creation prospects than DXL on a stand-alone basis. The combined company will be larger, stronger and more flexible. As a result, we will be well positioned to invest in long-term growth, joining forces as one best-in-class inclusive sizing retailer, our combined company will be one of the largest players in the inclusive sizing clothing sector by both sales and store count.

For the last 12 months ending October 2025, DXL and FullBeauty generated approximately $1.2 billion in combined net sales. Assuming no pro forma adjustments, adjusted EBITDA was approximately $45 million. With the $25 million in expected annual run rate cost synergies, adjusted EBITDA for the LTM would have been approximately $70 million. We'll talk more about synergies in a moment.

Uniting FullBeauty's leading pure-play direct-to-consumer capabilities with DXL's expertise in men's Big + Tall retail will create a powerful omnichannel and data-driven platform. Together, we will have a customer database of approximately 34 million households. Our leading direct-to-consumer presence will be 73% of total sales, and our nearly 300 stores will be 27% of total sales. With more first-party data, the combined company will be better able to offer more personalized marketing, make better inventory decisions and deliver higher customer lifetime value.

We expect to deliver sustainable growth, stronger margins and long-term shareholder value while expanding choice for customers. Our combined customer offering will be diversified across brands, gender, assortment and channel to offer unparalleled depth and breadth in options, whether our customers shop in-store or online. FullBeauty's distinctive women's brands as well as Big + Tall KingSize brand will join DXL's Big + Tall specialty to create a meaningfully expanded portfolio of both private and national brands.

Our combined product mix is expected to be approximately 54% women's and 46% men's, delivering day-to-day staples, activewear, intimates, accessories and decor, spanning value to premium across lifestyles and occasions. The differentiated core capabilities that each of our companies bring to the table will enable us to accelerate growth.

DXL's store infrastructure and expertise creates potential for brick-and-mortar expansion at FullBeauty. DXL's well-established relationships with national brands provide opportunities for KingSize and FullBeauty's women's brands to enhance their merchandise offerings.

Meanwhile, FullBeauty brings an existing private label credit card program that can be broadened to include DXL, a universal cart website infrastructure that can increase cross-selling and sales at both DXL and FullBeauty, marketplace expertise that can be leveraged to increase DXL sales as well as a print catalog capability that can be leveraged to increase DXL sales.

Further, we will be able to accelerate the work both companies are already doing to remain agile and responsive to evolving customer needs and shopping habits. Our shared focus on fit, flexibility and ongoing customer support positions the combined company to meet new and existing customers at every stage of their weight fluctuation journey, including those using GLP-1 medications through offerings such as DXL's FiTMAP and FullBeauty's free exchange program. As we invest in enhancing and expanding our product range across the combined enterprise, we will also continue adding sizes at the lower end of our current range to offer an even broader range of options.

In addition to cost synergies, I want to remind and reinforce that this combination unlocks meaningful commercial synergy upside by applying the strengths of both organizations to create a company with greater revenue potential than either business could achieve alone.

FullBeauty has demonstrated an ability to drive commercial synergies across previous integrations, and we expect to apply that same playbook to drive incremental commercial growth with DXL through aforementioned universal card platform cross-selling, marketplace expansion, website conversion, private label credit card penetration and print and digital marketing. Likewise, DXL's brick-and-mortar and national brand expertise will also drive incremental growth within FullBeauty.

Let me now turn it back to Harvey to discuss the technical aspects of the transaction and certain of the financial benefits.

Thanks, Jim. Let me start with an overview of the merger transaction. Under the terms of the agreement, FullBeauty will merge with a newly formed subsidiary of DXL with DXL remaining as a publicly traded entity. The transaction is 100% stock for stock with DXL shareholders owning 45% and FullBeauty shareholders owning 55% of the combined company.

As part of establishing a strong financial foundation for the combined company at closing, a certain of FullBeauty's equity and debt holders will complete a committed subscription of $92 million through the sale of common stock in exchange for a combination of new equity and outstanding debt equitization. This will result in a term loan outstanding at closing of approximately $172 million with a maturity of August 2029.

The combination is expected to generate $25 million in run rate annual cost synergies by 2027. We intend to begin capturing these synergies promptly after the closing of the transaction with a significant portion to be actioned within the first 12 months. We will take a scientific approach to driving efficiencies across the combined company through cost of goods sold, organizational and non-organizational expenses.

With meaningfully enhanced scale, we will be able to optimize our factory base and supplier network, improve our inbound freight and logistics and leverage improvements in outbound shipping rates. Taken together, this will allow us to streamline our factories and resources for product creation while maintaining agility to pivot sourcing operations to mitigate tariff exposure.

We will also be able to consolidate our workforce and streamline corporate functions to create a leaner, more efficient organization. Finally, by unifying our business overhead across the combined organization, we will benefit from improved pricing efficiency on corporate programs, streamlined customer-facing spend categories and reduced spending for non-organizational and contract programs.

Turning now to the road map to completing the transaction and our integration plans. Looking ahead, the transaction is expected to close in the first half of fiscal 2026, subject to customary closing conditions and approval by shareholders of DXL. I'm pleased to note that the Boards of Directors of both companies have unanimously approved the merger.

In addition, DXL has entered into voting support agreements with one of our largest shareholders, Fund 1 Investments and with each member of the DXL Board, under which the parties have agreed to vote all of their respective shares in favor of the transaction. These agreements represent approximately 19.4% of DXL's existing voting shares, further reinforcing our confidence in a successful closing.

Upon close, the company will trade under the ticker symbol of DXLG. The combined company's headquarters will remain in Canton, Massachusetts, and the combined company expects to maintain a significant presence in New York, Indianapolis and El Paso.

The combined company will be led by a proven management team that includes members from both organizations. Upon closing, Jim will serve as our Chief Executive Officer; and Peter Stratton, current CFO of DXL, will serve as the Chief Financial Officer of the combined entity. This experienced team is highly qualified to deliver on the promise of this merger. The Board will be composed of 9 directors, 4 directors from each company and 1 independent director to be mutually agreed upon by the go-forward directors prior to closing.

There are, of course, many decisions to be made throughout our integration planning. We look forward to keeping you apprised of further details as we have updates to share.

And now I'd like to turn the call over to Peter for a quick update on DXL's third quarter earnings results. Peter?

Thank you, Harvey, and good afternoon, everyone. I'll just take a few minutes to run through the highlights of DXL's third quarter financial performance.

Net sales for the third quarter were $101.9 million as compared to $107.5 million in the third quarter of last year. The decrease in net sales was primarily due to a decrease in comparable sales of 7.4%, partially offset by an increase in noncomparable sales from new stores. Although sales were below our expectations, the quarterly comp was an improvement from negative 9.3% in the first half of the year.

We continue to see a shift towards our value-driven private brands as customers remain cautious with their discretionary spending. These private brands sell at lower average unit retails but generate higher margins. By month, our comps were negative 6.7% in August, negative 9.3% in September and negative 5.8% in October, with October our best month year-to-date.

Our gross margin rate, inclusive of occupancy costs, was 42.7% as compared to 45.1% in the third quarter of last year. Deleverage on occupancy costs contributed 210 basis points of decline and merchandise margins decreased by only 30 basis points, primarily impacted by promotional offers and tariff increases.

Tariffs impacted our third quarter margins by approximately 60 basis points, and we expect the impact on our fiscal year 2025 margin to be approximately $2 million. We did see favorability in Q3 due to the shift in product mix from national brands to private brands.

Our SG&A expense as a percentage of sales increased to 44.7% as compared to 44.1% in the third quarter of 2024. Our ad-to-sales ratio for Q3 was up slightly at 6% from 5.7% last year, and we have been seeing strong returns from our paid search and social channels.

EBITDA for the quarter came in at a loss of $2 million as compared to earnings of $1 million for the third quarter of last year.

We continue to feel very good about the overall strength of our balance sheet. Total inventory levels are down 4.6% to last year and clearance levels remain at approximately 10%, which is in line with our target and with last year.

We finished the quarter with cash and short-term investments of $27 million as compared to $43 million a year ago, with no outstanding debt in either period and excess availability of $73.6 million under our revolving credit facility.

The $16 million decrease in cash from a year ago can be accounted for with $13.1 million in capital spent on new store development during the past 12 months and $3.3 million in share repurchases in the fourth quarter of fiscal 2024.

For the 9 months year-to-date, our free cash flow, which we define as cash flow from operating activities less capital expenditures, was a use of $20.2 million of cash as compared to a use of $7 million last year, with the decrease primarily attributable to lower earnings.

Now I'll pass it back to Harvey for some concluding remarks.

Thanks, Peter and Jim. On behalf of Jim and I, we want to take a moment to recognize our teams, both at DXL and FullBeauty for their dedication and hard work every day. Our success is built on their commitment and the efforts of our colleagues across the stores, distribution center, corporate offices and the guest engagement centers. Everything we accomplished, including our ability to reach this milestone transaction is possible because of them.

Thank you for joining us today to learn more about this compelling transaction. I am confident that FullBeauty and DXL will reach even greater heights and together than either business could have achieved on its own as a stand-alone.

And with that, operator, we will open the floor for questions.

[Operator Instructions] Our first question comes from the line of Jeremy Hamblin of Craig-Hallum Capital Group.

Congrats on the transaction. I wanted to start by just getting a fuller picture of the expected capital structure. Post-closing, we see the $72 million -- $172 million term loan. But wanted to just get a sense for kind of the expectations of where total debt would be post-closing, kind of expected cash post-closing and then hear a little bit more about the expected terms within the term loan.

Sure. So Jeremy, let me start with that question. So first of all, I should just note that we will have an awful lot more information coming out in the proxy statement, which we're going to be working on soon, but I'll try to give you some sense of how we're thinking about it.

So as you saw in the release, what's happening is it's a 100% stock-for-stock transaction. We will be welcoming new shareholders into the company who are shareholders of FullBeauty today. And to answer your question about debt, the total debt that we're expecting upon closing is the $172 million. As I said, there's going to be a lot more that will be coming soon, but that's just a quick start with how to think about it. But certainly, Harvey or Jim can add anything else to that I think appropriate.

I would just add that the maturity is out to August of 2029 on the term loan, and it's LIBOR plus 750.

Great. Okay. And so then -- right, so DXL has had the $27 million here in cash. So just in terms of understanding what the balance sheet looks like for FullBeauty. So the total debt load is going to be $172 million post close. And then just kind of an estimate, we're looking to see an estimate of what the post-closing cash balance you would expect for the combined entity?

So Jeremy, again, I'm not going to get into those pro forma numbers right now. We will have a lot more information coming in the proxy statement. But as of right now, what we're announcing is we wanted to make sure that everyone was clear on the term loan that Jim just referenced. That's going to be the outstanding debt that we're expecting upon closing.

Okay. Got it. And then just another one kind of post-closing combined entity expectations around CapEx, given that FBB is more of a DTC business. But just on a go-forward basis and kind of assuming some of the investments that you'll be making in the business, but kind of the ongoing CapEx that you would expect for the entity?

Sure. So I'll speak to it qualitatively, I guess, is the best way to say it. I think one of the most exciting things about this transaction is the commercial synergies that both sides see. Now of course, we both have infrastructure and maintenance CapEx that needs to be maintained, whether it's maintaining distribution facilities, investments in IT and technology.

But when I think about commercial synergies, there will be questions about where do we want to go with store operations. That's certainly one of the strengths that we bring to this transaction. And I think FullBeauty does not operate any stores today. So I think we will be looking at all kinds of commercial synergies and industrial logic that makes sense. That's going to become more clear, I think, as the 2 teams start working together and coming up with what are those operational plans that we want to be pursuing in the immediate term.

Got it. Maybe this is a question more for Jim. But Jim, I wanted to understand, obviously, it's been a challenging couple of years for DXL. And wanted to understand what FBB was seeing in terms of trends, kind of sales trends over the past year and whether or not with kind of the number of brands that you have under the umbrella, if there are particular brands that are very strong and those that may be -- are any of the brands getting shed kind of post-closing?

No plans for that currently. All of our brands serve a purpose. If you look at -- I think there's a slide in the investor presentation, you'll see that we break our brands down into what we call the new mall brands and the classic mall brands. Our new mall brands service millennial, younger Gen X demo. And then the classic mall brands have historically serviced the sort of older Gen X and into young boomers demo. And we've leaned into the new mall, and we've seen some better results there. And then we're continuing the classic mall is sort of the mainstay of the business for many, many years. And so we've built up a networking effect within that classic mall where we have very loyal customers, big percentages of our business are done by customers who bought more than 4 times from us lifetime. We have a very strong extended plus size business within that classic mall.

And we try to drive -- we'll take a new customer into classic mall in one of our brands, let's say, Woman Within. And then that relationship will try to grow with a basically a strategy of driving her -- and you'll see we operate with a universal web cart. So if you were able to load into womanwithin.com, you would see other surrounding brands. And we try to then encourage that customer to not only be a customer of Woman Within, but if she needs something nice for the weekend, she might move over to Roaman's. If she needs workwear, she'll move over to Jessica London.

And so we're basically trying to build multiple brand relationships with that customer and then also multiple categories, move her into multiple categories as well. And then classically, direct-to-consumer, CRM, customer lifetime value driving, just getting more transactions and more loyalty with that customer over time. So I'm giving you like the quick history.

And then we, as a company, introduced -- bought a brand called Eloquii, and we built out a new mall presence toward that younger demographic. And so we're seeing nice performance with that new mall lean as well.

And then I would just double back and say, from our standpoint, we've always prided ourselves on being high free cash flow generators. So Peter will handle the sort of specific numbers there, but we have been CapEx light and strong free cash flow driving. You'll see those numbers from us over time.

And I concur with Peter's -- and you saw it in my remarks that we're pretty excited about the -- not only the synergies on the cost side to sort of deliver those, that's super important. But also, we believe the -- and would reinforce that the commercial synergies in the transaction are exciting. The capacity and capabilities that we bring to the DXL brand and vice versa, I won't go through that all again, but we're pretty excited about that. So I'll leave it there.

Great. Last one, actually kind of building on that point. In terms of managing kind of 2 really separate businesses that are in the same servicing similar customer sets, DXL has been very kind of hesitant to lead with promotion and fairly disciplined now for the -- certainly since Harvey's tenure. Just want to understand in terms of thinking about how the FB portion of the organization versus DXL, I'm sure this has been something discussed, but in thinking about how to kind of to market the brands and how to position from a price point and promotion, how do you create synergy among those 2 organizations?

So let me start with that one. And then, Jim, I'd love for you to comment on some of the specific questions about FB. So Jeremy, so we mentioned we're targeting $25 million of run rate cost synergies. We're going to start capturing those we think, pretty quickly after closing. There will be a lot of actioning on that coming in the first 12 months. But I think there's going to be opportunities with cost of goods. We both have a pretty diverse manufacturing footprint around the world. There's certainly going to be organizational efficiencies and reduced overhead.

But ultimately, I think what we collectively are excited about are those commercial synergies I was alluding to earlier and how can we accelerate growth through cross-selling, cross-channel capabilities, stores, DTC. I really think this is a tremendous opportunity for each company to bring their best attributes and skill sets and be able to build upon each other's distinct capabilities.

Yes. And I'd just add to it. So first, we take the job on the cost synergies quite seriously, and that wouldn't be surprising. But we -- and as Peter said, we're going to get at it promptly. And it's a whole -- and we -- the 2 organizations have spent a lot of time working through where we think those synergies are and details and organizational details but also contract details. And so it's in the same places that Peter is talking about the sourcing organization, shared contracts over time, the organizational piece, we don't -- sort of the streamlining of leadership, of course, is obvious, but then also inside the organization, just trying to be as lean as we can be.

And then also outbound shipping, inbound logistics, all of those in addition to the core product costs, we're going to -- and then there's, of course, the duplication of audit and tax and all of those sort of normal things. And so we'll work that piece.

In terms of the organizations together, if you think about it, we're still in the planning stages, but we have a great brand in KingSize, a Big + Tall brand. And DXL, of course, is a very powerful brand in Big + Tall. And we've sort of known and respected one another's brands for years. They're bigger than our KingSize brand by a decent click. But we are a little bit more value moderate with KingSize and they're a little bit more moderate. So we think there's a positioning there where we can envision having a universal cart with our 2 men's brands, KingSize and DXL, sort of feeding cross-channel traffic to one another in a direct-to-consumer sense. And we have all sorts of things to think through.

As you know, DXL was moving towards private label, increasing private label penetration. That's where we're strong. They're strong on the national brand side. So we think there may be some really nice crossover potential that we have to work through from making -- the 2 brands will absolutely have a place together. And we've always found 1 plus 1 equaling 2.5 sort of thing and making them stronger. But we'll try to be as lean and efficient in all of that and be very -- even when we're thinking about capital and utilization of capital, be very disciplined capital allocators as we sort of work these things together.

Our next question comes from the line of Michael Baker of D.A. Davidson.

Okay. Congratulations on the transaction. Can I follow up on Jeremy's question about the capital structure? Again, forgive my ignorance, maybe it's in here somewhere. But -- so just to be clear, we're not issuing any more stock here. It's still the same, roughly, what, 58 million shares of stock outstanding. Is that right? So that same stock outstanding number that we're using?

Yes. No, Mike. So it is going to be a stock issuance deal. We will be issuing stock to combine the 2 companies. As we were talking about, Jim was mentioning FullBeauty brings a high strong cash flowing business. DXL has a strong balance sheet. There's a lot of synergies that we think we'll find, but this is essentially a stock deal.

So I guess then you got to -- do we know how much stock is going to be issued or what the -- how much we're...

Yes. So as we mentioned in the terms, it's going to be 55% to FullBeauty and 45% to DXL will be the pro forma ownership.

Understood. Okay. I got you. Okay. And then for -- again, on the capital structure, is there -- so the $172 million term loan, that's -- FullBeauty doesn't come with any debt? Because I know in the past, FullBeauty had existing debt, but has that been paid down? Or is there FullBeauty existing debt that we need to consider?

Right. So that $172 million that Jim was referring to, that is FullBeauty debt that is being assumed by DXL in the transaction. As Jim was mentioning in his prepared remarks, the owners at FullBeauty have equitized a significant chunk of that. There's a $92 million paydown, which brings us down to the $172 million. And the extension -- the term debt is being extended out to August of '29.

Okay. Okay. That helps clear it up. Now can I ask -- so based on the trailing 12-month numbers that you provided of $1.2 billion and $45 million in EBITDA. And we know DXLG's last 12 months numbers of about $445 million and I'm missing my numbers, but about $6 million in trailing 12-month EBITDA. So we can back into what FullBeauty would be doing over the last 12 months, which, correct me if I'm wrong, but that seems to be down a little bit from the last -- I think FullBeauty, the last time we have numbers from you was from your ICR presentation for fiscal year 2023. So I guess -- again, following up on a previous question, can -- Jim, can you talk about the types of trends you've been seeing in terms of top line growth or declines in EBITDA profitability over the last couple of years?

Yes. So -- and that will all be part of the sort of statements, but just to give you a kind of quick frame. Peter took you through the comps of DXL of late. We've been about the same level of comp as DXL in the last period of time. So we have continued to work on our -- in the environment where the moderate value customer has been squeezed. We've continued to work hard on our cost structure, and we've continued to work hard on making sure our marketing expenses are right. And so that's all evident in the EBITDA flow-through that we have on our revenue. And we think that, again, both of these businesses are in much better versus our stand-alone plans, if you will.

We -- the reason we're coming together is we see incredible ability to find and deliver on these synergies, these cost synergies as well as the commercial synergies we've been referencing. And that makes the business work really well. And so we think it's a great deal for the DXL shareholder as it is for our own organization to combine and combine forces and get stronger.

Michael and Jeremy, thank you so much for asking your questions.

Operator, it looks like there's no one else left in the queue with questions. So I would just like to thank everyone for their attendance on the call today. You know that we have a number of follow-ups. As Peter mentioned, we'll be working on the proxy and that you should see in the first quarter at some point. And we know we'll have ongoing discussions and need to follow up with all of you.

So I wish you the very best of holidays if we don't talk to you live, and we look forward to catching with you in the weeks and months ahead. Have a wonderful holiday.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, everyone, and welcome to the Destination XL Group, Inc. Second Quarter Fiscal 2025 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.

Thank you, operator, and good morning, everyone. Thank you for joining us on Destination XL Group's Second Quarter Fiscal 2025 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 2025.

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?

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's 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 tempered all year and we believe our Big + Tall sector customers continue to hold very tight to their wallets as we observed a 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 move 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 a challenge for us to provide clarity around his 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 the 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 continue 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 8 different work streams, designed to further improve overall site speed, user experience and converting. 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 in 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 brand. Conversely, we also offered 20% off as a promotional test at the end of 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 where further elaborating on. We have started to refrain 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 are 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 and a reduced margin rate.

With improved instrumentation, we are better positioned to maximize the return on every markdown dollar better aligned with strategic imperatives and precisely target specific customer cohorts. The level of promotion has increased, but merchandise margins are still above prepandemic 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, given 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 brands, [ cider ] 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 2 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.

Well 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% and to greater than 60% in 2026 and greater than 65% in 2027, depending on customer response and brand residence.

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 Travis Matthew.

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 gained greater control over design, inventory flow and profitability, allowing us to margin opportunities to invest greater and strategic promotions that drive customer acquisition, create differentiation and accelerate sales growth.

Let me also touch on the competitive landscape in the Big+Tall space. which we believe is becoming increasingly competitive as other men's apparel retailers appear to be expanding their Big+Tall exposure and encroaching on our end-of-rack sizing. As the macro environment is also difficult for apparel retailers who trade in traditional sizing more competitors are dipping the toe into the Big+Tall space.

Expanding into extended sizes is an easy modification for traditional sized 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 that direct customers with fresh marketing and storytelling.

Off-price and warehouse retailers are also in the mix convening 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 the 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 end of August, bringing the projected 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+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 the 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, that could increase our inventory cost by just under $4 million in fiscal year 2025. This estimate is net of substantial cost concessions from our private brand vendors.

We have also planned to take retail price increases over the remainder of fiscal 2025 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 supema-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, the upcoming cost and retail increases remain unclear at this time. This evolving unpredictable tariff landscape pose significant challenges to operational efficiency and financial performance for both retailers and manufacturers.

With sourcing already diversified across multiple regions, DXL is actively evaluate 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 24 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 8 weeks to execute and is designed to minimize the negative financial impact to 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 at 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 integrate our sales challenges. Headcount -- corporate headcount is down 15% since the pandemic and our inventory balance at the end of Q2 was $78.9 million as compared to $78.6 million 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 in the test amateur operating regimen.

Despite the weak sales demand, our clearance penetration at 10.2% and remains in line with our long-term target of 10% and is down slightly from 10.4% in the second quarter of 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 6 new stores in different white space markets across the country. We expect to open 2 more stores in the third quarter this year, which will bring our total to 18 new stores opened in the past 2 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 plaguing the stores across the entire portfolio. weak customer demand for apparel and competing macroeconomic priorities. That being said, 2 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 will open 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 I want to update you on is our distribution alliance in 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 and the veneer bins, Trevis Mattel, 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 have been collaborating with the Nordstrom team on DXL marketing initiatives and we are bringing more [ Vigantol ] 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?

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 $115.5 million as compared to $124.8 million 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 noncomparable 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% and as compared to 48.2% in the second quarter of last year. The 300 basis point decrease was primarily due to a 240 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&A expense as a percentage of sales decreased to 41.2% as compared to 43% in the second quarter of 2024. We -- on a dollar basis, SG&A expenses decreased $6.1 million, 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 $3.6 million of brand advertising spend, which we did not anniversary in Q2 of 2025. As a result, our ad to sales ratio for Q2 decreased of 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 $4.6 million as compared to $6.5 million 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 $33.5 million as compared to $63.2 million a year ago with no outstanding debt in either period and availability of $70.1 million under our revolving credit facility.

The decrease in cash from a year ago includes a share repurchase equivalent to $13.6 million and $14.6 million of capital spend on new store development over the past 12 months. For the 6 months year-to-date, our free cash flow, which we define as cash flow from operating activities less capital expenditures, was a use of $14.2 million of cash as compared to cash generation of $3.2 million 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 short-term U.S. government treasury bills to earn interest while preserving liquidity.

We I'd like to conclude this quarter's financial update by highlighting 2 recent big wins for DXL that will help to provide financial stability for the next several years.

First, in June, we signed a 7-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 provides certainty for our base of operations going forward.

Second, earlier this month, we signed a 5-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 in 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 million to $100 million, which will save us money on unused line fees.

Although we currently have no need to borrow under the credit facility, hearing this extension for 5 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.

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 the 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+Tall men and making DXL a place where they can choose their style and wear what they want. And with that, operator, we will now take questions.

[Operator Instructions]. Our first question comes from Jeremy Hamblin with Craig-Hallum Capital Group.

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 differences between the national brand average product margin versus the private brands.

Jeremy, great question. This is 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+Tall, that unique and distinctly different characteristics than a traditional factory in terms of the lay down in [indiscernible] 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 and 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 brands expanded in 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 that they were at $56.5 million. So we've already seen a meaningful migration over the past couple of years and as the 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 at lose quality, but in our case the better quality of -- we believe it's an opportunity to really lean in. And ultimately, your last question, over the last part of your question about margin is really [indiscernible] 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 started 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 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 IMU. So hopefully, I'll help you appreciate some of the -- I wouldn't even call them nuanced big strategic levers and the reason for our actions and believe 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 consumers' response.

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 couple of years?

The way we've articulated is we expect that by fall of next year, we will be over coming really today over 56%. And by 2027, in the year of 2027, we're expecting to be north of 55%.

Okay. Great. And it sounds like there's well over 1,000 basis point differential or benefit to margin.

Yes. I think when all said and done 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 in a merchant margin more similar to what you just defined.

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 million for fiscal '25 at this point, you have kind of a range of what you think it might look like for '26, all else being equal. I mean, obviously, I'm sure there's mitigating factors that you're looking at. additional vendor negotiations, et cetera. But do you have kind of a range of what you think the...

Jeremy, I 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 million and change. to something north of $5 million, and we're now obviously telling you we're just under $4 million.

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 question you asked for '26. So rather than try to give you a range that I think is just kind of sort of almost a relevant I gave you just a range just now that literally real time has been between 1 and 6 and we're hovering south of $4 million 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 months from now.

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. I know you're not planning to do that in '26, but wanted to see if you could provide an outline of where you think your CapEx budget might be for '26 or at least maybe kind of what you expect maintenance CapEx to be?

Sure. So let me take that one, Jeremy. You're right. We're putting a pause on store development. So we have 2 more stores to open. And actually, I think we just opened -- we just opened 1 store, so there's one more still to go in September, and then we'll be to 18 stores really since we started building these stores after the pandemic, and 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 million to $10 million, $12 million a year. I'm not going to give you a number yet for '26. 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 million mark.

[Operator Instructions] Next question comes from Brice Butler with Rock bot.

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 billion 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.

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.

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.

Yes. We do have both in-store audio. It's mostly music, but there is in-store audio where we populated with messages that are appropriate for our brand's positioning. And 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 and our close 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 are with the brand, but the '80s and the Net Promoter Scores are 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 and 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 have shopped with us for a very long period of time, and they were less about a client and more about just, hey, within 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.

Operator, it looks like that is the extent of our questions. We will regroup in about 90 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 wish everyone a safe holiday, this holiday weekend, stay cool, and thank you for your attendance today. Have a great, great fall.

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