Good day, everyone, and welcome to the Destination XL Group, Inc. 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 Destination XL Group, Inc. Please go ahead, Shelly.

Thank you, and good morning, everyone. Thank you for joining us on Destination XL Group, Inc.'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 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 will now 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 12/11/2025. 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 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 their hard work and dedication to our company as we work through this transaction. Now the second topic that I wanted to talk about is our operating results for year-end 2025 and early fiscal 2026. I expect many of you saw our press release from earlier this morning where we reported for 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,…

Thank you, Harvey, and good morning, everyone. I appreciate all of you joining us on the call today. I am going to take a few minutes to provide you with some additional color on our fourth quarter and full-year financial performance. Let us start with sales for the fourth quarter, which came in at $112.1 million as compared to $119.2 million in 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 $435.0 million compared to $467.0 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 will highlight for you next. Starting with gross margin, for 2025, gross margin inclusive of occupancy costs was 40.8% compared to 44.4% in 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 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…

Hopefully it is 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 completed will position us to benefit meaningfully when demand improves. We remain excited and optimistic about the FullBeauty merger, the growth opportunities in the broader inclusive apparel sectors, and what we believe it will return to our shareholders. Lastly, as I wrap up and before we take questions, I want to thank the Destination XL Group, Inc. 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 provide the 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 Destination XL Group, Inc. the place where they can choose their style and wear what they want. We will now open for questions.

If you would like to ask a question at this time, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from Jeremy Hamblin with Craig-Hallum.

Thanks for taking the questions. I wanted to ask a bit more about the FitMap technology, for which I think you have a license for the next five years. To give us a sense for the momentum that is building in that particular technology, I think you said you have scanned 63,000 customers to date. The rollout is live in 188 stores. Can you give us a sense for the incremental velocity? 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 maximize the opportunity behind that?

Jeremy, it is Harvey Kanter. I will 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 FitMap moving forward in the most demonstrative way since September or October. I do not recall the exact specific cadence, but I will remind you that generally it was 25, 50, 62, 88 stores. That is how it went down in terms of the stores. Then the 88 up to 188, which was the 100 more stores, was really February and March completion. I think we literally just finished the last eight stores in the last 10 days, and we are now at 188 stores, and that is what we expect to be maturity, at least for the time being. The elements that we have been encouraged by as we have 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 is literally 24 months of time. For lack of a better way to say it, we have gone slow to go fast. When I say that, we did not get overly aggressive with respect to what we thought would happen. We were thoughtful. It is 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 important is bringing the technology forward in more meaningful ways, which we have now done, inclusive of any mobile device. Initially it was the iPhone, which is the majority of how consumers engage with us in a mobile setting, and then Android in the last 30…

That is intriguing. It has been tough out there in the big and tall market overall, not just for Destination XL Group, Inc. I wanted to get a sense for, as we enter 2026, the promotional environment that you are seeing. You noted that your customers have been gravitating a bit more towards private brands and away from the national brands. Can you give a sense for the competitive responses that you are seeing from other retailers in the big and tall category at store level, but also in what you are seeing in the online channel of business?

It is Harvey Kanter again. I will talk you through this, and then Peter can backfill at a level that makes sense. What we believe is that our customer, who is in the sea of all apparel—women’s, kids, men’s, men’s big and tall—is one of the categories that is probably most impacted by customer malaise and a reduced desire to spend money on clothing. He does not shop as frequently as a normal men’s customer, and not as frequently as a women’s customer. When you think about the multiple elements we are all living through and the volatility—whether it is tariffs, the impact of GLP-1 drugs, which we believe is having an impact in terms of the customer’s weight and how they are thinking about clothing, or the price of gas, food, groceries, going out to eat—all those variables are affecting the sector. A belief we have 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 is wearing them out. We see certain elements like that. It may be remarkable, but our underwear business is strong right now. That is one of the markers that we look at to see he needs clothes and he has not bought them, and he will come back. There is a belief that he will come back in a period of time. Government subsidy and then lack thereof, inflation, interest rates, GLP-1 drug impact—there are a lot of moving components, including tariffs and what we have had to do to try to navigate and offset at some level. Looking backwards 12 months, who knows what will transpire in the next…

And then a question on the private label or the private brand initiative. Going from 57% of inventory mix private brand to 65% in 2027, what would you expect the gross margin impact of that initiative to be over the course of those two years?

I will talk about it at a high level, and then Peter will circle back. The reality is our national brands on an IMU basis hover in the mid-50s. Our private brands on an IMU basis are in the mid-70s. There is a distinct starting point differential. The consumer is buying private brands mostly because they represent higher quality and a better fit, and that is 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. The value we are bringing to market is a demonstrably lower absolute price point. When you compare the quality and the fit, those values are enhanced. Ultimately, that gives us the ability to assort more deeply. We are bringing in more inventory, and we have the capacity to promote that product at some greater level in a profitable situation versus national brands. The flip side is national brands are at a higher price point. That is not to say we are getting out of national brands, but generally we are trying to navigate a different view of national brands. If we cannot get them 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 have more specifics, but net-net, it starts out higher and it ends higher, and the mix you have alluded to moves from 57% to hopefully 67% or greater. That 10-point differential on what literally is a 15- to 20-point differential on IMU does mean something to us.

Harvey, I think you more or less answered it. Going from the mid-50s up to the mid-70s is how I would think about it, Jeremy. That will vary depending on what the product is, but at a very high level, I think that is a fair way to represent it.

So just to clarify, from a gross margin perspective, you would say maybe it could be 100 to maybe even 200 basis points to gross margin?

It could be. I do not want to put a number out there so discretely because, as we have been talking about earlier, we have definitely been more promotional this year. You have seen that in the merchandise margins. There are different puts and takes, but overall, we should end up in a net positive the more that we shift to private label.

Understood. Alright, last one for me. In terms of looking at the store fleet today and 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 rightsizing the store fleet in 2026?

In 2026, we are not moving anywhere. We will look and hopefully reengage in 2027 with consideration of more stores. The answer to the question is based on the customer. We have direct shipments, and we can look at our direct business, which is roughly 30% of our revenue, and look at whether we are shipping to places we do not have store representation. In other markets like Houston, which we have used before as an example, Sugar Land in the southwest corner of Houston was not a geography within the Houston area that we were covering well. We clearly did, through our CRM analysis, see customers coming from there and how far they were traveling. That will drive what we would call white space opportunities in markets that we exist already, or potentially markets that we do not exist in vis-à-vis the direct business. What we have articulated before is we do not believe we are a 600- to 700-store chain. We do believe that we could be 325 to 350, maybe 400 stores, but we have not defined that specifically as much as generally saying that based on our research—which was fact-driven—customers have told us literally nearly 50% of the reason they do not shop with us is there is no store near them, or one-third of customers who do not shop with us said not conveniently near them. That is direct feedback that says if we open a store near you, we should see the market improve, and we do see that. You mentioned our stores initially did not open at the level that we expected. We think that is part and parcel of the overall sector challenges, but we can tell you with confidence and data that our stores continue to move towards maturity. 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, customer trial, and repeat rates, and improve as a performance of units overall with the 18 stores we have opened.

Got it. Thanks for taking my questions.

You bet. I think we are up to Keegan.

Hey, it is Michael Baker. Can you hear me?

Hey, Mike. How are you?

First, before I ask a question, are you willing to talk about anything around the FullBeauty transaction? Sometimes management teams say we are not talking about it until it is closed. If you are, I would ask a couple questions on that. Mike, we have talked about the proxy coming out hopefully in a not too distant period of time in the future. At the moment, that is the extent of what we are going to talk about relative to that. There is a lot of information in there, which I think will be informative, but nothing beyond that on today's call.

Okay, just wanted to clarify that. Then a couple other quick ones here. When you have these storm events like you saw in January, you are a Northeast retailer and you see these types of things a lot. What is the recapture rate, or do you see a rebound, or does that typically end up being lost sales?

We see a rebound. I do not know that we can tell you it is one-for-one, but when you literally do not open 124 stores on a day—and in January, I know that number—it was 124. The next day was 84. Two days in a row, nearly a third 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. Is it one-for-one and we get it all back instantaneously? No, but we do see a rebound. Weather has been so drastic. Literally yesterday versus the day prior in the Southeast and the Northeast had just terrible winds and snow. We literally see thousands of basis point movement because of the stores not opening or not pulling.

I am in Boston. You are right. I felt that yesterday. 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. 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 am not sure it is playing out like that. Can you talk about the impact of GLP-1, what you are seeing, and how that compares to your original thesis?

It has definitely evolved. I was in the stores last week traveling with our Chief Stores Officer and spent a lot of time in the California market. My commentary is anecdotal because we are unable yet to document some of the things we believe. We have done primary research, we have bought secondary research, and we have consumer research, and none of it is demonstrative at the greatest level that we feel has a very high correlation. Anecdotally, we did not think it was going to be impacting the business as much as we think it is today. I cannot characterize what that means in basis points. It is not like a 20% decline. What we see is that our consumer coming in is more needs-driven. He is on a weight-loss journey. In some cases, he may have bought Polo and Psycho Bunny, and now he is buying Harbor Bay. When asked, he says he is losing weight on GLP-1 drugs, and he is not uncomfortable telling us that. He says when he is done, he will come back to Polo, but right now he is going to buy Harbor Bay because it is great quality and a great shirt. It is literally $20-some versus Ralph Lauren might be $120. He is not done with his journey. We are seeing some customers size out of our size range or at least, competitively, they can shop at Nordstrom, which is a partner of ours, or Macy’s or other retailers because they are now a 1X as opposed to a 3X or 4X. We are also seeing a lot of customers that might be a 6X that are now at 3X. They are moving around. We have been told and see customers that are moving down in size, but also for whatever reason decide to get off the drugs, and they are moving back up. There is a lot of volatility. I do not know that we are going to see stabilization of the consumer relative to GLP-1 drugs for some period of time. We think it might be as much as 25% of our customers using them. Typically, weight loss of any kind, up or down, is a friend of ours. Right now, we are in a pattern where they are losing weight and they are trying not to buy clothes until they are done with that journey. We do think it will come back. We think it is a sector issue as opposed to doing something materially wrong or it being materially more competitive than it has been. There are benefits for our guests and customers in general losing weight and being healthy. We are navigating through that. Hopefully I have answered your question. It is a moving target, and there is not a black-and-white answer yet.

Thanks. That is clear. Appreciate the color.

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

Take care. Thank you.

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