Destination XL Group, Inc.

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. Shelley Mokas, Vice President of Financial Reporting and SEC Compliance at DXL. Please go ahead, Shelley.

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 President and Chief Executive Officer Harvey Cantor 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 Cantor. Harvey?

Thank you, Shelley, 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 Full Beauty Brands that we entered into on December 11, 2025. Since that date, we have been diligently working with our advisors, our attorneys, and the Full Beauty 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'll 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-day 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 two quarters, moving to break even 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've observed quarters to date. The positive shift in sales is a welcome departure from the major storylines in fiscal 2025, which reflected the ongoing challenges facing the big and tall retail sector. Given the directionally improving sales shift, we are continuing to focus our efforts on our strategic initiatives, fit map, 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 regiment and the discipline we have as the core pillars for running DXL. Our discipline to regiment revolves around tightly managing our expenses, proactively driving very structured inventory receipt flow and investment, 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 two 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 directs 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 2020 CISC. The sales story in Q4 was driven largely by traffic pressure in stores, with conversion and holding up better than traffic, and the 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 managed 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 buying 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 pant continues to stand out. And as we move from Q1 into Q2, we are excited about the bigger launch of ThermaChill, which incorporates technical fabrics now more broadly than just the pants and shorts from the initial launch. Conversely, shorts, specifically sport shirts and knit shirts, were more challenging as a classification. National collections did improve over the prior quarters 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's 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 continue to improve access by opening eight new DXL stores, converting two casual mail retail stores and one casual mail outlet to DXL retail stores, and converting two casual mail outlets to DXL outlets. As we have shared in the last few earnings calls, given current economic headwinds, we pause further in new store openings for this year. Our short-term store development plans will be more focused on converting a few remaining casual mail 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 initial 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 email 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 Intel space. FitMap is our proprietary contactless digital sizing technology and which we hold an exclusive license for big Intel 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 three 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, allowing 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 conversions, lower returns, and increased multi-channel 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 email 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 scanned 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 lookalike modeling, we continue to observe that scan guests deliver a 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 omni-channel behavior SIPMAP 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 two 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 GM ROI, 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 brands 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 three complementary motions. First is what we call always-on value, everyday value-driving initiatives aimed at specific cohorts available when a 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 lifecycle and behavioral segments, where we see potential to change FOD 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 is part of the broader CRM work I just described, improving how we activate customers earlier in their lifecycle 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 conversions and customer competence 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 roadmap 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 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 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.