Destination XL Group (NASDAQ:DXLG) executives used the company’s fourth quarter fiscal 2025 earnings call to discuss a year marked by declining comparable sales, margin pressure, and a more promotional environment, while pointing to improved sales trends early in fiscal 2026 and outlining strategic priorities centered on fit technology, private brands, and the digital experience.
FullBeauty merger timeline and next steps
CEO Harvey Kanter opened the call with an update on the merger agreement with FullBeauty Brands that Destination XL entered into on December 11, 2025. Kanter said the companies have been working through key deliverables required between signing and closing, and emphasized the importance of the forthcoming proxy statement, which is expected to include combined company pro forma financials as well as the background and rationale for the merger.
Sales declines in Q4 and fiscal 2025, but early 2026 trends improved
In the fourth quarter of fiscal 2025, Destination XL reported total sales of $112.1 million, down from $119.2 million in the prior-year quarter, according to CFO Peter Stratton. Comparable sales decreased 7.3%, with store comps down 8.6% and direct comps down 4.3%.
For the full year, Stratton said total sales were $435.0 million compared with $467.0 million in fiscal 2024. Full-year comparable sales decreased 8.4%, with store comps down 6.9% and direct comps down 11.8%.
Kanter noted the quarterly comp trend was mixed by month, with November down 5.3%, December down 6.1%, and January down 12.9%. He attributed part of January’s weakness to a “severe Arctic weather event” that disrupted much of the company’s nearly 300-store fleet. Kanter said that prior to the mid-January weather disruption, fourth-quarter-to-date comps were down 5.8%.
Management said sales momentum improved entering fiscal 2026. Kanter reported that comparable sales in February improved to down 1.3%, and he said March was following a similar trend. While not providing formal guidance, he said the company expects continued comp improvement over the first two quarters of fiscal 2026, moving to break-even before the end of summer and turning positive later in the year.
On key drivers, Kanter said fourth-quarter store performance was impacted largely by traffic pressure. Conversion “held up better than traffic,” he said, while average transaction value was relatively steady with a small uptick. In the digital business, he cited a slight decline in conversion amid demand softness and a “highly competitive promotional environment.”
Margin pressure, tariff impact, and a deferred tax valuation allowance
Stratton said gross margin inclusive of occupancy costs was 40.8% in the fourth quarter, compared with 44.4% a year earlier, driven primarily by lower merchandise margin and occupancy deleverage on lower sales. For the full year, gross margin inclusive of occupancy was 43.4%, down from 46.5% in fiscal 2024. Stratton attributed the decline to occupancy deleverage along with the impact of tariffs and promotional markdown activity, partially offset by a favorable mix shift toward private brand merchandise.
Stratton quantified the impact of tariffs on merchandise margins at approximately 110 basis points in the fourth quarter and 50 basis points for the full year. Looking ahead, he said the company continues to monitor tariffs and believes the direct impact “under currently understood scenarios is manageable,” citing a broad, diversified supplier network. He added that the company has taken selective price increases on certain programs, renegotiated cost-sharing with suppliers, and remained agile in relocating programs globally.
On expenses, SG&A was 42.4% of sales in the fourth quarter, compared with 41.7% a year ago. For the full year, SG&A was $187.4 million, down 5.5% from $198.3 million, though as a percentage of sales SG&A increased to 43.1% from 42.5% due to lower sales. Marketing costs were 6.3% of sales in the fourth quarter versus 6.2% a year earlier, while full-year marketing was 6.1% of sales versus 6.8% last year; Stratton said marketing expense declined $5.2 million in dollars for the year.
Adjusted EBITDA for fiscal 2025 was $1.6 million, down from $19.9 million in fiscal 2024. Destination XL ended the year with $28.8 million of total cash and investments and no outstanding debt, with excess availability under its credit facility of $55.1 million, Stratton said.
Stratton also highlighted a non-cash accounting decision related to deferred tax assets. He said the company recorded a $20.4 million non-cash charge in the fourth quarter to establish a full valuation allowance against its deferred tax assets, primarily related to net operating loss carryforwards. Stratton said the allowance reflects that current-year net operating losses and the near-term forecast created sufficient negative evidence that outweighed positive evidence regarding realizability. He emphasized the valuation allowance does not affect tax returns, cash taxes paid, or the company’s ability to utilize its NOLs.
Inventory discipline, store footprint plans, and Nordstrom partnership
Management repeatedly stressed expense and inventory discipline as “core pillars” of how it is running the business. Kanter said the company exited fiscal 2025 with a “clean inventory position,” no debt, and $28.8 million in cash and investments.
Inventory at the end of the fourth quarter was $73.5 million, down 2.6% from $75.5 million a year ago and down about 28% from 2019, Kanter said. Clearance penetration was 9.9% compared with 8.6% last year and remained below the company’s historical benchmark of approximately 10%, he added.
On merchandising performance, Kanter said private brands again outperformed national collection brands. He cited casual pants, denim, and tailored clothing as strong performers in the quarter and called out the Oak Hill tech pant. He also said the company is planning a larger rollout of ThermaChill incorporating technical fabrics more broadly than the initial launch. He said shorts, specifically sports shirts and “mid shirts,” were more challenging.
On stores, Kanter said consumer research continues to show access remains a meaningful opportunity, but the company has paused further new store openings this year due to economic headwinds. In fiscal 2025, the company opened eight new DXL stores, converted two Casual Male XL retail stores and one Casual Male XL outlet to DXL retail stores, and converted two Casual Male XL outlets to DXL outlets. Looking ahead, he said near-term store development will focus on converting a few remaining Casual Male XL stores to the DXL format, relocations, and capital projects to maintain the store portfolio, distribution center, and technology needs.
For fiscal 2026, management expects capital expenditures of $8 million to $12 million net of tenant incentives, primarily for technology and infrastructure-related projects.
Kanter also discussed the company’s alliance with Nordstrom, saying Destination XL remains active on Nordstrom’s online marketplace and continues to refine its assortment while onboarding additional brands and styles. He said customers primarily discover products through nordstrom.com search and browse, and the companies are collaborating on a broader go-to-market plan including personalized content and email support. While the channel is currently a small percentage of total sales, Kanter said management remains optimistic about long-term growth potential.
FiTMAP, private brand expansion, promotions, and digital initiatives for 2026
Kanter detailed several strategic initiatives for fiscal 2026, framed around FiTMAP, assortment, marketing (including promotions and CRM/loyalty), and the digital experience. He said the company is not providing specific forward-looking financial guidance at this time and plans to revisit guidance after completion of the merger.
- FiTMAP activation: Kanter described FiTMAP as the company’s proprietary contactless digital sizing technology with an exclusive license for big and tall men until 2030. He said FiTMAP captures 243 unique measurements and provides personalized size recommendations across 29 brands. The company has scanned more than 63,000 customers to date; FiTMAP is live in 188 stores and in the mobile app, with size recommendations aligned between in-store scans and online tools. In 2026, the focus shifts from rollout to activation, including increasing scanning penetration, launching broader marketing to build awareness, and testing FiTMAP-enabled personalized promotions. Kanter said lookalike modeling indicates scanned guests deliver higher customer value and average order value than control groups, with lift occurring both on the day of the scan and increasingly online afterward.
- Assortment and private brands: Kanter said the company aims to increase private label penetration from about 57% at the start of fiscal 2025 to more than 60% in fiscal 2026 and over 65% in fiscal 2027. He said the company plans to reduce investment in underperforming national brands and redeploy inventory and marketing to higher-return opportunities. During Q&A, management discussed private-label initial markup as higher than national brands, though executives declined to quantify a specific gross margin lift given promotional and other moving parts.
- Promotions, CRM, and loyalty: Kanter said the company is moving away from broad storewide discounting toward “always on value” initiatives and more “surgical” targeted promotions based on segmentation and behavioral insights. He acknowledged the company expects some margin pressure from incremental promotions, but described a portion of markdowns as marketing investment to acquire and retain customers. On loyalty, he said higher tiers are performing, while engagement in the “classic tier” has been limited; the company plans to improve earlier lifecycle activation and make it easier to earn and redeem benefits.
- Digital experience improvements: Kanter said the company is using a comprehensive UX audit to prioritize site improvements across discovery, product detail, and checkout. Initiatives include updated photography standards, reducing checkout friction, and supporting site-to-store behaviors. He also said Destination XL is evaluating personalization and shopping-assist capabilities, including “thoughtful use of GenAI.” Additionally, he said the company shifted to an affiliate agency at the end of the third quarter to rebalance the program away from heavy couponing toward reach and new customer acquisition, and is building new affiliate and influencer programs to broaden awareness.
In the Q&A, Kanter also discussed external factors affecting the big and tall consumer. He said management believes GLP-1 usage is contributing to volatility in buying behavior, describing customers who are on a weight-loss journey and delaying purchases, trading down within the company’s assortment, or in some cases sizing out of the core big and tall range. Kanter said the company estimates as much as 25% of its customers may be using GLP-1 drugs, though he described his remarks as anecdotal and said the company has not yet been able to document the impact with a high degree of statistical confidence.
Closing the call, Kanter said the company is navigating the cycle with discipline and believes the “foundational work” completed will position it to benefit when demand improves. He reiterated optimism around the planned FullBeauty merger and the company’s longer-term growth opportunities.
About Destination XL Group (NASDAQ:DXLG)
Destination XL Group, Inc (NASDAQ: DXLG) is a specialty retailer focused on big and tall men’s apparel and accessories. Operating under its flagship DXL and Casual Male XL banners, the company offers an assortment of men’s clothing in larger sizes, including suits, dress shirts, casual wear, outerwear, activewear and underwear. In addition to its brick-and-mortar stores, Destination XL maintains a significant omnichannel presence through its e-commerce platform and direct mail catalog, enabling customers to shop for extended-size apparel across North America.
Founded in 1976 and headquartered in Canton, Massachusetts, the company began its operations as Casual Male XL and over time evolved its retail concept to the Destination XL format, which emphasizes an elevated, destination-style shopping experience.
