DXL returns to profitability in second quarter, sales decline

Specialty apparel retailer Destination XL Group (DXL) reported financial results for the second quarter ended August 1, 2026, recording a net income of 2.0 million dollars, or 0.04 dollars per diluted share. The result marks a return to profitability compared to a net loss of 0.3 million dollars, in the prior-year period.

The profitability improvement was primarily driven by a 4.6 million dollar tariff refund received during the quarter, alongside reduced incentive-based accruals. Total net sales fell 3.4 percent to 111.6 million dollars, down from 115.5 million dollars in the second quarter of fiscal 2025.

“DXL’s singular commitment to serving the Big + Tall customer has allowed us to establish a differentiated leadership position in an underserved market that represents meaningful opportunities for future growth,” said Lionel Conacher, chairman and interim chief executive officer of DXL. “As we navigate a dynamic consumer environment, our team is focused on delivering the right product and value, deepening our engagement with customers across channels and operating the business with greater discipline.”

Sales metrics and operational trends

Total company like-for-like (LFL) sales decreased 3.5 percent during the 13-week period. The decline was driven by a 4.3 percent contraction in physical retail store LFL sales and a 1.6 percent decrease in the direct-to-consumer (D2C) business. Lower customer footfall continued to impact store operations, although this was partially mitigated by improvements in conversion rates and higher average transaction values.

LFL performance demonstrated sequential improvement throughout the period, recovering from a 5.7 percent drop in May to a 2.8 percent decline in June and a 1.9 percent decrease in July. Management noted that macro-economic pressures on discretionary spending, alongside structural demand shifts linked to GLP-1 weight-loss medications, continued to influence customer buying patterns.

Gross margin for the quarter expanded 270 basis points to 47.9 percent, up from 45.2 percent in the second quarter of fiscal 2025.

Board turns against FullBeauty merger

In a strategic shift, the board of directors determined that the previously proposed merger with FBB Holdings I (FullBeauty) is no longer in the best interest of the business or its stockholders. DXL filed an amended preliminary proxy statement with the US Securities and Exchange Commission (SEC) recommending that shareholders vote against the stock issuance proposal required for the transaction.

The board cited the challenging consumer landscape, FullBeauty’s declining operating metrics, elevated indebtedness, potential negative equity value, and the economic dilution DXL shareholders would face under the original December 2025 merger terms. Transaction-related expenses associated with the proposed business combination totaled 1.8 million dollars for the quarter, compared to 0.1 million dollars in the second quarter of fiscal 2025.

Financial outlook

Adjusted EBITDA for the quarter, which includes the tariff refund benefit, reached 7.7 million dollars compared to 4.7 million dollars in the prior-year period. On a non-GAAP basis, excluding transaction fees and applying a normalized 26 percent tax rate, adjusted net income was 0.05 dollars per diluted share, up from 0.01 dollars per diluted share last year.

Assuming currently enacted trade policies remain unchanged without additional duties, management estimates that existing tariffs will exert a headwind of approximately 100 basis points on full-year fiscal 2026 gross margin, exclusive of refunds already realized.