Destination Xl Revenue Falls 7.5% in Q2

Key Points

• Revenue (GAAP) fell 7.5% in Q2 FY2025, with comparable sales down 9.2%, Revenue fell 7.5%, and comparable sales declined 9.2%, in line with management’s expectations for a single-digit decrease and showing some sequential improvement within the quarter.

• Gross margin (GAAP) compressed by 3.0 percentage points in Q2 FY2025, partly due to occupancy costs and lower merchandise margins.

• Free cash flow and cash from operations were both negative for the first six months of fiscal 2025, highlighting ongoing cash burn risk.

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Destination Xl Group (NASDAQ:DXLG), a retailer specializing in big and tall men’s apparel, reported second quarter fiscal 2025 results on August 27, 2025, with revenue below expectations and EPS above expectations. Sales declined, profitability eroded, and digital segment performance lagged, as direct sales declined year-over-year. Revenue came in at $115.5 million against $124.8 million in the prior-year period, while Diluted earnings per share (EPS, GAAP) slipped to $0.00 in Q2 FY2025 from $0.04 in Q2 FY2024. These numbers indicate ongoing pressure on demand, particularly across the company’s direct-to-consumer platform. Management’s overall assessment of the quarter emphasized cost discipline and strategic pivots, yet highlighted persistent headwinds and limited visibility for near-term recovery.

Business Overview and Recent Strategy

Destination Xl Group operates as the leading specialty retailer for big and tall men’s clothing and shoes in the United States. Its stores and e-commerce platforms offer tailored and casual apparel, footwear, and accessories, primarily under private brands and select national labels. The company’s approach centers on serving a unique customer base with a combination of physical locations and digital shopping options.

Recently, the company has focused on expanding its private brand offerings and rolling out new sizing technology in stores. These efforts aim to improve margins, differentiate the brand, and respond to evolving consumer behaviors. The company measures success by metrics such as sales growth, margin improvement, store productivity, brand recognition, and inventory management.

Quarter in Review: Financial and Operational Highlights

Total revenue (GAAP) for Q2 FY2025 was below both last year’s figure and analyst estimates. Comparable sales, which measure growth at stores open at least a year plus digital performance, declined 9.2%. Store sales declined 7.1% while Direct-to-consumer sales, mainly e-commerce, dropped by a steeper 14.4%. This marked the second consecutive quarter (Q1 and Q2 FY2025) in which digital sales underperformed store sales, with management attributing part of the shortfall to problems with a recently deployed e-commerce technology platform. Management noted that monthly trends showed some sequential easing of comparable sales declines in Q2 FY2025: May at (10.4)%, June at (9.6)%, and July at (7.0)%.

Gross margin, which reflects the percentage of sales left after covering product and occupancy costs, declined to 45.2% in Q2 FY2025 from 48.2% in Q2 FY2024. The decline in Q2 FY2025 was primarily driven by higher fixed occupancy expenses, which became a larger portion of sales as revenue fell, and a modest decline in merchandise margin due to promotional activity and tariff-driven costs. The company noted that shifting more sales into private brands partly offset these pressures, as margins on owned brands tend to be higher. Tariffs, however, remain a growing concern for cost structure and are now projected to impact annual results by just under $4.0 million in FY2025.

On the expense front, Selling, general, and administrative costs (SG&A) improved as a percentage of revenue, dropping to 41.2% from 43.0% in Q2 FY2025 versus Q2 FY2024, despite a reduction in total sales. Absolute SG&A expense fell by $6.1 million, as the company reduced marketing spend and variable compensation, though healthcare costs rose. The company’s cost controls limited the earnings decline, but were not enough to overcome lower sales and margin contraction, resulting in net income falling from $2.4 million last year to a small loss. Adjusted EBITDA, a measure of recurring operating profitability, declined from $6.5 million in Q2 FY2024 to $4.6 million in Q2 FY2025, and EBITDA margin fell more than a percentage point year over year.

Inventory increased by $0.3 million year-over-year as of August 2, 2025, with levels of clearance stock—the share of goods being liquidated rather than sold at full price—close to target, indicating discipline in stock management. At the end of the quarter, the company had 294 stores, including recently opened locations. Management suggested only two more store openings are expected in the fiscal year. Store-level performance, especially for new openings, continued to lag internal targets due to brand recognition and demand challenges in new markets.

The direct channel (e-commerce and other digital sales) comprised 27.5% of total revenue in Q2 FY2025, down from 29.6% in Q2 FY2024. Management cited “decreases in online traffic and average order value,” along with ongoing “challenges with our new e-commerce platform,” as key reasons for the digital performance shortfall in Q2 FY2025. Management is actively addressing issues with the new e-commerce platform.

Management’s emphasis on private brands continued, with owned products now representing 56.5% of sales as of the most recent update. The stated goal is to increase this to over 60% in FY2026 and over 65% in FY2027, seeking improved supply chain control, stronger margins, and price competitiveness. The FiTMAP Sizing Technology initiative, a body-scanning service for better clothing fit, expanded to 62 stores by the end of Q2 FY2025, reaching more than 23,000 customers as of Q2 FY2025 and targeting further deployment in coming years. Customer loyalty and pricing programs were further refined in response to rising price sensitivity among shoppers. The company reported that its value messaging and new discounting programs are aimed at carefully targeted customer groups to avoid damaging overall brand perception.

The company ended Q2 FY2025 with $33.5 million in cash and investments, a sharp drop from $63.2 million in Q2 FY2024. This decline reflects $13.6 million spent on share buybacks and $14.6 million invested in new store buildouts over the past 12 months. The business carries no debt and has access to a renewed $100 million credit facility, with $70.1 million available at quarter-end. Total inventory was managed in line with demand, and working capital discipline was maintained.

Operating cash flow (GAAP) was negative for the first six months of FY2025, and Free cash flow, a non-GAAP measure defined as cash flow from operating activities less capital expenditures and excluding debt repayment, was also negative. Management attributed this to declining earnings, investments in strategic initiatives such as store openings and technology, and ongoing margin pressures.

Looking Forward: Guidance and Key Metrics

Management did not provide a formal outlook for the remainder of the year in its latest release. In earlier discussions, there had been hopes of returning to positive comparable sales growth in H2 FY2025. However, the most recent quarter’s results, especially for digital sales, make such a rebound less certain. Early trends in August (Q3 FY2025) show “modest improvement” in store traffic over July (Q2 FY2025), but management struck a cautious note on the potential for broader recovery.

Key issues to watch in the upcoming quarters include any progress in correcting digital platform issues, continued growth of private label merchandise, and changes in margin trajectory. The company is also tracking the financial impact of tariffs, with the annual drag now projected to reach just under $4.0 million in FY2025 if trade rates remain unchanged. Investors will want to monitor sequential sales results, developments in operational execution, and trends in cash flow as indicators of business stabilization or further risk.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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