Quarterly Report for Quarter Ending August 1, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q (this "Quarterly Report") constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as "may," "will," "estimate," "intend," "plan," "continue," "believe," "expect" or "anticipate" or the negatives thereof, variations thereon or similar terminology. The forward-looking statements contained in this Quarterly Report are generally located in the material set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations," but may be found in other locations as well, and include statements regarding the proposed Merger with FullBeauty, including the filing of a definitive proxy statement, the Board's continued evaluation of the proposed transaction, the factors considered by the Board in changing its recommendation with respect to the Issuance Proposal, stockholder voting matters, and the potential consummation of the proposed Merger and related transactions; our belief that our business historically has been seasonal in nature, and that the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year; our expectation that ASU-2023-06 will not have a material impact on our Consolidated Financial Statements or related disclosures because we are currently subject to the reporting requirements of Regulation S-X and Regulation S-K; our belief that profitability will return over the long term, while forecasting operating losses in the near term; our continued conclusion that the negative evidence outweighs available positive evidence regarding realizability of our deferred tax assets and that the full valuation allowance should remain against our net deferred tax assets; our belief that the macro and sector headwinds are influencing the core DXL big + tall consumer and are materially affecting traffic; our belief that our disciplined operating approach and focus on execution will position us to drive improved performance as fiscal 2026 progresses; our belief that our customer is responding positively to the adjustments we are making to our assortment, promotional strategy, and customer experience; our belief in several strategic initiatives designed to strengthen our market leadership in the big + tall sector while enhancing the customer experience across channels; our belief that FiTMAP remains one of the Company's most important long-term growth drivers; our belief that early results for FiTMAP technology continue to reinforce its value; our belief that personalized fit solutions can drive both customer satisfaction and profitable growth; our belief that AI-powered search and discovery tools may become increasingly important in ecommerce; our belief that the new AI initiatives that were launched will improve product data quality, enrich item-level attributes and strengthen our ability to connect product, pricing and inventory information across AI-enabled platforms; our intention that our AI initiatives will improve discoverability, support future commerce applications and position us to compete effectively as digital shopping journeys become more conversational and agent-driven; our belief that GLP-1 medications and similar weight-loss medications may be influencing customer behavior and category demand; our belief, based on our research, that a meaningful portion of our customer base is currently using GLP-1 medications; our belief that GLP-1 medications provide both a near-term challenge and a long-term opportunity; our belief based on our research that while some customers may pause apparel purchases during periods of rapid size change, we expect many will return once they reach a more stable size profile; our belief that we can strengthen retention, reactivation and lifetime value over time by staying closely aligned with evolving customer needs; our belief that the comparable sales for May reflected lower traffic as consumers remained cautious amid pressure on discretionary spending from inflation, higher energy costs, global conflict and broader economic uncertainty; our belief that the comparable sales for June and July reflected Father's Day and other promotional activities that helped offset the continued decline in traffic; our belief that the scope, duration, and rates of existing and proposed tariff measures, as well as the potential for modifications, suspensions, or retaliatory trade actions, could impact our operations, supply chain, and cost structure; our belief that it is difficult to determine the potential impact that continuing tariffs may have on our financial results for fiscal 2026; our expectation that the impact of the current administration's tariffs on gross margin for fiscal 2026, exclusive of refunds realized, will be approximately 100 basis points; our expectation that for fiscal 2026 marketing costs will be approximately 5.8% of sales; our belief that our cash and cash equivalent balances, short-term investments, cash generated from operations, and borrowings available to us under our credit facility will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months; our belief that cash flows from operating activities and cash on hand will be sufficient to satisfy our current capital requirements in the short-term; our belief that in the longer term, to the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we anticipate that working capital will be financed by our credit facility; our belief that our inventory position is healthy, and our clearance levels are in line with our benchmark of 10%; our expectation that capital expenditures for fiscal 2026 will range from $8.0 million to $10.0 million, net of tenant incentives, which is a decrease from our previous estimate of $9.0 million to $12.0 million; our expectation that capital spend for fiscal 2026 to be primarily for technology-related projects to support our business initiatives and projects necessary to maintain our existing store portfolio and distribution center; our belief that inclusion of the non-GAAP measures helps investors gain a better understanding of our performance, especially when comparing such results to previous periods and that they are useful as an additional means for investors to evaluate our operating results, when reviewed in conjunction with our GAAP financial statements; our belief that the comparability of adjusted net income (loss) is useful in comparing the actual results period to period; our belief that free cash flow is important to investors because it demonstrates our ability to strengthen liquidity while supporting our capital projects and new store development; our belief that providing adjusted EBITDA and adjusted EBITDA margin is useful to investors in evaluating our performance and are key metrics to measure profitability and economic productivity; our belief that the resolution of legal proceedings and claims that may arise in the ordinary course of business will not have a material adverse impact on our future results of operations or financial position; our expectation that we will be able to take proactive measures to

manage our inventory and adjust our receipt plan given the ongoing macroeconomic factors affecting consumer spending. These forward-looking statements generally relate to plans and objectives for future operations and are based on management's reasonable estimates of future results or trends. The forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and notes to those statements included elsewhere in this Quarterly Report and our audited Consolidated Financial Statements for the year ended January 31, 2026, included in our Annual Report on Form 10-K for the year ended January 31, 2026, as filed with the Securities and Exchange Commission ("SEC") on March 19, 2026 (our "Fiscal 2025 Annual Report").

Numerous factors could cause our actual results to differ materially from such forward-looking statements. We encourage readers to refer to our filings with the SEC, including Amendment No. 1 to Preliminary Proxy Statement filed on September 2, 2026, that set forth certain risks and uncertainties that may have an impact on future results and direction of our Company, including risks related to the Merger and combining our business with FullBeauty, risks if a Merger is not approved, changes in consumer spending in response to economic factors, the impact of current tariffs, the impact of any further increases in tariffs, our ability to proactively react to the current and further potential changes in tariffs to minimize risk; rising fuel costs, high interest rates; the impact of ongoing worldwide conflicts on the global economy; and our ability to execute on our marketing, digital, store and collaboration strategies, ability to grow our market share, predict customer tastes and fashion trends, compete successfully in the United States men's big + tall apparel market, and the other risks and uncertainties as set forth in the "Risk Factors" section in Part I, Item 1A of our Fiscal 2025 Annual Report.

All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. These forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances in which the forward-looking statement is based.

BUSINESS SUMMARY

Destination XL Group, Inc., together with our consolidated subsidiaries (the "Company"), is the largest specialty retailer of big + tall men's clothing with retail and direct operations in the United States. We operate under the trade names of Destination XL®, DXL®, DXL Outlets, Casual Male XL® and Casual Male XL Outlets. At August 1, 2026, we operated 257 Destination XL stores, 17 DXL outlet stores, 5 Casual Male XL retail stores, 14 Casual Male XL outlet stores and a digital business, including an e-commerce site at dxl.com and a mobile site, m.destinationXL.com, mobile app and third-party marketplaces.

Unless the context indicates otherwise, all references to "we," "our," "us" and "the Company" refer to Destination XL Group, Inc. and our consolidated subsidiaries. We refer to our fiscal years, which end on January 30, 2027 and January 31, 2026 as "fiscal 2026" and "fiscal 2025," respectively. Both fiscal years are 52-week periods.

SEGMENT REPORTING

We currently have two operating segments: our stores and our direct business. We consider our stores and direct business segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into one reportable segment consistent with our omni-channel business approach.

COMPARABLE SALES

Our customer's shopping experience continues to evolve across multiple channels and we are continually adapting to meet the guest's needs. The majority of our stores have the capability to fulfill online orders if merchandise is not available in the warehouse. As a result, certain transactions that begin online are ultimately completed at the store level. Similarly, if a customer visits a store and the item is out of stock, the associate can order the item through our website. A customer also has the ability to order online and pick-up in a store and at curbside. We define store sales as sales that originate and are fulfilled directly at the store level. Digital commerce sales, which we also refer to as direct sales, are defined as sales that originate online, whether through our website, at the store level or through a third-party marketplace.

Stores that have been open for at least 13 months are included in comparable sales. Stores that have been remodeled or relocated during the period are also included in our determination of comparable stores sales. Stores that have been expanded by more than 25% are considered non-comparable for the first 13 months. If a store is temporarily closed for more than 7 days, it is removed from the calculation of comparable sales until it reopens and upon its anniversary is once again removed from the calculation until the reopen date. The method of calculating comparable sales varies across the retail industry and, as a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other retailers.

Update on Merger with FullBeauty

On December 11, 2025, the Company, Divine Merger Sub I, Inc., a Delaware corporation and wholly owned direct subsidiary of the Company ("Merger Sub"), and FBB Holdings I, Inc., a Delaware corporation ("FBB" or "FullBeauty"), entered into an Agreement and Plan of Merger (as subsequently amended, the "Merger Agreement"). The Merger Agreement provides that, on the terms and subject to the conditions set forth therein, Merger Sub would merge with and into FullBeauty, with FullBeauty being the surviving corporation as a wholly owned subsidiary of the Company (the "Merger"). On August 19, 2026, the Company, Merger Sub and FullBeauty amended the Merger Agreement to extend the end date from September 11, 2026 to October 30, 2026.

In connection with this Merger, the Company filed the Preliminary Proxy Statement with the SEC on September 2, 2026. Upon clearance from the SEC, the Company intends to file a definitive proxy statement, which will be distributed to its stockholders in connection with their vote on the Issuance Proposal. As described more fully in the Preliminary Proxy Statement, the Board has continued to evaluate the Merger, including in light of developments since the execution of the Merger Agreement. As part of that evaluation, the Board has considered, among other things, (i) the increasingly challenging consumer environment since the execution of the Merger Agreement in December 2025, (ii) FullBeauty's continuing decline in operating performance and financial results, including lower-than-expected net sales, net income (loss), adjusted EBITDA and cash flow from operations as compared to both prior-year performance and prior projections (and the corresponding heightened risk that FullBeauty will not achieve its projections for the current fiscal year), (iii) FullBeauty's increased level of indebtedness, (iv) concerns regarding FullBeauty's potential negative equity value, and (v) the substantial economic dilution that DXL stockholders would experience if the Merger were consummated on its current terms. Based on this evaluation, including these considerations, the Board has determined that the Merger and the transactions contemplated by the Merger Agreement, including the Issuance Proposal, are no longer advisable and are not in the best interests of the Company and its stockholders. Accordingly, the Board recommends that its stockholders vote "against" the Issuance Proposal that will be included in the definitive proxy statement, when it becomes available.

EXECUTIVE SUMMARY

(1) The amounts and percentages for the second quarter and first six months ended August 2, 2025 reflect the reclassification of certain costs from SG&A expenses to Transaction-related costs for comparability with the amounts and percentages for the second quarter and first six months ended August 1, 2026.

Our results for the second quarter reflect our continued progress against our strategic priorities. While traffic to both stores and digital remains under pressure, we were encouraged by the sequential improvement in comparable sales during the second quarter. Comparable sales were down 5.7% in May, down 2.8% in June and improved to down 1.9% in July. We believe macro and sector headwinds are influencing the core DXL big + tall consumer and are materially affecting traffic, but we believe our customer is responding positively to the adjustments we are making to our merchandise assortment, promotional strategy, and customer experience. We remain confident that our disciplined operating approach and focus on execution will position us to drive improved performance as the year progresses.

We continued to maintain a solid financial position, successfully managing our liquidity. As of August 1, 2026, we had cash and investments of $20.1 million as compared to $33.5 million as of August 2, 2025, with no outstanding debt in either period. The decrease in cash and investments at August 1, 2026 as compared to August 2, 2025 is primarily due to the capital spent over the past 12 months of approximately $13.9 million. We did not have any borrowings under our credit facility and, as of August 1, 2026, the availability under our credit facility was $61.7 million. Our inventory is down 4.3% at August 1, 2026 as compared to August 2, 2025 and our clearance inventory is below our benchmark of 10%.

Strategic Priorities:

We continue to advance several strategic initiatives designed to strengthen our market leadership in the big + tall sector while enhancing the customer experience across channels.

FiTMAP®

We have exclusive rights to our fit technology platform until 2030. FiTMAP® remains one of the Company's most important long-term growth drivers. This FiTMAP technology is currently available in 188 stores. Since launch, over 150,000 customers have engaged with the platform, and early results continue to reinforce its value. Customers who use FiTMAP have demonstrated stronger conversion, higher average order values, greater purchase frequency and lower return rates, underscoring the role personalized fit can play in driving both customer satisfaction and profitable growth.

Leverage AI

We are sharpening our focus on artificial intelligence ("AI") as consumer shopping behavior evolves. As the Company believes AI-powered search and discovery tools may become increasingly important in ecommerce, the Company is investing to ensure that its products and content are more visible, relevant and accessible in these emerging environments. We have launched new AI initiatives to improve product data quality, enrich item-level attributes and strengthen our ability to connect product, pricing and inventory information across AI-enabled platforms. These efforts are intended to improve discoverability, support future commerce applications and position the Company to compete effectively as digital shopping journeys become more conversational and agent-driven.

GLP-1 Medications and Similar Weight-Loss Medications

We continue to deepen our understanding of how the use of glucagon-like peptide-1 ("GLP-1") medications and similar weight-loss medications may be influencing customer behavior and category demand. Our research indicates that a meaningful portion of our customer base is currently using GLP-1 medications, contributing to more dynamic sizing needs over time. We are responding thoughtfully by broadening select assortments in smaller sizes and using customer insights to inform future merchandising, marketing and re-engagement strategies. Importantly, the Company sees this as both a near-term challenge and a long-term opportunity: while some customers may pause apparel purchases during periods of rapid size change, many express an intention to return once they reach a more stable size profile. By staying closely aligned with these evolving customer needs, we believe we can strengthen retention, reactivation and lifetime value over time.

RESULTS OF OPERATIONS

Sales

The following table presents sales by segment for the three months ended August 1, 2026 and August 2, 2025:

Total sales for the second quarter of fiscal 2026 were $111.6 million, as compared to $115.5 million in the second quarter of fiscal 2025. The decrease in total sales was primarily attributable to a decrease in comparable sales for the second quarter of 3.5%, partially offset by an increase in non-comparable store sales. Comparable sales decreased 5.7% in May, reflecting lower traffic as consumers remained cautious amid pressure on discretionary spending from inflation, higher energy costs, global conflict and broader economic uncertainty. Comparable sales improved sequentially to a decrease of 2.8% in June and a decrease of 1.9% in July, supported by Father's Day and other promotional activity that helped offset the continued decline in traffic, while consumer confidence still remains pressured. We also continue to believe GLP-1 medications and similar weight-loss medications are contributing to structural changes in customer demand within the big + tall category.

The comparable sales decrease of 3.5% for the second quarter consisted of a comparable sales decrease of 4.3% from stores and a comparable sales decrease of 1.6% from our direct business. A decrease in traffic continued to be the primary driver, particularly in stores, partially offset by improvements in conversion and dollars per transaction. The direct business performed stronger than stores as we have seen positive results from our paid search, paid social and program marketing efforts. Contributing to this improvement were strong sales of clearance and promotional merchandise on the website.

For the first six months of fiscal 2026, total sales of $214.9 million decreased 2.8% as compared to total sales of $221.0 million for the first six months of fiscal 2025. The decrease was primarily driven by a decrease in comparable sales of 3.6%, with stores down 4.4% and our direct business down 1.6%.

Gross Margin Rate

For the second quarter of fiscal 2026, our gross margin rate, inclusive of occupancy costs, was 47.9% as compared to a gross margin rate of 45.2% for the second quarter of fiscal 2025.

Our gross margin rate for the second quarter increased by 270 basis points, driven by an increase of 340 basis points in merchandise margin, partially offset by a 70 basis point increase in occupancy costs. The increase in merchandise margin as compared to the second quarter of fiscal 2025 is primarily due to a refund of $4.6 million, or 410 basis points, received in the second quarter of fiscal 2026 for tariffs previously paid. This benefit was partially offset by increased shipping costs as a result of fuel surcharges and increased markdown activity associated with clearance sales.

The 70 basis point increase in occupancy costs for the second quarter, as a percent of sales, was primarily due to the deleveraging of sales. On a dollar basis, occupancy costs increased $0.1 million as compared to the second quarter of fiscal 2025.

For the first six months of fiscal 2026, our gross margin rate, inclusive of occupancy costs, was 46.1% as compared to a gross margin rate of 45.1% for the first six months of fiscal 2025. The increase of 100 basis points was driven by an increase of 130 basis points in merchandise margin, partially offset by a 30 basis point increase in occupancy costs. The increase in merchandise margin as compared to the first six months of fiscal 2025 was primarily due to the refund for tariffs of $4.6 million, or 210 basis points. Similar to the second quarter, this benefit was partially offset by increased shipping costs and increased markdown activity.

The increase in occupancy costs of 30 basis points for the first six months of fiscal 2026, as a percentage of sales, was primarily due to the deleveraging of sales. On a dollar basis, occupancy costs decreased $0.4 million, primarily due to $1.4 million received from a landlord as a result of an early lease termination, partially offset by increased rents from lease extensions and new stores.

Given the volatility that currently exists around trade discussions, it is difficult to determine the potential impact that continuing tariffs may have on our financial results for fiscal 2026. However, if currently enacted rates remain in effect throughout fiscal 2026, and no additional tariffs, including those under U.S. trade laws, are added, we estimate that the impact of the current administration's tariffs on gross margin for fiscal 2026, exclusive of refunds realized, will be approximately 100 basis points.

Selling, General and Administrative Expenses

As a percentage of sales, selling, general and administrative ("SG&A") expenses for the second quarter of fiscal 2026 were 41.0% as compared to 41.1% for the second quarter of fiscal 2025. For the first six months of fiscal 2026, SG&A expenses, as a percentage of sales, were 42.9% as compared to 42.9% for the first six months of fiscal 2025.

On a dollar basis, SG&A expenses decreased by $1.8 million for the second quarter of fiscal 2026 as compared to the second quarter of fiscal 2025. For the first six months of fiscal 2026, SG&A expenses decreased $2.7 million as compared to the first six months of fiscal 2025. The decrease for both periods was primarily due to a decrease in incentive-based compensation, including the reversal of expense associated with forfeited awards, and favorable healthcare costs.

Marketing costs were 6.1% of sales for the second quarter of fiscal 2026 and fiscal 2025. For the first six months of fiscal 2026, marketing costs were 6.3% of sales as compared to 6.1% of sales for the first six months of fiscal 2025. For fiscal 2026, marketing costs are expected to be approximately 5.8% of sales.

Management views SG&A expenses through two primary cost centers: Customer Facing Costs and Corporate Support Costs. Customer Facing Costs, which include store payroll, marketing and other store and direct operating costs, represented 25.5% of sales for the first six months of fiscal 2026 as compared to 24.6% of sales for the first six months of fiscal 2025. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 17.4% of sales for the first six months of fiscal 2026 as compared to 18.3% of sales for the first six months of fiscal 2025.

Transaction-Related Costs

Transaction-related costs for the second quarter and first six months of fiscal 2026 were $1.8 million and $3.0 million, respectively, as compared to $0.1 million and $0.2 million for the second quarter and first six months of fiscal 2025, respectively. Transaction-related costs primarily related to fees paid for professional services in connection with costs related to the Merger.

Depreciation and Amortization

Depreciation and amortization for the second quarter of fiscal 2026 increased to $4.0 million as compared to $3.9 million for the second quarter of fiscal 2025. For the first six months of fiscal 2026, depreciation and amortization was $7.9 million as compared to $7.5 million for the first six months of fiscal 2025. The increase in depreciation and amortization in fiscal 2026 is due to capital projects, including new stores, completed in fiscal 2025.

Interest Income, Net

Net interest income for the second quarter of fiscal 2026 was $0.1 million, as compared to $0.2 million for the second quarter of fiscal 2025. For the first six months of fiscal 2026, net interest income was $0.1 million, as compared to $0.5 million for the first six months of fiscal 2025. The decrease in interest income for the second quarter and first six months of fiscal 2026 was primarily due to the decrease in the average balance of investments as compared to the second quarter and first six months of fiscal 2025.

For all periods, interest income was earned from investments in U.S. government-backed investments and money market accounts. Interest costs for all periods were minimal because we had no outstanding debt and no borrowings under our credit facility.

Income Taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any. Each quarter, we update our estimate of the annual effective tax rate and make a year-to-date adjustment to the provision.

The Company's effective tax rate was (1.6)% and 129.3%, respectively, for the second quarter of fiscal 2026 and fiscal 2025, and (0.8)% and 4.6%, respectively, for the first six months of fiscal 2026 and fiscal 2025. In the fourth quarter of fiscal 2025, a full valuation allowance was established against the net deferred tax assets. As a result, the effective tax rate for the second quarter and first six months of fiscal 2026 primarily reflected a provision for state margin tax, based on gross receipts less certain deductions. The effective tax rate for the second quarter and first six months of fiscal 2025 reflected the impact of permanent book-to-tax differences and discrete items.

Net Income (Loss)

For the second quarter of fiscal 2026, we recorded net income of $2.0 million, or $0.04 per diluted share, as compared to a net loss of $(0.3) million, or $0.00 per diluted share, for the second quarter of fiscal 2025. The increase in earnings for the second quarter of fiscal 2026 as compared to the second quarter of fiscal 2025 was driven primarily by the tariff refund and lower incentive-based accruals, partially offset by a decrease in sales and an increase in transaction-related expenses.

The net loss for the first six months of fiscal 2026 was $(3.9) million, or $(0.07) per diluted share, as compared to a net loss for the first six months of fiscal 2025 of $(2.2) million, or $(0.04) per diluted share. The decrease in earnings for the first six months of fiscal 2026 as compared to the first six months of fiscal 2025, was primarily due to the decrease in sales and an increase in transaction-related costs of $2.8 million, partially offset by the tariff refund and the lower incentive-based accruals.

We have fully reserved against our deferred tax assets and, therefore, the results for the second quarter and the first six months of fiscal 2026 are not reflective of earnings assuming a normal tax position for the Company. On a non-GAAP basis, adjusting for a normal tax rate of 26% and the add back of transaction-related costs, adjusted net income for the second quarter of fiscal 2026 was $0.05 per diluted share as compared to adjusted net income for the second quarter of fiscal 2025 of $0.01 per diluted share. For the first six months of fiscal 2026, adjusted net loss was $(0.01) per diluted share, as compared to an adjusted net loss of $(0.03) per diluted share, for the first six months of fiscal 2025.

Inventory

As of August 1, 2026, our inventory decreased by $3.4 million to $75.5 million, as compared to $78.9 million at August 2, 2025. We continue to take proactive measures to manage our inventory and adjust our receipt plan given the ongoing macroeconomic factors affecting consumer spending. At August 1, 2026, our clearance inventory was 9.8% of our total inventory, as compared to 10.2% at August 2, 2025. We believe that our inventory position is healthy and our clearance levels are in line with our benchmark of 10%.

SEASONALITY

Historically, and consistent with the retail industry, we have experienced seasonal fluctuations as it relates to our operating income, net income, and free cash flow. Traditionally, a significant portion of our operating income, net income, and free cash flow is generated in the second and fourth quarters. Our inventory is typically at peak levels by the end of the third quarter, which represents a significant use of cash, which is then relieved in the fourth quarter as we sell-down our inventory through the holiday shopping season.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are our cash and cash equivalents, short-term investments, cash generated from operations and availability under our credit facility, which is discussed below. At August 1, 2026, we had no outstanding debt, including no borrowings under our credit facility during the first six months of fiscal 2026. Cash that is in excess of our forecasted needs may be invested in money market accounts and U.S. government-backed securities.

We believe that our cash and cash equivalent balances, short-term investments, cash generated from operations, and borrowings available to us under our credit facility will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months. We believe that cash flows from operating activities and cash on hand will be sufficient to satisfy our current capital requirements. In the longer term, to the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we anticipate that working capital will be financed by our credit facility.

For the first six months of fiscal 2026, cash flow from operations was $(2.8) million as compared to $(2.1) million for the first six months of fiscal 2025. The slight decrease in cash flow from operations was primarily due to the decrease in earnings partially offset by the timing of other working capital.

Free cash flow, before capital expenditures for store development, a non-GAAP measure, was $(8.3) million for the first six months of fiscal 2026 as compared to $(7.6) million for the first six months of fiscal 2025. Free cash flow, a non-GAAP measure, was $(8.7) million for the first six months of fiscal 2026 as compared to $(14.2) million for the first six months of fiscal 2025. This improvement reflects a decrease in capital expenditures for new store openings of $6.2 million.

Cash flow used for investing activities was $(4.0) million as compared to cash flow provided by investing activities of $4.4 million for the first six months of fiscal 2025. The decrease in cash flow from investing activities of $(8.4) million was primarily due to a decrease in proceeds from short-term investments partially offset by a decrease in capital expenditures in fiscal 2026 as compared to fiscal 2025.

Credit Facility

We have a revolving credit agreement with Citizens Bank, N.A., which was most recently amended in the third quarter of fiscal 2025 (as amended, the "Credit Facility"). The Credit Facility, which expires August 13, 2030, provides a revolving commitment of $100.0 million, a sublimit for swing-line loans of $10.0 million and a sublimit of $20.0 million for commercial and standby letters of credit.

Borrowings under the Credit Facility bear interest at either a Base Rate (as defined in the Credit Facility) or Daily Simple Secured Overnight Financing Rate ("SOFR") rate, at our option. Base Rate loans will bear interest at a rate equal to (i) the greater of: (a) the Prime Rate (as defined in the Credit Facility), (b) the Federal Funds (as defined in the Credit Facility) effective rate plus 0.50% per annum and (c) the Daily Simple SOFR rate plus 1.00% per annum (provided the Base Rate shall never be less than the Floor (as defined in the Credit Facility)), plus (ii) a varying percentage, based on our average excess availability, of either 0.25% or 0.50% (the "Applicable Margin"). Daily Simple SOFR loans will bear interest at a rate equal to (i) the Daily Simple SOFR rate plus an adjustment of 0.10% (provided the Daily Simple SOFR rate shall never be less than the Floor), plus (ii) the Applicable Margin. Any swingline loan will continue to bear interest at a rate equal to the Base Rate plus the Applicable Margin. We are subject to an unused line fee of 0.25%.

We had no outstanding borrowings under the Credit Facility at August 1, 2026 and no borrowings during the first six months of fiscal 2026. At August 1, 2026, outstanding standby letters of credit were $3.7 million. The average unused excess availability during the first six months of fiscal 2026 was approximately $64.7 million and the unused excess availability at August 1, 2026 was $61.7 million, as compared to $70.1 million as of August 2, 2025.

Capital Expenditures

The following table sets forth the open stores and related square footage at August 1, 2026 and August 2, 2025, respectively:

During the first six months of fiscal 2026, we closed one DXL retail store and one Casual Male XL outlet store. We expect our capital expenditures for fiscal 2026 to range from $8.0 million to $10.0 million, net of tenant incentives, a decrease from our previous estimate of $9.0 million to $12.0 million. We expect that our capital spend for fiscal 2026 to be primarily for technology-related projects to support our business initiatives and projects necessary to maintain our existing store portfolio and distribution center.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to the critical accounting policies and estimates disclosed in our Fiscal 2025 Annual Report. See Note 1, Basis of Presentation to the Consolidated Financial Statements included in this Quarterly Report for information on recent accounting pronouncements and changes in accounting principles.

Non-GAAP Financial Measures

Adjusted net income (loss), adjusted net income (loss) per diluted share, free cash flow, free cash flow before capital expenditures for store development, adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures. These non-GAAP measures are not presented in accordance with GAAP and should not be considered superior to or as a substitute for net income (loss), net income (loss) per diluted share or cash flows from operating activities or any other measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, the non-GAAP measures presented in this Quarterly Report may not be comparable to similar measures used by other companies. We believe that inclusion of these non-GAAP measures helps investors gain a better understanding of our performance, especially when comparing such results to previous periods and that they are useful as an additional means for investors to evaluate our operating results, when reviewed in conjunction with our GAAP financial statements.

Reconciliations of these non-GAAP measures are presented in the following tables (certain columns may not foot due to rounding):

Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Diluted Share

Adjusted net income (loss) and adjusted net income (loss) per diluted share reflect an adjustment assuming a normal tax rate of 26% and the add back of transaction-related costs. We have fully reserved against our net deferred tax assets and, therefore, the net income (loss) for the second quarter and first six months of fiscal 2026 is not reflective of earnings assuming a "normal" tax position. Adjusted net income (loss) provides investors with a useful indication of the financial performance of the business, on a comparative basis, assuming a normalized tax rate of 26%. The estimated normal tax rate of 26% includes a blended state income tax rate. The Company believes that this comparability is useful in comparing the actual results period to period. Adjusted net income (loss) per diluted share is then calculated by dividing the adjusted net income (loss) by the weighted average shares outstanding for the respective period, on a diluted basis. The following table is a reconciliation of net income (loss) on a GAAP basis to adjusted net income (loss), on a non-GAAP basis, for each period:

Free Cash Flow. We define free cash flow as cash flow from operating activities less capital expenditures. We define free cash flow before capital expenditures for store development as cash flow from operations less all capital expenditures except capital expenditures for store development. Capital expenditures for store development includes capital expenditures for new stores, conversions of Casual Male XL stores to DXL and remodels. Capital expenditures related to store relocations and maintenance are not included in store development. Free cash flow excludes the mandatory and discretionary repayment of debt. Free cash flow is a metric that management uses to monitor liquidity. Management believes this metric is important to investors because it demonstrates the

Company's ability to strengthen liquidity while supporting its capital projects and new store development. We expect to fund our ongoing capital expenditures with cash on hand and cash flow from operations.

The following table reconciles free cash flow:

Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation and amortization and adding back transaction-related expenses. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Sales. We believe that providing adjusted EBITDA and adjusted EBITDA margin is useful to investors in evaluating our performance and are key metrics to measure profitability and economic productivity. The following table reconciles adjusted EBITDA from net income (loss) and calculates adjusted EBITDA margin: