Destination XL Posts Its Strongest Comp in Three Years While Traffic Stays Negative

Inventory trimmed to $75.5 million and clearance stock held at 9.8%, right against the company's own 10% ceiling, helped Destination XL Group (NASDAQ: DXLG) lift second-quarter adjusted EBITDA to $7.7 million from $4.7 million a year earlier, even as net sales fell 3.4% to $111.6 million. The retailer also filed an amended proxy on September 2 to exit its planned FullBeauty merger, with SEC clearance and a stockholder vote still ahead before that deal is formally closed.

The numbers behind the print

Comparable sales dropped 3.5% for the quarter, but the monthly cadence improved sequentially: down 5.7% in May, down 2.8% in June, and down 1.9% in July. CFO Peter Stratton called the quarterly comp figure the strongest Destination XL has posted in three years. Adjusted EPS reached $0.05 against $0.01 a year ago, and GAAP net income hit $2.0 million. A $4.6 million tariff refund collected during the period was a meaningful contributor. Gross margin rose 270 basis points to 47.9%, but strip that refund out and merchandise margin would have run roughly 70 basis points below last year, pressured by markdowns on slow-moving seasonal product and higher shipping costs. SG&A fell $1.8 million in dollar terms yet still deleveraged to 41.0% of sales because revenue contracted faster than the expense base did. As of August 1, the company held $20.1 million in cash, carried zero debt, and had $61.7 million of available credit on a facility maturing August 13, 2030.

Traffic and what to watch

Stratton identified store traffic as the single biggest operational constraint, with physical store comps down 4.3% and direct comps down 1.6%. Chief Growth Officer Jimmy Olsson acknowledged the company is trailing its own targets for winning back new and lapsed shoppers. Olsson also flagged a structural headwind: customers on GLP-1 weight-loss medications tend to stop buying apparel altogether for a period before their sizing stabilizes, a pattern the company is beginning to address through targeted marketing.

On the product side, more than 150,000 customers have been scanned through the FITMAP platform, and that cohort carries higher order values and lower return rates than unscanned shoppers. The THERMACHILL private-label line grew demand 56% year to date, and brand awareness in the core 35-to-64 demographic moved from 40% to 49% over seven months. Hedge fund ownership edged down to 10 funds from 12, and short interest sits at 2.03% of the float.

Interim CEO Lionel Conacher framed the quarter as evidence a turnaround is gaining traction, but the top line is still shrinking and new customer acquisition is running behind plan. What to watch: SEC clearance and the stockholder vote on the FullBeauty exit, and whether the July comp trend of down 1.9% holds through the back half without another tariff refund propping up the margin line.