Destination XL Group, Inc. Q2 FY2025 earnings call

• Comparable sales trends: Declined 9.2% in Q2, with sequential improvement from May (-10.4%) to June (-9.6%) to July (-7%). Stores were impacted by traffic, while direct was affected by e-commerce platform issues.
• Private brand strategy: Shifting assortment to prioritize private brands, aiming to increase penetration to over 65% by 2027. Reducing investment in underperforming national brands. Private brands offer better margin control and agility.
• Tariff impact: Estimates $4M increase in inventory cost if tariffs remain, plans to offset with retail price increases and supply chain cost savings. Exploring tariff exemptions for private brands.
• Store development: Opened 6 stores in Q2, expect 2 more in Q3. New stores performing below initial expectations but saw first week of collective sales exceeding plan. Future store openings on hold to focus on cash flow.
• Nordstrom collaboration: Collaborating with Nordstrom to expose DXL assortment, top-performing brands include Vineyard Vines, Travis Mathew, and private brands.

Net sales for the second quarter were $115.5 million, down from $124.8 million in the same period last year. Comparable sales declined 9.2%. Stores comp sales were down 7.1% while direct comp sales were down 14.4%. Private brand sales penetration is currently 56.5%, with the goal to increase to over 60% in 2026 and greater than 65% in 2027. Private brands have a higher margin, with IMU in private brands ranging from upper 60s to mid-70s compared to national brands in the low 50s.

• Expect private brand sales penetration to grow from 56.5% to over 65% by 2027. - Plan retail price increases to offset tariff risk. - Pausing store development to focus on cash flow, with maintenance CapEx typically around $5-10M annually. - Tariff impact estimate of under $4M in FY2025, but volatility makes future projections uncertain.

• Tariff uncertainties: Evolving and unpredictable tariff landscape could increase inventory costs and impact margins. - Competitive landscape: Increased competition from mass, general, direct-to-consumer, and off-price retailers fragmenting customer loyalty. - Store performance: New stores underperforming initial expectations due to weak customer demand and macroeconomic factors.

Q: Walk through private brand mix and migration over next couple years, and margin difference between national and private brands A: Current private brand penetration is 56.5%, aiming for over 65% by 2027. Private brands have higher IMU (upper 60s to mid-70s) vs national brands' low 50s, with strategic promotions allowing margin alignment while still maintaining a gap.

Q: Strategy on in-store retail media A: Have in-store audio with brand positioning messages and digital TVs with content showing clothes and brand advertising. Focus on customer experience rather than direct promotion once in the store, with strong net promoter scores based on customer relationships