UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

DESTINATION XL GROUP, INC.

(Exact name of registrant as specified in its charter)

(781) 828-9300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

As of July 31, 2020, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $12.2 million, based on the last reported sale price on that date. Shares of Common Stock held by each executive officer and director and by certain persons who own 10% or more of the outstanding Common Stock have been excluded on the basis that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily determinative for other purposes.

The registrant had 63,130,772 shares of Common Stock, $0.01 par value, outstanding as of March 15, 2021.

DOCUMENTS INCORPORATED BY REFERENCE

DESTINATION XL GROUP, INC.

Index to Annual Report on Form 10-K

Year Ended January 30, 2021

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PART I.

Certain statements contained in this Annual Report on Form 10-K (this “Annual Report”) constitute “forward-looking statements,” including forward-looking statements within the meaning of the 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 Annual Report are generally located under the headings “Business” and “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 continuing impact of the coronavirus pandemic on the Company’s business and results in fiscal 2021 and the impact that actions taken, and to be taken, by the Company to mitigate the impact, including the reduction of operating expenses, capital expenditures and inventory, expected additional borrowing capacity under the Company’s new FILO loan, and preservation of and expected liquidity for the next 12 months. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. The forward-looking statements in this Annual Report should not be regarded as a representation by us or any other person that the objectives or plans of the Company will be achieved. Numerous factors could cause our actual results to differ materially from such forward-looking statements, including, without limitation, risks relating to the execution of our corporate strategy and ability to grow our market share, and those risks and uncertainties set forth below under Item 1A, Risk Factors. Readers are encouraged to review these risks and uncertainties carefully.

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 its expectations or any change in events, conditions or circumstances in which the forward-looking statement is based.

Impact of the COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created significant disruption of the financial and retail markets, including a disruption in consumer demand for men’s clothing and accessories. The pandemic had an adverse effect on our business, financial condition, and results of operations in fiscal 2020.  While we expect the pandemic will continue to impact fiscal 2021, we expect a gradual improvement as vaccines are widely administered during the Spring of fiscal 2021.  The Company has included discussion under Item 1A, Risk Factors, and under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, with regards to the impact of the COVID-19 pandemic on its financial results in fiscal 2020 and the continued risks that COVID-19 may have on our financial results for fiscal 2021.  

Item 1. Business

Destination XL Group, Inc., together with its subsidiaries (the “Company”), is the largest specialty retailer of big & tall men’s clothing and shoes with retail locations in the United States and Toronto, Canada. We operate under the trade names of Destination XL^®, DXL^®, DXL Men’s Apparel, DXL outlets, Casual Male XL^® and Casual Male XL outlets. At January 30, 2021, we operated 226 DXL retail stores, 17 DXL outlet stores, 46 Casual Male XL retail stores, 22 Casual Male XL outlet stores and a digital business, including an e-commerce site at dxl.com and a mobile site m.destinationXL.com. In fiscal 2018, we launched a wholesale business unit focused on product development and distribution relationships with key retailers offering co-branded men’s big & tall apparel lines.  Unless the context indicates otherwise, all references to “we,” “our,” “ours,” “us” and “the Company” refer to Destination XL Group, Inc. and our consolidated subsidiaries. We refer to our fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019 as “fiscal 2020,” “fiscal 2019” and “fiscal 2018,” respectively.

OUR INDUSTRY

We define the big & tall men’s clothing market as starting at a waist size of 38” and greater, as well as tops sized 1XL and greater. Growth in this segment historically has been driven by rapidly changing market demographics. We believe that we can increase our market share by catering to the broader target market, attracting customers from various income, age and lifestyle segments and offering the widest selection of sizes and styles that fit well. We believe opportunity continues to exist for market share growth from the lower-size range of our market, that is, men with a 38” to 43” waist size, which are usually the size range for most men’s apparel retailers that are not core to their mix. In addition to these lower sizes, opportunity for further growth also exists with men with a 54” or greater waist size. 

HISTORY

Our Company was incorporated in the State of Delaware in 1976 under the name Designs, Inc. Until fiscal 1995, we operated exclusively in Levi Strauss & Co. branded apparel mall and outlet stores. In May 2002, we acquired the Casual Male business from Casual Male Corp. at a bankruptcy court-ordered auction. At the time of the acquisition, Casual Male was the largest specialty retailer of men’s clothing in the big & tall market in the United States. As a result of the acquisition, on August 8, 2002, we changed our name

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to “Casual Male Retail Group, Inc.” In fiscal 2004, we acquired the Rochester Clothing stores.  Through fiscal 2010, we catered to customers through our three store formats, from our value-oriented customer (Casual Male XL outlets) to our luxury-oriented customer (Rochester Clothing stores)

In fiscal 2010, we launched a new store concept, Destination XL (“DXL”). The DXL store concept offers our customers an extensive assortment of products, ranging from value-oriented to luxury-oriented with an increased presence of name brands, without having to shop multiple stores. In addition to offering our customers a wide assortment, we also wanted to provide them with a unique shopping experience. We are focused on providing outstanding customer service through our DXL stores, with larger fitting rooms and professional, trained associates providing personal attention. With the initial success of this store format, we made a similar change to our e-commerce business in fiscal 2011 when we launched our DestinationXL.com website (now dxl.com). In fiscal 2019, we closed our five remaining Rochester Clothing stores.

OUR BUSINESS

We operate as an omni-channel retailer of big & tall men’s clothing and shoes.  Through our multiple brands, which include both branded apparel and private-label, we provide a premium, personalized shopping experience, whether in-store or digitally, with a broad range of merchandise at varying price points, catering from the value-oriented customer to the luxury customer. Our objective is to appeal to all of our customers by providing a good, better, best array of product assortments in all primary lifestyles with multiple and convenient ways to shop.

Our DXL retail stores, e-commerce site, dxl.com, and mobile app cater to all income demographics and offer our customers merchandise to fit a variety of lifestyles from casual to business, young to mature, in all price ranges and in all large sizes from XL and up. In addition, a complete offering of shoes in sizes 10W to 18W is available at dxl.com.  Our Casual Male XL retail stores primarily carry moderate-priced branded and private-label casual sportswear and dresswear. We also operate Casual Male XL outlets and DXL outlets for our value-oriented customer. Through digital marketplaces, we are able to extend our reach, by providing a select offering of our merchandise to new customers who may not be current DXL customers.  In addition to our retail channels, we also launched a wholesale channel in fiscal 2018.

What is unique about our business is our ability to manage the number of sizes offered to our customers to ensure proper fit and optimizing our in-stock position throughout each season. Our best-selling pant has 43 size combinations and a unique specification as compared to an average retailer who may only have 15 different size combinations.  We maintain a consolidated inventory across all channels that enables us to manage our in-stock position of all sizes effectively, ultimately improving customer service. Moreover, our planning and allocation methodologies, with respect to store assortment planning, help to optimize each location’s market potential without excessive inventory levels.

BUSINESS STRATEGY

We expect that there will be a gradual recovery in demand for men’s apparel during fiscal 2021, as vaccines are more widely administered by late Spring 2021 and the country begins to socialize again.  In response to the challenges presented by the COVID-19 pandemic, we took decisive steps to pivot our business model early in fiscal 2020.  Our efforts during fiscal 2020 were focused on withstanding the decline in sales and preserving liquidity, positioning ourselves to emerge from the pandemic with significantly more operating leverage. As a result of the steps taken in fiscal 2020, we believe we are well-positioned to recover in fiscal 2021.  

In fiscal 2021, our key initiatives include the following:

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MERCHANDISE

We offer our customers a broad assortment of apparel that is appropriate to our diverse customer base. Regardless of our customers’ age, socioeconomic status, or lifestyle preference, we are able to assemble a wardrobe to fit their apparel needs. We offer such assortments in both private-label product and a wide array of brand name labels. With over 5,000 styles available, we carry tops in sizes up to 8XL and 8XLT, bottoms with waist sizes 38” to 70”, and shoes in sizes 10W to 18W. Big and tall is all we do. We do not just scale up product from a regular fit like most other retailers; our fit is built from unique specifications for every size and style.

Our stores are merchandised to showcase entire outfits by lifestyle, including traditional, active, modern and denim. This format allows us to merchandise key items and seasonal goods in prominent displays and makes coordinating outfits easier for the customer while encouraging multi-item purchases. This lifestyle layout also allows us to manage store space and product assortment effectively in each market to target local demographics. The key item strategy is also fully integrated by lifestyle, allowing us to focus on merchandise presentation and offer our customers a compelling value proposition.

Merchandise assortments in our DXL stores are organized not only by lifestyle, but within each lifestyle, the assortments are shown in a “good,” “better” and “best” visual presentation.  With the “best” merchandise assortments featured most prominently in the DXL store, our customers are able to visualize current fashion trends and select their wardrobes within their desired price points in a convenient manner. Our website and select DXL stores also offer certain “luxury” brands.

We carry over 100 well-known national brands (“branded apparel”) as well as a number of our own private-label lines within our “good,” “better” and “best” price points.  The penetration of branded apparel in a specific DXL stores can range from 39% to 80%, depending on several factors, but on average, approximately half of the assortment is branded apparel.  

Higher-End Fashion Apparel -“Best” Merchandise

Within this higher-end price range, we carry a broad selection of quality apparel from well-known branded manufacturers, such as, Brooks Brothers^®, The North Face^®, Psycho Bunny^®, Polo Ralph Lauren^®, Jack Victor^®, Lucky, Michael Kors^®, JOE’S^® Jeans, Robert Graham^®, 7 for all Mankind^®, Tallia^® and Robert Barakett ^®.

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Moderate-Priced Apparel -“Better” Merchandise

We offer our customer an extensive selection of quality sportswear and dress clothing at moderate prices carrying well-known brands such as: O’Neill^®, Cutter & Buck^®, Levis^®, Nautica^® and Nautica Jeans^®, Adidas^® Golf, Columbia, Berne^®, Carhartt^®, Callaway^®, Jockey^®, Lacoste^®, Majestic, Tommy Bahama^® and vineyard vines^®.

Value-Priced Apparel -“Good” Merchandise

For our value-oriented customers, we carry Cubavera, Dockers, Lee, Wrangler and Reebok. In addition, we carry several value-priced private label lines:

Shoes

Our DXL website offers a full assortment of footwear, with a broad selection from casual to formal, in varying price points. We currently have a selection of more than 600 styles of shoes, ranging in sizes from 10W to 18W, including designer brands such as Cole Haan®, Allen Edmonds®, Timberland®, Calvin Klein® and Lacoste®.

STORE CHANNEL

DXL Men’s Apparel Stores

At January 30, 2021, we operated 226 DXL retail stores.  Our DXL store concept brings all of our brands together in one format. Within this format, we cater to our diverse customer base, with merchandise representing all price points, from our higher-end brands to value-oriented brands, and all lifestyles, from business to denim.  The size of our DXL stores averages 7,600 square feet, but since fiscal 2016 we have opened smaller (5,000-6,500 square feet) DXL stores.  Because of the smaller size of these stores, they carry a smaller product offering than our other DXL stores but are representative of the “good, better, best” merchandise variety. Our DXL stores are located on real estate that is highly visible, often adjacent to high-performing regional malls or other high-traffic shopping areas.

Our DXL stores offer up to three times the product offering of a Casual Male XL store. Depending on the customers in each respective market, we can adjust the appropriate mix of merchandise, with varying selections from each of our price points, to cater to each demographic market.

Over the past few years, we have rebranded select Casual Male XL retail and outlet stores to the DXL retail and outlet store concept. In many markets, rebranding a Casual Male XL store to a DXL store provides a viable alternative to the more costly endeavor of relocating a Casual Male XL store to new DXL real estate. In addition, the converted stores benefit from DXL advertising.  While our intention is to rebrand more of the remaining Casual Male XL retail and outlet stores to DXL, given the COVID-19 pandemic we did not rebrand any stores in fiscal 2020 and have no plans to do so in fiscal 2021.  

Casual Male XL Retail Stores

At January 30, 2021, we operated 46 Casual Male XL full-price retail stores, located primarily in strip centers or stand-alone locations. The majority of the merchandise carried in our Casual Male XL stores is moderate-priced basic or fashion-neutral items, such as jeans, casual slacks, t-shirts, polo shirts, dress shirts and suit separates. These stores also carry a full complement of our “better” private label collections. The average Casual Male XL retail store is approximately 3,300 square feet.

DXL Outlet /Casual Male XL Outlet Stores

At January 30, 2021, we operated 17 DXL outlet stores and 22 Casual Male XL outlet stores designed to offer a wide range of casual clothing for the big & tall customer at prices that are generally 20-25% lower than our moderate-priced merchandise. Much of the

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merchandise in our outlet stores is offered at discounted prices to cater to the value-oriented customer. In addition to private-label and branded merchandise at our “good” price tier, our outlets also carry clearance product obtained from DXL and Casual Male XL stores, offering the outlet customer the ability to purchase branded and fashion product for a reduced price.

The average DXL outlet is approximately 4,800 square feet and the average Casual Male XL outlet store is approximately 3,000 square feet.  

DIRECT CHANNEL

Our direct business is a critical channel for growing sales and market share through new customer acquisition. Our direct business grew 14.7% in fiscal 2020 and represented approximately 40.4% of our total retail sales, as compared to 23.1% of our retail segment sales in fiscal 2019.  This accelerated growth in our direct business in fiscal 2020 was principally driven by our DXL.com website and app, due to our customers shifting to online shopping during the pandemic.  

We define our direct business as sales that originate online, whether through our website, our app, those initiated online at the store level, our Guest Engagement Center, or through a third-party marketplace. We want to serve our customers wherever and how they want to shop, whether in-person at a store, over the telephone, or online via a computer, smartphone or tablet.

We have the ability to showcase all of our store inventories online, resulting in additional transactions that are initiated online, but are ultimately completed in store.  In addition, our stores are able to fulfill an order for an item that is out-of-stock in our warehouse.  This capability has not only resulted in incremental sales, but it has also helped us reduce clearance merchandise at the store level and manage margins.

DXL Website and App

Our DXL website and app were instrumental to our ability to service our customers during fiscal 2020.  In March 2020, when we temporarily closed all of our store locations, our warehouse remained open and we were able to continue making sales through our DXL website.  Even after our stores began to reopen, because of the ongoing concerns of the pandemic, consumers continued to shift to online shopping helping drive higher new customer acquisition for the website business.  The growth of our website had been a key initiative for us prior to the pandemic and with the recent upgrades and enhancements that we made in fiscal 2018 and fiscal 2019, our DXL website was prepared to handle this accelerated growth in fiscal 2020.  Sales from our BOPIS (buy online, pickup in store) and BOPAC (buy online, pickup at curb) programs substantially increased over the prior year, especially during the fourth quarter when the programs were up over 400% to last year.

Digital Sales at Store Level

In support of our omni-channel approach, our store associates use our website to help fulfill our in-store customers’ clothing needs. If a wider selection of a lifestyle, color or size of an item is not available in our store, then our store associates can order the item for our customer online through our direct channel and have it shipped to the store or directly to the customer. Our customers also have the ability to shop-by-store and pick-up in store on the same day.  As expected, because of the pandemic and the decrease of in-person visits to our stores in fiscal 2020, we saw a significant decrease in online sales that originated at the store-level.

Digital Marketplaces

We continue to broaden our reach through digital, third-party marketplaces, which is another growth initiative for our direct business. A large portion of our assortment is available on Amazon, with Amazon Prime shipping.  Digital marketplaces provide us an opportunity to grow our customer base and introduce new customers to our brand.

WHOLESALE CHANNEL

Our wholesale business focuses on the product development, manufacturing and distribution of big and tall product. This strategic growth initiative allows us to leverage our existing infrastructure, including DXL’s expertise in technical design and global sourcing. We believe the wholesale channel is a strong complement to our retail channel allowing us to broaden our presence in the marketplace and provides us an opportunity to access new customers who do not currently shop at DXL.

MERCHANDISE PLANNING AND ALLOCATION  

Our merchandise planning and allocation function is critical to the effective management of our inventory, store assortments, product sizes and overall gross margin profitability. The merchandise planning and allocation team has an array of planning and replenishment tools available to assist in maintaining an appropriate level of inventory, in-stock positions at the stores and for the direct channel, and

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pre-season planning for product assortments for each store and the direct channel. Additionally, in-season reporting identifies opportunities and challenges in inventory performance. Over the past several years, we have made, and we will continue to make, investments in implementing best practice tools and processes for our merchandise planning and allocation.

Our core merchandise makes up approximately 38.5% of our merchandise assortment. Our planning and allocation team estimates quantity and demand several months in advance to optimize gross margin and minimize end-of-season merchandise for all seasonal merchandise. We develop customized assortment strategies by store that accentuate lifestyle preferences for each particular store.

Our merchandising data warehouse provides the merchandising team with standardized reporting for monitoring assortment performance by product category and by store, identifying in-stock positions by size and generally monitoring overall inventory levels relative to selling. At season end, we analyze the overall performance of product categories, overall assortments and specific styles by store to focus on the opportunities and challenges for the next season’s planning cycle.

Utilizing a set of specific universal reporting tools, the merchandise planning and allocation team is able to fulfill their daily, weekly and monthly roles and responsibilities. These reporting tools provide focused and actionable views of the business to optimize the overall assortment by category and by store. We are confident that our inventory performance will be optimized by having all members of the merchandise planning and allocation team follow a standardized set of processes with the use of standardized reporting tools.

STORE OPERATIONS  

We believe that our store associates are the key to creating the highest quality experience for our customers. The culture in our stores is to be guest centric in an effort to engage and build a relationship with our guests. Our overall goal is to assist our associates in becoming less task-oriented and more attentive to the customers’ apparel needs.  By establishing this relationship, associates are able to expand our customers’ wardrobe, not only making the customer look good, but also helping them feel confident in their apparel choices.  Our associates are trained to be wardrobe experts, capable of accommodating our customers’ style and fit needs with ready-to-wear clothing. Our associates are well versed in not only the product selection carried in their specific store, but also the product selection carried online.  With a point-of-sale system that can access items online for the customer who is physically in the store, our associates are able to fulfill all of their customers’ needs.

Our multi-unit, field management team receives extensive training on recruiting associates who are the correct fit for our stores. Our new DXL store management team hires are trained extensively through senior peer trainers throughout the country.  The culture has been created over the last ten years to promote when possible from our internal associates, starting at the Assistant Store Manager level up to, and including, members of our Regional Sales Management Team.  Our Regional Vice Presidents give us touch-points in the field in addition to the Regional Sales Managers and the store management to ensure consistency in executing our standards and all programs and processes we deem important to our success.

Each new member of the store management team spends time in a DXL store, working with training managers and their Regional Sales manager to solidify his or her training before being released to the respective “home” store.  We are able to gauge the effectiveness of our training through measuring sales productivity at each level of the field organization, including individual sales associates. We believe our training system, together with monitoring sales metrics to help identify opportunities for further training, will improve sales productivity and strengthen our customer’s brand loyalty.

Each store is staffed with a store manager, assistant manager and key holders. The store manager is responsible for achieving certain sales and operational targets. Our stores have an incentive-based commission plan for managers and selling staff to encourage associates to focus on our customer’s wardrobing needs and sales productivity.  Our field organization strives to promote from within a culture that has been building for ten years, with approximately 75% of the field organization’s multi-unit managers having managed one of our retail stores.

Our field organization is overseen by our Senior Vice President of Store Sales and Operations, Regional Vice Presidents, Regional Sales Managers, and a Store Operations Team, who provide management development and guidance to individual store managers. Each Regional Sales Manager is responsible for hiring and developing store managers at the stores assigned to that Regional Sales Manager’s market, and for the overall operations and profitability of those stores.

The COVID-19 pandemic had a significant impact on our store operations during fiscal 2020.  For the safety of our associates and customers, all of our stores were closed on March 17, 2020 with stores gradually reopening beginning at the end of April 2020.  By the end of June 2020, all stores had reopened but with significantly reduced operating hours, which continued through the end of fiscal 2020.  During fiscal 2020, we implemented many safety protocols in our stores so that our customers, who choose to shop in-person, feel safe.  The majority of our stores offer the option for no-contact, curbside pickup, through our BOPAC and BOPIS programs.  For

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the safety of our field organization, we also equipped the stores with iPads to enable our Regional Sales Managers and members of our senior leadership team the ability to engage with stores on a more frequent basis without the risk of travel.

MARKETING AND ADVERTISING

We believe that our marketing initiatives are key to driving our sales growth by increasing traffic to our stores, website and app. We are continuing to shift our marketing strategy away from our broad-based shotgun advertising to a more targeted, personalized, data-driven model where we can segment and ultimately engage differently with each of our customers based on their shopping behaviors across all our buying channels. While our focus remains digitally driven, given the impact of the pandemic on our stores, our priority heading into fiscal 2021 is driving store traffic and re-engaging with our top, primarily in-store, customers.  While our omni-channel shoppers shopped online during fiscal 2020, a segment of our top customers tend to shop primarily in-store who, given the pandemic and health concerns, did not shop to the levels they have historically. We plan to target and personalize experiences for these top customers with addressable media to re-engage and bring them back.  

As we head into fiscal 2021, we plan to increase our digital and CRM marketing investments, with a lesser investment in television/radio.  We continue to take an increasingly stringent analytical perspective to our marketing program, focusing on understanding incremental outcomes in addition to the “return on ad spend” throughout all of our programs.  This data-driven philosophy extends across all of our marketing initiatives as we look at new ways to engage our customers.  Our on-going work on enhancing our customer segmentation will ultimately drive our long-term marketing strategy, enabling us to create targeted and personalized content and messaging to our various customer segments.  

Our marketing program includes email, direct mail, loyalty program, direct marketing, digital marketing, social media, television, and radio, among others.  Our marketing costs in fiscal 2021 will be heavily focused on our direct marketing initiatives, such as digital advertising, direct mail and loyalty incentives.

GLOBAL SOURCING

We have built a strong internal team with more than 40 years of combined experience that is responsible for managing an international network of vendors and suppliers across the globe. We manufacture a significant percentage of our private-label merchandise primarily in Southeast Asian countries consisting of Vietnam, Bangladesh, Cambodia and India. We continue to reduce dependency on China, inclusive of our raw materials and trims.  We are a member of Sedex Global, a leading ethical trade service provider, to increase our social, environmental and ethical sustainability and participate in their Ethical Trade Audit platform.  Through collaboration with our third-party inspection vendor, we have developed a “5-Pillar Audit” to include traceability of both raw materials and the equipment used to produce finished goods. We are responsive to the US Customs Border Protection (“CBP”) Withhold Release Order on Products Made in Xinjiang region of China on January 13, 2021.  We have also developed a Compliance Certificate of Traceability. This will be included with all shipments and presented to the CBP with the goods upon arrival to US Customs. We have diversified our global network outside of China and have moved certain programs into additional countries with duty-free opportunities such as Jordan, Guatemala and Mexico. We have strong-established relationships with many of the leading factories and mills across the globe. Our sourcing network consists of over 28 factories in eight countries who are experts in big & tall sizing and production. In fiscal 2020, approximately 50% of all our product needs were sourced directly.

Our global sourcing strategy is a balanced approach, which considers quality, cost and lead-time, depending on the requirements of the program. We believe our current sourcing structure meets our operating requirements and provide capacity for growth. The growth and effectiveness of our global direct sourcing program is a key component to the strength of merchandise margins.

In an effort to minimize foreign currency risk, all payments to our direct sourced vendors and buying agents are made in U.S. dollars with payment on account.

DISTRIBUTION

All of our retail distribution operations are centralized at our headquarters located in Canton, Massachusetts. We believe that having a centralized distribution facility maximizes the selling space and in-stock position of our stores and reduces the necessary levels of back-room stock. In addition, the distribution center provides order fulfillment services for our e-commerce business. In-bound calls for our e-commerce business are received at our Canton facility and are primarily fulfilled by our distribution center.  If an order cannot be fulfilled by our distribution center, the order is completed at the store level.  For our wholesale business, we currently utilize two coastal third-party cross-dock facilities.

Our supply chain technology provides visibility for imports and domestic deliveries giving our buyers accurate shipping information and allowing the distribution center to plan staffing for arriving freight, resulting in reduced costs and improved receipt efficiency.

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In fiscal 2019, we upgraded and enhanced our warehousing application for our distribution center systems, which included a new labor management system.  Our warehousing application enables us to streamline our distribution processes, enhance our in-transit times, and reduce our distribution costs. We will continually work to make improvements and upgrades to our software.

Since 2003, we have utilized United Parcel Services (“UPS”) for all of our store shipments as well as our domestic customer deliveries. By utilizing UPS, we are able to track all deliveries from the warehouse to our individual stores, including the status of in-transit shipments. In addition, we are able to provide our direct customers with Authorized Return Service and Web labels, making returns more convenient for them.  In October 2019, we renewed our contract with UPS through October 2022.

In order to service our International customers, we have contracted with a global e-commerce company for payment and shipment services.  Through this service, international customers view and pay for products in their local currency.  Our vendor then ships directly to our customer, which we believe helps avoid potential fraud and currency exchange rate risks.

MANAGEMENT INFORMATION SYSTEMS

The infrastructure of our management information systems is a priority to us. We believe that the investments we have made in this regard have improved our overall efficiency and improved our access to information enabling timely, data-driven decisions.

Our management information systems consist of a full range of retail merchandising and financial systems, which include merchandise planning and reporting, distribution center processing, inventory allocation, sales reporting, and financial processing and reporting. We believe that our current infrastructure provides us the ability and capacity to process transactions more efficiently and provides our management team with comprehensive tools with which to manage our business.

Using a retail business intelligence solution, we are able to integrate data from several sources and provide enterprise-wide analytics reporting. Over the past few years, we have continued to develop a custom Assortment Suite application that leverages business intelligence and predictive analytics to provide high impact insights into core merchandising tasks. In an effort to improve our inventory management, we have created a standardized set of “best practices” for both our merchandise planning and allocation groups.

Our direct and retail channels maintain a shared inventory system and we operate a single-system platform for our DXL and Casual Male XL stores to deliver improved efficiencies.

During fiscal 2020, we upgraded our order management system enabling omni-channel fulfillment, customer engagement and precision tools for inventory visibility and availability across the Company. We also upgraded our CRM environment providing centralized customer data and an integrated suite of advanced tools that create and maintain personalized customer relationships.

During fiscal 2021, we plan to upgrade our Assortment Suite application to leverage business intelligence and predictive analytics to provide high impact insights into core merchandising tasks.

We continually work to improve our web environment and the security of our systems. Our mobile and tablet optimized sites capitalize on the growing use of mobile devices to look up store information, review product offerings, and complete purchases. In addition, our current website is fully integrated with a global e-commerce company to accommodate international customers by providing multi-currency pricing, payment processing, and international shipping.

COMPETITION

Our business faces competition from a variety of sources, including department stores, mass merchandisers, other specialty stores and discount and off-price retailers that sell big & tall men’s clothing. While we have successfully competed on the basis of merchandise selection, comfort and fit, customer service and desirable store locations, there can be no assurances that other retailers, including e-commerce retailers, will not adopt purchasing and marketing concepts similar to ours.  Discount retailers with significant buying power, such as Wal-Mart and J.C. Penney, represent a source of competition for us. The direct business has many competitors, including the King Size catalog and website as well as online marketplaces, such as Amazon.

The United States big & tall men’s clothing market is highly competitive with many national and regional department stores, specialty apparel retailers, single market operators and discount stores offering a broad range of apparel products similar to ours, the similarity being that the clothes they sell are intended for big and tall men. Besides retail competitors, we consider any casual apparel manufacturer operating in outlet malls throughout the United States to be a competitor in the casual apparel market. We believe that we are the only national operator of men’s apparel stores focused exclusively on the men’s big & tall market.

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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 fourth quarter, because of the holiday season.  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.

TRADEMARKS/TRADEMARK LICENSE AGREEMENTS   

We own several service marks and trademarks relating to our businesses, including, among others, “Destination XL^®”, “DXL^®”, “DXL Mens Apparel^®”, “Big on Being Better^®”, “Casual Male^®”, “Casual Male XL^®”, “Harbor Bay^®”, “Oak Hill^®”, “Continuous Comfort^®”, “Synrgy™”, “Society of One^®” and “True Nation^®”. We also hold a U.S. patent for an extendable collar system, which is marketed as “Neck-Relaxer^®” and a U.S. copyright for a no-iron hang tag.

HUMAN CAPITAL MANAGEMENT

Our associates are our greatest asset and we are committed to providing them a safe and healthy work environment. We are committed to inclusivity, acceptance, and equality. Since 2017, we have had a diversity and inclusion initiative called “Normalizing the Brand.” The program brings awareness to unconscious bias and focuses on ensuring the composition of our organization looks and feels like the world we live in and serve. In 2020, we launched a Normalizing the Brand Committee with a primary focus on encouraging managers and associates to have open and honest conversations regarding diversity and inclusion. We have policies and training in place with respect to anti-discrimination and anti-harassment, among others, and provide our associates with access to an anonymous hot-line for reporting any concerns.

Each associate is required to sign a set of policies that include, among other policies, the code of ethics, anti-harassment and procedures for raising a complaint.  Our policies also contain protection of human rights and prohibit, among other things, the use of child labor or forced, bonded or indentured labor.

An Advisory Council, personally headed up by the CEO, was created in 2020 to give cross-functional associates an opportunity to provide input on issues affecting the company’s workforce and the employer-associate relationship.  The purpose of the Council is to facilitate networking, exchange ideas, and suggest ways to enhance staff satisfaction and work effectiveness.

Perhaps most importantly, we promote professional and career development and mentorship programs.  In 2014, our Associate Engagement & Development Committee implemented the DXLG Mentor Program, which pairs up to 20 mentees with mentors for one-year periods. In April 2016, the DXL Women’s Leadership Group was formed with a mission of “Women supporting, educating and empowering each other @ DXLG”. It started as a pilot program and quickly expanded to now include over 40 female leaders, both people and process managers, in the corporate office and field.  In addition, for the past three years, we have presented Leadercast, a platform for leadership development content (held annually in May) and Leadercast Women (held annually in October) as a host site at our corporate headquarters.

Our benefits are designed to help employees and their families stay healthy and help them balance their work and personal lives. These benefits include health and wellness, paid time off, employee assistance, competitive pay, career growth opportunities, paid volunteer time, product discounts, and a culture of recognition. The challenges created by the global pandemic brought mental health awareness to the forefront.  We began a pilot program with CALM, an app that provides our home office associates an opportunity to incorporate meditation and other mindfulness activities into their daily routines.

As of January 30, 2021, we had 1,316 employees. We hire additional temporary employees during the peak Fall and Holiday seasons. None of our employees is represented by any collective bargaining agreement.

AVAILABLE INFORMATION

Our corporate website is www.dxl.com. Our investor relations site is http://investor.dxl.com. We make available through our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to such reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we have electronically filed such material with, or furnished such materials to, the Securities and Exchange Commission. The SEC maintains an internet site that contains reports, proxy and information statements, and other information for issuers that file electronically with the SEC at http://www.sec.gov.

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Item 1A. Risk Factors

The following risk factors are the important factors of which we are aware that could cause actual results, performance or achievements to differ materially from those expressed in any of our forward-looking statements. We operate in a continually changing business environment and new risk factors emerge from time to time. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. We cannot assure you that our projected results or events will be achieved or will occur.

Risks Related to Our Company and Our Industry

The global impact of the COVID-19 pandemic has had and, based on the current status and uncertainty, will likely continue to have an adverse effect on our business, financial results, liquidity, supply chain and workforce until a significant portion of the U.S. population has been vaccinated.

On March 11, 2020, the World Health Organization declared the current outbreak of a novel coronavirus disease (“COVID-19”) a global pandemic.  Federal, state and local agencies have mandated various restrictions including travel restrictions, restrictions on public gatherings, state of emergencies, stay-at-home orders and closure of all non-essential businesses, among others.

The COVID-19 pandemic has had, and will likely continue to have, an adverse effect on our business, financial results and liquidity until a significant portion of the U.S. population has been vaccinated and our customers begin to socialize outside the home.  All of our stores were closed temporarily on March 17, 2020 and remained closed through the end of April 2020, at which point we began to open our stores on a gradual basis through June 30, 2020.  During fiscal 2020, we focused on mitigating the effects of the COVID-19 pandemic and preserving our liquidity. These efforts included, among other things, (i) the furloughing of substantially all of our associates while our stores remained closed, (ii) temporarily reducing, on a tiered basis, the salaries of all members of management through August 2, 2020, (iii) suspending merit increases, (iv) implementing a restructuring program in the third quarter to reduce SG&A costs by terminating services agreements, eliminating certain professional services and reduced marketing costs, (v) eliminating approximately 101 corporate positions and a total of 1,078 store associates since March 2020, (vi) suspending compensation for non-employee directors for the second quarter of fiscal 2020 and reducing the size of the board from nine to six directors, (vii) eliminating capital expenditures and operating expenses, where possible, (viii) negotiating with vendors and landlords for extended and revised payment terms, (ix) cancelling approximately $148.0 million of on-order merchandise, at retail, (x) drawing $30.0 million under our credit facility and amending that facility to increase our borrowing base availability by delaying the step-down of our advance rates and amending the agreement to permit the Company the ability to enter into an aggregate of up to $15.0 million in promissory notes with merchandise vendors, and (xi) pursuing all opportunities that may be available to us under the Coronavirus Aid, Relief and Economic Security Act, ("CARES Act").

These actions may not be successful in mitigating the effects of this pandemic, which remains highly uncertain and difficult to predict, especially given the existence of new variants, and the actions that we take may negatively impact or delay our strategic initiatives. For example, even though our stores are open, we cannot be assured that (i) consumer demand and, therefore, sales will return to levels experienced prior to the pandemic, (ii) if sales do not return to levels prior to the pandemic, sales will be at levels sufficient to support the ongoing business, (iii) new practices or protocols could impact our business and may continue and/or increase, for example, occupancy limitations, (iv) our stores can remain open if there is a resurgence of the virus and therefore need to close again, or (v) our associates will be willing to staff our stores, as a result of health concerns. Furthermore;

and

In addition to the specific risks to our business noted above, we will also be subject to the long-term effects the COVID-19 pandemic may have on the U.S. economy as a whole. The U.S. experienced unprecedented unemployment and an economic recession during fiscal 2020 that has impacted consumer discretionary spending, and therefore consumer demand for our products. The magnitude of the impact of the COVID-19 pandemic will be determined by the length of time that the pandemic continues, and while government authorities’ measures relating to the pandemic may be relaxed as the pandemic abates, these measures may be reinstated as the pandemic continues to evolve.

Even after the COVID-19 pandemic subsides, we may continue to experience material adverse impacts to our business as a result of an economic recession that has occurred or may occur in the future due to a continued erosion in consumer sentiment or the effect of

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unemployment on our customer base. Furthermore, our customers may have or will continue to have a decrease in in discretionary consumer spending which would have an adverse impact on our store traffic and sales.

Our ability to operate and expand our business and to respond to changing business and economic conditions will depend on the availability of adequate capital.

The operation of our business, the rate of our expansion and our ability to respond to changing business and economic conditions, depend on the availability of adequate capital, which in turn depends on cash flow generated by our business and, if necessary, the availability of equity or debt capital. We will also need sufficient cash flow to meet our obligations under our existing debt agreements.

The amount that we are able to borrow and have outstanding under our credit facility at any given time is determined using an availability formula based on eligible assets. As a result, our ability to borrow is subject to certain risks and uncertainties, such as advance rates and the amount and quality of inventory, which could reduce the funds available to us under our credit facility. In addition, because of the impact of the COVID-19 pandemic on our business, inventory levels have been reduced to align with expected decreased sales.  This directly impacts our borrowing base and there can be no assurance that we can effectively manage the balance of maintaining inventory and sufficient availability, especially during peak selling periods.

We cannot assure you that our cash flow from operations or cash available under our credit facility will be sufficient to meet our needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot ensure that we could obtain refinancing or additional financing on favorable terms or at all.

We may not be successful in executing our strategy and growing our market share.

For us to be successful in the future and maintain growth, we must be able to continue increasing our share of the big & tall men’s apparel market. Our growth is dependent on our ability to continue to build upon our DXL brand, maintain our existing customers and continue to attract new customers. Our failure to execute our strategy successfully could prevent us from growing our market share, which could have a material adverse effect on our results of operations, cash flows and financial position, including if we were unable to:  

Our marketing programs and efforts to drive traffic and convert that traffic into an increased loyal customer base are critical to achieving market share growth within the big & tall men’s apparel market and may not be successful.

Our ability to increase our share of the big & tall men’s apparel market is largely dependent on effectively marketing our merchandise to all of our target customers in several diverse market segments so that they will become loyal shoppers who spend a greater portion of their wallets on our product offerings. In order to grow our market share, we depend on the success of our marketing and advertising in a variety of ways, including television and radio advertising, advertising events, loyalty programs, catalogs, and digital marketing, including social media, e-commerce and customer prospecting. Our business is directly impacted by the success of these efforts and those of our vendors. Future marketing efforts by us, our vendors or our other licensors, may be costly and, if not successful, may negatively affect our ability to meet our sales goals and gain market share.

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Our direct business is a significant component of our growth strategy, and the failure to develop our e-commerce and internet infrastructure could disrupt our business and negatively impact our sales.

We continue to have increasing levels of sales made through online shopping and via mobile devices.  We have made significant investments in capital spending and labor to develop these channels and invested in digital media to attract new customers. Growth of our overall sales is dependent on customers’ continuing to expand their online purchases in addition to in-store purchases. During fiscal 2020, because of the COVID-19 pandemic, we saw significant growth in our DXL.com business with revenues increasing 38.6% from fiscal 2019.  While it is our objective to continue to grow this business, there can be no assurance that this growth will continue or be sustainable.

Our success in growing our direct business will depend in part upon our development of an increasingly sophisticated e-commerce experience and infrastructure. Increasing customer sophistication requires that we provide additional website features and functionality in order to be competitive in the marketplace and maintain market share. We continually update our website features, but we cannot predict future trends and required functionality or our adoption rate for customer preferences.  In addition, we are vulnerable to additional risks and uncertainties associated with e-commerce sales, including security breaches, cyber-attacks, consumer privacy concerns, changes in state tax regimes and government regulation of internet activities. Our failure to respond to these risks and uncertainties successfully could reduce our direct sales, increase our costs and diminish our growth prospects, which could negatively affect our operating results.

If we are unable to develop and implement our omni-channel initiatives successfully, our market share and financial results could be adversely affected.

Our customer’s shopping behavior continues to evolve across multiple channels and we are working to meet his needs.  This includes the expansion of our BOPIS (buy online pick up in stores) and BOPAC (buy online pick up curbside) during fiscal 2020 to help our customers continue to shop during the pandemic.  While we consider ourselves an omni-channel retailer, we continue to make ongoing investments in our information technology systems to support evolving omni-channel capabilities.  

Omni-channel retailing is rapidly evolving and our success depends on our ability to anticipate and implement innovations in sales and marketing technology and logistics in order to appeal to existing and potential customers who increasingly rely on multiple channels to meet their shopping needs.  In addition, our competitors are also investing in omni-channel initiatives, some of which may be more successful than our initiatives.

If the investment in our omni-channel initiatives is not successful, our systems are unable to support such initiatives, or if our competitors are more successful, our financial results and our market penetration may be adversely affected.

The growth of our wholesale segment may not be successful.  

As part of our strategic growth plan, we launched a wholesale segment in fiscal 2018 focused on product development and distribution relationships with key retailers. We are working on developing and distributing co-branded big & tall men’s apparel lines. The success of this strategic initiative depends on a number of factors, including our ability to grow our wholesale customer base, develop a cost-effective infrastructure, and sustain adequate liquidity to meet the longer lead times associated with the wholesale business. In addition, because our wholesale customers order merchandise on a “purchase order” basis, as our wholesale business grows, any decision by any customer to decrease their order volume or cease purchasing from us could adversely affect our wholesale revenues and profitability.  

The loss of, or disruption in, our centralized distribution center could negatively impact our business and operations.

The majority of our merchandise for our stores and e-commerce operations is received into our centralized distribution center in Canton, Massachusetts, where it is then processed, sorted and shipped to our stores or directly to our customers. We depend in large part on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of the distribution center. Although we believe that our receiving and distribution process is efficient and well-positioned to support our strategic plans, events beyond our control, such as disruptions in operations due to fire or other catastrophic events, employee matters or shipping problems, or disruptions in our distribution center, including potential closure if an employee is diagnosed with COVID-19 or there is a governmentally-imposed quarantine, could result in delays in the delivery of merchandise to our stores or directly to our customers. The COVID-19 pandemic has also resulted in labor shortages, which may affect our ability to process and ship inventory in a timely manner.  

With all of our management information systems centralized in our corporate headquarters, any disruption or destruction of our system infrastructure could materially affect our business. This type of disaster is mitigated by our offsite storage and disaster recovery plans, but we would still incur business interruption that may impact our business a significant period of time.

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Although we maintain business interruption and property insurance, we cannot be sure that our insurance will be sufficient, or that insurance proceeds will be timely paid to us, in the event our distribution center is shut down for any reason or if we incur higher costs and longer lead times in connection with a disruption from our distribution center.

Our business may be adversely affected due to disruptions in the global supply chain.

Disruptions in the global supply chain due to COVID-19 outbreaks in foreign ports and shortages of vessels and shipping containers may impact our ability to import inventory in a timely manner. The impact of COVID-19 on domestic ports has also created a similar disruption in the supply chain and may cause delays in the receipt and shipment of inventory. Furthermore, in the event that commercial transportation is curtailed or substantially delayed, we may not be able to maintain adequate inventory levels of important merchandise on a consistent basis, which would negatively impact our sales and potentially erode the confidence of our customer base, leading to further loss of sales and an adverse impact on our results of operations.

Our business may be adversely affected if we are unable to successfully manage our store portfolio.

We lease all of our store locations.  Renewing and renegotiating these leases at acceptable lease terms is critical to the profitability of our stores.  In the second quarter of fiscal 2020, we were able to negotiate short-term rent relief agreements, primarily through rent abatements and rent deferments, with the majority of our landlords due to the temporary store closures in response to the pandemic.  Given the uncertainty as to the continued impact of the pandemic on store sales as well as our customers’ shift to online shopping, we are continuing to engage with our landlords to restructure certain lease arrangements.  If store sales do not return to levels prior to the pandemic and we are unable to renegotiate lease agreements, certain stores may not be profitable and we may not be able to renew existing agreements.  At January 30, 2021, we have 131 stores that have either a natural lease expiration or a kick-out option within the next two years.  This provides us an opportunity to right-size our store portfolio over the next few years, through lease renegotiations or lease-term expirations, to ensure that we are optimizing our store profitability and omni-channel distribution.

Our business is highly competitive, and competitive factors may reduce our revenues and profit margins.

The United States big & tall men’s apparel market is highly competitive with many national and regional department stores, mass merchandisers, specialty apparel retailers, discount stores and online retailers offering a broad range of apparel products similar to the products that we sell. Besides retail competitors, we consider any manufacturer of big & tall men’s merchandise operating in outlet malls throughout the United States to be a competitor. It is also possible that another competitor, either a mass merchant or a men’s specialty store or specialty apparel catalog, could gain market share in big & tall men’s apparel due to more favorable pricing, locations, brand and fashion assortment and size availability. Many of our competitors and potential competitors may have substantially greater financial, manufacturing and marketing resources than we do.

The presence in the marketplace of various fashion trends and the limited availability of shelf space also can affect competition. We may not be able to compete successfully with our competitors in the future and could lose market share. A significant loss of market share would adversely affect our revenues and results of operations.

In addition, we maintain exclusivity arrangements with several of the brands that we carry.  If we were to lose any of these exclusivity arrangements or brands altogether, our revenues may be adversely affected.

Our business is seasonal and is affected by general economic conditions.

Our business is seasonal. Historically, a significant portion of our operating income has been generated during our fourth quarter (November-January). If, for any reason, we miscalculate the demand for our products during our fourth quarter, our sales in that quarter could decline, resulting in higher labor costs as a percentage of sales, lower margins and excess inventory, which could cause our annual operating results to suffer. In addition, our operations may be negatively affected by local, regional or national economic conditions, such as levels of disposable consumer income, consumer debt, interest rates and consumer confidence. Due to our seasonality, the possible adverse impact from such risks is potentially greater if any such risks occur during our fourth quarter.  

We are dependent on third parties for the manufacture of the merchandise we sell.

We do not own or operate any manufacturing facilities and are therefore entirely dependent on third parties to manufacture the merchandise we sell. Without adequate supplies of merchandise to sell to our customers in the merchandise styles and fashions demanded by our particular customer base, sales would decrease materially and our business would suffer. We are dependent on these third parties’ ability to fulfill our merchandise orders and meet our delivery terms. In the event that manufacturers are unable or unwilling to ship products to us in a timely manner or continue to manufacture products for us, we would have to rely on other current manufacturing sources or identify and qualify new manufacturers. We might not be able to identify or qualify such manufacturers for

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existing or new products in a timely manner and such manufacturers might not allocate sufficient capacity to us in order to meet our requirements. Our inability to secure adequate and timely supplies of private label merchandise would negatively impact proper inventory levels, sales and gross margin rates, and ultimately our results of operations.

In addition, even if our current manufacturers continue to manufacture our products, they may not maintain adequate controls with respect to product specifications and quality and may not continue to produce products that are consistent with our standards. If we were forced to rely on manufacturers who produce products of inferior quality, then our brand and customer satisfaction would likely suffer which would negatively impact our business. These manufacturers may also increase the cost to us of the products we purchase from them. The Company publishes a Code of Conduct, which is a part of every agreement requiring compliance by the manufacturing facilities. The Company is working with its third-party audit vendor to ensure a responsible and ethical supply chain. We are and will continue to pursue our corporate responsibilities and create a positive effect on human rights as well as the environment. If, despite third-party audits, the manufacturing facilities engage in workplace or human rights violations and we are unable to identify or correct it, it may negatively affect our business and harm our brand.

Our business may be negatively impacted and we may be liable if third parties misappropriate proprietary information of our customers and breach our security systems.

We may be harmed by security risks we face in connection with our electronic processing and transmission of confidential customer information. The majority of our retail sales are settled through credit and debit card transactions. While our Board of Directors has a Cybersecurity and Data Privacy Committee to oversee the monitoring and management of cyber risk and data privacy for our Company, and we have not had any security breaches to date, any breach could expose us to risks of loss, litigation and liability and could adversely affect our operations as well as cause our shoppers to stop shopping with us as a result of their lack of confidence in the security of their personally identifiable information, which could have a negative impact on our sales and profitability. We attempt to limit exposures to security breaches and sensitive customer data through the use of “tokens” in connection with both in-store and online credit card transactions, which eliminates the storage of credit card numbers. Like many retailers, we have seen an increase in cyberattack attempts, predominantly through phishing and social engineering scams, and in particular, ransomware. While none of these attempts has been successful, there can be no assurance that our continued security measures will be effective or sufficient in the future.  If third parties are able to penetrate our network security or otherwise misappropriate the personal information or credit card information of our customers or if third parties gain unauthorized and improper access to such information, we could be subject to liability. These liabilities could include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims, or claims for other misuses of personal information, including unauthorized marketing purposes, and could ultimately result in litigation. Liability for misappropriation of this information could be significant.

Further, if a third party were to use this proprietary customer information in order to compete with us, it could have a material adverse impact on our business and could result in litigation.

We may be unable to predict fashion trends and customer preferences successfully.

Customer tastes and fashion trends are volatile and tend to change rapidly. Our success depends in large part upon our ability to predict effectively and respond to changing fashion tastes and consumer demands and to translate market trends to appropriate saleable product offerings. If we are unable to predict or respond to changing styles or trends successfully and misjudge the market for products or any new product lines, our sales will be impacted and we may be faced with a substantial amount of unsold inventory or missed opportunities. In response, we may be forced to rely on additional markdowns or promotional sales to dispose of excess, slow-moving inventory, which would decrease our revenues and margins. In addition, the failure to satisfy consumer demand, specifically in our DXL stores and from our website, could have serious longer-term consequences, such as an adverse impact on our brand value and the loss of market share to our competitors.

The loss of any of our key trademarks or licenses could adversely affect demand for our products.

We own and use a number of trademarks and operate under several trademark license agreements. We believe that certain of these trademarks have significant value and are instrumental in our ability to create and sustain demand for and to market our products. We cannot be certain that these trademarks and licensing agreements will remain in effect and enforceable or that any license agreements, upon expiration, can be renewed on acceptable terms or at all. In addition, any future disputes concerning these trademarks and licenses may cause us to incur significant litigation costs or force us to suspend use of the disputed trademarks.

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General Risks That May Affect Our Business

If our long-lived assets become impaired, we may need to record significant non-cash impairment charges.

Periodically, we review our long-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Specifically, if an individual store location is unable to generate sufficient future cash flows, we may be required to record a partial or full impairment of that store’s right-of-use assets and its property and equipment.  In addition, significant negative industry or general economic trends, disruptions to our business and unexpected significant changes or planned changes in our use of the assets (such as store relocations or closures) may also result in impairment charges. As a result of the impact of the COVID-19 pandemic on the Company’s business during fiscal 2020, the Company did incur significant asset impairment charges during fiscal 2020.  Due to the uncertainty that remains regarding the duration of the pandemic and its impact on our store locations, we may need to take additional impairment charges.  Any such impairment charges, if significant, could adversely affect our financial position and results of operations.

Changes to LIBOR may negatively impact us.

The London interbank offered rate (“LIBOR”) is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. Our current credit facility provides us an option to convert some of our prime-based borrowings into short-term LIBOR contracts.

Regulators in the United Kingdom that oversee LIBOR have stated that they cannot guarantee LIBOR's availability beyond the end of 2021 and expects that reliance on LIBOR will be phased out through 2023.  In the absence of a LIBOR rate, our credit facility provides for a comparable or successor rate to be used.  It is expected that the LIBOR rate will be replaced by the Secured Overnight Financing Rate.  As such, while we do not expect that we will have to renegotiate our credit facility, we do not know whether it could result in increased interest costs. In the absence of a favorable LIBOR or successor rate, our borrowings bear interest based on the Federal Funds rate. At January 30, 2021, approximately $72.0 million of our total outstanding debt of $74.4 million was in short-term LIBOR-based contracts.  We cannot provide assurance that future interest rate charges will not have a material negative impact on our business, financial position, or operating results.

Our success depends significantly on our key personnel and our ability to attract and retain additional personnel.

Our future success is dependent on the personal efforts, performance and abilities of our key management, which includes our executive officers as well as members of our senior management. The loss of any of our senior management may result in a loss of organizational focus, poor operating execution, an inability to identify and execute strategic initiatives, an impairment in our ability to identify new store locations, and an inability to consummate possible acquisitions. The competition is intense for the type of highly skilled individuals with relevant industry experience that we require and we may not be able to continue to attract and retain new employees of the caliber needed to achieve our objectives.

Labor shortages or increases in labor costs due to new regulations could harm our business.

Due to the COVID-19 pandemic, during fiscal 2020 we experienced labor shortages in our distribution facility and in our stores.  If such labor shortages continue, especially during peak-selling periods, it may negatively impact our ability to process inventory in a timely manner and effectively staff our stores.  Furthermore, if the federal minimum wage is increased to $15 per hour, we may need to increase not only the rate of our minimum wage employees, but also the wages paid to employees at wage rates that are above minimum wage.  If we are unable to pass on these higher costs through price increases or reduced workforce hours, our margins and profitability may be adversely impacted which could have a material adverse effect on our business, results of operations or financial condition. 

Fluctuations in the price, availability and quality of raw materials and finished goods could increase costs.

Due to the COVID-19 pandemic and the ban of Xinjiang cotton, we are starting to see cost increases in labor and across raw materials. We have secured raw materials in key item programs to reduce the impact on our gross margin. Fluctuations in the price, availability and quality of fabrics or other raw materials used in the manufacturing of our merchandise could have a material adverse effect on our gross margin or on our ability to meet our customers’ demands. The prices for fabrics depend on demand and market prices for the raw materials used to produce them. To the extent that we cannot offset these cost increases with other cost reductions or efficiencies, such higher costs will need to be passed on to our customers. Such increased costs could lead to reduced customer demand, which could have a material adverse effect on our results of operations and cash flow.

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Failure to comply with laws, rules and regulations could negatively affect our business operations and financial performance.

Our business is subject to federal, state, local and international laws, rules and regulations, such as state and local wage and hour laws, the U.S. Foreign Corrupt Practices Act, the Employee Retirement Income Security Act (“ERISA”), securities laws, import and export laws (including customs regulations), privacy and information security regulations, unclaimed property laws, the Affordable Care Act and many others. The effect of some of these laws and regulations may be to increase the cost of doing business and may have a material impact on our earnings. In addition, the complexity of the regulatory environment in which we operate and the related cost of compliance are both increasing due to legal and regulatory requirements and increased enforcement. In addition, as a result of operating in Canada, we must comply with their laws and regulations which may differ substantially from, and may conflict with, corresponding U.S. laws and regulations. We may also be subject to investigations or audits by governmental authorities and regulatory agencies, which can occur in the ordinary course of business or which can result from increased scrutiny from a particular agency towards an industry, country or practice. If we fail to comply with laws, rules and regulations or the manner in which they are interpreted or applied, we may be subject to government enforcement action, class action litigation or other litigation, damage to our reputation, civil and criminal liability, damages, fines and penalties, and increased cost of regulatory compliance, any of which could adversely affect our results of operations and financial performance.

Risks Related to Our Corporate Structure and Stock

Trading of our common stock on the OTCQX market may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to sell their shares.

In December 2020 we voluntarily delisted our common stock from The Nasdaq Stock Market to the OTCQX tier of the OTC Markets.  Our common stock is currently quoted under the symbol “DXLG.” Trading in stock quoted on the OTCQX may be thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to our operating performance. Accordingly, stockholders may have difficulty reselling any of their shares. Our common stock will continue to trade on OTCQX so long as we meet their standards for continued qualifications, including having at least two brokers who choose to make a market for our common stock, however, there can be no assurances regarding any such trading.

Our stock price has been and will likely continue to be volatile and fluctuate substantially.

The market price of our common stock has been and will likely continue to fluctuate substantially as a result of many factors, some of which are beyond our control. For example, since January 4, 2021, the last reported sale price of our common stock on the OTCQX has ranged from a low of $0.26 to a high of $0.80 on January 29, 2021. Factors that could cause fluctuations in the market price of our common stock include the following:

Our certificate of incorporation, as amended, limits transfers of our common stock and may, along with state law, inhibit potential acquisition bids that could be beneficial to our stockholders.

Our certificate of incorporation, as amended, contains provisions that restrict any person or entity from attempting to purchase our stock, without prior permission from the Board of Directors, to the extent that such transfer would (i) create or result in an individual or entity becoming a five-percent stockholder of our stock, or (ii) increase the stock ownership percentage of any existing five-percent stockholder. These provisions provide that any transfer that violates such provisions shall be null and void and would require the purported transferee, upon demand by us, to transfer the shares that exceed the five percent limit to an agent designated by us for the purpose of conducting a sale of such excess shares. These provisions would make the acquisition of our Company more expensive to

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the acquirer and could significantly delay, discourage, or prevent third parties from acquiring our Company without the approval of our Board of Directors.

In addition, we are subject to certain provisions of Delaware law, which could also delay or make more difficult a merger, tender offer or proxy contest involving us. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in certain business combinations with any interested stockholder for a period of three years unless specific conditions are met. In addition, certain provisions of Delaware law could have the effect of delaying, deferring or preventing a change in control of us, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock. The provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate offices and retail distribution center are located at 555 Turnpike Street in Canton, Massachusetts. The property consists of a 755,992 gross square foot building located on approximately 27.3 acres. We owned the property until January 30, 2006, at which time we entered into a sale-leaseback transaction, whereby we entered into a twenty-year lease agreement for an initial annual rent payment of $4.6 million, with periodic increases every fifth anniversary of the lease.

As of January 30, 2021, we operated 226 Destination XL retail stores, 17 Destination XL outlet stores, 46 Casual Male XL retail stores and 22 Casual Male XL outlet stores.  We lease all of these stores directly from owners of several different types of centers, including life-style centers, shopping centers, freestanding buildings, outlet centers and downtown locations. The store leases are generally 5 to 10 years in length and contain renewal options extending their terms by between 5 and 10 years. Following this discussion is a listing by state of all store locations open at January 30, 2021.

Sites for new stores are selected based on several factors, including the demographic profile of the area in which the site is located, the types of stores and other retailers in the area, the location of the store within the center and the attractiveness of the store layout. We also utilize financial models to project the profitability of each location using assumptions such as the center’s sales per square foot averages, estimated occupancy costs and return on investment requirements.

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Store count by state at January 30, 2021

Item 3. Legal Proceedings

From time to time, we are subject to various legal proceedings and claims that arise in the ordinary course of business. Management believes that the resolution of these matters will not have a material adverse impact on our future results of operations or financial position.

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Item 4. Mine Safety Disclosure

Not applicable.

PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock previously traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “DXLG”. Effective December 22, 2020, we voluntarily delisted our common stock from Nasdaq and began trading our common stock on the OTCQX Marketplace of the OTC Markets Group ("OTCQX") under the symbol “DXLG”.

Holders

As of March 15, 2021, based upon data provided by the transfer agent for our common stock, there were approximately 83 holders of record of our common stock. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agent.

Issuer Purchases of Equity Securities

There were no stock repurchases during fiscal 2020.

Item 6. Selected Financial Data

Note Applicable.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

As noted above in Part 1, this Annual Report, including, without limitation, this Item 7, contains “forward-looking statements,” including forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results or developments could differ materially from those projected in such statements because of numerous factors, including, without limitation those risks and uncertainties set forth in Item 1A, Risk Factors, which you are encouraged to read. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. Such statements include our financial outlook for fiscal 2021 with respect to sales, comparable sales, adjusted EBITDA and free cash flows, statements regarding our ability to withstand the impact of the COVID-19 pandemic on our business, our efforts to restructure and reduce costs and right size our lease structure, expected annualized savings from restructuring actions taken in fiscal 2020, expected additional borrowing capacity under our new FILO loan, and our expected liquidity for the next 12 months. The following discussion and analysis of our financial condition and results of operations should be read in light of those risks and uncertainties and in conjunction with our accompanying Consolidated Financial Statements and Notes thereto.

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.

Certain figures discussed below may not foot due to rounding.

Segment Reporting

We have three principal operating segments: our stores, direct business and our wholesale 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, retail segment, consistent with our omni-channel business approach.  Due to the immateriality of the wholesale segment’s revenues, profits and assets, its operating results have been aggregated with the retail segment for all periods.

Impact of COVID-19 Pandemic on Our Business

The COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created significant disruption of the financial and retail markets, including a disruption in consumer demand for men’s clothing and accessories. While the pandemic has had, and will likely continue to have, a significant adverse effect on our business, financial condition, and results of operations, we moved early and decisively throughout fiscal 2020 to preserve our financial flexibility and position ourselves to withstand the short-term impact of the pandemic.  

We closed all of our retail stores on March 17, 2020 and, beginning at the end of April 2020 and continuing into the second quarter of fiscal 2020, we started to gradually reopen stores.  As of the end of June, all stores had been reopened but have been operating at reduced hours. Since the reopening, some stores have had to close for periods of time. Our direct business continues to play a vital role as we are seeing our customer’s shopping preference shift to online.  Given the increased demand in our direct business, we have been very fortunate that our distribution center was able to operate without any business disruption during fiscal 2020.

The unrelenting impact of COVID-19 on the apparel industry continues to be a challenge. At DXL, we experienced a shift among our customers away from event-driven shopping and into need-based shopping.  Our customers spent less time this year at large social gathering events such as parties, graduations, and sporting events which negatively impacted demand for apparel.  We saw improvements in many of our core and basic categories which have been driven by this change in lifestyle of staying close to home.  We expect this trend to continue for the early part of fiscal 2021, and we expect our customers’ shopping behaviors to significantly change when vaccines are widely distributed and our customer is in a need to replenish his wardrobe over time.

Comparable Sales and E-Commerce (Direct) Sales Definition

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 of fulfilling online orders if merchandise is not available in the warehouse.  As a result, we continue to see more transactions that begin online but 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, more recently due to the COVID-19 pandemic, pick-up at curbside.  We define store sales as sales

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that originate and are fulfilled directly at the store level.  E-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 13 months are included in comparable sales.  The Company has not carved-out prior year sales for periods where the stores were temporarily closed in fiscal 2020 due to the pandemic. Stores that have been remodeled or re-located 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 becomes a clearance center, it is also removed from the calculation of comparable sales.  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.

Non-GAAP Measures

We monitor certain non-GAAP financial measures on a regular basis in order to track the progress of our business. These measures include adjusted net loss, adjusted net loss per diluted share, free cash flow, EBITDA and adjusted EBITDA.  We believe these measures provide helpful information with respect to the Company’s operating performance and that the inclusion of these non-GAAP measures is important to assist investors in comparing our performance in fiscal 2020 to fiscal 2019 and fiscal 2018.  We also provide certain forward-looking information with respect to certain of these non-GAAP financial measures. However, these measures may not be comparable to similar measures used by other companies and should not be considered superior to or as a substitute for net loss, net loss per diluted share or cash flow from operating activities in accordance with GAAP.  See “Non-GAAP Reconciliations” below for additional information on these non-GAAP financial measures and reconciliations to comparable GAAP measures.

EXECUTIVE OVERVIEW

The COVID-19 pandemic had an adverse impact on our revenues and, in turn our earnings in fiscal 2020.  In response, we took decisive steps early in fiscal 2020 to pivot our business model and position ourselves for recovery, and emerge with significantly more operating leverage as we head into fiscal 2021.  While fiscal 2020 was a challenging year for us, we navigated those challenges and maintained our solvency through one of the most difficult years in the history of our Company.

Managing our liquidity to help us weather the impact of the pandemic was our primary objective, which we believe we successfully accomplished.  In those initial few weeks in March 2020, we took several immediate and proactive steps, including: drawing down $30.0 million from our credit facility, furloughing the majority of our organization, cancelling inventory orders, eliminating capital spending except where necessary, instituting a temporary reduction in pay for management (director-level and above) until the start of the third quarter, suspending the directors second quarter compensation, working with landlords on rent deferments and abatements during those temporary closures, negotiating extended payment terms with our suppliers and vendors, and amending our credit facility

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to provide additional borrowing capacity.  As our stores began to open, we continued to focus on liquidity.  We took several cost-reduction measures to realign our cost structure with our current sales trends.  These steps have been difficult and included reducing our field organization by approximately 54% and our corporate workforce by 29%.  In November 2020, we also terminated certain service agreements and eliminated certain professional services, much of the benefit of which will not be realized until fiscal 2021.  As a result of these efforts, we not only preserved liquidity, but we also have substantially reduced our operating cost structure.  

From a liquidity perspective, at January 30, 2021, our total debt, net of cash, increased only $5.6 million to the prior year despite the significant loss in revenues.  We decreased inventory levels by $17.4 million, or 17%, and our year-end inventory is current with clearance inventory down $1.4 million from February 1, 2020.  In addition, we were able to work with our landlord community to renegotiate much of our lease portfolio given current sales trends, which benefited our cash flows in fiscal 2020 by approximately $10.0 million and will benefit fiscal 2021 as well.  We also restructured 91 individual store leases in fiscal 2020 which we expect to deliver over $13.5 million in savings over the life of the leases, including approximately $5.2 million in fiscal 2021.  As discussed below, subsequent to the end of fiscal 2020, we also raised $5 million, before offering costs, from the sale of 11.1 million shares of common stock through a registered direct offering and also entered into a new first-in, last out term loan “FILO” loan which replaced our existing FILO loan, both of which added further flexibility to our liquidity as we head into 2021.

While our stores were adversely affected by the pandemic, with comparable store sales down 47.1% to last year, our digital growth was a bright spot for us this year.  We had started transforming our digital presence in fiscal 2019 in order to grow our digital business, and in response to the pandemic we accelerated those efforts during fiscal 2020 as our customers migrated to online shopping.  Our e-commerce site, DXL.com, was instrumental to our business, enabling us to continue to serve our customers.  As our customers increasingly migrated to online shopping, our DXL.com site and distribution center were able to successfully meet the increased demand. Sales from our DXL.com site increased 38.6% over the prior year.  This is an exciting opportunity for us and we are hoping we are able to build on this growth into fiscal 2021.

The loss of revenues in fiscal 2020, resulted in a net loss for fiscal 2020 of $(1.26) per diluted share as compared to a net loss of $(0.16) per diluted share in fiscal 2019.  On a non-GAAP basis, adjusted net loss was $(0.72) per diluted share in fiscal 2020 as compared to $(0.06) per diluted share in fiscal 2019.  

The loss in store sales from the temporary store closures and reduced demand for in-person shopping resulted in our having to take significant impairment charges against our long-lived assets, especially in the first quarter of fiscal 2020.  Our results for fiscal 2020 include a total impairment charge of $14.8 million, or $0.29 per diluted share, primarily related to the write-down of our operating lease right-of-use assets and, to a lesser extent, store assets.  This compares to a total impairment charge of $0.9 million, or $0.02 per diluted share, in fiscal 2019.

Subsequent Events

Registered Direct Offering of Common Stock

On February 5, 2021, we sold, pursuant to a definitive stock purchase agreement in a registered direct offering, an aggregate of 11,111,111 shares of our common stock, for a gross purchase price of $5.0 million, before payment of offering costs. We intend to use the net proceeds from the offering for working capital and other general corporate purpose.

New FILO Loan

On March 16, 2021, we refinanced our existing $15.0 million first-in, last-out term loan under our credit agreement with Bank of America and entered into a new, $17.5 million senior secured first-in, last-out term loan facility (the “new FILO Loan”).  Pursuant to the Fourth Amendment to its Seventh Amended and Restated Credit Facility with Bank of America, N.A. (as amended, the “Credit Facility”), PathLight Capital Fund II LP was added as the FILO lender to the Credit Facility.  Proceeds from the new FILO Loan were used to repay in full the Company’s existing FILO loan with the balance of the proceeds to be used for working capital.   

The borrowing base for the new FILO Loan is determined based on a percentage of eligible inventory, receivables and intellectual property.  We expect the new FILO Loan to provide us additional borrowing capacity of approximately $5.0 to $10.0 million.  Interest rates under the new FILO Loan will be higher than the existing FILO loan by approximately 250 to 300 basis points.  See “Liquidity and Capital Resources” for a more detailed description of the new FILO Loan.

Financial Outlook

Our plans for fiscal 2021 include expected sales of approximately $385.0 million to $402.0 million, adjusted EBITDA of approximately $11.0 to $18.0 million and positive free cash flow, which we expect to use to pay-down debt.  Our financial projections assume that vaccines against the COVID-19 virus are widely available and administered by the end of Spring 2021. We believe that demand for apparel will gradually improve in fiscal 2021 as our customers begin to return to pre-COVID-19 activities. We expect a 10.8% to 14.8% decline in comparable sales from fiscal 2019 levels, with comparable store sales down 23.8% to 27.8% and our direct

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business up 26.9% to 30.7% to fiscal 2019.  We expect to achieve these results through continued penetration of our direct business and a modest recovery in store traffic during the course of the year.  

RESULTS OF OPERATIONS

Our fiscal year is a 52- or 53-week period ending on the Saturday closest to January 31. Fiscal 2020, fiscal 2019 and fiscal 2018 were all 52-week periods.

Below is a discussion of our results of operations for fiscal 2020 as compared to fiscal 2019.

Our Annual Report on Form 10-K for the year ended February 1, 2020 (fiscal 2019) includes a discussion and analysis of our financial condition and results of operations comparing fiscal 2019 to fiscal 2018 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

SALES

For fiscal 2020, total sales decreased 32.7% to $318.9 million from $474.0 million in fiscal 2019. Comparable sales for the full year decreased 32.6%, primarily due to a comparable sales decrease in stores of 47.1%, partially offset by an increase in our direct business of 14.9%.  All of our stores were temporarily closed on March 17, 2020 and, at the end of April 2020, we started to gradually reopen them.  By the end of June 2020, all stores had reopened, but with reduced operating hours. Stores sales gradually improved through the remainder of fiscal 2020, but comparable store sales were still below fiscal 2019 levels with the fourth quarter comparable store sales down 37.3%.  Until vaccines are widely administered and customers gain some comfort that enables them to begin socializing, we expect to continue to see similar sales trends for at least the early part of fiscal 2021.

The increase in our direct business was driven by our DXL.com e-commerce site, which had a sales increase of 38.6% and was partially offset by a 50.4% decrease in universe sales, which are online sales that are initiated at the store level.  The decrease in our universe sales is directly attributable to store closures and the decrease in store traffic once the stores reopened.  The strong growth in our direct business was a direct outcome of the digital strategies we implemented and the customers’ shift in shopping preferences in response to COVID-19.  

Wholesale revenues for fiscal 2020 increased $4.1 million to $16.6 million.  The increase is primarily due to the sale of masks during the second quarter of fiscal 2020.

GROSS MARGIN

Gross margin rate for fiscal 2020 was 32.9% compared to 43.1% in fiscal 2019. The decrease of 10.2% was due to a decrease in merchandise margin of 5.6% and a decrease of 4.6% due to the deleveraging of occupancy costs.  On a dollar basis, occupancy costs decreased $8.3 million, or 11.8% largely due to our efforts to restructure our lease agreements due to the impact of the pandemic on our retail stores, as well as due to closed stores.  

The decrease in merchandise margin reflects the increased promotional posture we took in response to COVID-19, especially during the second quarter, where we were highly promotional in our effort to drive sales and reduce inventories. For the second half of fiscal 2020, we focused on more targeted promotions with a greater gross margin impact, which improved our merchandise margins in the third and fourth quarter.  Because of the growth in our direct channel and free shipping promotions during fiscal 2020, our shipping costs increased over the prior year.

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While our gross margin was negatively impacted by the deleveraging of occupancy costs against the lower sales base, we worked throughout fiscal 2020 with our landlord community to restructure our existing lease agreements.  In the first half of fiscal 2020, we negotiated $10.0 million of favorable rent abatements and deferments with our landlords for the months that our stores were temporarily closed.  In addition, to date, we have also restructured 91 individual store leases which will deliver over $13.5 million in savings over the life of the leases, including $5.2 million of savings projected in fiscal 2021.

By its nature, gross margin rates for wholesale are lower than gross margin rates for the Company’s retail segment.  During fiscal 2020, margins in our wholesale business improved, primarily driven by our sales of masks in the second quarter of fiscal 2020.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses for fiscal 2020 decreased $51.6 million, or 28.6%, to $129.1 million as compared to $180.7 million in fiscal 2019. SG&A expenses as a percentage of sales for fiscal 2020 were 40.5% as compared to 38.1% for fiscal 2019.

The decrease in SG&A expenses for the year was due to the decrease in variable-based costs such as store payroll, supplies, travel and other supporting expenses, a decrease in advertising costs, corporate payroll, professional services and director compensation.  Performance-based incentives and insurance costs increased over the prior year.  Included in SG&A costs for fiscal 2020 is an earned tax credit of approximately $1.3 million that the Company realized as part of the CARES Act.

We took several steps throughout fiscal 2020 to reduce our operating costs, including the furlough of both our store associates and certain corporate associates while our stores were closed, a reduction in marketing costs, a temporary salary reduction of 10-20% for management levels director and above, and the suspension of non-employee director compensation for the second quarter.  We also implemented several cost savings initiatives to realign our operating costs with expected sales levels, which resulted in the termination of certain service agreements and professional services, a reduction in our field organization by approximately 54% and in our corporate workforce by 29%.  With the reduced sales levels and store traffic, our stores are operating at minimal staffing levels and reduced operating hours.

The expected annualized savings from the action taken in November 2020 are expected to result in annualized savings of $9.7 million, the majority of which will be realized in fiscal 2021.  These savings will be in addition to the previous cost-saving measures we took during the first three quarters of fiscal 2020.  

SG&A expenses are managed through two primary cost centers: Customer Facing Costs and Corporate Support Costs. Customer Facing Costs, which include store payroll, marketing, and other store operating costs, represented 20.2% of sales in fiscal 2020 compared to 22.6% of sales in fiscal 2019.  Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 20.3% of sales in fiscal 2020 compared to 15.5% of sales in fiscal 2019 and reflects the impact of the deleveraging of sales.

IMPAIRMENT OF ASSETS

We regularly review assets for impairment indicators at the individual store level, as this represents the lowest level of identifiable cash flows. Store assets include property and equipment as well as operating lease right-of-use assets.  When indicators of impairment are present, a recoverability analysis is performed.  

As a result of the impact of the COVID-19 pandemic on store operations, we have taken significant impairment charges in fiscal 2020, primarily related to our right-of-use assets.  Our determination of impairment was based on multiple probability-weighted scenarios as to the recoverability of each individual store assuming that consumer retail spending would remain curtailed for a period of time.  

In addition, the asset impairment charges for fiscal 2020 were partially offset by non-cash gains related to the Company’s decision to close certain retail stores, which resulted in a revaluation of the existing lease liabilities. To the extent that such gain related to previously recorded impairment charges for operating right-of-use assets, the gain was included as an offset to impairment charges, with the remainder of the gain included as a reduction in store occupancy costs.  For fiscal 2020, the Company recognized a non-cash gain of $3.1 million, of which $2.6 million was included as an offset to the asset impairment charges.  

For fiscal 2020, the asset impairment charge was $14.8 million, which included $13.3 for the write-down of operating lease right-of-use assets and $4.1 million for the write-down of store assets, partially offset by a non-cash gain of $2.6 million.  The asset impairment charge for fiscal 2019 was $0.9 million, which included $0.7 million for the write-down of right-of-use assets and $0.2 million for the write-down of store assets.

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DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense was $21.5 million in fiscal 2020 compared to $24.6 million for fiscal 2019. With the majority of our new store growth complete, our depreciation expense has been decreasing over the past few years.

INTEREST EXPENSE, NET

Net interest expense for fiscal 2020 was $3.9 million as compared to $3.3 million for fiscal 2019.  The increase in interest expense is due to an increase in average borrowings and an increase in the effective borrowing rates.  As a result of our amendment to our credit facility in April 2020, interest rates under our Credit Facility, which includes our FILO loan, increased by approximately 150 basis points. In addition, as discussed above, on March 20, 2020, we drew approximately $30.0 million against our revolving credit facility, which increased our average borrowings.  This action was taken to provide the Company with flexibility to manage its cash flow due to the uncertainty of the pandemic.

See “Liquidity and Capital Resources” below for more discussion regarding our credit facility and term loan as well as our future liquidity needs.

INCOME TAXES

Realization of our deferred tax assets, which relate principally to federal net operating loss carryforwards, of which approximately $158.2 million will expire from fiscal 2022 through fiscal 2037, is dependent on generating sufficient taxable income in the near term. In addition, there are $43.1 million of federal net operating loss carryforwards that do not expire.

At the end of fiscal 2013, we entered a three-year cumulative loss and based on all positive and negative evidence at February 1, 2014, we established a full valuation allowance against our net deferred tax assets.  While we expect to return to profitability, generate taxable income and ultimately emerge from a three-year cumulative loss, based on our results for fiscal 2020 and our forecast for fiscal 2021, we believe that a full valuation allowance remains appropriate at this time.  

Due to current period losses, our current tax provision for fiscal 2020 and fiscal 2019 was primarily due to current state margin tax, based on gross receipts less certain deductions.  See Note F of the Notes to the Consolidated Financial Statements.  

NET LOSS

Net loss for fiscal 2020 was $(64.5) million, or $(1.26) per diluted share, as compared to $(7.8) million, or $(0.16) per diluted share, in fiscal 2019.

Included in our results for fiscal 2020 were asset impairment charges of $14.8 million, or $0.29 per diluted share.  Included in our results for fiscal 2019 were charges of $1.7 million, or $0.03 per diluted share, for the exit costs associated with our London operations, $0.7 million, or $0.01 per diluted share, in CEO transition costs and $0.9 million, or $0.02 per diluted share in impairment charges.

On a non-GAAP basis, before asset impairments, exit costs associated with our London operations, CEO transition costs and assuming a normalized tax rate of 26% for both years, adjusted net loss per share for fiscal 2020 was $(0.72) per diluted share, compared to $(0.06) per diluted share for fiscal 2019.  See “Non-GAAP Reconciliation” below.  

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SEASONALITY

A comparison of sales in each quarter of the past three fiscal years is presented below. The sales results for fiscal 2020 reflect the impact that the COVID-19 pandemic had on the Company’s business, especially in the first and second quarters when we temporarily closed all of our stores in response to the pandemic. The amounts shown are also not necessarily indicative of actual trends, because such amounts also reflect the addition of new stores and the remodeling and closing of other stores during these periods. Consistent with the retail apparel industry, our business is seasonal. Generally, the majority of our operating income is generated in the fourth quarter as a result of the impact of the holiday selling season. A comparison of quarterly sales, gross profit, and net loss per share for the past two fiscal years is presented in Note O of the Notes to the Consolidated Financial Statements.

EFFECTS OF INFLATION

Although our operations are influenced by general economic trends, we do not believe that inflation has had a material effect on the results of our operations in the last three fiscal years.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash generated from operations and availability under our credit facility with Bank of America, N.A., which was most recently amended in April 2020 (“Credit Facility”). Although our cash flow from operations has been significantly impacted by the lost revenue as of result of the COVID-19 pandemic, we believe that we have taken sufficient steps to manage our available cash flow for the foreseeable future.  During fiscal 2020, we amended our Credit Facility to increase our borrowing base, negotiated extended payment terms with vendors, restructured lease agreements, cancelled inventory purchase orders, reduced operating costs and reduced capital spending.  Subsequent to year end, in February 2021, we raised $5 million, before offering costs, through the sale of 11.1 million shares in a direct registered offering, the proceeds of which will be used for working capital in fiscal 2021. Also in March 2021, the Company entered into a new $17.5 million FILO loan to replace the Company’s existing $15.0 million FILO loan.  Based on our current projections, we believe our cash on hand, including the proceeds from the equity offering, availability under our amended Credit Facility, the new FILO loan, and cash generated from operations will be sufficient to cover our working capital requirements and limited capital expenditures for the next 12 months. However, the extent to which the COVID-19 pandemic will continue to impact our business in fiscal 2021 will depend on the swiftness and effectiveness of the vaccine roll-out and our customers returning to pre-COVID activities, which are uncertain and cannot be predicted at this time.

Managing our business, while preserving our liquidity was our primarily objective in fiscal 2020.  Our total debt, net of cash, at the end of fiscal 2020 was $55.4 million, as compared to $49.8 million in fiscal 2019. Our ability to borrow under the credit facility is largely dependent on our inventory levels, which we have intentionally reduced to realign with current expectations of sales.  Accordingly, the decrease in the unused excess availability under our credit facility at year-end is due to the $17.4 million decrease in inventory and the $14.7 million increase in cash on hand.

The following table sets forth financial data regarding our liquidity position at the end of the past two fiscal years:

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The following is a summary of our total debt outstanding at January 30, 2021, with the associated unamortized debt issuance costs:

Credit Facility

Our Credit Facility provides for a maximum committed borrowing of $125.0 million, which, pursuant to an accordion feature, may be increased to $175.0 million upon our request and the agreement of the lender(s) participating in the increase (the “Revolving Facility”).  The Credit Facility includes a sublimit of $20.0 million for commercial and standby letters of credit and a sublimit of up to $15.0 million for swingline loans. Borrowings made pursuant to the Revolving Facility under the Credit Facility bear interest, calculated under either the Federal Funds rate or the LIBOR rate, at a rate equal to the following: (a) the Federal Funds rate plus a varying percentage based on the Company’s excess availability, of either 1.75% or 2.00%, or (b) the LIBOR rate (the Company being able to select interest periods of 1 week, 1 month, 2 months, 3 months or 6 months) plus a varying percentage based on the Company’s excess availability, of either 2.75% or 3.00%.  The current maturity date is May 24, 2023.  The Credit Facility was amended in March 2021, subsequent to fiscal 2020, to accommodate the new FILO loan agreement and the repayment of the existing FILO loan.

Our Credit Facility is described in more detail in Note D to the Notes to the Consolidated Financial Statements.

We had outstanding borrowings of $59.7 million under the Revolving Facility at January 30, 2021. Outstanding standby letters of credit were $2.8 million and outstanding documentary letters of credit were $0.1 million. The average monthly borrowing outstanding under the Revolving Facility during fiscal 2020 was approximately $67.6 million, resulting in an average unused excess availability of approximately $17.9 million. Unused excess availability at January 30, 2021 was $11.5 million. Our obligations under the Credit Facility are secured by a lien on substantially all of our assets.  

FILO Loan

The Credit Facility also includes a FILO loan for $15.0 million.  The total borrowing capacity under the FILO loan is based on a borrowing base, generally defined as a specified percentage of the value of eligible assets, including certain trade names, that amortizes over time, plus a specified percentage of the value of eligible inventory that amortizes over time. During the first quarter of fiscal 2020, we entered into an amendment that extended these advance rates to December 2020 before they began to step down.

As a result of extending the advance rates under the FILO loan, the applicable margin rates for borrowings were increased by approximately 150 basis points.  Accordingly, current borrowings made under the FILO loan bear interest, calculated under either the Federal Funds rate or the LIBOR rate, at a rate equal to the following: (a) the Federal Funds rate plus a varying percentage based on the Company’s excess availability, of either 3.75% or 4.00% or (b) the LIBOR rate (the Company being able to select interest periods of 1 week, 1 month, 2 months, 3 months or 6 months) plus a varying percentage based on the Company’s excess availability, of either 4.75% or 5.00%.  At January 30, 2021, the outstanding balance of $15.0 million was in a 1-week LIBOR-based contract with an interest rate of 6.00%.  As discussed above, under “Subsequent Events”, on March 16, 2021 the FILO was repaid in full in connection with the Company’s new FILO loan.  

INVENTORY

At January 30, 2021, total inventories decreased to $85.0 million from $102.4 million at February 1, 2020. The $17.4 million decrease in inventory is the result of our managing inventory very conservatively, slowing replenishment and reducing receipts to align with the reduced sales volumes as a result of the pandemic.  We have narrowed our assortment of merchandise in our efforts to maintain a healthy inventory and manage clearance levels.  At January 30, 2021, our clearance inventory decreased by $1.4 million, or 13.6% from the prior year, and represented 10.4% of our inventory as compared to 10.0% at February 1, 2020.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements as defined by 303(a)(4) of Regulation S-K.

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CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations at January 30, 2021, and the effect such obligations are expected to have on our liquidity and cash flows in future periods:

CAPITAL EXPENDITURES

The following table sets forth the open stores and related square footage at January 30, 2021 and February 1, 2020 respectively:

In response to the pandemic, we did not rebrand any of our Casual Male XL stores or open any new DXL locations during fiscal 2020.  In total, we closed 12 stores during the year.  Below is a summary of those store closings from February 1, 2020 to January 30, 2021:

Our capital expenditures for fiscal 2020 were $4.2 million, as compared to $13.4 million in fiscal 2019. Early in fiscal 2020, we eliminated all non-essential capital projects for fiscal 2020 in our efforts to preserve liquidity.  The capital expenditures for fiscal 2020 primarily related to management information projects to support our distribution center and marketing, including our CRM platform.  

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In fiscal 2019, in addition to our management information projects, we also rebranded 14 Casual Male XL stores to DXL stores and opened two DXL retail stores.  During fiscal 2021, we do not plan to open any new stores or rebrand any of our Casual Male XL stores.  As mentioned above, during fiscal 2020, we have been proactively working with our landlord community to renegotiate our existing leases given the impact of the COVID-19 pandemic on our retail store sales.  We have 131 stores that have leases with either a natural lease expiration or a kick-out option within the next two years.  This provides us an opportunity to right-size our store portfolio, through ongoing lease renegotiations or lease-term expirations, to ensure that we are optimizing our store profitability and omni-channel distribution.

Non-GAAP Reconciliations

We monitor certain non-GAAP financial measures on a regular basis in order to track the progress of our business, including the measures below.  We believe these measures provide helpful information with respect to the Company’s operating performance to shareholders, investors and analysts, and that the inclusion of these non-GAAP measures is important to assist investors in comparing our performance in fiscal 2020 to fiscal 2019 and fiscal 2018, on a comparable basis.  However, these measures may not be comparable to similar measures used by other companies and should not be considered superior to or as a substitute for operating net loss, net loss per diluted share or cash flows from operating activities in accordance with GAAP.  

Adjusted Net Loss and Adjusted Net Loss Per Diluted Share

Adjusted net loss reflects an adjustment assuming a normal tax rate of 26% and the add-back of asset impairment charges, exit costs associated with London operations, CEO transition costs and corporate restructuring.  We have fully reserved against our deferred tax assets and, therefore, net loss is not reflective of earnings assuming a “normal” tax position.  Adjusted net 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 following table is a reconciliation of net loss and net loss per diluted share (on a GAAP basis) to adjusted net loss and adjusted net loss per diluted share (on a non-GAAP basis) (certain amounts may not foot due to rounding):

Free Cash Flow

We calculate free cash flow as cash flow provided by operating activities less capital expenditures. Free cash flow excludes the mandatory and discretionary repayment of debt.  The following table provides a reconciliation of free cash flow (certain amounts may not foot due to rounding):

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EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are presented because we believe that these measures are useful to investors in evaluating our performance.  Management uses EBITDA as a key metric to measure profitability and economic productivity. EBITDA is calculated as earnings before interest, taxes, depreciation and amortization.  Adjusted EBITDA is calculated as EBITDA before asset impairment charges, exit costs associated with London operations, CEO transition costs and corporate restructuring.  

The Company is unable to reconcile the adjusted EBITDA guidance for fiscal 2021 to net loss, because certain information necessary for the reconciliation is not available without unreasonable efforts.  Such information is difficult to predict and/or is dependent on future events that are outside of our control. In particular, we are unable to reasonably predict potential asset impairments, because of the ongoing impact of the COVID-19 pandemic on our retail stores.

The following table is a reconciliation of net loss on a GAAP basis to EBITDA and Adjusted EBITDA, on a non-GAAP basis, for each fiscal year. (Certain amounts in the following table do not foot due to rounding):