Key Highlights

● Net income was US$2.0 million, against a US$0.3 million loss a year earlier.

● Net sales fell 3.4% to US$111.6 million, with comparable sales down 3.5%.

● The board recommends shareholders vote against the FullBeauty stock issuance proposal.

● Lionel Conacher is interim chief executive, and James Olsson is Chief Growth Officer.

Destination XL Group (NASDAQ:DXLG), the big and tall menswear retailer, swung back to a quarterly profit in its latest reporting period, and its board withdrew support for a planned merger that shareholders are still due to vote on. Together they reshape the picture for a Nasdaq Global Market-listed company.

The company, which trades as DXLG, operates stores and a direct-to-consumer business selling sportswear, dresswear and casual clothing under the Destination XL and DXL banners in the United States.

What the second quarter showed

For the 13 weeks ended August 1, 2026, net sales were US$111.6 million, down 3.4% from US$115.5 million a year earlier. Comparable sales fell 3.5% overall, with physical stores down 4.3% and direct-to-consumer down 1.6%.

The monthly pattern improved through the period. Comparable sales declined 5.7% in May, 2.8% in June and 1.9% in July, so the pressure eased even though sales stayed negative.

Profitability was stronger than sales. Net income was US$2.0 million, or US$0.04 per diluted share, against a net loss of US$0.3 million in the prior-year quarter. Gross margin rose to 47.9% from 45.2%. Adjusted EBITDA reached US$7.7 million, compared with US$4.7 million, although that figure includes a US$4.6 million tariff refund. Excluding that one-off receipt, the improvement would be smaller.

Transaction-related expenses were US$1.8 million, up from US$0.1 million a year earlier.

The FullBeauty merger

The more consequential development is strategic. DXL agreed in December 2025 to combine with FBB Holdings I, the parent of FullBeauty, in a deal requiring a stock issuance approved by shareholders. The board has now concluded the transaction is no longer in shareholders' best interests.

DXL has filed an amended preliminary proxy statement with the US Securities and Exchange Commission recommending that shareholders vote against the stock issuance proposal. The reasons given include FullBeauty's declining operating metrics, its elevated debt and the potential for negative equity value.

Further proxy filings followed on September 23 and October 2, 2026, and the board recommended shareholders reject an unsolicited tender offer from Zodiac Partners II on July 8, 2026. The company has also named Lionel Conacher, its chairman, as interim chief executive, with James Olsson appointed Chief Growth Officer on September 2, 2026. Mr. Conacher said the company is focused on delivering the right product and value and operating with greater discipline.

Risks and context

Several uncertainties remain. Sales are still falling, and tariffs are a continuing drag: management expects existing tariffs to reduce full-year gross margin by about 100 basis points, assuming no new levies and excluding refunds already received.

A Shareholder Vote With the Board Recommending Against

Destination XL's second quarter combined a swing to profit with a change of strategy. Net income was US$2.0 million, or US$0.04 per diluted share, and gross margin rose to 47.9%, though adjusted EBITDA of US$7.7 million included a US$4.6 million tariff refund. The board has recommended that shareholders vote against the stock issuance tied to the FBB Holdings I merger, citing FullBeauty's declining operating metrics, elevated debt and the potential for negative equity value.

The key event is the shareholder vote on the stock issuance proposal, whose date will be set out in the definitive proxy statement. Beyond that, investors will look for the appointment of a permanent chief executive, the third-quarter results and any update on tariff refunds, which flattered the latest quarter. Management expects existing tariffs to reduce full-year gross margin by about 100 basis points.