Destination XL Group Inc (NASDAQ:DXLG) Misses Q3 Estimates, Announces Merger with FullBeauty Brands

Destination XL Group Inc (NASDAQ:DXLG) reported financial results for its fiscal third quarter that fell short of analyst expectations, sending its shares sharply lower in after-hours trading. The retailer, which specializes in big and tall men’s apparel, also announced a significant strategic move: a definitive agreement to combine with FullBeauty Brands in a merger of equals.

Quarterly Performance Versus Estimates

The company’s results for the quarter, which ended November 1, 2025, missed Wall Street forecasts on both the top and bottom lines. The primary figures are summarized below:

• Revenue: Reported sales were $101.9 million, a decline of 5.2% year-over-year. This fell short of the analyst consensus estimate of approximately $107.3 million.
• Earnings Per Share: The company posted a net loss of $0.08 per diluted share. This was wider than both the loss of $0.03 per share in the prior-year period and the estimated loss of $0.051 per share anticipated by analysts.

The sales decline was driven by a 7.4% drop in comparable sales, with management citing continued pressure from a customer base that is shopping less frequently and spending less per transaction. The gross margin rate also contracted to 42.7% from 45.1% a year ago, pressured by increased occupancy costs and the impact of tariffs.

Market Reaction and Strategic Announcement

The market’s immediate reaction to the earnings miss was decisively negative, with the stock declining approximately 14.7% in after-hours trading following the release. This sell-off reflects investor disappointment with the weaker-than-expected quarterly performance amid a challenging consumer environment.

Simultaneously, the company announced a major strategic transaction that appears to have been overshadowed by the earnings results in the initial reaction. Destination XL has entered into a definitive agreement to combine with FullBeauty Brands in an all-stock "merger of equals." The combined entity is projected to have approximately $1.2 billion in annual net sales, creating a larger, scaled retailer focused on the inclusive apparel market. The transaction is expected to close in the first half of fiscal 2026, subject to shareholder approval and customary closing conditions.

Management Commentary and Strategic Initiatives

In the earnings release, President and CEO Harvey Kanter addressed the ongoing sales challenges, noting a "discernable shift in customer preference towards entry level price points and private brands." In response, the company outlined three key strategic priorities:

1. Assortment Shift: Accelerating a move toward higher-margin private brands, with a goal to increase private brand sales penetration from 57% to over 65% by 2027.
2. Technology Rollout: Expanding its proprietary FiTMAP® sizing technology, a body-scanning tool it believes will enhance customer engagement, particularly for those undergoing weight loss journeys.
3. Promotional Discipline: Reframing its promotional strategy to be more targeted and managed like a category to drive sales and brand equity.

Financial Position and Outlook

Despite the operating loss, the company highlighted its solid balance sheet. It ended the quarter with $27.0 million in cash and investments and no debt. Inventory was down 4.6% from the prior year, which management characterized as a healthy position for the holiday season.

The press release did not provide specific quantitative financial guidance for the coming quarter or full year. This lack of a formal outlook, coupled with the earnings miss, likely contributed to the negative market sentiment. For context, analysts currently estimate a smaller loss of $0.02 per share on sales of $120.1 million for the fiscal fourth quarter.

For a detailed view of historical earnings, future estimates, and analyst projections, you can review the data here.

Disclaimer: This article is for informational purposes only and does not constitute investment advice, financial analysis, or a recommendation to buy or sell any security. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.