UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,Washington, D.C. 20549

FORM 10-K10-K/A

(Amendment No. 1)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

For the fiscal year ended January 28, 2017 (Fiscal 2016)

OR

Commission File Number 01-34219

DESTINATION XL GROUP, INC.

(Exact name of registrantRegistrant as specified in its charter)Charter)

(781) 828-9300

(Registrant’s telephone number, including area code)code: (781) 828-9300

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

Title of each className of each exchange on which registered

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

None

Indicate by check mark if the registrantRegistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YesYES ☐ NoNO ☒

Indicate by check mark if the registrantRegistrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YesYES ☐ NoNO ☒

Indicate by check mark whether the registrantRegistrant: (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 registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesYES ☒ NoNO ☐

Indicate by check mark whether the registrantRegistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 registrantRegistrant was required to submit and post such files). YesYES ☒ NoNO ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§229.405 of this chapter)S-K (§229.405) is not contained herein, and will not be contained, to the best of the registrant’sRegistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“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 registrantRegistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesYES ☐ NoNO ☒

As of July 30, 2016, theThe aggregate market value of the Common Stockvoting and non-voting common equity held by non-affiliates of the registrant was approximately $121.6 million,Registrant, based on the last reported saleclosing price on that date. Shares of Common Stock held by each executive officer and director and by each person who owns 10% or more of the outstandingshares of common stock on The NASDAQ Stock Market on July 30, 2016 was $121.6 million.

The number of shares of Registrant’s 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 49,988,655 shares of Common Stock, $0.01 par value, outstanding as of March 17, 2017.May 15, 2017 was 49,543,425.

DOCUMENTS INCORPORATED BY REFERENCEDocuments Incorporated by Reference: None.  

Portions of the Proxy Statement for the 2017 Annual Meeting of Stockholders are incorporated by reference into Part III.

DESTINATION XL GROUP, INC.EXPLANATORY NOTE

IndexWe are filing this Amendment No. 1 to our Annual Report on Form 10-K

Year Ended10−K for the fiscal year ended January 28, 2017 pursuant to General Instruction G(3) to Form 10−K for the purposes of filing the information required to be disclosed pursuant to Part III of Form 10−K.

Except for the amendments described above, this Form 10−K/A does not modify or update the disclosure in our Annual Report on Form 10−K for the fiscal year ended January 28, 2017 filed with the Securities and Exchange Commission on March 20, 2017.

TABLE OF CONTENTS

PART I.III.

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 cash flows, gross profit margins, store counts, capital expenditures, sales and earnings expectations for fiscal 2017 and beyond. 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.

Item 1.10.  BusinessDirectors, Executive Officers and Corporate Governance

Destination XL Group,

Set forth below is certain information regarding our current directors, including information furnished by them as to their principal occupations and business experience for the past five years, certain directorships held by each director within the past five years, their respective ages as of May 15, 2017, committee membership, and the year in which each became a director of our Company:

C= current member and committee chairperson

X= current member of the committee

Seymour Holtzman has served as our Executive Chairman of the Board since August 2014. From April 2000 to August 2014, Mr. Holtzman served as our Chairman of the Board.  Mr. Holtzman has been involved in the retail business for over 40 years. For many years, he has been the president and chief executive officer of Jewelcor, Incorporated, a former New York Stock Exchange listed company that operated a chain of retail stores. From 1986 to 1988, Mr. Holtzman was chairman of the board and also chief executive officer of Gruen Marketing Corporation, an American Stock Exchange listed company involved in the nationwide distribution of watches. For at least the last five years Mr. Holtzman has served as chairman and chief executive officer of Jewelcor Management, Inc., togethera company primarily involved in investment and management services.  Mr. Holtzman is the chief executive officer and indirectly the owner of C.D. Peacock, Inc., a Chicago, Illinois retail jewelry establishment, the managing member of Luxury Swiss, LLC, a retail Rolex watch establishment. Mr. Holtzman is a successful entrepreneur with extensive experience working with public companies and provides valuable insight to the Board with respect to strategic planning.

David A. Levin has been our subsidiaries (the “Company”)President and Chief Executive Officer since April 10, 2000 and a director since April 11, 2000.  From 1999 to 2000, he served as the executive vice president of eOutlet.com. Mr. Levin was president of Camp Coleman, a division of The Coleman Company, from 1998 to 1999.  Prior to that, Mr. Levin was president of Parade of Shoes, a division of J. Baker, Inc., isfrom 1995 to 1997. Mr. Levin was also president of Prestige Fragrance & Cosmetics, a division of Revlon, Inc., from 1991 to 1995.  Mr. Levin has worked in the retail industry for over 30 years. Since joining us, Mr. Levin has been instrumental in transforming us from a company which exclusively operated Levi Strauss & Co. branded apparel to the largest specialty retailer of big & tall men’s apparelapparel.  In May 2017, Mr. Levin joined the board of directors of Lumber Liquidators, a publicly-traded company. Mr. Levin served on the board of directors of Christopher & Banks Corporation, a publicly-traded company, from May 2012 until June 2016.  Mr. Levin has extensive knowledge of our Company and valuable experience in merchandising and marketing initiatives.  In his role as Chief Executive Officer he also acts as a liaison between the Board and management.  

Jesse Choper has been a director since October 8, 1999. Mr. Choper is the Dean Earl Warren Professor of Public Law Emeritus at the University of California at Berkeley School of Law, where he taught Corporate Law and Constitutional Law from 1965 until his retirement in June 2015. From 1960 to 1961, Professor Choper was a law clerk for Supreme Court Chief Justice Earl Warren.  Mr.

Choper is a member of the California Horseracing Board.  Mr. Choper provides valuable legal expertise to the Board.  His specific legal background provides valuable insight with respect to corporate governance and ethics.  The knowledge of our Company that Mr. Choper has gained over his ten year tenure as a director is considered a valuable asset to the Board.

John E. Kyees has been a director since May 3, 2010.  From February 2, 2014 until May 31, 2014, Mr. Kyees served as Interim Chief Financial Officer of the Company.  From 2003 until his retirement in 2010, Mr. Kyees was the chief financial officer of Urban Outfitters, Inc. and also served as the chief of investor relations.  Prior to that, from 2002 to 2003, Mr. Kyees was the chief financial officer and chief administrative officer of bebe Stores, Inc. Mr. Kyees serves as lead independent director and chairman of the audit committee of Vera Bradley, Inc., a publicly-traded company. Mr. Kyees is a member of the board of directors of Rackwise, Inc., a publicly-traded company, and is a member of the audit committee.   Mr. Kyees is also a director and chairman of the audit committee of Arhaus Furniture, a privately-held retailer.  Mr. Kyees previously served as director and a member of the audit committee of Hot Topic, Inc., a formerly publicly-traded company. Mr. Kyees previously served as a director and member of the audit committee of Teavana, a publicly-traded company. Mr. Kyees brings to the Board extensive executive-level retail experience having served as chief financial officer for several prominent retailers.  His insight with respect to merchandising, operational activities and direct operationsfinance is an asset to our Board.

Willem Mesdag has been a director since January 29, 2014.  Since January 2005, Mr. Mesdag has been the managing partner of Red Mountain Capital Partners LLC, an investment management firm. Prior to founding Red Mountain in 2005, Mr. Mesdag was a partner and managing director of Goldman Sachs & Co., which he joined in 1981. Prior to Goldman Sachs, he was a securities lawyer at Ballard, Spahr, Andrews & Ingersoll, which he joined in 1978. He currently serves on the boards of Encore Capital Group, Inc., a publicly-traded company, and Heidrick & Struggles International, Inc., a publicly-traded company.  He previously served on the boards of 3i Group plc, Cost Plus, Inc., Skandia Group AB and Nature’s Sunshine Products, Inc. Having had an extensive career in international investment banking and finance, Mr. Mesdag brings to the Board significant knowledge and experience related to business and financial issues and corporate governance.

Ward K. Mooney has been a director since July 31, 2006.  Mr. Mooney is a co-founder of Crystal Financial LLC, formerly Crystal Capital, and has served as its CEO since April 2010.  From April 2006 to April 2010, Mr. Mooney was the Senior Managing Partner of Crystal Capital.  Prior to April, 2006, Mr. Mooney was the president of Bank of America Retail Finance Group and chief operating officer of Back Bay Capital, both of which were formerly Bank of Boston businesses which Mr. Mooney founded.  Mr. Mooney provides the Board with valuable insight with respect to his extensive experience as a lender in the United Statesretail industry.  The Board has determined that based on Mr. Mooney’s extensive knowledge and London, England. We operate under the trade namesexperience in finance qualifies him as an audit committee financial expert.

George T. Porter, Jr. has been a director since October 28, 1999. Mr. Porter was president of Destination XL^®, DXL^®, DXL outlets, Casual Male XL^®, Casual Male XL outlets, Rochester Clothing, ShoesXL^® and LivingXL^®. We operate 192 DXL retail stores, 13 DXL outlet stores, 97 Casual Male XL retail stores, 36 Casual Male XL outlet stores and 5 Rochester Clothing stores. Our direct business includes our DestinationXL.com and bigandtall.com e-commerce sites which support our stores, brands and product extensions. 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 28, 2017, January 30, 2016 and January 31, 2015 as “fiscal 2016”, “fiscal 2015” and “fiscal 2014,” respectively.

OUR INDUSTRY

We believe that the men’s big & tall apparel market, which includes pants with a waist size of 42” and greater, as well as tops sized 1XL and greater, generates approximately $3.5 billion to $4.0 billion in sales annually and represents approximately 11% of the overall men’s apparel business. Growth in this segment has historically been driven by rapidly changing market demographics. We estimate that our market share in fiscal 2016 was approximately 12%.  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. An opportunity also existsLevi’s USA for market share growth from the lower-size range of our market, that is, men in the 38”-46” waist size. These sizes are usually at the high end of the size range for most retailers and, as a result, the selection is usually limited at such retailers.

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 mallfrom 1994 to 1997.  Beginning in 1974, Mr. Porter held various positions at Levi Strauss & Co., including president of Levi’s Men’s Jeans Division. Mr. Porter was also corporate vice president and outlet stores.general manager of Nike USA from 1997 until his retirement in 1998.  Mr. Porter provides the Board with extensive merchandising experience having worked at two highly prominent companies.  Mr. Porter’s tenure and service as a director for over ten years is also considered a valuable asset to the Board.

Mitchell S. Presser has been a director since May 1, 2007.  Since July 2014, Mr. Presser has been a partner and the head of U.S. M&A and private equity at Freshfields Bruckhaus Deringer.  From January 2014 until July 2014, Mr. Presser was a senior advisor to Paine & Partners, LLC, a private equity firm.  From November 2006 to December 2013, Mr. Presser was a founding partner of Paine & Partners, LLC.  Prior to that, Mr. Presser was a partner with the law firm of Wachtell, Lipton, Rosen & Katz, specializing in mergers & acquisitions.  Mr. Presser has served as a director on the boards of several privately-held companies.  Mr. Presser’s extensive experience in private equity and strategic planning provides valuable insight to the Board.

Ivy Ross has been a director since January 31, 2013.  In May 2002, we acquired the Casual Male business from Casual Male Corp. at2014, Ms. Ross joined Google X as head of Glass and is currently a bankruptcy court-ordered auction. At the timevice president and head of the acquisition, Casual MaleDesign for all of Google’s Hardware products.  From July 2011 until April 2014, Ms. Ross was the largest specialty retailerchief marketing officer of men’s clothing inArt.com from where she oversaw the big & tall market incompany's marketing, branding, merchandising and user-experience functions. Prior to Art.com, from June 2008 to June 2011, Ms. Ross was EVP of marketing for the United States. AsGap brand, and also acted as the creative catalyst for all brands within Gap, Inc. Ms. Ross also has held senior creative and product design positions at Disney Stores North America, Mattel, Calvin Klein, Coach, Liz Claiborne, Swatch Watch and Avon. She also has served on Proctor and Gamble’s design board since its inception.  With her industry insight and marketing expertise, Ms. Ross provides a result ofvaluable perspective to the acquisition, on August 8, 2002,Board as we changed our namecontinue to “Casual Male Retail Group, Inc.”

Through fiscal 2010, we primarily operated Casual Male XL retail stores, Casual Male XL outlet stores and Rochester Clothing stores, along with the associated websites and catalogs. We catered to all customers through these three store formats, from our value-oriented customer (Casual Male XL outlets) to our luxury-oriented customer (Rochester Clothing stores). During that year, we tested a new store concept, Destination XL (“DXL”). The DXL store concept merged all of our existing brands under one roof, offering our customers a superior shopping environment with an extensive assortment of product and 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 an outstanding and unique shopping experience. We are focused on providing outstanding customer service throughbuild our DXL stores, with everything from larger fitting rooms to professional, trained associates providing both personal attentionbrand.

All directors hold office until the next Annual Meeting of Stockholders and on-site tailoring. With the initial success of this store format, we then made a similar change to our e-commerce business in fiscal 2011 when we

launched our DestinationXL.com website which, like our DXL store, merged all of our previous websites into one consolidated e-commerce site providing our customers the ability to cross-shop our brands easily.

As part of our new direction, in December 2012, we changed our NASDAQ stock ticker symbol to “DXLG” followed by a change in February 2013 of our corporate name to “Destination XL Group, Inc.”

BUSINESS STRATEGY

In fiscal 2012, we began the transition from our Casual Male XL retailuntil their respective successors have been duly elected and Rochester Clothing stores to our DXL store format. Initially, we envisioned that this transition would take three years.  Based on the performance of the initial DXL stores, we accelerated the pace in fiscal 2013, closing over 100 Casual Male XL and Rochester Clothing stores and opening 51 DXL stores.  This accelerated pace created unexpected hurdles for us in converting our existing customer base to the new DXL stores, which negatively impacted our sales.  As a result, in fiscal 2014, we opted to revise our strategy to slow the pace of our transition to take advantage of our existing Casual Male XL stores to help transition our customer base. We also introduced a smaller DXL store format, which has allowed us to penetrate smaller markets that we originally thought were too small for a DXL store, and a DXL outlet store format.  In fiscal 2015, we completed a market opportunity study of our existing store portfolio, including the smaller DXL store format and outlet store format, and believe that there is opportunity for additional growth beyond what was initially identified when we began the rollout in fiscal 2012.

During fiscal 2016, we opened our 200^th store and, at fiscal year end, we had 192 DXL stores and 13 DXL outlet stores, with a DXL presence in every major metropolitan market in the continental United States.

With the bulk of the Casual Male XL to DXL store transition behind us, in addition to our efforts to maintain the strong in-store experience which our customers enjoy, we are now focusing our efforts on improving traffic to our stores and growing our e-commerce business with emphasis on increasing brand awareness and our customer base. Based on a market study we commissioned in 2016, 6 out of 10 potential customers do not know who we are.  We also experienced a slight decrease in our brand awareness in fiscal 2016 and a decrease in store traffic in the second half of fiscal 2016, which may have resulted in part from our decision not to conduct a Fall/holiday media marketing campaign.  As a result, in fiscal 2017, we will be revitalizing our marketing program, through a combination of media and digital strategies, including efforts to improve communications with our existing customers through personalization and more targeted mailings.  We expect to increase our marketing spend in fiscal 2017 to help create and drive traffic to our stores and e-commerce sites.

While we believe market opportunity exists to support a strategy of opening 30-40 DXL stores per year, given the current weakness in the retail environment, we are taking a more measured approach to store growth in fiscal 2017.  In some markets, where a Casual Male XL store performs well, we may look to extend its lease on a short-term basis instead of replacing it with a DXL store at expiration, allowing us time to secure the right location for a DXL store.  As such, we currently expect to open 19 DXL retail stores and 1 DXL outlet store in fiscal 2017.  We currently anticipate that beyond fiscal 2017, we will continue to open stores at a slower pace for the foreseeable future.  

International Growth

In addition to our Rochester Clothing store located in London, England, we also have one franchised DXL store in the Middle East at the Symphony Mall in Kuwait City, Kuwait, which was opened in fiscal 2014 pursuant to a franchise agreement with The Standard Arabian Business & Enterprises Company (SABECO).

Based on our experience to date, we believe that the international big & tall market is currently underserved and, based on the success of our DXL concept in the U.S. and the positive customer response for our Kuwait City franchised store, we see an opportunity for growth internationally in the future.  

In the spring of fiscal 2017, we are opening two DXL stores in Toronto, Canada. These will be the first DXL brand stores operated by the Company outside of the United States.

OUR BUSINESS

We operate as an omni-channel retailer.  Through our multiple brands, which include both branded apparel and private-label, we offer a broad range of merchandise at varying price points, catering from the value-oriented customer to the luxury-oriented 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.

qualified or until their earlier death, resignation or removal.

Our DXL stores caterCurrent Non-Director Executive Officers

Peter H. Stratton, Jr., 45, has been our Senior Vice President, Chief Financial Officer and Treasurer since June 1, 2014.  From August 2009 to all income demographicsMay 31, 2014, Mr. Stratton was our Senior Vice President of Finance, Corporate Controller and offerChief Accounting Officer.  Mr. Stratton joined us in June 2009 as Vice President of Finance. Prior to joining the Company, Mr. Stratton served as the senior director of corporate accounting at BearingPoint, Inc. from May 2007 to June 2009.  Prior to May 2007, Mr. Stratton held various finance and accounting leadership positions at Legal Sea Foods, Inc., Shaw’s Supermarkets, Inc. and Cintas Corporation.

Angela Chan, 50, has been our customers merchandiseSenior Vice President, Chief Sourcing Officer and Global Business Development since January 2017.  Prior to that, Ms. Chan was our Senior Vice President and Chief Sourcing Officer since February 2015.  From March 2013 to February 2015, Ms. Chan was our Senior Vice President of Global Sourcing and Product Development. Prior to that, from May 2010 to March 2013, Ms. Chan was our Vice President of Global Sourcing.  Ms. Chan joined the Company in all lifestylesFebruary 2009 as our Director of Global Sourcing. Prior to joining our Company, from casualOctober 2007 to business, youngDecember 2008 Ms. Chan was the senior product manager for Redcats USA.  From 2007 to mature, in all price ranges2009, Ms. Chan was an independent retail consultant and analyst with the Gerson Lehrman Group and in all large sizes2006, she held the positions of director and executive vice president of global sourcing for Rocawear.  Prior to that, Ms. Chan was the founder & partner of several apparel manufacturing companies & franchise restaurants. She also held various merchandising management positions with Macy’s corporate in New York and Hong Kong.

Francis Chane, 54, has been our Senior Vice President of Distribution, Logistics and Facilities since June 2011.  Mr. Chane joined the Company in June 2008 as our Vice President of Distribution & Logistics. Prior to joining our Company, Mr. Chane was the vice president operations & facilities for Redcats USA, a division of the French multi-national company PPR, from XL1999 to June 2008.  Prior to that, Mr. Chane held various leadership positions with WearGuard Corporation, a division of Aramark Corporation.

John F. Cooney, 34, has been our Vice President of Finance and up. OurCorporate Controller since June 2014 and in May 2015 he was also appointed Chief Accounting Officer.  From November 2010 until May 2014, Mr. Cooney was our Director of Financial Accounting and Reporting.  Prior to joining the Company, Mr. Cooney was an audit manager with PricewaterhouseCoopers LLP, which he joined in August 2004.

Kenneth M. Ederle, 52, has been our Senior Vice President and Chief Merchandising Officer since April 2013 and in April 2015 his role was expanded to include Planning and Allocation.  Prior to that, from May 2011 until April 2013, Mr. Ederle was our Senior Vice President – General Merchandising Manager DXL. Mr. Ederle served as our Vice President, General Merchandise Manager of Rochester Clothing from August 2008 until May 2011.  From January 2008 to August 2008, Mr. Ederle was our Merchandise Manager of Sportswear for Rochester Clothing and prior to that was one of our Merchandise Managers for Casual Male XL stores primarily carry moderately priced brandedfrom November 2006 to December 2007.  Prior to joining the Company in 2006, Mr. Ederle was a senior buyer and private label casual sportswearsenior planner for Limited Brands.

Sahal S. Laher, 41, joined the Company in January 2017 as our Senior Vice President, Chief Digital and dresswear, while our Rochester Clothing stores carry fine quality, designer and branded menswear. We also operate Casual Male XL outlets and DXL outlets for our value-oriented consumer.  In addition to our stores, we operate our Destination XL e-commerce site which is similar to our DXL store concept and offersInformation Officer. Mr. Laher has over 20 years of senior operational experience with a brand range of merchandise at each price point, including a complete offering of shoes.  

Another critical part of our business operation is managing the number of sizes offered to our customers and optimizing our in-stock position throughout each season. Our best-selling pant has 57 size combinations as compared to an average retailer who may only have 15 different size combinations.  We maintain a consolidated inventory across all channels which 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.

MERCHANDISE

A vital component of our business strategy is to 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 our customers’ apparel needs. In addition, we offer such assortments in private-label product, balanced with an array of brand name labels. With over 5,000 styles available, we carry tops in sizes up to 8XL and 6XLT, bottoms with waist sizes 38” to 66”, and shoes in sizes 10W to 18. In addition, we added to our product assortment a smaller fit XL and XLT to appeal to our target “end-of-rack” customer.

Our stores are merchandised to showcase entire outfits by lifestyle, including traditional, active, denim, dress wear and contemporary. 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 more effectively in each market to target local demographics. The key item strategy is also fully integrated by lifestyle, allowing us to focus on merchandise presentationdigital 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”, “best” and “luxury” visual presentation, again to benefit our customers’ ease of shopping. With the “best” merchandise assortments featured most prominently in the DXL store, our customers are able to visualize current fashion trends and easily select their wardrobes within their desired price points in a convenient manner.

We carry several well-known national brands of merchandiseomni-channel strategies, modernizing applications, as well as a numberdata and technology security. Prior to joining the Company, from March 2013 until January 2017, he served as executive vice president of digital, innovation and technology, global CIO for Brook Brothers Group, where he was responsible for ensuring that the company's information technology investments, resources and project execution were aligned with its strategic business objectives. Prior to that, from April 2009 to February 2013, he was the global chief information officer at Stride Rite Corporation. Mr. Laher also held senior strategic consulting positions at Deloitte Consulting, Anderson Consulting and Data General Corporation.

Mary S. Luttrell, 55, was promoted to Senior Vice President of Marketing in January 2017.  From November 2012 until January 2017, Ms. Luttrell was our own private-label lines withinVice President of Brand and Marketing. From April 2006 until November 2012, Ms. Luttrell was our “good”, “better”, “best”Vice President of Advertising.  Prior to joining the Company in October 2000, Ms. Luttrell was the manager of media advertising at Hills department stores and “luxury” price points.  The penetration of branded apparel inalso worked on the advertising agency side managing many retail accounts.

Robert S. Molloy, 57, has been our DXL stores can range from 15% to 80%, depending on several factors, but on average, our DXL stores carry approximately 47% branded merchandise.  

Higher-End Luxury Fashion Apparel -“Best”Senior Vice President and “Luxury” Merchandise

Within this higher-end price range, we carry a broad selection of quality apparel from well-known branded manufacturers such as Bogosse^®, Brooks Brothers^®,Gran Sasso, John Laing^®, Remy, Psycho Bunny^®, Derek Rose, Brioni^®, Coppley, Eton^®, Hickey Freeman^®, Jack Victor^®, Lucky, Michael Kors^®, Pantherella^®, Paul & Shark, JOE’S^® Jeans, Robert Graham^®, Robert Talbot, St. Hillaire, Ted Baker^®, Tulliani, True Religion^®, Turnbull & Asser^®General Counsel since April 2010 and David Donahue.

Moderate-Priced Apparel -“Better” Merchandise

We offer our customer an extensive selection of quality sportswear and dress clothing at moderate prices carrying such well-known brands such as: Junk Food^®, Rainforest, Brooks Brothers^®, O’Neill^®, Retro Brand, Cutter & Buck^®, Levis^®, Adidas^® Golf, Columbia, Berne^®, Carhartt^®, Callaway^®, CK Jeans^®, CK Sport^®,  Jockey^®, Lacoste^®, Majestic, Polo Ralph Lauren^®, Tommy Bahama^®, Tommy Hilfiger^®, Tallia^® and Trafalger^®.

In addition, we carry several private-label lines:

Value-Priced Apparel -“Good” Merchandise

For our value-oriented customers, we carry Geoffrey Beene^®, Cubavera, Nautica^®Senior Vice President and Nautica Jeans^®, Dockers, Lee, Perry Ellis, Wrangler, Reebok and PX Clothing. In addition we carry several private label lines:

RETAIL CHANNEL

Destination XL stores (“DXL”)

Our DXL store concept brings all of our brands together in one format. Within this format, we can cater to our very diverse customer group, with merchandise representing all price points, from our luxury brands to value-oriented brands, and all lifestyles, from business to denim.  The size of our current DXL stores, which contain almost triple the product assortments of a Casual Male XL store, currently averages 8,000 square feet, but is expected to decrease closer to 7,500 square feet as we open future DXL stores.  As discussed above, in fiscal 2014, we began opening smaller (5,000-6,500 square feet) DXL stores.  Because the size of these stores is smaller, they carry a smaller product offering than our other DXL stores but are representative of the “good, better, best” merchandise variety. The locations of our DXL stores are also an essential aspect of our roll-out. We seek locations where our stores are highly visible, preferably adjacent to regional malls or other high-traffic shopping areas.

With our larger DXL store format, we are able to provide our customers a spacious store with up to three times the product offering of a Casual Male XL store. The merchandise in our DXL stores is organized by lifestyle: active, traditional, modern and denim with a representation of all of our brands and price points, utilizing a “good, better, best” pricing structure. 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. This larger store format also provides us the footprint necessary to carry a complete offering of dress wear, including tailored and “made-to-measure” custom clothing, as well as a selection of shoes in extended sizes and a broad assortment of accessories such as belts, ties, and socks.

During fiscal 2016, we opened 26 DXL retail stores and 4 DXL outlet stores, bringing our store count at January 28, 2017 to 192 DXL retail stores and 13 DXL outlet stores. For fiscal 2016, the average sales per square foot for our DXL retail stores increased to $180 as compared to $177 for fiscal 2015 and $165 for fiscal 2014. Once a DXL store matures, which we believe is five years, we expect sales will be approximately $200-220 per square foot. For fiscal 2016, we had 49 DXL retail stores that had sales greater than $200 per square foot.  For fiscal 2017, we plan to open 19 DXL retail stores and 1 DXL outlet store resulting in approximately 225 DXL retail and outlet stores operating at the end of fiscal 2017.

Casual Male XL retail stores

At January 28, 2017, we operated 97 Casual Male XL full-price retail stores, located primarily in strip centers, power 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 3,500 square feet.

DXL outlet /Casual Male XL outlet stores

At January 28, 2017, we operated 36 Casual Male XL and 13 DXL 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 merchandise in our outlet stores is offered with the purchasing interests of the value-oriented customer in mind. In addition to private-label and branded merchandise at our “good” price tier, our outlets also carry clearance product obtained from DXL, Casual Male XL and Rochester Clothing stores, offering the outlet customer the ability to purchase branded and fashion product for a reduced price. As we

open our DXL stores, we expect the mix of branded product flowing into the outlets to increase to approximately 30% as we move inventory out of our DXL stores to keep it current while enhancing the branded presence in our outlets.

The average Casual Male XL outlet store is approximately 3,100 square feet and the average DXL outlet is approximately 5,000 square feet.  

Rochester Clothing stores

At January 28, 2017, we operated 5 Rochester Clothing stores, located in major cities in the United States and one store in London, England. The Rochester Clothing stores have a wide selection of our “best” merchandise which consists primarily of high-end merchandise from well-recognized brands. In addition, the stores also carry a few private-label lines especially designed for our high-end customer. The average Rochester Clothing store is approximately 10,000 square feet. Although some of our Rochester Clothing stores will close over the next few fiscal years as we open DXL stores in the same geographical market, we currently expect that 3 of our high-traffic Rochester Clothing stores will remain open.

DIRECT CHANNEL

Our direct business, which consists primarily of our e-commerce business, is a vital part of our growing omni-channel business approach, allowing us to service our customers whether it be in-person at a store, over the telephone, or online via a computer, smartphone or tablet. Our direct business bridges that gap for us by encouraging and expecting our store associates to use our e-commerce sites to help fulfill our 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 through our direct channel and have it shipped to the store or directly to the customer. Our customers also have the ability to order online and pick-up in store on the same day.  

With the ability to showcase all store inventories online, we are seeing an increase in the number of transactions that are initiated online but are ultimately completed in store.  Until fiscal 2014, our direct customer was limited to inventory available in our centralized distribution center but we can now fulfill from the store 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 improve long-term margins.

Destination XL^® E-Commerce Site

In fiscal 2013, we combined all of our then-existing web addresses: www.casualmalexl.com, www.rochesterclothing.com, www.btdirect.com, www.livingxl.com and www.shoesxl.com and redirected our users to our new comprehensive Destination XL website.  Similar to our DXL store concept, our www.destinationxl.com website allows our customers to shop across all of our brands and product extensions with ease and brings all of our customers to one website.  Our customers were previously classified as a “Rochester” customer or a “Casual Male” customer.  Now, our customers are all “DXL” customers, which no longer limits a customer’s ability to access our full product assortment.

From the Destination XL homepage, customers can search across all of our brands and, similar to our stores, shop merchandise from value-oriented to luxury price points.  In addition, a customer can tailor their search using our “size profile.”  Our Destination XL website also offers a complete line of men’s footwear in extended sizes, offering our customers a full range of footwear in hard-to-find sizes.  Although our DXL stores all have a selection of footwear available, we are able to offer a full assortment of sizes and styles through our website.  The assortment is a reflection of our apparel, with a broad assortment from moderate to luxury and from casual to formal. We currently have a selection of more than 600 styles of shoes, ranging in sizes from 10W to 18M and widths up to 6E. We carry a number of designer brands including Cole Haan^®, Allen Edmonds^®, Timberland^®, Calvin Klein^®, Lacoste^®, Donald J. Pliner and Bruno Magli^®.

In addition to our Destination XL website, our customers can also access our LivingXL website directly from our homepage.  LivingXL is an online-only store that specializes in the selling of select high-quality products which help larger people maintain a more comfortable lifestyle. The types of products sold on our website benefit both men and women and include chairs, outdoor accessories, travel accessories, bed and bath and fitness equipment.

In recent years, we have seen a significant increase in the number of visitors to our websites from a mobile device. Our mobile optimized website, m.destinationxl.com, helps our customers browse products, checkout, access our loyalty program information, research inventory in a local store, and find a local store location. For our international customers, upon entering our full site, these visitors are identified based on where they reside globally and are able to shop in their local currency. In addition, checkout is customized based on their location, with local payment methods and a guaranteed cost including shipping and taxes. In fiscal 2016, we launched an effort to ensure that our websites are accessible to the visually impaired. We also launched t.destinationxl.com, an

optimized site for tablet visitors to provide an improved shopping experience for all our DXL online visitors, regardless of the device they are using.

BigandTall.com

Our www.bigandtall.com website is separate from our Destination XL site and caters to a value-oriented customer, exclusively offering an assortment of promotional and clearance merchandise.

MERCHANDISE PLANNING AND ALLOCATION

Our merchandise planning and allocation area 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 store and for the direct channel, and 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 investments in implementing best practice tools and processes for our merchandise planning and allocation.

Our core basic merchandise makes up over 40% of our “better” assortment and over 20% of our “best” 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 have implemented an omni-channel approach towards our assortment planning methodology that customizes each store’s assortment to accentuate lifestyle preferences for each 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.

During each season, we utilize a markdown optimization tool to monitor the selling performance of our fashion assortments and compare against the planned selling curves. When actual selling performance significantly drops below planned selling curves, we make in-season pricing adjustments so that we maintain planned levels of residual fashion product at season’s end.

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

STORE OPERATIONS

We believe that our store associates are the key to creating the highest quality experience for our customer. Over the past several years, we have extensively worked to change the culture in our stores from an operationally-driven organization to a sales-driven, customer-centric organization. Our overall goal is to assist our associates in becoming less task-oriented and more focused on serving the customer. We want our associates to help our customer meet his apparel needs through building his wardrobe; not just selling our customer a single item. In order to accomplish this, we have invested in educating our associates. Our associates have been trained to be clothing experts, capable of accommodating our customer’s style and fit needs with ready-to-wear clothing. Our stores offer on-site tailoring in order to assist customers in receiving a perfect fit. Our training approach provides product knowledge as well as behavioral training.  A key component to the success of this program is finding the right caliber of store associates. Our multi-unit, field management team receives extensive training on recruiting associates with the correct fit for our stores. Our new DXL store management team hires are enrolled in a training program with time spent in one of our two regional training centers.  

Each new store management team member spends time in a DXL store, working with certified training managers to solidify their training before they are released to their “home” store.  This allows each new store management team to apply the skills learned during training to successfully managing their respective stores.

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 these educational programs, together with monitoring sales metrics to help identify opportunities for further training, will improve sales productivity and strengthen our customer’s brand loyalty.

Each DXL, Casual Male XL and Rochester Clothing store is staffed with a store manager, assistant managers and associates. The store manager is responsible for achieving certain sales and operational targets. Our DXL, Casual Male XL and Rochester Clothing 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 of stores strives to promote from within; a culture that has been building for 7 years, with approximately 90% of the field organization’s multi-unit managers having managed one of our retail stores.        

Our field organization is overseen by our Chief Sales Officer (Seniorsince November 2014.  From May 2010 until November 2014, Mr. Reaves was our Senior Vice President of Store Sales & Operations) and Regional Sales Managers, who provide management development and guidanceOperations.  Prior 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.

MARKETING AND ADVERTISING

We believe marketing and advertising are key drivers to increase brand awareness, and thereby increase traffic tojoining our stores. Our marketing focus is on increasing the awareness of our DXL brand so that shoppers think of us when they decide to purchase men’s XL clothing or accessories. With only 4 out of every 10 men knowing who we are, we believe we have an opportunity to build our customer base and increase market share.  During fiscal 2016, we saw our brand awareness drop to 34% from 38% in fiscal 2015.  We believe that our $5.4 million decrease in marketing spend in fiscal 2016 may have contributed to this drop in awareness.  Due to the weakness we saw in the retail market and the lack of store traffic we started to see in September 2016, we decided not to run the Fall/Holiday media campaign and instead shifted some of those funds to digital advertising.  In fiscal 2017, we will be reinvesting in our marketing initiatives, increasing our marketing spend consistent with previous levels. We expect that our marketing program for fiscal 2017 will include two media campaigns; our Spring campaign, which runs up to Father’s Day, and the return of a Fall/Holiday campaign. In the short-term, for Spring 2017 we will be reusing an older commercial whichCompany, Mr. Reaves was the most productivevice president – outreach and group sales for David’s Bridal from 2007 to 2009.  Before that, Mr. Reaves was the senior vice president of our previous campaigns in driving traffic and appearssales for The Bridal Group from 2004 to resonate more with our existing customer.

For fiscal 2016, our active customer count decreased by 2.5%. In fiscal 2017, in addition to adding back media to aid in growing the customer count, we plan to focus more aggressively on customer retention and reactivation programs. Our DXL retail stores have experienced a 28% higher retention rate of customers than our Casual Male XL retail stores. As we open more DXL retail stores and close more Casual Male XL retail stores, we expect that our overall retention rate will continue to improve, but we will be seeking to improve the retention rates in all store formats.

In addition to growing the active customer base within DXL stores, we also see opportunity for growth with our “end-of-rack” customer who is defined as a customer with a 38 to 46 inch waist. For fiscal 2016, the “end of rack” segment contributed twice as much in revenue per customer as consumers with waist sizes above 46 inches and visited us 52% more often than consumers with waist sizes 48 inches and above.  

As we close more of our Casual Male XL stores in fiscal 2017, we will continue our efforts to increase awareness of the DXL brand and convert Casual Male XL customers to our DXL stores. Our focus will continue to be on transitioning our best Casual Male XL customers first, followed by other very active, high-sales-contributing tiers of customers.  For DXL stores opened in existing Casual Male XL markets, between fiscal 2010 and fiscal 2015, we have converted 51% of our Casual Male XL’s customers to these DXL stores by the end of fiscal 2016.  This figure is up from 45% at the start of fiscal 2016.

In fiscal 2016, we decreased our marketing costs by $5.4 million from fiscal 2015. For fiscal 2017, we will be increasing our marketing spend to approximately $25.0 million, similar with levels in fiscal 2014 and fiscal 2015, as compared to $18.2 million for fiscal 2016.

GLOBAL SOURCING

We have strong experience in sourcing internationally, particularly in Asia, where we manufacture a significant percentage of our private-label merchandise. We have established relationships with some of the leading and specialized agents and factories. Our sourcing network consists of over 50 factories in 6 countries. Currently, approximately 61% of all our product needs are sourced directly.

Our global sourcing strategy is a balanced approach considering quality, cost and lead time, depending on the requirements of the program. We believe our current sourcing structure is sufficient to meet our operating requirements and provide capacity for growth. The growth and effectiveness of our global direct sourcing program is a key component to our continued merchandise margin improvement.

In an effort to minimize foreign currency risk, all payments to our direct sourced vendors and buying agents are made in U.S. dollars through the use of letters of credit or payment on account.

2007.

DISTRIBUTIONPeter E. Schmitz, 58, has been our Senior Vice President and Chief Real Estate Officer since June 2013.  Prior to that, Mr. Schmitz was our Senior Vice President, Real Estate and Store Development.  Prior to joining the Company in August 2007, Mr. Schmitz was the vice president of real estate for Brooks/Eckerd Pharmacy Chain from October 1995 to August 2007.

AllWalter E. Sprague, 68, has been our Senior Vice President of Human Resources since May 2006.  From August 2003 through April 2006, Mr. Sprague was our Vice President of Human Resources.  Prior to joining our Company, Mr. Sprague was the managing director northeast, for Marc-Allen Associates, a nationwide executive recruiting firm.  From 1996 to 2002, Mr. Sprague was the assistant vice president – senior director of human resources for Foot Locker Inc. and, prior to that, the assistant vice president – senior director of human resources for Woolworth Corporation, the predecessor company to Foot Locker Inc.

Former Non-Director Executive Officers

Jack McKinney, 61, was our Senior Vice President and Chief Information Officer from June 2002 until September 30, 2016.  Mr. McKinney began his career with Casual Male Corp. in 1997 and joined our Company in May 2002 as part of our distribution operations are centralized at our headquarters located in Canton, Massachusetts. However, if merchandise is available at the store level but not available at the distribution center, our stores are capableacquisition of completing the order and shipping it directly to a customer.

We believe that having one centralized distribution facility minimizes the delivered cost of merchandise and maximizes the in-stock position of our stores. We believe that the centralized distribution system enables our stores to maximize selling space by reducing necessary levels of back-room stock carried in each store. In addition, the distribution center provides order fulfillment services for our e-commerce business.

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-to-Consumer customers with Authorized Return Service and Web labels, making returns more convenient for them.  Our current contract with UPS is through January 5, 2020.  

In order to service our International customers, we have partnered 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 partner then ships directly to our customer, which we believe helps avoid potential fraud and currency exchange rate risks.

Our warehousing application for our distribution center systems streamlines our distribution processes, enhances our in-transit times, and reduces our distribution costs substantially. Over the past several years, we have made improvements to our software such as automated packing for single piece orders, barcode scanning technologies and scanning technologies for our sortation systems, in order to improve productivity and to lower packing costs.

Our supply chain technology provides visibility for imports, 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. In fiscal 2017, we plan on improving the domestic routing process by converting from a paper-based to a web-based system that will also help us optimize our domestic inbound transportation costs.  

In-bound calls for our direct businesses are currently handled 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.  

MANAGEMENT INFORMATION SYSTEMS

The infrastructure of our management information systems has consistently been a priority to us. We believe that the investments we have made in this regard have improved our overall efficiency and most importantly have enabled us to manage our inventory more effectively.

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.

Our business is supported by a POS business application that captures daily transaction information by item, color and size. The POS system includes a multitude of features including CRM tools that enable us to track customer buying habits and provides us with the ability to target customers with specific offers and promotions.

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 developed 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 further improve our inventory management, we have created a standardized set of “best practices” for both our merchandise planning and allocation groups.

Our direct business and retail business maintain a shared inventory system and we operate a single system platform for DXL, Casual Male XLCorp.

Derrick Walker, 48, was our Senior Vice President and Rochester ClothingChief Marketing Officer from May 2012 until January 2017.  Prior to deliver improved efficiencies andjoining our Company, Mr. Walker was the vice president of marketing for Lenscrafters from December 2009 to makeNovember 2011.  Before that, Mr. Walker was the vice president of marketing for Finish Line from December 2006 to September 2009. 

Nancy Youssef, 40, was our full product assortment availableSenior Vice President, International Business Development from November 2015 until January 2017.  Prior to all of ourjoining the Company, from April 2009 to October 2015, Ms. Youssef was the vice president, international business formats.

We continually workdevelopment for Genesco, Inc. From June 2007 to improve our web environment. Our mobile optimized site capitalizes on the growing use of mobile devicesMarch 2009, she was senior brand development manager for HSN, Inc. From 2004 to look up store information, review product offerings, and complete purchases. In fiscal 2016, we completed the development and

implementation of a tablet optimized website to further capitalize on the continued growth of mobile e-commerce.  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. Functionality was also implemented to support an online custom shirt program and an in-store application to support both a custom suit and custom shirt program.

COMPETITION

Our business faces competition from a variety of sources, including department stores such as Macy’s and Dillard’s, mass merchandisers, other specialty stores and discount and off-price retailers, as well as other retailers that sell big & tall merchandise. 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 several competitors, including the King Size catalog and website.

The United States men’s big & tall apparel 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. Besides retail competitors, we consider any casual apparel manufacturer operating in outlet malls throughout the United States to be a competitor2007, Ms. Youssef worked in the casual apparel market. We believe that weMiddle East for SAS –Egypt where she was the international business development director.

There are the only national operator of apparel stores focused on the men’s big & tall market.

SEASONALITY

Historically, and consistent with the retail industry, we have experienced seasonal fluctuations as it relates to our operating income and net income. Traditionally, a significant portion of our operating income and net income is generated in the fourth quarter, as a result of the holiday 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^®”, “Rochester Clothing^®”, “Rochester Big & Tall^®”, “Harbor Bay^®”, “Oak Hill^®”, “Comfort Zone^®”, “Synrgy™”, “Twenty-Eight Degrees™”, “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.

EMPLOYEES

As of January 28, 2017, we employed approximately 2,625 associates. 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.destinationxl.com.   Our investor relations site is http://investor.destinationxl.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.

Item 1A. Risk Factors

The following discussion identifies certain important factors that could affect our financial position, our actual results of operations and our actions and could cause our financial position, results of operations and our actions to differ materially from any forward-looking statements made by or on behalf of our Company.

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 inno family relationships between any of our forward-looking statements. We operate in a continually changing business environmentdirectors 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.executive officers.

Risks Related to Our Company and Our IndustrySection 16(a) Beneficial Ownership Reporting Compliance

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

Through the end of fiscal 2016, we have opened over 200 DXL stores while closing several of our Casual Male XL and Rochester Clothing stores.  With the transition substantially complete, we currently anticipate that we will slow the pace of our store openings.  However, for us to be successful in the future and maintain growth, we must be able to continue increasing our share of the men’s big & tall apparel market. Our growth and market share are dependent on our ability to successfully continue to build upon our DXL store concept, convert our existing Casual Male and Rochester customers into DXL customers and continue to attract new customers. Our inability to execute successfully the following factors could prevent us from growing our market share and DXL brand, which could have a material adverse effect on our results of operations, cash flows and financial position:  

Our business may be adversely affected by the failure to identify suitable store locations and acceptable lease terms.  In addition, some of our new stores may open in locations close enough to our existing stores to negatively impact sales at those locations.

We currently lease all of our store locations. Identifying and securing suitable store locations at acceptable lease terms is critical to our store growth.  We generally have been able to negotiate acceptable lease rates and extensions, as needed.  However, we cannot be certain that desirable locations at acceptable lease rates and preferred lease terms will continue to be available.  Once we decide on a prospective new store or new market and find a suitable location, any delays in opening new stores could impact our financial results. In addition, if we need to pay higher occupancy costs in the future to secure ideal locations, the increased cost may adversely impact our financial performance and liquidity. Recent trends toward increased landlord consolidation could also negatively affect our ability to obtain and retain locations.  

As we open additional locations in existing markets, some new stores may open in locations close enough to our existing stores to impact sales and profitability at the store level, which may also adversely affect our profitability.  

Our marketing programs and success in maintaining and building our brand awareness, driving traffic and converting that traffic into an increased loyal customer base are critical to achieving market share growth within the big & tall industry.

Our ability to increase our share of the men’s big & tall apparel market is largely dependent on building and maintaining favorable brand recognition for our DXL stores and e-commerce sites and 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 wallet on our product offerings. In order to grow our brand recognition and our market share, we depend on the successful development of our brand through marketing and advertising in a variety of ways, including television and radio advertising, advertising events, direct mail marketing, e-commerce and customer prospecting. Our business is directly impacted by the success of these efforts and those of our vendors. Future advertising efforts by us, our vendors or our other licensors, may be costly and, if not successful, will impact our ability to increase our market share and increase revenues.

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 this 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.  

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 quality of inventory, which could reduce the funds available to us under our credit facility.

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.

Our business may be adversely affected by economic and political issues abroad and changes in U.S. economic policies.

Economic and civil unrest in areas of the world where we source merchandise for our global sourcing program, as well as shipping and docking issues, could adversely impact the availability and cost of such merchandise. Disruptions in the global transportation network, such as political instability, the financial instability of our suppliers, merchandise quality issues, trade restrictions, labor and port strikes, tariffs, currency exchange rates, transport capacity and costs, inflation and other factors relating to foreign trade are beyond our control. In the event of disruptions or delays in deliveries due to economic or political conditions in foreign countries, such disruptions or delays could adversely affect our results of operations unless and until alternative supply arrangements could be made. These and other issues affecting our suppliers could adversely affect our business and financial performance.

In addition, the enactment of any new legislation in the U.S. that would impact current international trade regulations, exports or imports or tax policy with respect to foreign activities, or executive action affecting international trade agreements, including the reevaluation of the trading status of certain countries and/or retaliatory duties, taxes, quotas or other trade sanctions, could increase the cost of merchandise purchased from suppliers in such countries and could adversely affect our business and financial performance.

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

All merchandise for our stores and e-commerce operations is received into our centralized distribution center in Canton, Massachusetts, where the inventory 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, could result in delays in the delivery of merchandise to our stores or directly to our customers.

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 for several weeks.

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.

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

One of our strategic initiatives has been to move from being a multi-channel retailer to an omni-channel retailer. Our customer’s shopping behavior continues to evolve across multiple channels and we are working to meet his needs.  While we now 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.

We rely on the continued development of e-commerce and internet infrastructure development, failure of which could disrupt our business and negatively impact our sales.

We continue to have increasing levels of sales made through our e-commerce sites. Growth of our overall sales is dependent on customers continuing to expand their on-line purchases in addition to in-store to purchase our products. We cannot accurately predict the rate at which online purchases will expand.  

Our success in growing our e-commerce activities 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 will continue to iterate 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 successfully respond to these risks and uncertainties could reduce our e-commerce sales, increase our costs and diminish our growth prospects, which could negatively impact our results of operations.

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 assets.  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. Any such impairment charges, if significant, could adversely affect our financial position and results of operations.

We may not be successful expanding our business internationally.

Our future growth strategy includes plans to open stores internationally, most likely using a franchise and licensing model.  Customer demand, as well as a lack of familiarity with our brands, may differ internationally, and as a result, we may have difficulty attracting customers and growing brand awareness.  In addition, our ability to conduct business internationally may be adversely impacted by political and economic risks.  Our failure to expand internationally may limit our future growth opportunities.  

We also have risks related to identifying suitable franchisees. Our franchise arrangements will limit our direct control, such as the ability of these third parties to meet their projections regarding store openings and sales, as well as their compliance with applicable laws and regulations.  As such, we cannot ensure our profitability or success in international markets.   In addition, the failure of these third parties to operate the stores in a manner consistent with our standards may adversely affect our brands and reputation.

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 for the manufacture of 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 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 are forced to rely on manufacturers who produce products of inferior quality, then our brand recognition and customer satisfaction would likely suffer. These manufacturers may also increase the cost to us of the products we purchase from them.

A significant portion of our merchandise is imported directly from other countries, and U.S. domestic suppliers who source their goods from other countries supply most of our remaining merchandise. If the U.S. Government imposes significant tariffs or other restrictions on foreign imports, we may need to increase our prices which could adversely affect our revenues and merchandise margins.

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.

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

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.

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 officer as well as several significant members of our senior management. For example, the loss of the services of David Levin, our President and Chief Executive Officer, who is an integral part of our daily operations and is the primary decision maker in all our important operating matters, could significantly impact our business until an adequate replacement or replacements can be identified and put in place. 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 attract and retain new employees of the caliber needed to achieve our objectives.

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. During fiscal 2016, approximately 85% of our sales were settled through credit and debit card transactions. Any security 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. 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.

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

The United States men’s big & tall apparel market is highly competitive with many national and regional department stores, mass merchandisers, specialty apparel retailers and discount stores offering a broad range of apparel products similar to the products that we sell. Besides retail competitors, we consider any manufacturer of big & tall 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 men’s big & tall 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 brand recognition and 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.

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 websites, 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.

Acts of terrorism or a catastrophic event could negatively impact our operating results and financial condition.

Unforeseen events, including war, terrorism and other international conflicts, public health issues, and natural disasters such as earthquakes, hurricanes or other adverse weather and climate conditions, whether occurring in the U.S. or abroad, could disrupt our operations, or the operations of our vendors and other suppliers, or result in political or economic instability.

The continued threat of terrorism and heightened security measures in response to an act of terrorism may disrupt commerce and undermine consumer confidence which could negatively impact our sales by causing consumer spending to decline. Furthermore, an act of terrorism or war, or the threat thereof, could negatively impact our business by interfering with our ability to obtain merchandise from vendors or substitute suppliers at similar costs in a timely manner.

Our business depends on our ability to meet our labor needs.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including store managers and sales associates, who understand and appreciate our product offerings and are able to represent our products to our customers adequately. Qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply in some areas, and the turnover rate in the retail industry is high. If we are unable to hire and retain sales associates capable of consistently providing a high level of customer service, our business could be materially adversely affected. Although none of our employees is currently covered by collective bargaining agreements, our employees may elect to be represented by labor unions in the future, which could increase our labor costs. Additionally, competition for qualified employees could require us to pay higher wages to attract a sufficient number of adequate employees. An inability to recruit and retain a sufficient number of qualified individuals in the future may delay the planned openings of new stores or outlets. Any such delays, any material increases in employee turnover rates at existing stores or outlets or any increases in labor costs could have a material adverse effect on our business, financial condition or operating results.

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 the U.K., we must comply with that country’s 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.

The new administration may make substantial changes to fiscal, tax and international trade policies that may adversely affect our business, financial condition and results of operations.

The new administration has called for substantial change to various fiscal, tax and international trade policies. We cannot predict the impact, if any, of these changes to our business, financial condition and results of operations. However, it is possible that these changes could adversely affect our business. It is likely that some policies adopted by the new administration will benefit us and others will negatively affect us. Until we know what changes are enacted, we will not know whether in total we benefit from, or are negatively affected by, the changes.

Risks Related to Our Corporate Structure and Stock

Our stock price has been and may continue to be extremely volatile due to many factors.

The market price of our common stock has fluctuated in the past and may increase or decrease rapidly in the future depending on news announcements and changes in general market conditions. The following factors, among others, may cause significant fluctuations in our stock price:

Rights of our stockholders may be negatively affected if we issue any of the shares of preferred stock which our Board of Directors has authorized for issuance.

We have available for issuance up to 1,000,000 shares of preferred stock, par value $0.01 per share. Our Board of Directors is authorized to issue any or all of these shares of preferred stock, in one or more series, without any further action on the part of stockholders. The rights of our stockholders may be negatively affected if we issue a series of preferred stock in the future that has preference over our common stock with respect to the payment of dividends or distribution upon our liquidation, dissolution or winding up.

In addition, the issuance of preferred stock by our Board of Directors pursuant to our certificate of incorporation, as amended, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the outstanding voting stock of our Company.

State laws and our certificate of incorporation, as amended, may inhibit potential acquisition bids that could be beneficial to our stockholders.

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.

In addition, our certificate of incorporation, as amended, contains provisions that restrict any person or entity from attempting to transfer 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 shareholder of our stock, or (ii) increase the stock ownership percentage of any existing five-percent shareholder. These provisions provide that any transfer that violates such provisions shall be null and void and would require the purported transferee to, upon demand by us, 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 the acquirer and could significantly delay, discourage, or prevent third parties from acquiring our Company without the approval of our Board of Directors.

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 with Spirit Finance Corporation, a third-party real estate investment trust (“Spirit”), whereby we entered into a twenty-year lease agreement with a wholly-owned subsidiary of Spirit for an initial annual rent payment of $4.6 million, with periodic increases every fifth anniversary of the lease. In fiscal 2006, we realized a gain of approximately $29.3 million on the sale of this property, which was deferred and is being amortized over the initial 20 years of the related lease agreement. Accordingly, our current annual rent expense of $5.2 million is offset by $1.5 million related to the amortization of this deferred gain.

As of January 28, 2017, we operated 192 Destination XL retail stores, 13 Destination XL outlet stores, 97 Casual Male XL retail stores, 36 Casual Male XL outlet stores and 5 Rochester Clothing stores. All of these stores are leased by us directly from owners of several different types of centers, including life-style centers, shopping centers, free standing 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 28, 2017.

Sites for store expansion are selected on the basis of 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.

See also “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Capital Expenditures.”

Store count by state at January 28, 2017

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.

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 is listed for trading on the NASDAQ Global Select Market under the symbol “DXLG”.

The following table sets forth, for the periods indicated, the high and low per share sales prices for the common stock, as reported on Nasdaq.

Holders

As of March 15, 2017, based upon data provided by the transfer agent for our common stock, there were approximately 89 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, but does include each such broker or clearing agency as one record holder.

Dividends

We have not paid and do not anticipate paying cash dividends on our common stock. In addition, financial covenants in our loan agreement may restrict dividend payments. For a description of these financial covenants see Note C to the Notes to the Consolidated Financial Statements.

Issuer Purchases of Equity Securities

None.

Stock Performance Graph

The following Performance Graph compares our cumulative stockholder return with a broad market index (Standard & Poor’s 500) and one published industry index (Dow Jones U.S. Apparel Retailers) for each of the most recent five years ended January 31. The cumulative stockholder return for shares of our common stock (“DXLG”) and each of the indices is calculated assuming that $100 was invested on January 31, 2012. We paid no cash dividends during the periods shown. The performance of the indices is shown on a total return (dividends reinvested) basis. The graph lines merely connect January 31 of each year and do not reflect fluctuations between those dates. In addition, we have included a chart of the annual percentage return of our common stock, the S&P 500 and the Dow Jones U.S. Apparel Retailers.

Annual Return Percentage

Indexed Returns

The performance graph above shall not be deemed “filed” for purposes of Section 1816(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities (collectively, the “Reporting Persons”), to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “SEC”). The Reporting Persons are required to furnish us with copies of all Section 16(a) reports they file.  Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to us by our officers and directors during fiscal 2016, we believe that the Reporting Persons complied with all applicable Section 16(a) reporting requirements and that all required reports were filed in a timely manner, except for Mary Luttrell’s initial Form 4 which was dated as of January 18, 2017 but was not filed until January 26, 2017.

Code of Ethics

We have adopted a Code of Ethics which applies to our directors, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as well as our other senior officers. The full text of the Code of Ethics can be found under “Corporate Governance –Charters & Policies” on the Investor Relations page of the our corporate web site, which is at http://investor.destinationxl.com. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendment to, or otherwise subject towaiver from, a provision of our Code of Ethics by posting such information on our website

Audit Committee

We have a separately-designated standing Audit Committee established in accordance with section 3(a)(58)(A) of the liabilityExchange Act.  The Audit Committee is currently comprised of that section. This graph will not be deemed incorporated by reference into any filingMessrs. Choper, Mesdag and Mooney.  Each of the members of the Audit Committee is independent, as independence for Audit Committee members is defined under the Securities Actrules of 1933,Nasdaq.  Mr. Mooney serves as amended, orour audit committee financial expert. Effective June 1, 2017, Mr. Kyees will replace Mr. Choper on the Exchange Act, whether made before or afteraudit committee and Mr. Mooney will become Chairperson.

The Audit Committee operates under a written charter, which can be found under “Corporate Governance - Charters & Policies” on the date hereof, regardlessInvestor Relations page of any general incorporation language in such filing.

our website at http://investor.destinationxl.com.

Item 6.11.   Selected Financial DataExecutive Compensation

The following tables set forth selected consolidated financial data of our Company as ofCompensation Discussion and for each of the years in the five-year period ended January 28, 2017 and should be read in conjunction with “Management’sAnalysis

Executive Summary

This Compensation Discussion and Analysis of Financial Condition and Results of Operations” and our accompanying Consolidated Financial Statements and Notes thereto.

We derived the selected financial data presented below for the periods or dates indicated from our consolidated financial statements. Our consolidated financial statements as of and for the years ended January 28, 2017, January 30, 2016, January 31, 2015  and February 1, 2014 were audited by KPMG LLP, an independent registered public accounting firm. Our consolidated financial statements as of and for the year ended February 2, 2013 were audited by Ernst & Young LLP, an independent registered public accounting firm. Our consolidated financial statements as of and for the years ended January 28, 2017, January 30, 2016 and January 31, 2015 are included in this Annual Report.

Forprovides a discussion of certain factors that materially affect the comparability of the selected consolidated financial data or cause the data reflected herein not to be indicativesummary of our future results of operations or financial condition, see Item 1A, “Risk Factors”executive compensation philosophy and Item 7, “Management’s Discussionprograms and Analysis of Financial Conditiondiscusses the compensation paid to our Chief Executive Officer  (“CEO”) and Results of Operations.”  other named executive officers for fiscal 2016 (collectively, our “Named Executive Officers”).  

Our Named Executive Officers for fiscal 2016 were:

Fiscal 2016 Highlights

Item 7. Management’s Discussion and AnalysisWe believe that the value of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

As noted above, this Annual Report, including, without limitation, this Item 7, contains “forward-looking statements,” including forward-looking statements withincompensation awarded to our Named Executive Officers should be aligned with the meaningperformance of the Private Securities Litigation Reform Act of 1995. Actual results or developments could differ materially from those projected in such statements asCompany and our compensation packages are aimed to achieve that at the target level.  To have a result of numerous factors, including, without limitation those risks and uncertainties set forth in Item 1A, Risk Factors, which you are encouraged to read. The following discussion and analysisfull understanding of our financial condition and resultsexecutives’ compensation in fiscal 2016, we have to look at the performance of operations should be read in light of those risks and uncertainties and in conjunction with our accompanying Consolidated Financial Statements and Notes thereto.

Certain figures discussed below may not add due to rounding.

Segment Reporting

We report our operations as one reportable segment, Big & Tall Men’s Apparel.  We consider our retail and direct businesses, especially in our growing omni-channel environment, to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into a single reporting segment.

Comparable Sales Definition

Total comparable sales include our retail stores that have been open for at least 13 months and our direct business.  Stores that have been remodeled or re-located duringthe Company over the period are also included in our determination of comparable sales. Storesfrom fiscal 2013 through fiscal 2016.  In fiscal 2013, we began a transformation process that have been expanded by more than 25% are considered non-comparable for the first 13 months.  Ifreplaced 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.  

Our customer’s shopping experience continues to evolve across multiple channels and we are continually changing to meet his needs.  Since fiscal 2014 the majority of our retaillegacy Casual Male XL 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 websites.  A customer also has the ability to order online and pick-up in store.  Because this omni-channel approach to retailing is changing the boundaries of where a sale originates and where a sale is ultimately settled, we do not report comparable sales separately for our retail and direct businesses.  We have continued to provide specific information onwith our DXL comparable store sales in connectionMen’s Apparel stores.  In total, over this four-year period, we opened 156 DXL stores and closed an aggregate of 225 Casual Male XL and Rochester Clothing stores, with our ongoing roll-out. Withtotal store count decreasing by 69 stores. Essentially, over 200 DXL stores at the end of fiscal 2016,this four-year period we are nearing the endconverted more than half of our rollout and for fiscal 2017 we will transition to one comparable sales figure for the Company and will no longer provide specific information on our DXL comparable store sales.base.  

Non-GAAP Measures

We monitor certain non-GAAPFrom a 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 before DXL capital expenditures, free cash flow, EBITDA, EBITDA from continuing operations and EBITDA margin from continuing operations.  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 2016 to fiscal 2015 and fiscal 2014.  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, loss from continuing operations, net loss per diluted share or cash flows 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

We are pleased with our continued improvement in fiscal 2016, despite overall weakness of the retail environment. Our net loss for fiscal 2016 was $(2.3) million, or $(0.05) per diluted share, compared with a net loss of $(8.4) million, or $(0.17) per diluted share in fiscal 2015.  Sales growth in fiscal 2016 was 1.8% and EBITDA increased 35.8% to $31.6 million as compared to $23.3 million at fiscal 2015.  Dueperspective, due to the intensive capital requirements associated with our DXL transitionconversion strategy, depreciation costs have increased sharply over this four-year period. In fiscal 2012, before we initiated the past 3 years.  roll-out, total depreciation and amortization costs were $15.5 million as compared to $30.6 million in fiscal 2016.  This substantial increase of over $15.0 million directly impacted the Company’s earnings. Despite the significant increase in depreciation, over this four-year period we improved our earnings each year, from a net loss of $(59.8) million in fiscal 2013 to a net loss of $(2.3) million in fiscal 2016.  Of note, fiscal 2013 included a charge of $51.3 million to establish a full valuation allowance against our deferred tax asset.  Adjusting for the full valuation allowance, to permit a better comparison, the net loss in earnings improved by $6.2 million from fiscal 2013 to fiscal 2016.

As a result we believe EBITDA isof this increase in depreciation expense, Earnings before Income Taxes and Depreciation and Amortization (“EBITDA”), a non-GAAP measure, has been a key performance indicator as to how well our strategy is working.  

Our DXL concept has beenworking for our business. Over the principal driver of our sales growth and improvementfour-year period, EBITDA improved from $7.3 million in profitability.  For fiscal 2016, our 166 comparable DXL retail stores had a sales increase of 2.4%, which we believe demonstrates that our store associates are able2013 to increase the quality of sale using our proven selling model, despite the lack of store traffic we experienced$31.6 million in the latter half of fiscal 2016.  Regionally, sales for our DXL stores located in the central part of the country, which accounted for approximately 40% of our DXL sales during fiscal 2016, trailed sales from our DXL stores located in coastal statesIn addition to EBITDA growth, we increased Sales, on a decreasing store base, and by approximately 600 basis points.  We believe that this disparity is due in part to the uncertainty in the U.S. economic and political climate that impacted the retail industry, especially in the second half of fiscal 2016, and contributed to slower than expected top-line growth for us.  Sales per square foot for our DXL retail stores increased to $180 in fiscal 2016 from $177 in fiscal 2015 and $165 in fiscal 2014. Of the 192 DXL retail stores open at the end of fiscal 2016 49 had sales per square foot in excessreturned to generating positive free cash flow, enabling us to fund our store growth from operations as opposed to borrowings. Please see “Non-GAAP Financial Measures” below for a reconciliation of $200. Overall, we are converting traffic with number of transactions up 1.9%, dollars per transactions up 0.5%Net Loss to EBITDA and units per transactions up 2.0% over fiscal 2015.

Over the past several years, we have relied on our Spring and Fall television and radio campaignsCash Flow from Operating Activities to build brand awareness and drive traffic.  ForFree Cash Flow.

The following charts illustrate the Spring 2016 campaign we made the decision to air our 2015 commercial rather than invest in a new creative campaign.  We found that the Spring 2016 television campaign did not drive a meaningful improvement in traffic or customer awareness.  As a result, we decided to eliminate our Fall television advertising campaignbusiness over this defined four-year transition period.  

4 Years of Continuous Growth

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* EBITDA for fiscal 2013 and instead redirect some of those funds into digital advertising. There were several factors involved in our decision to eliminatefiscal 2014 reflects EBITDA from continuing operations

Fiscal 2016 Executive Compensation Highlights

Our Named Executive Officers and the Fall campaign: (i) we believed that the regional difference in sales that we started to see in September was an indicator that there may be a larger macro-economic issue, (ii) we believed that the Spring campaign did not provide the increase in store traffic that we were expecting, and (iii) there was uncertainty surrounding the impact the political environment was having on our customer base. Subsequently, customer feedback on our commercial also indicated that we were not connecting on the key points necessary to drive traffic. While this decision likely had a negative impact on our top-line growth, we believed that given the current economic and political environment, eliminating the Fall television campaign and instead redirecting a portionrest of the marketing funds into digital advertising offered a better return on investment this fiscal year.  However, we also saw an unexpected drop in customer awareness for the first time since we began opening DXL stores and believe that this was dueexecutive team were integral to the lacksuccess of media advertising.  With only 4 out of 10 customers knowing who we are, brand awareness and new customer acquisition is key to our success in driving sales growth and building market share, so we will be reinvesting in our marketing programsthis transition.  As such, in fiscal 20172013, the Compensation Committee approved the 2013-2016 Long-Term Incentive Plan (“2013-2016 LTIP”) and expect to spend approximately $25.0 millionsubsequently in fiscal 2017 to help create store traffic and grow brand awareness.

A significant contributor to our DXL sales growth has been our “end-of-rack” customer.  We define “end-of-rack” customer as any customer with a waist size 46 inches or less.  For fiscal 2016, our end-of-rack customer represented 45.0% of our sales in bottoms, compared with 44.0% for fiscal 2015.  Consistent with our overall results, we saw this growth slow during the latter half of fiscal 2016, which we believe is partially attributable to our decision not to run the Fall campaign.

From a liquidity perspective, during fiscal 2016 we achieved our objective of funding the build out of our DXL stores from free cash flow.  We also started to pay down our debt levels for the first time since we started our DXL rollout four years ago.  Cash flow from operations improved by $16.6 million.  This improvement, with a $4.2 million decrease in capital expenditures, resulted in a $20.8 million improvement in free cash flow.  

The improvement in cash flow from operations is largely due to the positive results from our inventory optimization project that we implemented in fiscal 2016.  We made several improvements to streamline operations at our distribution center, including tighter controls over the number of merchandise weeks of supply and improvements in inventory receipt flow and procurement.  This project contributed to inventory levels decreasing by $7.6 million at January 28, 2017 compared to January 30, 2016, which resulted in significant improvement in working capital, thus improving free cash flow.  As reflected in our “Fiscal 2017 Outlook” below, we expect these changes to result in a more optimized inventory structure that will continue to improve our working capital position through fiscal 2017.  We do not believe these changes have or will jeopardize sales from out-of-stock positions in either our stores or in our direct business.  

Our capital expenditures decreased slightly in fiscal 2016 due to fewer store openings, at a lower average square footage, than fiscal 2015.  During fiscal 2016, we opened 26 DXL retail stores and 4 DXL outlet stores.  In addition, we closed 28 Casual Male XL retail stores and 4 Casual Male XL outlet stores.

Fiscal 2017 Outlook

In light of the difficult retail environment we experienced in the latter half of fiscal 2016, we are taking a watchful approach to fiscal 2017.  Our primary objective in fiscal 2017 is to grow our customer base through a revitalized marketing program and to maintain a strong liquidity position by continuing to improve cash flow.  We will be reinvesting in our marketing initiatives to help drive brand awareness, store traffic and our digital presence by increasing our marketing plan for fiscal 2017 by approximately $6.8 million to $25.0 million. We will continue to work on our inventory optimization project which was started in fiscal 2016 and, on an annual

basis, our DXL store growth will be funded from operations.  As a result, we expect to open 19 DXL retail stores and 1 DXL outlet store in fiscal 2017, while closing 16 Casual Male XL retail stores and 3 Casual Male XL outlet stores.

For fiscal 2017, our outlook, based on a 53-week year, is as follows:

As discussed more fully below under “Liquidity and Capital Resources,” subsequent to the end of fiscal 2016, our Board of Directors approved a stock repurchase plan, pursuant to which we can purchase up to $12.0 million of our outstanding common stock during fiscal 2017.  

Summary of Financial Results

RESULTS OF OPERATIONS

Our fiscal year is a 52- or 53-week period ending on the Saturday closest to January 31. Fiscal 2016, fiscal 2015 and2013, fiscal 2014 were all 52-week periods.or fiscal 2015.  

SALES

SalesTherefore, when evaluating compensation for fiscal 2016, increased 1.8%it is important to $450.3 millionconsider that fiscal 2016 represented the culmination of the past 4 years of transition. Further, fiscal 2016 was heavily weighted by the fact that it was a pivot year with respect to long-term performance plans, with the 2013-2016 LTIP and 2016 Wrap ending and the 2016-2017 LTIP beginning.  As such, total compensation as compared to $442.2 million in fiscal 2015.  The increase in sales was partly due to sales from DXL stores opened less than 13 months of $30.5 million, offset partially by lost sales of $25.4 million from closed and converted stores.  In addition, comparable sales increased $2.5 million, or 0.6%, compared to fiscal 2015.  

Includedreflected in the comparable sales increaseSummary Compensation Table for fiscal 2016 includes (i) a partial performance-based award under the 2016 Wrap, which again represents a four-year performance period, that does not vest until fiscal 2017 and (ii) the grant of $2.5 million, areunearned awards associated with our 2016-2017 LTIP, which do not begin to vest until fiscal 2018.

On a comparative basis, the comparable sales from our 166 DXL retail stores, which increased 2.4%, or $5.4 million infollowing table shows total compensation earned for each Named Executive Officer for fiscal 2016 as compared to fiscal 2015. Mr. Walker and Ms. Youssef are excluded from this table due to their terminations of employment.    

Realizable Pay of CEO

Over the past four years, Mr. Levin has led our transformation to DXL and over that same period we discussed above, store traffic was down across the retail industry in the latter half of fiscal 2016, which we believe was due in part to the macroeconomic and political issues the country is currently facing.  Regionally, our stores in Coastal states performed better than our stores in Central states, whose comparable sales were, on average, 600 basis points less than our stores in Coastal states. We did, however, see positive performance from our non-comparable DXL stores which performed well against plan and our ‘return on investment’ hurdles,have experienced significant EBITDA growth, which is a good indicator thatkey metric for us while investing in our store openings continuebase with its resulting increased depreciation costs.  The following chart shows our EBITDA growth over the past four years in relation to perform well.  

In addition to the overall weaknessMr. Levin’s compensation on both a Total Direct Compensation (“TDC”) basis, as reported in the retail industry, weSummary Compensation Table, and also believe that our decision to eliminate our Fall marketing campaign, hadon a negative impact on salesRealized Pay basis.  Realized Pay reflects base salary, cash-based Annual Incentive Compensation and on building our customer base in fiscal 2016.  

Sales for fiscal 2015 increased 6.8% to $442.2 million as compared to $414.0 million in fiscal 2014.  The increasecash-based Long-Term Incentive earned, plus the value realized upon vesting of $28.2 million in sales was primarily due to a comparable sales increase of 4.8%, or $18.0 million. Increase in our non-comparable sales, primarily from our DXL stores that have been opened less than 13 months, of $44.2 millionany Restricted Shares and other revenue of $0.6 million were partially offset by a reduction of $34.6 million in lost sales from closed and converted stores.  Comparable sales from our 137 DXL retail stores increased 9.7%, or $16.0 million in fiscal 2015, against a 13.7% comparable sales increase in fiscal 2014.  The total number of transactions for these comparable stores increased 6.2% and dollars per transactions increased 3.3% over fiscal 2014.  

GROSS MARGIN

Gross margin rate for fiscal 2016 was 45.5% as compared to 46.1% in fiscal 2015 and 45.9% in fiscal 2014.

The gross margin decrease of 60 basis points for fiscal 2016 as compared to fiscal 2015 was driven by a decrease of 40 basis points in merchandise margin and a 20 basis point increase in occupancy costs as a percentage of sales. The decrease in our merchandise margin of 40 basis points was mainly due to higher markdown activity associated with increased promotional activities.  The increase in occupancy costs was due to occupancy expense increasing at a greater rate than sales.  

Included in the gross margin for fiscal 2014 was a $2.5 million payment we received to exit our San Francisco store prior to the end of its lease term.  This payment favorably benefited the gross margin for fiscal 2014 by 60 basis points.  Excluding the impact of that lease termination, occupancy costs for fiscal 2015 improved 40 basis points over fiscal 2014, primarilyOptions exercised.  Again due to the growing sales base as well as the decrease in the average size of our DXL stores. Merchandise margins for fiscal 2015 increased 40 basis points as a result of strong initial margins, a lower markdown rate and less promotional activities.

Occupancy costs also included DXL transition costs relatedfact that there was no opportunity to preopening rent and landlord terminations of $1.1 million in fiscal 2016, $1.8 million in fiscal 2015 and $2.8 million in fiscal 2014.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses as a percentage of sales for fiscal 2016, 2015 and 2014 were 38.5%, 40.8% and 42.2%, respectively.

SG&A expenses for fiscal 2016 decreased $7.3 million, or 4.0%, to $173.3 million as compared to $180.6 million in fiscal 2015. This decrease was primarily due to a decrease in advertising expense of approximately $5.4 million as well as a reduction in incentive accruals, including stock compensation, of approximately $5.4 million.  These decreases were partially offset by increases in store payroll of $1.1 million, associated with the higher sales base, healthcare costs of approximately $1.4 million and other corporate and supporting costs of $1.0 million.  

SG&A expenses for fiscal 2015 increased $5.8 million, or 3.3%, to $180.6 million as compared to $174.8 million in fiscal 2014.  The increase in SG&A expenses of $5.8 million was due to increased store payroll and other supporting store costs of approximately $5.9 million, associated with the higher sales base, an increase in incentive accruals of $1.4 million, associated with the Company’searn any long-term incentive plans, and other corporate and supporting costs of $0.9 million.  These increases were partially offset by a reduction in marketing expenses of $2.4 million.

SG&A expenses included approximately $3.1 million, $3.8 million and $4.0 million of DXL transition costs for increased payroll-related costs, such as pre-opening payroll, training and store operations for fiscal 2016, fiscal 2015 and fiscal 2014, respectively.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense was $30.6 million for fiscal 2016 as compared to $28.4 million for fiscal 2015 and $24.0 million for fiscal 2014. The year-over-year increases in depreciation and amortization expense for both fiscal 2016 and fiscal 2015 are primarily related to the opening of 30 DXL retail and outlet stores in fiscal 2016 and 35 stores in fiscal 2015. Included in depreciation and amortization is the amortization of our “Casual Male” trademark of $0.3 million, $0.5 million and $1.0 million for fiscal 2016, 2015 and 2014, respectively.

INTEREST EXPENSE, NET

Net interest expense for fiscal 2016 was $3.1 million as compared to $3.1 million for fiscal 2015 and $2.1 million for fiscal 2014.  Our interest costs in fiscal 2016 were flat to fiscal 2015, primarily due to our inventory initiatives undertaken to improve liquidity, EBITDA growth and lower capital expenditures. The increase from fiscal 2014 to fiscal 2015 was due to increased borrowings under our credit facility to finance our DXL store openings.

We have funded a portion of our store growth with equipment financings of $26.4 million, a $15.0 million term loan and borrowings under our credit facility. At January 28, 2017, our total debt, net of unamortized debt issuance costs, has decreased $5.0 million from January 30, 2016.  See “Liquidity and Capital Resources” below for more discussion regarding our credit facility, equipment financings and term loan as well as our future liquidity needs.

INCOME TAXES

Pursuant to accounting rules, realization of our deferred tax assets, which relate principally to federal net operating loss carryforwards expiring from 2022 through 2036, is dependent on generating sufficient taxable income in the near term.

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 2016 and our earnings guidance for fiscal 2017, we believe that a full valuation allowance remains appropriate at this time.  

Our tax provision for fiscal 2016, fiscal 2015 and fiscal 2014 is primarily attributable current state margin tax and foreign income tax.    

DISCONTINUED OPERATIONS

During fiscal 2014, we exited our direct business with Sears Canada. The loss from discontinued operations for fiscal 2014 included a charge of approximately $0.8 million related primarily to inventory reserves and sales allowances as a result of our decision to exit the business.   See Note J to the Notes to the Consolidated Financial Statements for additional disclosure regarding discontinued operations.

NET LOSS

The net loss for fiscal 2016 was $(2.3) million, or $(0.05) per diluted share, as compared to $(8.4) million, or $(0.17) per diluted share, in fiscal 2015 and a net loss of $(12.3) million, or $(0.25) per diluted share, in fiscal 2014.

(Certain amounts in the following table do not foot due to rounding)

SEASONALITY

A comparison of sales in each quarter of the past three fiscal years is presented below. The amounts shown are 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 income per share for the past two fiscal years is presented in Note L 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 October 2014 (“Credit Facility”). Our current cash needs are primarily for working capital (essentially inventory requirements), capital expenditures, growth initiatives, and, as discussed further below, our stock repurchase program which was announced in March 2017. With over 200 DXL stores now open, improved free cash flow and excess liquidity under our Credit Facility, we believe that the repurchase of our stock is a good investment and will enhance shareholder value.  

Our capital expenditures for fiscal 2017 are expected to be approximately $22.0 million, primarily related to the planned opening of approximately 20 new DXL retail and outlet stores and information technology projects. However, we expect to receive approximately $5.0 million in tenant allowances to offset these capital expenditures.

We expect to fund our store growth and stock repurchase program in fiscal 2017 primarily through cash flow from operations, with periodic borrowings from our Credit Facility.

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