Destination XL Group, Inc. Reports Second-Quarter 2016 Financial Results

Achieves +4.6% DXL Comparable Store Sales Increase, Building On
+11.9% Comp Increase in Second Quarter 2015;

Company Updates Sales Guidance for Fiscal 2016

CANTON, Mass.–(BUSINESS WIRE)–Destination
XL Group, Inc. (NASDAQ: DXLG), the largest omni-channel specialty
retailer of big and tall men’s apparel, today reported operating results
for the second quarter of fiscal 2016.

Second-Quarter Fiscal 2016 Highlights

• Total comparable sales increased +2.4% on top of +6.7% in prior-year
  quarter
• 151 DXL retail stores, open at least 13 months, had a +4.6% comparable
  sales increase on top of an +11.9% comparable sales increase in the
  prior-year quarter
• Net income of $0.2 million, compared with net loss of $(1.0) million
  in the prior-year quarter
• EBITDA increased to $8.5 million from $6.8 million in the prior-year
  quarter
• Sales per square foot for the DXL retail stores, on a rolling 12-month
  basis, increased to $181, from $172 for the prior-year quarter

Management Comments

“Our positive second-quarter results reflect the fundamental strength of
the DXL transformation, which drove growth in sales and profitability
even as uncertainty weighed on consumer spending,” said President and
CEO David Levin. “DXL retail stores delivered a sales comp of 4.6% on
top of 11.9% in the second quarter last year.

“Brand awareness continues to grow, which has led to a 9.0% increase in
the rate of Casual Male customers converting to DXL. At the same time,
the end-of-rack customer’s share of our bottoms business rose again, to
44.1% from 42.9% in the second quarter last year.

“Our belief in the DXL transformation has never been stronger. The DXL
customer is buying more and spending more per transaction, while our
average sales per square foot continue to climb. Despite these
improvements, we started to see a slowdown in traffic in the second
quarter. Due to the macro headwinds in the current environment, we are
taking a more cautious view of sales in the second half of the year.
However, we are confident in our ability to leverage our operating
model, and we are maintaining our guidance in earnings and EBITDA,”
Levin concluded.

Second-Quarter 2016 Results

Sales

For the second quarter of fiscal 2016, total sales rose 3.3% to $117.9
million from $114.1 million in the second quarter of fiscal 2015. The
increase of $3.8 million in total sales was primarily driven by a
comparable sales increase of $2.6 million, or 4.6%, from our DXL stores.
On a comparable basis, total transactions in the Company’s DXL stores
were up 3.2% over the prior-year second quarter.

Gross Margin

For the second quarter of fiscal 2016, gross margin, inclusive of
occupancy costs, was 46.5%, compared with gross margin of 47.2% for the
second quarter of fiscal 2015. The decrease of 70 basis points was the
result of a 110-basis-point decrease in merchandise margin, which was
partially offset by a 40-basis-point improvement in occupancy costs as a
percentage of total sales. The decrease in merchandise margin was
primarily due to a shift in the timing of clearance markdowns. The
improvement in occupancy costs was primarily due to leveraging a higher
sales base against relatively fixed occupancy expense.

Selling, General & Administrative

SG&A expenses for the second quarter of fiscal 2016 were 39.3% of sales,
compared with 41.3% in the second quarter of fiscal 2015. On a dollar
basis, SG&A expense declined $0.8 million from the same quarter a year
ago, primarily due to a decrease in advertising costs and incentive
accruals.

Net Income

Net income for the second quarter of fiscal 2016 was $0.2 million, or
$0.00 per diluted share, compared with a net loss of $(1.0) million, or
$(0.02) per diluted share, for the second quarter of fiscal 2015. On a
non-GAAP basis, assuming a normalized tax rate of 40%, adjusted net
income (loss) for the second quarter of fiscal 2016 and fiscal 2015 was
$0.00 per diluted share and $(0.01) per diluted share, respectively.

EBITDA

Earnings before interest, taxes, depreciation and amortization (EBITDA),
a non-GAAP measure, for the second quarter of fiscal 2016 were $8.5
million, compared with $6.8 million for the second quarter of fiscal
2015. The improvement was driven by an increase in sales from the same
quarter of the prior year and a decrease in SG&A expenses.

Cash Flow

Cash Flow provided by operations for the first six months of fiscal 2016
was $19.1 million, compared with cash flow provided by operations of
$6.7 million for the same period of fiscal 2015. Capital expenditures
for the first six months of fiscal 2016 of $13.8 million consisted of
$9.7 million for new DXL stores and $4.1 million for infrastructure
projects. Capital expenditures for the first six months of fiscal 2015
of $17.0 million consisted of $11.2 million for new DXL stores and $5.8
million for infrastructure projects. Free cash flow, before DXL capital
expenditures, a non-GAAP measure, improved $14.1 million from the first
six months of fiscal 2015. Certain amounts in the following table may
not foot due to rounding:

The Company believes it is important to distinguish between capital
expenditures for DXL stores, which is a discretionary investment, and
capital expenditures for infrastructure projects. Capital expenditures
on all new DXL stores are subject to demanding ROIC (“Return on Invested
Capital”) hurdles, and the achievement of these hurdles has been a
significant contributor to the Company’s continued improvement in
EBITDA. Management believes free cash flow before DXL capital
expenditures is an important metric, because it demonstrates DXL’s
ability to strengthen liquidity while also contributing to the funding
of DXL store growth.

Non-GAAP Measures

EBITDA, adjusted net income (loss) per share, free cash flow and free
cash flow before DXL capital expenditures are non-GAAP financial
measures. Please see “Non-GAAP Measures” below and a reconciliation of
these non-GAAP measures to the comparable GAAP measures that follows the
table below.

Balance Sheet & Liquidity

At July 30, 2016, the Company had cash and cash equivalents of $5.8
million. Total debt at July 30, 2016 was $63.6 million. Total debt
consisted of $41.2 million outstanding under the Company’s credit
facility, net of unamortized debt issuance costs, and approximately
$22.4 million outstanding under its term loan and equipment financing
notes, net of unamortized debt issuance costs. At July 30, 2016, the
Company had $66.0 million of excess availability under its credit
facility.

Inventory was $121.3 million at July 30, 2016, compared with $125.0
million at January 30, 2016 and $123.6 million at August 1, 2015. The
decrease in inventory compared with last year’s second quarter is due to
inventory initiatives to improve timing of receipts and weeks of supply
on hand. Clearance inventory represented 7.7% of total inventory in the
second quarter of fiscal 2016, compared with 7.2% of total inventory in
the second quarter of fiscal 2015.

Retail Store Information

For the second quarter of fiscal 2016, the Company opened 7 new DXL
stores, which included 1 outlet:

Fiscal 2016 Outlook

The Company is revising its sales guidance for fiscal 2016, given the
macroeconomic and political uncertainty affecting store traffic and
consumer spending. However, the Company’s current earnings expectations
remain within the range of its previous guidance for fiscal 2016, as a
result of disciplined SG&A expense management. The Company now expects:

• Total sales in the range of $457.0 to $463.0 million (compared with
  the Company’s previous guidance of $465.0 to $472.0 million).
• A total comparable sales increase in the range of 2.0% to 4.0%
  (compared with the Company’s previous guidance of 4.8% to 5.5%).
• A net loss of $4.4 million, or $(0.09) per diluted share, to breakeven
  (unchanged). On a non-GAAP basis, an adjusted net loss of $2.6
  million, or $(0.05) per diluted share, to breakeven (unchanged). This
  guidance is presented on a non-GAAP basis for comparative purposes to
  fiscal 2015 earnings, assuming a normal tax benefit of approximately
  40%. The Company expects to continue to provide a full valuation
  allowance against its deferred tax assets in fiscal 2016 and will not
  recognize any income tax benefit on its operating loss in fiscal 2016.*
• Gross profit margin at the low end of the previous range of 46.2% to
  46.5%.
• EBITDA in the range of $31.0 to $35.0 million (unchanged).*
• To open approximately 28 DXL retail and 3 DXL outlet stores and close
  approximately 26 Casual Male XL retail stores and 3 Casual Male XL
  outlet stores (unchanged).
• Capital expenditures of approximately $30.0 million in fiscal 2016,
  with approximately $20.6 million invested in new DXL stores
  (unchanged).
• Borrowings at the end of fiscal 2016 in the range of $59.0 million to
  $64.0 million (unchanged).
• Free cash flow before DXL capital expenditures of approximately $25.6
  million to $30.6 million (unchanged), resulting in total free cash
  flow in the range of $5.0 million to $10.0 million (unchanged).*

* Reconciliations of these non-GAAP measures to their comparable GAAP
measures are provided in the tables below.

Conference Call

The Company will hold a conference call to review its financial results
today, Thursday, August 25, 2016 at 9:00 a.m. ET. To listen to the live
webcast, visit the “Investor
Relations” section of the Company’s website. The live call also can
be accessed by dialing: (888) 466-4520. Please reference conference ID:
2997354. An archived version of the webcast may be accessed by visiting
the “Events“
section of the Company’s website for up to one year.

During the conference call, the Company may discuss and answer questions
concerning business and financial developments and trends. The Company’s
responses to questions, as well as other matters discussed during the
conference call, may contain or constitute information that has not been
disclosed previously.

Non-GAAP Measures

In addition to financial measures prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”), this press release
contains non-GAAP financial measures, including EBITDA, adjusted net
income (loss) per diluted share, free cash flow and free cash flow
before DXL capital expenditures. The presentation of these non-GAAP
measures is not in accordance with GAAP, and should not be considered
superior to or as a substitute for net income (loss), earnings (loss)
per diluted share or cash flows from operating activities or any other
measure of performance derived in accordance with GAAP. In addition, all
companies do not calculate non-GAAP financial measures in the same
manner and, accordingly, the non-GAAP measures presented in this release
may not be comparable to similar measures used by other companies. The
Company believes the inclusion of these non-GAAP measures helps
investors gain a better understanding of the Company’s performance,
especially when comparing such results to previous periods, and that
they are useful as an additional means for investors to evaluate the
Company’s operating results, when reviewed in conjunction with the
Company’s GAAP financial statements. Reconciliations of these non-GAAP
measures to their comparable GAAP measures are provided in the tables
below.

The Company believes that EBITDA (calculated as earnings before
interest, taxes, depreciation and amortization) is useful to investors
in evaluating its performance. With the significant capital investment
associated with the DXL transformation and, therefore, increasing levels
of depreciation and interest, management uses EBITDA as a key metric to
measure profitability and economic productivity.

The Company has fully reserved against its deferred tax assets and,
therefore, its net income (loss) is not reflective of earnings assuming
a “normal” tax position. Adjusted net income (loss) provides investors
with a useful indication of the financial performance of the business,
on a comparative basis, assuming a normalized effective tax rate of 40%.

Free cash flow and free cash flow before DXL capital expenditures are
metrics that management uses to monitor liquidity. The Company has
stated that beginning in fiscal 2016 it expects to fund its ongoing DXL
capital expenditures with cash flow from operations. Management believes
this metric is important to investors because it demonstrates the
Company’s ability to strengthen liquidity while also contributing to the
funding of the DXL store growth. Free cash flow is calculated as cash
flow from operating activities, less capital expenditures, and excludes
the mandatory and discretionary repayment of debt. Free cash flow before
DXL capital expenditures is calculated as free cash flow with DXL
capital expenditures added back.

About Destination XL Group, Inc.

Destination XL Group, Inc. is the largest omni-channel specialty
retailer of big & tall men’s apparel with store locations throughout the
United States and London, England. The retailer operates under five
brands: Destination XL®, Casual Male XL, Rochester Clothing, ShoesXL and
LivingXL. The Company also operates e-commerce sites at www.destinationxl.com
and www.bigandtall.com.
With more than 2,000 private label and name brand styles to choose from,
big and tall customers are provided with a unique blend of wardrobe
solutions not available at traditional retailers. The Company is
headquartered in Canton, Massachusetts. For more information, please
visit the Company’s investor relations website: http://investor.destinationxl.com.

Forward-Looking Statements

Certain statements and information contained in this press release
constitute forward-looking statements under the federal securities laws,
including statements regarding the Company’s expectations with respect
to cash flows, gross profit margins, store counts, capital expenditures,
debt levels, sales, EBITDA, and earnings for fiscal 2016, the expected
impact of inventory management improvements on working capital in fiscal
2016, the Company’s ability to execute on its strategic plan and the
effectiveness of the Destination XL concept. The discussion of
forward-looking information requires management of the Company to make
certain estimates and assumptions regarding the Company’s strategic
direction and the effect of such plans on the Company’s financial
results. The Company’s actual results and the implementation of its
plans and operations may differ materially from forward-looking
statements made by the Company. The Company encourages readers of
forward-looking information concerning the Company to refer to its
filings with the Securities and Exchange Commission, including without
limitation, its Annual Report on Form 10-K filed on March 18, 2016, that
set forth certain risks and uncertainties that may have an impact on
future results and direction of the Company, including risks relating to
the Company’s execution of its DXL strategy and ability to grow its
market share, its ability to predict customer tastes and fashion trends,
its ability to forecast sales growth trends and its ability to
compete successfully in the United States men’s big and tall apparel
market.

Forward-looking statements contained in this press release speak only
as of the date of this release. Subsequent events or circumstances
occurring after such date may render these statements incomplete or out
of date. The Company undertakes no obligation and expressly disclaims
any duty to update such statements.

Certain columns in the following tables may not foot due to rounding

Contacts

Destination XL Group, Inc.
Jeff Unger, 561-482-9715
Vice
President Investor Relations