For the ~~Quarterly Period Ended October~~quarterly period ended July 29, ~~2016~~2017

(Exact ~~name~~Name of ~~registrant~~Registrant as ~~specified~~Specified in its ~~charter)~~Charter)

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

Indicate by check mark whether the registrant has submitted electronically 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 registrant was required to submit and post such files). Yes ☒ No ☐

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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

~~The number~~As of August 15, 2017, the registrant had 48,655,223 shares of ~~the registrant’s~~ common stock, ~~outstanding as of November 11, 2016 was 50,823,803.~~$0.01 par value per share, outstanding.

	October 29, 2016			January 30, 2016			July 29, 2017			January 28, 2017
	(Fiscal 2016)			(Fiscal 2015)			(Fiscal 2017)			(Fiscal 2016)

ASSETS
Current assets:
Cash and cash equivalents	$	6,344		$	5,170		$	6,547		$	5,572
Accounts receivable		8,363			4,721			5,547			7,114
Inventories		128,181			125,014			112,334			117,446
Prepaid expenses and other current assets		8,959			8,254			9,951			8,817
Total current assets		151,847			143,159			134,379			138,949

Property and equipment, net of accumulated depreciation and amortization		125,480			124,962			120,188			124,347

Other assets:
Intangible assets		2,333			2,669			2,015			2,228
Other assets		3,933			3,557			3,790			3,804
Total assets	$	283,593		$	274,347		$	260,372		$	269,328

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	7,725		$	7,155		$	3,758		$	6,941
Current portion of deferred gain on sale-leaseback		1,465			1,465			1,465			1,465
Accounts payable		29,712			30,684			31,767			31,258
Accrued expenses and other current liabilities		29,877			33,778			28,492			31,938
Borrowings under credit facility		62,358			41,984			53,447			44,097
Total current liabilities		131,137			115,066			118,929			115,699

Long-term liabilities:
Long-term debt, net of current portion		13,188			19,003			11,115			12,061
Deferred rent and lease incentives		34,910			30,934			36,805			35,421
Deferred gain on sale-leaseback, net of current portion		12,090			13,189			10,991			11,723
Deferred tax liability		222			196			222			222
Other long-term liabilities		5,851			7,555			5,584			5,682
Total long-term liabilities		66,261			70,877			64,717			65,109

Commitments and contingencies

Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued		—			—			—			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 61,681,817 and 61,692,285 shares issued at October 29, 2016 and January 30, 2016, respectively		617			617
Common stock, $0.01 par value, 100,000,000 shares authorized, 61,337,634 and 61,637,164 shares issued at July 29, 2017 and January 28, 2017, respectively								613			616
Additional paid-in capital		304,165			302,727			306,515			304,466
Treasury stock at cost, 10,877,439 shares at October 29, 2016 and January 30, 2016		(87,977	)		(87,977	)
Treasury stock at cost, 12,755,873 and 10,877,439 shares at July 29, 2017 and January 28, 2017, respectively								(92,658	)		(87,977	)
Accumulated deficit		(124,350	)		(120,311	)		(132,363	)		(122,567	)
Accumulated other comprehensive loss		(6,260	)		(6,652	)		(5,381	)		(6,018	)
Total stockholders' equity		86,195			88,404			76,726			88,520
Total liabilities and stockholders' equity	$	283,593		$	274,347		$	260,372		$	269,328

The accompanying notes are an integral part of the consolidated financial statements.

	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended						For the Six Months Ended
	October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015			July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
	(Fiscal 2016)			(Fiscal 2015)			(Fiscal 2016)			(Fiscal 2015)			(Fiscal 2017)			(Fiscal 2016)			(Fiscal 2017)			(Fiscal 2016)

Sales	$	101,871		$	99,625		$	327,637		$	318,177		$	121,125		$	117,875		$	228,754		$	225,766
Cost of goods sold including occupancy costs		56,633			54,761			177,790			171,191			65,308			63,032			124,249			121,157
Gross profit		45,238			44,864			149,847			146,986			55,817			54,843			104,505			104,609

Expenses:
Selling, general and administrative		41,383			42,414			129,051			131,004			49,068			46,299			95,236			87,668
Depreciation and amortization		7,494			7,076			22,363			20,526			9,621			7,527			17,375			14,869
Total expenses		48,877			49,490			151,414			151,530			58,689			53,826			112,611			102,537

Operating loss		(3,639	)		(4,626	)		(1,567	)		(4,544	)
Operating income (loss)														(2,872	)		1,017			(8,106	)		2,072

Interest expense, net		(779	)		(783	)		(2,346	)		(2,290	)		(824	)		(783	)		(1,626	)		(1,567	)

Loss before provision for income taxes		(4,418	)		(5,409	)		(3,913	)		(6,834	)
Income (loss) before provision for income taxes														(3,696	)		234			(9,732	)		505
Provision for income taxes		34			63			126			191			35			35			64			92


Net loss	$	(4,452	)	$	(5,472	)	$	(4,039	)	$	(7,025	)
Net income (loss)													$	(3,731	)	$	199		$	(9,796	)	$	413


Net loss per share - basic and diluted	$	(0.09	)	$	(0.11	)	$	(0.08	)	$	(0.14	)
Net income (loss) per share - basic and diluted													$	(0.08	)	$	0.00		$	(0.20	)	$	0.01

Weighted-average number of common shares outstanding:
Basic		49,552			49,116			49,532			49,072			48,556			49,531			49,146			49,522
Diluted		49,552			49,116			49,532			49,072			48,556			49,953			49,146			49,902

The accompanying notes are an integral part of the consolidated financial statements.

	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended						For the Six Months Ended
	October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015			July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
	(Fiscal 2016)			(Fiscal 2015)			(Fiscal 2016)			(Fiscal 2015)			(Fiscal 2017)			(Fiscal 2016)			(Fiscal 2017)			(Fiscal 2016)
Net loss	$	(4,452	)	$	(5,472	)	$	(4,039	)	$	(7,025	)
Net income (loss)													$	(3,731	)	$	199		$	(9,796	)	$	413

Other comprehensive income before taxes:
Foreign currency translation		(176	)		(32	)		(319	)		30			177			(188	)		216			(143	)
Pension plans		237			256			711			769			206			261			421			474
Other comprehensive income before taxes		61			224			392			799			383			73			637			331
Tax provision related to items of other comprehensive income		—			—			—			—			—			—			—			—
Other comprehensive income, net of tax		61			224			392			799			383			73			637			331
Comprehensive loss	$	(4,391	)	$	(5,248	)	$	(3,647	)	$	(6,226	)
Comprehensive income (loss)													$	(3,348	)	$	272		$	(9,159	)	$	744

The accompanying notes are an integral part of the consolidated financial statements.

																	Accumulated																							Accumulated
						Additional											Other												Additional											Other
	Common Stock					Paid-in		Treasury Stock						Accumulated			Comprehensive						Common Stock						Paid-in		Treasury Stock						Accumulated			Comprehensive
	Shares			Amounts		Capital		Shares			Amounts			Deficit			Income (Loss)			Total			Shares			Amounts			Capital		Shares			Amounts			Deficit			Income (Loss)			Total
Balance at January 30, 2016		61,692		$	617	$	302,727		(10,877	)	$	(87,977	)	$	(120,311	)	$	(6,652	)	$	88,404

Balance at January 28, 2017																								61,637		$	616		$	304,466		(10,877	)	$	(87,977	)	$	(122,567	)	$	(6,018	)	$	88,520
Board of Directors compensation																								58			1			285														286
Stock compensation expense							1,076														1,076									840														840
Board of Directors compensation		48					362														362
Restricted Stock issued, reclass from liability to equity (Note 3)																								425			4			916														920
Cancellations of restricted stock, net of issuances		(59	)																					(788	)		(8	)		8														—
Deferred stock vested																								5			—			—														—
Repurchase of common stock																																(1,878	)		(4,681	)								(4,681	)
Accumulated other comprehensive income (loss):
Pension plan																		711			711																				421			421
Foreign currency																		(319	)		(319	)																			216			216
Net loss															(4,039	)					(4,039	)																(9,796	)					(9,796	)
Balance at October 29, 2016		61,681		$	617	$	304,165		(10,877	)	$	(87,977	)	$	(124,350	)	$	(6,260	)	$	86,195
Balance at July 29, 2017																								61,337		$	613		$	306,515		(12,755	)	$	(92,658	)	$	(132,363	)	$	(5,381	)	$	76,726

The accompanying notes are an integral part of the consolidated financial statements.

	For the Nine Months Ended							For the Six Months Ended
	October 29, 2016			��	October 31, 2015			July 29, 2017			July 30, 2016
	(Fiscal 2016)				(Fiscal 2015)			(Fiscal 2017)			(Fiscal 2016)
Cash flows from operating activities:
Net loss	$	(4,039	)		$	(7,025	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Net income (loss)								$	(9,796	)	$	413
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of deferred gain on sale-leaseback		(1,099	)			(1,099	)		(732	)		(733	)
Amortization of deferred debt issuance costs		208				211			138			139
Depreciation and amortization		22,363				20,526			17,375			14,869
Deferred taxes, net of valuation allowance		26				79			—			26
Stock compensation expense		1,076				1,582			840			755
Board of Directors stock compensation		362				402			286			356

Changes in operating assets and liabilities:
Accounts receivable		(3,642	)			(2,463	)		1,567			(2,392	)
Inventories		(3,167	)			(18,092	)		5,112			3,707
Prepaid expenses and other current assets		(705	)			(572	)		(1,134	)		(402	)
Other assets		(376	)			(143	)		14			(114	)
Accounts payable		(972	)			348			509			5,368
Deferred rent and lease incentives		3,976				2,371			1,384			2,849
Accrued expenses and other liabilities		(5,959	)			(1,176	)		(1,214	)		(5,696	)
Net cash provided by (used for) operating activities		8,052				(5,051	)
Net cash provided by operating activities									14,349			19,145

Cash flows from investing activities:
Additions to property and equipment, net		(21,799	)			(25,352	)		(13,775	)		(13,841	)
Net cash used for investing activities		(21,799	)			(25,352	)		(13,775	)		(13,841	)

Cash flows from financing activities:
Proceeds from the exercise of stock options		—				101
Repurchase of common stock									(4,681	)		—
Principal payments on long-term debt		(5,363	)			(5,624	)		(4,208	)		(3,840	)
Costs associated with debt issuances		—				(15	)
Net borrowings under credit facility		20,284				36,955
Net cash provided by financing activities		14,921				31,417
Net borrowings (repayments) under credit facility									9,290			(870	)
Net cash provided by (used for) financing activities									401			(4,710	)
Net increase in cash and cash equivalents		1,174				1,014			975			594
Cash and cash equivalents:
Beginning of period		5,170				4,586			5,572			5,170
End of period	$	6,344			$	5,600		$	6,547		$	5,764

The accompanying notes are an integral part of the consolidated financial statements.

In the opinion of management of Destination XL Group, Inc., a Delaware corporation (formerly known as Casual Male Retail Group, Inc. and, collectively with its subsidiaries, referred to as the “Company”), the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited consolidated financial statements for the fiscal year ended January ~~30, 2016~~28, 2017 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March ~~18, 2016.~~20, 2017.

The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal ~~2016~~2017 is a 53-week period ending on February 3, 2018 and fiscal ~~2015 are~~2016 was a 52-week ~~periods~~period ending on January 28, ~~2017 and January 30, 2016, respectively.~~2017.

The Company reports its operations as one reportable segment, Big & Tall Men’s Apparel, which consists of two principal operating segments: its retail business and its direct business. The Company considers its operating segments to be similar in terms of economic characteristics, production processes and operations, and ~~have~~has therefore aggregated them into a single reporting segment, consistent with its omni-channel business approach. The direct operating segment includes the operating results and assets for LivingXL^® and ShoesXL^®.

At ~~October~~July 29, ~~2016,~~2017, the “Casual Male” trademark had a carrying value of ~~$0.7~~$0.4 million and is considered a definite-lived asset. The Company is amortizing the remaining carrying value on an accelerated basis, consistent with projected cash flows through fiscal 2018, its estimated remaining useful life.

The Company’s “Rochester” trademark is considered an indefinite-lived intangible asset and has a carrying value of $1.5 million. During the ~~first nine~~six months ended ~~October~~July 29, ~~2016,~~2017, no event or circumstance occurred which would cause a reduction in the fair value of the Company’s reporting units, requiring interim testing of the Company’s “Rochester” trademark.

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.

The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.

The fair value of long-term debt is classified within Level 2 of the valuation hierarchy. At ~~October~~July 29, ~~2016,~~2017, the fair value ~~approximates~~approximated the carrying amount based upon terms available to the Company for borrowings with similar arrangements and remaining maturities.

The fair value of indefinite-lived assets, which consists of the Company’s “Rochester” trademark, is measured on a non-recurring basis in connection with the Company’s annual impairment test. The fair value of the trademark is determined using a projected discounted cash flow analysis based on unobservable inputs and ~~are~~is classified within Level 3 of the valuation hierarchy. See Intangibles above.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value because of the short maturity of these instruments.

Other comprehensive income (loss) includes amounts related to foreign currency and pension plans and is reported in the Consolidated Statements of Comprehensive Income (Loss). Other comprehensive income and reclassifications from AOCI for the three and ~~nine~~six months ended ~~October~~July 29, ~~2016~~2017 and ~~October 31, 2015,~~July 30, 2016, respectively, were as follows:

	October 29, 2016									October 31, 2015									July 29, 2017									July 30, 2016
For the three months ended:	(in thousands)																		(in thousands)
	Pension Plans			Foreign Currency			Total			Pension Plans			Foreign Currency			Total			Pension Plans			Foreign Currency			Total			Pension Plans			Foreign Currency			Total
Balance at beginning of the quarter	$	(5,639	)	$	(682	)	$	(6,321	)	$	(7,282	)	$	(381	)	$	(7,663	)	$	(5,022	)	$	(742	)	$	(5,764	)	$	(5,900	)	$	(494	)	$	(6,394	)

Other comprehensive income (loss) before reclassifications, net of taxes		61			(176	)		(115	)		94			(32	)		62			25			177			202			61			(188	)		(127	)

Amounts reclassified from accumulated other comprehensive income, net of taxes ⁽¹⁾		176			—			176			162			—			162			181			—			181			200			—			200

Other comprehensive income (loss) for the period		237			(176	)		61			256			(32	)		224			206			177			383			261			(188	)		73

Balance at end of quarter	$	(5,402	)	$	(858	)	$	(6,260	)	$	(7,026	)	$	(413	)	$	(7,439	)	$	(4,816	)	$	(565	)	$	(5,381	)	$	(5,639	)	$	(682	)	$	(6,321	)

	October 29, 2016									October 31, 2015									July 29, 2017									July 30, 2016
For the nine months ended:	(in thousands)
For the six months ended:																			(in thousands)
	Pension Plans			Foreign Currency			Total			Pension Plans			Foreign Currency			Total			Pension Plans			Foreign Currency			Total			Pension Plans			Foreign Currency			Total
Balance at beginning of fiscal year	$	(6,113	)	$	(539	)	$	(6,652	)	$	(7,795	)	$	(443	)	$	(8,238	)	$	(5,237	)	$	(781	)	$	(6,018	)	$	(6,113	)	$	(539	)	$	(6,652	)

Other comprehensive income (loss) before reclassifications, net of taxes		183			(319	)		(136	)		284			30			314			85			216			301			122			(143	)		(21	)

Amounts reclassified from accumulated other comprehensive income, net of taxes ⁽¹⁾		528			—			528			485			—			485			336			—			336			352			—			352

Other comprehensive income (loss) for the period		711			(319	)		392			769			30			799			421			216			637			474			(143	)		331

Balance at end of quarter	$	(5,402	)	$	(858	)	$	(6,260	)	$	(7,026	)	$	(413	)	$	(7,439	)	$	(4,816	)	$	(565	)	$	(5,381	)	$	(5,639	)	$	(682	)	$	(6,321	)

Revenue from the Company’s retail business is recorded upon purchase of merchandise by customers, net of an allowance for sales returns. Revenue from the Company’s direct business is recognized at the time a customer order is delivered, net of an allowance for sales returns. ~~Revenue is recognized by~~Store sales are defined as sales that originate and are fulfilled directly at the ~~operating segment~~store level. E-commerce sales are defined as sales that ~~fulfills a customer’s order.~~originate online, including those initiated online at the store level.

All share-based payments, including grants of employee stock options and restricted stock, are recognized as an expense in the Consolidated Statements of Operations based on their fair values and vesting periods. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). The Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as an expense over the vesting period, net of estimated forfeitures. The estimation of stock-based awards that will ultimately vest requires significant judgment. Actual results and future changes in estimates may differ from the Company’s current estimates.

The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company’s average cost of funds.

In the second quarter of fiscal 2017, the Company recorded an impairment charge of $1.7 million for the write-down of property and equipment. The impairment charge related to a store where the carrying value exceeded fair value. The fair value of these assets, based on Level 3 inputs, was determined using estimated discounted cash flows. The impairment charge was included in Depreciation and Amortization on the Consolidated Statement of Operations for the second quarter and first six months of fiscal 2017. There was no material impairment of assets in the second quarter and first six months of fiscal 2016.

In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," which applies to inventory that is measured using first-in, first-out ("FIFO") or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. The Company adopted this pronouncement as of January 29, 2017. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards, and classification on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this standard during the first quarter of fiscal 2017. The adoption of this standard did not have a material impact on the Company’s provision for income taxes or diluted earnings per share. The Company has elected to adopt the guidance related to the presentation of excess tax benefits in its Consolidated Statements of Cash Flows on a prospective transition method. Since there were no excess tax benefits for the six months ended July 29, 2017 or July 30, 2016, this election did not result in a change in presentation on the Consolidated Statement of Cash Flows. In addition, the Company has elected to continue to estimate forfeitures at each grant.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition,” as well as various other sections of the ASC, such as, but not limited to, ASC 340-20, “Other Assets and Deferred Costs - Capitalized Advertising Costs”. The core principle of ASU 2014-09 is that an entity should recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied either retrospectively to each prior reporting period presented or with the cumulative effect recognized at the date of initial adoption as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets on the balance sheet). Early adoption is permitted after December 15, 2016. The Company expects to adopt ASU 2014-09 in the first quarter of fiscal 2018 and will not adopt early. The Company expects it will use the modified retrospective approach as a transition method and is ~~currently~~ ~~evaluating~~ ~~the impact~~making progress towards completing its assessment of the ~~adoption of~~effect that ASU ~~No.~~ 2014-09 will have on its Consolidated Financial Statements.

~~In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory,~~" which applies to inventory that is measured using first-in, first-out ("FIFO") or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company ~~does not expect the adoption of this pronouncement to have a material impact on its~~ ~~Consolidated Financial Statements~~.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which will require an entity to recognize lease assets and lease liabilities on its balance sheet and will increase disclosure requirements on its leasing arrangements. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. ~~The~~While the Company is ~~currently~~ still evaluating the impact this pronouncement will have on its Consolidated Financial Statements, the Company expects a gross-up of its Consolidated ~~Financial Statements.~~Balance Sheets as a result of recognizing lease liabilities and right of use assets. The extent of such gross-up is under evaluation.

In March 2016, the FASB issued ASU 2016-04, “Liabilities—Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products,” which amends exempting gift cards and other prepaid stored-value products from the guidance on extinguishing financial liabilities. Rather, they will be subject to breakage accounting consistent with the new revenue guidance in Topic 606. However, the exemption only applies to breakage liabilities that are not subject to unclaimed property laws or that are attached to segregated bank accounts (e.g., consumer debit cards). The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this pronouncement to have a material impact on its Consolidated Financial Statements.

~~In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718) -Improvements to Employee Share-Based Payment Accounting,”~~ ~~which simplifies~~several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards, and classification on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company does not expect that the adoption of this ~~pronouncement~~ ~~will have a material impact on its~~ ~~Consolidated Financial Statements~~.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which reduces the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect the adoption of this pronouncement to have a material impact on its Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16, “Income ~~Taxes(Topic~~Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory,” which reduces the existing diversity in practice in how income tax consequences of an intra-entity transfer of an asset other than inventory should be recognized. The amendments in ASU 2016-16 require an entity to recognize such income tax consequences when the intra-entity transfer occurs rather than waiting until such time as the asset has been sold to an outside party. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect the adoption of this pronouncement to have a material impact on its Consolidated Financial Statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718)”which provides clarity in order to reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this pronouncement to have a material impact on its Consolidated Financial Statements.

No other new accounting pronouncements, issued or effective during the first ~~nine~~six months of fiscal ~~2016,~~2017, have had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.

On October 30, 2014, the Company amended its credit facility with Bank of America, N.A, effective October 29, 2014, by executing the Second Amendment to the Sixth Amended and Restated Loan and Security Agreement (as amended, the “Credit Facility”).

The Credit Facility provides for maximum committed borrowings of $125 million. The Credit Facility includes, pursuant to an accordion feature, the ability to increase the Credit Facility by an additional $50 million upon the request of the Company and the agreement of the lender(s) participating in the increase. The Credit Facility includes a sublimit of $20 million for commercial and standby letters of credit and a sublimit of up to $15 million for swingline loans. The Company’s ability to borrow under the Credit Facility is determined using an availability formula based on eligible assets. The maturity date of the Credit Facility is October 29, 2019. The Company’s obligations under the Credit Facility are secured by a lien on substantially all of its assets, excluding (i) a first priority lien held by the lenders of the Term Loan Facility on certain equipment of the Company described below and (ii) intellectual property.

At ~~October~~July 29, ~~2016,~~2017, the Company had outstanding borrowings under the Credit Facility of ~~$62.7~~$53.7 million, before unamortized debt issuance costs of ~~$0.4~~$0.3 million. Outstanding standby letters of credit were ~~$2.9~~$3.3 million and outstanding documentary letters of credit were ~~$0.5~~$0.1 million. Unused excess availability at ~~October~~July 29, ~~2016~~2017 was ~~$52.4~~$43.7 million. Average monthly borrowings outstanding under the Credit Facility during the first ~~nine~~six months of fiscal ~~2016~~2017 were ~~$51.9~~$58.6 million, resulting in an average unused excess availability of approximately ~~$58.4~~$46.0 million. The Company’s ability to borrow under the Credit Facility is determined using an availability formula based on eligible assets, with increased advance rates based on seasonality. Pursuant to the terms of the Credit Facility, if the Company’s excess availability under the Credit Facility fails to be equal to or greater than the greater of (i) 10% of the Loan Cap (defined in the Credit Facility as the lesser of the revolving credit commitments at such time or the borrowing base at the relevant measurement time) and (ii) $7.5 million, the Company will be required to maintain a minimum consolidated fixed charge coverage ratio of 1.0:1.0 in order to pursue certain transactions, including but not limited to, stock repurchases, payment of dividends and business acquisitions.

Borrowings made pursuant to the Credit Facility will bear interest at a rate equal to the base rate (determined as the highest of (a) Bank of America N.A.’s prime rate, (b) the Federal Funds rate plus 0.50% or (c) the annual ICE-LIBOR rate (“LIBOR”) for the respective interest period) plus a varying percentage, based on the Company’s borrowing base, of 0.50%-0.75% for prime-based borrowings and 1.50%-1.75% for LIBOR-based borrowings. The Company is also subject to an unused line fee of 0.25%. At ~~October~~July 29, ~~2016,~~2017, the Company’s prime-based interest rate was ~~4.0%~~4.75%. At ~~October~~July 29, ~~2016,~~2017, the Company had approximately ~~$56.0~~$47.0 million of its outstanding borrowings in LIBOR-based contracts with an interest rate of ~~1.96%~~2.69%. The LIBOR-based contracts expired on ~~October 31, 2016.~~August 1, 2017. When a LIBOR-based borrowing expires, the borrowings revert back to prime-based borrowings unless the Company enters into a new LIBOR-based borrowing arrangement.

The fair value of the amount outstanding under the Credit Facility at ~~October~~July 29, ~~2016~~2017 approximated the carrying value.

(in thousands)	October 29, 2016			January 30, 2016			July 29, 2017			January 28, 2017
Equipment financing notes	$	8,289		$	12,901		$	2,881		$	6,589
Term loan, due 2019		13,000			13,750			12,250			12,750
Less: unamortized debt issuance costs		(376	)		(493	)		(258	)		(337	)
Total long-term debt		20,913			26,158			14,873			19,002
Less: current portion of long-term debt		7,725			7,155			3,758			6,941
Long-term debt, net of current portion	$	13,188		$	19,003		$	11,115		$	12,061

Pursuant to a Master Loan and Security Agreement with Banc of America Leasing & Capital, LLC, dated July 20, 2007 and amended on September 30, 2013 (the “Master Agreement”), the Company entered into twelve equipment security notes between September 2013 and June 2014 (in aggregate, the “Notes”), whereby the Company borrowed an aggregate of $26.4 million. The Notes are for a term of 48 months and accrue interest at fixed rates ranging from 3.07% to 3.50%. Principal and interest are paid monthly, in arrears.

The Notes are secured by a security interest in all of the Company’s rights, title and interest in and to certain equipment. The Company was subject to prepayment penalties through the second anniversary of each note. The Company is no longer subject to any

prepayment penalties. The Master Agreement includes default provisions that are customary for financings of this type and are similar and no more restrictive than the Company’s existing Credit Facility.

On October 30, 2014, the Company entered into a term loan agreement with respect to a new $15 million senior secured term loan facility with Wells Fargo Bank, National Association as administrative and collateral agent (the “Term Loan Facility”). The effective date of the Term Loan Facility is October 29, 2014 (the “Effective Date”). The proceeds from the Term Loan Facility were used to repay borrowings under the Credit Facility.

The Term Loan Facility bears interest at a rate per annum equal to the greater of (a) 1.00% and (b) the one month LIBOR rate, plus 6.50%. Interest payments are payable on the first business day of each calendar month, and increase by 2% following the occurrence and during the continuance of an “event of default,” as defined in the Term Loan Facility. The Term Loan Facility provides for quarterly principal payments on the first business day of each calendar quarter, which commenced the first business day of January 2015, in an aggregate principal amount equal to $250,000, subject to adjustment, with the balance payable on the termination date.

The Term Loan Facility includes usual and customary mandatory prepayment provisions for transactions of this type that are triggered by the occurrence of certain events. In addition, the amounts advanced under the Term Loan Facility can be optionally prepaid in whole or part. All prepayments are subject to an early termination fee in the amount of 1% of the amount prepaid ~~prior to October 29, 2017. There is no prepayment penalty after~~through October 29, 2017.

The Term Loan Facility matures on October 29, 2019. It is secured by a first priority lien on certain equipment of the Company, and a second priority lien on substantially all of the remaining assets of the Company, excluding intellectual property.

The following is a summary of the Company’s long-term incentive plans. ~~All~~Beginning on August 4, 2016, all equity awards ~~previously~~ granted under ~~these~~ long-term incentive plans are issued from the Company’s stockholder-approved 2016 Incentive Compensation Plan. All prior awards were issued from the Company’s 2006 Incentive Compensation Plan, which expired on July 31, 2016. ~~As of August 4, 2016, any future grants of equity awards will be issued from the Company’s stockholder-approved 2016 Incentive Compensation Plan.~~ See Note 4, Stock-Based Compensation.

The 2013-2016 Long-Term Incentive Plan (“2013-2016 LTIP”) was approved in the second quarter of fiscal 2013. Pursuant to the terms of the 2013-2016 LTIP, on the date of grant, each participant was granted an unearned and unvested award equal in value to four times his/her annual salary multiplied by the applicable long-term incentive program percentage, which is 100% for the Company’s Chief Executive Officer, 70% for its senior executives and 50% for other participants in the plan, which the Company refers to as the “Projected Benefit Amount.” Each participant was granted 50% of the Projected Benefit Amount in shares of restricted stock, 25% in stock options and the remaining 25% in cash.

Of the total Projected Benefit Amount, 50% is subject to time-based vesting and 50% is subject to performance-based vesting. The time-vested portion of the award (half of the shares of restricted stock, options and cash) vests in three installments with 20% of the time-vested portion having vested at the end of fiscal 2014, 40% having vested at the end of fiscal 2015 and the remaining 40% vesting at the end of fiscal 2016.

In fiscal 2016, the Company must achieve revenue of at least $600 million and an operating margin of not less than 8.0% for participants to receive 100% vesting of the performance-based portion of the Projected Benefit Amount. If the Company does not meet the performance target at the end of fiscal 2016, but the Company is able to achieve revenue equal to or greater than $510 million at the end of fiscal 2016 and the operating margin is not less than 8.0%, then the participants will receive a pro-rata portion of the performance-based award based on minimum sales of $510 million (50% payout) and $600 million (100% payout).

Assuming the Company achieves the performance target and 100% of the Projected Benefit Amount vests, excluding estimated forfeitures, the total potential value of all awards over this four-year period, as of October 29, 2016, would be approximately $19.0 million. Approximately half of the compensation expense relates to the time-vested awards, which is being expensed over forty-four months, based on the respective vesting dates. As the performance targets were not deemed probable at October 29, 2016, no expense for the performance-based awards has been recognized through October 29, 2016.

The 2016 Long-Term Incentive Wrap-Around Plan (the “Wrap-Around Plan”), which was approved in the fourth quarter of fiscal 2014, iswas a supplemental performance-based incentive plan that iswas only effective if there iswas no vesting of the performance-based awards under the 2013-2016 LTIP and, as a result, all performance-based awards under that plan are forfeited. ~~Under~~The performance targets under the 2013-2016 LTIP were not achieved at the end of fiscal 2016 and accordingly, the Wrap-Around Plan if the target level performance metrics for fiscal 2016 are met, participants will be eligible to receive a payout equal to 80% of the dollar value of the performance-based compensation they were eligible to receive under the 2013-2016 LTIP. If the target level performance metrics for fiscal 2016 under the Wrap-Around Plan are exceeded, the greatest payout that participants will be eligible to receive is 100% of the dollar value of the performance-based compensation they were eligible to receive under the 2013-2016 LTIP. Any award earned will be paid 50% in cash and 50% in shares of restricted stock.became effective.

The performance target under the Wrap-Around Plan ~~consists~~consisted of two metrics, Sales and EBITDA, with threshold (50%), target (80%) and maximum (100%) payout levels. Each metric iswas weighted as 50% of the total performance target. However, in order for there to be any payout under either metric, EBITDA for fiscal 2016 ~~must~~had to be equal to or greater than the minimum threshold.

The Wrap-Around Plan also ~~provides~~provided for an opportunity to receive additional shares of restricted stock if the performance targets ~~are~~were achieved and the Company’s closing stock price iswas $6.75 or higher on the day earnings for fiscal 2016 are publicly released. If the Company’s stock price is $6.75, the payout in restricted shares will be increased by 20% and if the stock price is $7.25 or higher, the payout in restricted shares will be increased by 30%, with a pro-rata payout between $6.75 and $7.25. The portion of the award payable in cash is not affected by the stock price. All awards granted pursuant to the Wrap-Around Plan will not vest until the last day of the second quarter of fiscal 2017.

Assuming that the Company achieves the performance target at target levels under the Wrap-Around Plan, and further assuming that the Company’s stock price is greater than $7.25, at the time the Company’s earnings arewere publicly released, which was March 20, 2017. The stock did not achieve a minimum of $6.75, therefore, no additional award was earned.

Based on the ~~compensation expense associated with this Wrap-Around Plan is estimated to be approximately $8.4 million. Through the end of the third quarter of~~operating results for fiscal 2016, the Company ~~has accrued~~achieved 50.6% of its EBITDA target. The minimum threshold for the Sales target was not achieved. Accordingly, subsequent to year-end, in the first quarter of fiscal 2017, the Compensation Committee of the Board of Directors approved awards totaling $2.3 million, with a grant date of March 20, 2017. On that date, the Company granted shares of restricted stock, with a fair value of approximately ~~$2.0~~$1.0 million and cash awards totaling approximately $1.3 million. All awards vested on July 28, 2017.

On March 20, 2017, in ~~compensation expense related~~conjunction with the grant of restricted stock awards, the Company reclassified $0.9 million of the liability accrual from “Accrued Expenses and Other Current Liabilities” to “Additional Paid-In Capital.” See the ~~potential payout~~Consolidated Statement of ~~performance awards under the Wrap-Around Plan.~~Changes in Stockholders’ Equity.

With the 2013-2016 LTIP and Wrap-Around Plan expiring at the end of fiscal 2016, on March 15, 2016, the Compensation Committee approved the Destination XL Group, Inc. Long-Term Incentive Plan, as amended February 1, 2017 (the “new LTIP”).

Under the terms of the new LTIP, each year the Compensation Committee will establish performance targets which will cover a two-year performance period (each a “Performance Period”), thereby creating overlapping Performance Periods. Each participant in the plan will be entitled to receive an award based on that participant’s “Target Cash Value” which is defined as the participant’s annual base salary (on the participant’s effective date) multiplied by his or her long-term incentive program percentage, which is 100% for the Company’s Chief Executive Officer, 70% for its senior executives and 25% for other participants in the plan. Because of the overlapping two-year Performance Periods, the Target Cash Value for any award is based on one year of annual salary, as opposed to two years, to avoid doubling an award payout in any given fiscal year.

For each participant, 50% of the Target Cash Value is subject to time-based vesting and 50% is subject to performance-based vesting. The time-vested portion of the award will vest in two installments with 50% of the time-vested portion vesting on April 1 following the fiscal year end which marks the end of the applicable Performance Period and 50% vesting on April 1 the succeeding year. The performance-based vesting is subject to the achievement of the performance target(s) for the applicable Performance Period. Any performance award granted will vest on August 31 following the end of the applicable Performance Period.

~~The~~For the 2016-2017 Performance Period, the Compensation Committee established two performance targets ~~for the 2016-2017 Performance Period~~ under the ~~new~~ LTIP (the “2016-2017 LTIP”), each weighted 50%. The first target is EBITDA for fiscal 2017, defined as earnings before interest, taxes, depreciation and amortization, and the second target is “DXL Comparable Store Marginal Cash-Over-Cash Return”, defined as the aggregate of each comparable DXL store’s four-wall cash flow for fiscal 2017 divided by the aggregate capital investment, net of any tenant allowance, for each comparable DXL store.

For the 2017-2018 Performance Period, the Compensation Committee established two performance targets under the LTIP (the “2017-2018 LTIP”), each weighted 50%. The first target is Total Company Comparable Sales and will be measured based on a two-year stack, which is the sum of the Total Company Comparable Sales for fiscal 2017 and fiscal 2018. The second target is a Modified ROIC, which is defined as Operating Income divided by Invested Capital (Total Debt plus Stockholders’ Equity).

All awards granted under both the 2016-2017 LTIP ~~will be~~and 2017-2018 LTIP were in restricted stock units (RSUs). Assuming that the Company achieves the performance target at target levels and all time-vested awards vest, the compensation expense associated with the 2016-2017 LTIP and 2017-2018 LTIP is estimated to be approximately $4.0 million and $4.2 ~~million.~~million, respectively. Approximately half of the compensation expense ~~or $2.1 million,~~for each plan relates to the time-vested RSUs, which are being expensed over thirty-six months, based on the respective vesting dates. With respect to the performance-based component, RSUs will be granted at the end of the performance period if the performance targets are achieved. Through the end of the ~~third~~second quarter of fiscal ~~2016,~~2017, the Company ~~has~~had accrued approximately ~~$0.5~~$0.3 million and $0.1 million in compensation expense related to the potential payout of performance awards under the 2016-2017 ~~LTIP.~~LTIP and 2017-2018 LTIP, respectively.

Through the end of the second quarter of fiscal 2016, the Company’s 2006 Incentive Compensation Plan (as amended and restated effective as of August 1, 2013, the “2006 Plan”) was the only stockholder-approved plan. The 2006 Plan expired on July 31, 2016. In the third quarter of fiscal 2016, at the Company’s 2016 Annual Meeting of Stockholders held August 4, 2016, the Company’s stockholders approved the adoption of the 2016 Incentive Compensation Plan (the “2016 Plan”).

The initial share reserve under the 2016 Plan, ~~is 5,200,000~~including the rollover of 525,538 available shares under our 2006 Plan was 5,725,538 shares of our common stock. A grant of a stock option award or stock appreciation right will reduce the outstanding reserve on a one-for-one basis, meaning one share for every share granted. A grant of a full-value award, including, but not limited to, restricted stock, restricted stock units and deferred stock, will reduce the outstanding reserve by a fixed ratio of 1.9 shares for every share granted.

In addition to the initial share reserve of 5,200,000 shares, the 525,538 shares that remained available under our 2006 Plan were added and became available for issuance under the 2016 Plan on August 4, 2016. In accordance with the terms of the 2016 Plan, any shares outstanding under the 2006 Plan at August 4, 2016 that subsequently terminate, expire or are canceled for any reason without having been exercised or paid are added back and become available for issuance under the 2016 Plan, with options and stock appreciation rights being added back on a one-for-one basis and full-value awards being added back on a 1 ~~to1.9~~to 1.9 basis. ~~Accordingly, an additional 237,952 shares were added to share availability under the 2016 Plan during the third quarter of fiscal 2016.~~ At ~~October~~July 29, ~~2016,~~2017, the Company had ~~5,940,761~~6,479,451 shares available under the 2016 Plan.

The 2016 Plan is administered by the Compensation Committee. The Compensation Committee is authorized to make all determinations with respect to amounts and conditions covering awards. Options are not granted at a price less than fair value on the date of the grant. Except with respect to 5% of the shares available for awards under the 2016 Plan, no award will become exercisable ~~or otherwise forfeitable~~ unless such award has been outstanding for a minimum period of one year from its date of grant.

The following tables summarize the share activity and stock option activity for the Company’s 2006 Plan and ~~share activity under the~~ 2016 Plan, on a combined basis, for the first ~~nine~~six months of fiscal ~~2016:~~2017:

Number of
shares

Weighted-average
exercise price
per option

Weighted-average
remaining
contractual term

Aggregate
intrinsic value

Stock Options

Outstanding options at beginning of year

—

$
—

Options granted

8,522

$
4.49

Options canceled

—

$
—

Options exercised

—

$
—

Outstanding options at end of quarter

8,522

$
4.49

9.9 years

$
—

Options exercisable at end of quarter

—

	Restricted shares			Restricted Stock Units ⁽¹⁾			Deferred shares ⁽²⁾			Fully-vested shares ⁽³⁾			Total number of shares			Weighted-average grant-date fair value ⁽⁴⁾
Shares
Outstanding non-vested shares at beginning of year		856,332			369,828			64,876			—			1,291,036		$	5.09
Shares granted		484,558			782,357			43,467			40,109			1,350,491		$	2.72
Shares vested/issued		(430,336	)		(9,662	)		(5,308	)		(40,109	)		(485,415	)	$	2.53
Shares canceled		(857,221	)		(23,035	)		—			—			(880,256	)	$	4.98
Outstanding non-vested shares at end of quarter		53,333			1,119,488			103,035			—			1,275,856		$	3.60

~~The following tables summarize the stock option activity and share activity under the 2006 Plan for the first nine months of fiscal 2016:~~

Restricted shares

Restricted Stock Units ⁽¹⁾

Deferred shares ⁽²⁾

Fully-vested
shares ⁽³⁾

Total number of shares

Weighted-average
grant-date
fair value ⁽⁴⁾

Shares

Outstanding non-vested shares at beginning of year

1,320,143

—

31,587

—

1,351,730

$
5.09

Shares granted

—

427,874

23,323

37,950

489,147

$
5.15

Shares vested/issued

(10,555
)

(919
)

—

(37,950
)

(49,424
)

$
5.04

Shares canceled

(63,574
)

(20,930
)

—

—

(84,504
)

$
5.07

Outstanding non-vested shares at end of quarter

1,246,014

406,025

54,910

—

1,706,949

$
5.11

For the first ~~nine~~six months of fiscal 2017, the Company granted 484,558 shares of restricted stock, 782,357 RSUs and 43,467 shares of deferred stock. For the first six months of fiscal 2016, the Company granted ~~8,522 stock options, 3,834 shares of restricted stock, 431,270 RSUs and 23,570 shares of deferred stock. For the first nine months of fiscal 2015, the Company granted 15,790~~23,323 shares of deferred stock and ~~10,000 shares of restricted stock.~~427,874 RSUs. There were no grants of stock options during the first ~~nine~~six months of fiscal ~~2015.~~2017 and fiscal 2016.

Unless otherwise specified by the Compensation Committee, RSUs, restricted stock and deferred stock are valued using the closing price of the Company’s common stock on the day immediately preceding the date of grant.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for grants for the first nine months of fiscal 2016. There were no grants of stock options for the first nine months of fiscal 2015:

The Company granted ~~10,403~~18,054 shares of common stock, with a fair value of approximately ~~$51,804,~~$49,428, to certain of its non-employee directors as compensation in lieu of cash in the first ~~nine~~six months of fiscal ~~2016.~~2017.

~~For the first nine months of fiscal 2016 and fiscal 2015, the~~The Company recognized total stock-based compensation expense of ~~$1.1~~$0.8 million for both the first six months of fiscal 2017 and ~~$1.6 million, respectively.~~fiscal 2016. The total compensation cost related to time-vested stock options, restricted stock and RSU awards not yet recognized as of ~~October~~July 29, ~~2016 is~~2017 was approximately ~~$1.8~~$2.8 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 2124 months. At October 29, 2016, the Company had $7.0 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to its performance-based stock options and restricted stock under its 2013-2016 LTIP. As discussed above, the Company will begin recognizing compensation if, and when, achievement of the performance targets under the 2013-2016 LTIP becomes probable.

The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share:

	For the three months ended				For the nine months ended				For the three months ended				For the six months ended
	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015		July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016
(in thousands)
Common Stock Outstanding:
Basic weighted average common shares outstanding		49,552		49,116		49,532		49,072		48,556		49,531		49,146		49,522
Common stock equivalents – stock options and restricted stock ⁽¹⁾		—		—		—		—		—		422		—		380
Diluted weighted average common shares outstanding		49,552		49,116		49,532		49,072		48,556		49,953		49,146		49,902

The following potential common stock equivalents were excluded from the computation of diluted earnings per share in each period because the exercise price of such options was greater than the average market price per share of common stock for the respective periods or because of the unearned compensation associated with either stock options, restricted stock units, restricted or deferred stock had an anti-dilutive effect.

	For the three months ended				For the nine months ended				For the three months ended				For the six months ended
	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015		July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016
(in thousands, except exercise prices)
Stock Options (time-vested)		1,232		183		1,232		1,214		1,377		1,245		1,377		1,245
Restricted Stock Units (time-vested)		3		—		409		—		1,119		13		1,119		428
Restricted and Deferred Stock		2		—		10		15		53		7		56		15
Range of exercise prices of such options	$4.49 - $7.52		$5.27 - $7.52		$4.49 - $7.52		$4.96 - $7.52		$3.16 - $7.52		$4.91 - $7.52		$3.16 - $7.52		$4.91 - $7.52

The above options, which were outstanding at ~~October~~July 29, ~~2016,~~2017, expire from October 22, 2017 to ~~September 11, 2026.~~January 18, 2027.

~~Excluded from~~There were no performance-based awards outstanding at July 29, 2017. For the ~~Company’s computation of basic and diluted earnings per share for the third~~second quarter and first ~~nine~~six months of fiscal 2016, ~~were 893,621~~941,082 shares of unvested performance-based restricted stock and ~~1,125,317 performance-based stock options. For the third quarter and first nine months of fiscal 2015, 933,486 shares of unvested performance-based restricted stock and 1,162,047~~1,181,168 performance-based stock options were excluded from the Company’s computation of basic and diluted earnings per ~~share for both periods. Performance-based~~share. All outstanding performance-based awards ~~will be included~~expired unvested in March 2017 as a result of the ~~computation of basic and diluted earnings per share if, and when, the respective~~Company not achieving performance targets ~~are achieved. In addition, shares~~in fiscal 2016.

Shares of unvested time-based restricted stock of ~~356,227 for the third quarter~~53,333 at July 29, 2017 and ~~first nine months of fiscal~~374,062 shares at July 30, 2016 ~~and 729,581 shares for the third quarter and first nine months of fiscal 2015~~ were excluded from the computation of basic earnings per share and will continue to be excluded until such shares vest. See Note 3, Long-Term Incentive Plans, for a discussion of the Company’s ~~2013-2016~~ LTIP plans and ~~the respective performance targets.~~equity awards.

Although the shares of performance-based and time-based restricted stock issued in connection with the 2013-2016 LTIP are not considered outstanding or common stock equivalents for earnings per share purposes until certain vesting and performance thresholds are achieved, all 1,249,848All 53,333 shares of restricted stock outstanding at ~~October~~July 29, ~~2016~~2017 are considered issued and outstanding. Each share of restricted stock has all of the rights of a holder of the Company’s common stock, including, but not limited to, the right to vote and the right to receive dividends, which rights are forfeited if the restricted stock is forfeited.

On March 17, 2017, the Company’s Board of Directors approved a stock repurchase plan. Under the stock repurchase plan, the Company may purchase up to $12.0 million of its common stock through open market and privately negotiated transactions during fiscal 2017. The timing and the amount of any repurchases of common stock will be determined based on the Company’s evaluation of market conditions and other factors. The stock repurchase program commenced in the first quarter of fiscal 2017 and will expire on February 3, 2018, but may be suspended, terminated or modified at any time for any reason. The Company expects to finance the repurchases from operating funds and/or periodic borrowings on its Credit Facility. Any repurchased common stock will be held as treasury stock and will be recorded on a trade-date basis.

Through July 29, 2017, the Company purchased 1,878,434 shares of common stock at an average price of $2.49 per share. Approximately $7.3 million remains available under the stock repurchase plan.

At ~~October~~July 29, ~~2016,~~2017, the Company had total deferred tax assets of approximately ~~$80.0~~$83.9 million, total deferred tax liabilities of ~~$15.5~~$13.5 million and a corresponding valuation allowance of ~~$64.7~~$70.6 million.

In the fourth quarter of fiscal 2013, the Company entered into a three-year cumulative loss position and based on forecasts at that time, the Company expected the cumulative three-year loss to increase as of the end of fiscal 2014. Management determined that this represented significant negative evidence at February 1, 2014. While the Company has projected it will return to profitability, generate taxable income and ultimately emerge from a three-year cumulative loss, based on a consideration of all positive and negative evidence as of February 1, 2014, the Company established a full allowance against its net deferred tax assets. Based on the Company’s forecast for fiscal ~~2016,~~2017, the Company believes that a full allowance remains appropriate at this time.

As of ~~October~~July 29, ~~2016,~~2017, the Company had net operating loss carryforwards of ~~$140.4~~$148.7 million for federal income tax purposes and ~~$81.8~~$88.5 million for state income tax purposes that are available to offset future taxable income through fiscal year ~~2036.~~2037. Additionally, the Company has alternative minimum tax credit carryforwards of $2.3 million, which are available to further reduce income taxes over an indefinite period. Additionally, the Company has ~~$0.1 million and $2.2~~$2.6 million of net operating loss for tax purposes related to the Company’s operations in Hong Kong and Canada, respectively, though both are expected to expire largely unutilized. Included in the federal and state net operating loss carryforwards are stock compensation deductions of approximately $9.3 million and $4.0 million, respectively, the tax benefit from which, if realized, will be credited to additional paid-in capital.Canada.

The utilization of net operating loss carryforwards and the realization of tax benefits in future years depends predominantly upon having taxable income. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership

may result in a limitation on the amount of net operating loss carryforwards and tax credit carryforwards which may be used in future years.

The Company’s tax provision for the second quarter and first ~~nine~~six months of fiscal ~~2016~~2017 and fiscal ~~2015~~2016 primarily represents ~~an increase in our deferred tax liability for indefinite-lived intangibles as well as~~ current state margin tax and foreign income tax.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The charge for taxation is based on the results for the year as adjusted for items that are non-assessable or disallowed. The charge is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Pursuant to Topic 740, “Income Taxes”, the Company will recognize the benefit from a tax position only if it is more likely than not that the position would be sustained upon audit based solely on the technical merits of the tax position. The unrecognized tax benefit at ~~October~~July 29, ~~2016~~2017 was $3.0 million. This amount is directly associated with a prior year tax position related to exiting the ~~European~~Company’s direct ~~business.~~business in Europe. The amount of unrecognized tax benefit has been presented as a reduction in the reported amounts of its federal and state net operating loss carryforwards. It is the Company’s policy to record interest and penalties on unrecognized tax benefits as income taxes; however, no penalties or interest have been accrued on this liability because the carryforwards have not yet been utilized.

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for years through fiscal 2001, with remaining fiscal years subject to income tax examination by federal tax authorities.

Oliver Walsh was elected as a director at the Company’s Annual Meeting of Stockholders on August 3, 2017. Subsequent to the end of the second quarter of fiscal 2017, on August 17, 2017, Mr. Walsh entered into a temporary consulting agreement with the Company, agreeing to serve as the Company’s Interim Chief Marketing Officer through the Fall and Holiday selling seasons, while the Company searches for a new Chief Marketing Officer. Pursuant to the terms of the temporary consulting agreement, Mr. Walsh is entitled to receive compensation at a rate of $7,000 per week plus reimbursement for all business and travel expenses. Because of the related party relationship, the temporary consulting agreement was approved by the Company’s Audit Committee.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of the United States 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 Quarterly Report are generally located in the material set forth under the heading “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, marketing costs, selling, general and administrative expenses, store counts, inventory levels, capital expenditures, borrowings, interest costs, sales and earnings expectations for fiscal ~~2016~~2017 and beyond, the expected impact of inventory management improvements on inventory levels and working capital in fiscal ~~2016~~2017, the expected impact of investments in marketing on 2017 sales and longer term impact on customer acquisition and brand awareness, and the anticipated pace and number of store openings and closings in fiscal ~~2016.~~2017 and anticipated impact of expanding into Canada or future growth. 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 Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report and our audited consolidated financial statements for the year ended January ~~30, 2016,~~28, 2017, included in our Annual Report on Form 10-K for the year ended January ~~30, 2016,~~28, 2017, as filed with the Securities and Exchange Commission on March ~~18, 2016~~20, 2017 (our “Fiscal ~~2015~~2016 Annual Report”).

Numerous factors could cause our actual results to differ materially from such forward-looking statements. We encourage readers to refer to the “Risk Factors” section in Part I, Item 1A of our Fiscal ~~2015~~2016 Annual Report, that sets forth certain risks and uncertainties that may have an impact on future results and direction of our Company, including, without limitations, risks relating to the execution of our corporate strategy, and our ability to grow our market share, predict customer tastes and fashion trends, forecast sales growth trends, maintain and build our brand awareness and compete successfully in our market.

All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. These forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances in which the forward-looking statement is based.

Destination XL Group, Inc., together with our consolidated subsidiaries (the “Company”), is the largest specialty retailer of big & tall men’s apparel with retail and direct operations in the United States and London, England. We operate under the trade names of Destination XL^®, DXL^®, DXL Outlets, Casual Male XL^®, Casual Male XL Outlets, Rochester Clothing, ShoesXL^® and LivingXL^®. At ~~October~~July 29, ~~2016,~~2017, we operated ~~188~~206 Destination XL stores, ~~108~~14 DXL outlet stores, 84 Casual Male XL retail stores, ~~12 DXL outlet stores, 39~~33 Casual Male XL outlet stores and 5 Rochester Clothing stores. Our ~~direct business includes our~~e-commerce site, DestinationXL.com, ~~and bigandtall.com e-commerce sites which support~~supports our stores, brands and product extensions.

Unless the context indicates otherwise, all references to “we,” “our,” “us” and “the Company” refer to Destination XL Group, Inc. and our consolidated subsidiaries. We refer to our fiscal years which end on February 3, 2018 and January 28, 2017 ~~and January 30, 2016~~ as “fiscal ~~2016”~~2017” and “fiscal ~~2015,~~2016,” respectively. ~~Both~~Fiscal 2017 is a 53-week period and fiscal ~~years are~~2016 was a 52-week ~~periods.~~period.

We report our operations as one reportable segment, Big & Tall Men’s Apparel. We consider our retail and direct (e-commerce) 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.

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 during the period are also included in our determination of comparable sales. Stores that have been expanded by more than 25% are considered non-comparable for the first 13 months. If a store becomes a clearance center, it is also removed from the calculation of comparable sales. The method of calculating comparable sales varies across the retail industry and, as a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other retailers.

As we disclosed at the end of fiscal 2016, with over 200 DXL stores open, we have transitioned to one comparable sales figure for the Company which includes stores and our e-commerce business. We no longer provide comparable store sales on a discrete basis for our DXL format stores.

In addition, our customer’s shopping experience continues to evolve across multiple channels and we are continually changing to meet his needs. As part of our omni-channel initiatives, the majority of our retail stores have the capability of fulfilling online orders if merchandise is

not available in the warehouse. As a result, we continue to see more transactions that begin online but are ultimately completed at the store level. Similarly, if a customer visits a store and the item is out of stock, the associate can order the item through our website. A customer also has the ability to order online and pick-up in 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 ~~no longer~~do not report comparable sales separately for our retail and ~~direct~~e-commerce businesses. ~~We anticipate that~~However, as we ~~will continue~~invest in building our e-commerce platform, bringing a heightened digital focus to ~~provide specific information~~our Company, additional disclosure on our ~~DXL comparable~~e-commerce growth as it relates to our current initiatives is important. Beginning in the second quarter of fiscal 2017, we define store sales inas sales that originate and are fulfilled directly at the ~~near-term, but~~store level. E-commerce sales are defined as sales that originate online, including those initiated online at the store level. This reclassification on how we ~~near completion of~~define a store sale from an e-commerce sale had no effect on our ~~roll-out~~previous disclosure or how we ~~expect to transition to one~~report total Company comparable ~~sales figure for the Company.~~ sales.

The following is a summary of results for the ~~third~~second quarter and first ~~nine~~six months of fiscal ~~2016,~~2017 as compared to the prior year’s second quarter and first six months, including EBITDA, which is a non-GAAP measure. Please see “Non-GAAP Financial Measures” below for a reconciliation of Net ~~Loss~~Income (Loss) to EBITDA.

	For the three months ended						For the nine months ended						For the three months ended					For the six months ended
	October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015			July 29, 2017			July 30, 2016		July 29, 2017			July 30, 2016
(in millions, except per share data)
Net loss	$	(4.5	)	$	(5.5	)	$	(4.0	)	$	(7.0	)
Net income (loss)													$	(3.7	)	$	0.2	$	(9.8	)	$	0.4
EBITDA (Non-GAAP basis)	$	3.9		$	2.5		$	20.8		$	16.0		$	6.7		$	8.5	$	9.3		$	16.9

Per diluted share:
Net loss	$	(0.09	)	$	(0.11	)	$	(0.08	)	$	(0.14	)
Net income (loss)													$	(0.08	)	$	0.00	$	(0.20	)	$	0.01

~~The strength of~~Although sales were below expectations for the second quarter, we did see sequential improvement from our ~~DXL concept has continued to drive our~~prior two consecutive quarters. Comparable sales ~~growth and~~for the second quarter grew 0.1%, which is an improvement in profitability through the third quarter of fiscal 2016. During the quarter, our 158 comparable DXL stores had a sales increase of 2.3%, against a prior year comparable sales increase of 9.2%, contributing to our 14^th consecutive quarter of positive total Company comparable sales. We believe that the uncertainty in the economic and political climate, that continued to impact the retail industry during the quarter, has contributed to slower than expected top-line growth for us. Given these macroeconomic issues, as well as a delay in the arrival of cold weather and our anticipated decrease in advertisingfrom (2.4%) in the fourth quarter of fiscal 2016 and (2.1%) in the first quarter of fiscal 2017. For the second quarter, we continued to experience a decline in store traffic and an overall weakness across the retail apparel environment. However, despite this decrease in store traffic, we saw improvements in our sales productivity, with increases in conversion rates, units per transactions and dollars per transaction.

We remain focused on improving brand awareness, driving traffic to our stores and growing our e-commerce business through a robust investment in both traditional and digital marketing programs. With our store base transformation complete, our focus is on building the DXL brand and driving sales to the growing men’s big & tall market through an integrated bricks and mortar and e-commerce strategy. Through the end of the second quarter, we were ahead of our plan for new customer acquisition. Continuing to build brand awareness is key to driving customer acquisition and long-term sales growth. With only 4 out of 10 target customers identifying with our brand, customer acquisition is our top priority this year. As discussed below under our Fiscal 2017 Outlook, we are ~~revising~~planning to increase our ~~guidance~~marketing spend for fiscal ~~2016, see “Fiscal 2016 Outlook”~~ ~~below.~~2017 by approximately $4.0 million to $29.0 million to further enhance our digital marketing initiatives and television ad spend. We believe that this investment will benefit us in the long-term as we work to strengthen our customer base and build brand awareness.

~~Although~~Despite the difficult retail apparel environment, we are pleased that our ~~sales for~~merchandise margins remained strong, only decreasing by 10 basis points during the second quarter and remaining flat to fiscal 2016 ~~are less than expected,~~for the first six months of fiscal 2017. As discussed below, our initiative to decrease inventory levels by improving timing of inventory receipts and in-stock positions resulted in a $9.0 million decrease in inventory levels as compared to last year’s second quarter and we ~~continue~~achieved this with minimal impact to ~~show year-over-year growth in sales, profitability and liquidity. The~~our merchandise margin.

Our net loss for the ~~third~~second quarter of fiscal ~~2016~~2017 was ~~$(0.09)~~$(3.7) million, or $(0.08) per diluted share, as compared to a net ~~loss~~income of ~~$(0.11)~~$0.2 million, or $0.00 per diluted share, for the ~~third~~second quarter of fiscal ~~2015. We also remain focused on improving EBITDA, which increased $1.4 million~~2016. Included in net loss for the ~~third~~second quarter of fiscal ~~2016, resulting in a year-to-date improvement~~2017 was an impairment charge of ~~30.1% to $20.8~~approximately $1.7 million, or $0.04 per diluted share, for the ~~first nine months~~write-down of ~~fiscal 2016.~~certain store assets and an increase of approximately $1.1 million, or $0.02 per diluted share, in advertising costs.

From a liquidity perspective, our cash flow from operations ~~improved~~decreased by ~~$13.1~~$4.8 million to $14.3 million. ~~This improvement, with a $3.6~~Free cash flow for the first six months of fiscal 2017 decreased by approximately $4.7 million, ~~decrease~~as compared to the first six months of fiscal 2016, partly due to an

increase in ~~capital expenditures, resulted in a $16.7 million improvement in non-GAAP free cash flow. Fiscal 2016 is a pivotal~~marketing costs of $4.6 million. For the year, ~~for our Company where capital expenditures for DXL stores will be fully funded from~~we expect to generate positive free cash flow ~~and~~of $13.0 to $18.0 million, which we ~~begin~~plan to ~~pay down~~use to reduce our outstanding debt ~~levels for the first time in four years.~~while also making opportunistic repurchases of our common stock, pursuant to our stock repurchase program discussed below. See “Non-GAAP Financial Measures” below for a reconciliation of free cash flow.

In the first six months of fiscal 2017, we opened a total of 15 stores as compared to 12 stores during the same period in fiscal 2016.We also opened two DXL retail stores in Ontario, Canada. These two stores, which are included in the 15 opened during the first six months, mark our first Company-operated DXL stores located outside of the United States. We believe that Canada provides a strategic growth opportunity for our DXL brand.

As discussed more fully below under “Liquidity and Capital Resources,” in March 2017 our Board of Directors approved a stock repurchase plan, pursuant to which we may purchase up to $12.0 million of our outstanding common stock during fiscal 2017. During the first ~~nine~~six months of fiscal ~~2016,~~2017, we ~~opened 22 DXL retail stores and 3 DXL outlet stores, while closing 17 Casual Male XL retail stores and 1 Casual Male XL outlet. For fiscal 2016, we plan to open~~repurchased approximately 1.9 million shares at a total cost of ~~25 DXL retail stores and 4 DXL outlet stores. In addition, we expect to close 29 Casual Male XL retail stores and 4 Casual Male XL outlet stores.~~approximately $4.7 million.

~~At the beginning of~~In fiscal 2016, we ~~initiated a review of~~began our inventory ~~levels~~optimization project in ~~our distribution center. We also launched a review of our~~an effort to improve inventory receipt flow and procurement, ~~and management functions. As a result of this review process we identified several improvements that we are implementing to streamline operations at our distribution center, including tighter~~tightening controls over the number of ~~merchandise~~ weeks of supply and ~~improvements in inventory receipt flow and procurement. As reflected in~~refining our ~~“Fiscal 2016 Outlook”, we~~in-stock positions by sku level. We expect these changes to result in a more optimized inventory structure ~~that will~~and expect our inventory at the end of fiscal 2017 to be $10.0 to $14.0 million less than fiscal 2016. This reduction in inventory is expected to improve our working capital position in fiscal ~~2016.~~2017. At the end of the second quarter of fiscal 2017, we were ahead of plan having reduced inventory levels by $9.0 million, or a decrease of 7.4%, as compared to the end of the second quarter last year. We do not believe these changes ~~will jeopardize~~have jeopardized sales from out-of-stock positions in either our retail stores or in our direct business.

Our primary objectives in fiscal 2017 are to grow our customer base, through a revitalized marketing program and digital enhancements, and to maintain a strong liquidity position by continuing to improve cash flow. We have reinvested in our marketing initiatives to help drive brand awareness, store traffic and our digital presence. We are ~~reducing our full year Sales~~increasing marketing expense for fiscal 2017 to approximately $29.0 million, an increase of approximately $4.0 million from previous guidance and ~~EBITDA guidance, because~~an increase of our decision not to pursue a television campaign in the fourth quarter of fiscal 2016. The lack of television exposure, coupled with the delayed arrival of cold weather is leading us to a more cautious outlook for sales and EBITDA. In the fourth quarter of fiscal 2016, our marketing effortsapproximately $10.8 million from last year. While we expect this will ~~focus on radio, digital and social media and we will continue to evaluate the use of television in the future.~~ ~~This decision is expected to have a short-term negative impact on~~benefit sales in the ~~fourth quarter~~second half of fiscal ~~2016, but with a reduction~~2017, we strongly believe that this investment in marketing ~~costs,~~and customer acquisition is important for our long-term growth. Accordingly, we are updating our guidance as it relates to gross margin, SG&A, EBITDA, earnings ~~guidance, on a GAAP basis, of breakeven to $(0.09) per share remains unchanged~~ and weliquidity for fiscal 2017. We continue to expect to ~~generate positive free cash flow~~open 19 DXL retail stores and 1 DXL outlet store in fiscal ~~2016~~:2017, while closing 16 Casual Male XL retail stores and 3 Casual Male XL outlet stores, the majority of which are in connection with the opening of the DXL retail and outlet stores in the same geographic markets. All DXL store growth for the year will be funded by cash from operations.

Third Quarter

First Nine Months

(in millions)

Sales for the third quarter and first nine months of fiscal 2015

$
99.6

$
318.2

Less 2015 sales for stores that have closed /converted

(5.5
)

(19.4
)

$
94.1

$
298.8

Increase in comparable sales

0.8

5.2

Non-comparable sales, primarily DXL stores open less than 13 months

6.9

23.0

Other, net

0.1

0.6

Sales for the third quarter and first nine months of fiscal 2016

$
101.9

$
327.6

	Second Quarter			First Six Months
	(in millions)
Sales for fiscal 2016	$	117.9		$	225.8
Less 2016 sales for stores that have closed /converted		(6.8	)		(12.8	)
	$	111.1		$	213.0

Increase (decrease) in comparable sales		0.2			(2.0	)
Non-comparable sales, primarily DXL stores open less than 13 months		9.4			17.2
Other, net		0.4			0.6
Sales for fiscal 2017	$	121.1		$	228.8

~~For~~Total sales for the ~~third~~second quarter of fiscal ~~2016, total sales were $101.9~~2017 increased 2.8% to $121.1 million ~~as compared to $99.6~~from $117.9 million ~~for~~from the ~~third~~second quarter of fiscal ~~2015.~~2016. The increase of ~~$2.3~~$3.3 million in total sales was ~~primarily~~ due to ~~an increase in~~ non-comparable ~~store~~ sales of ~~$6.9~~$9.4 million and a ~~0.9% increase in~~ comparable sales ~~of $0.8 million, and an~~ increase of ~~$0.1~~$0.2 million, ~~of other revenue,~~or 0.1%, partially offset by ~~$5.5 million~~a decrease in ~~lost~~ sales from closed ~~and converted~~ stores.

~~Our comparable sales increase for~~For the ~~third quarter of $0.8 million was driven by our 158 comparable DXL retail stores which increased 2.3%, or $1.1 million, against a comparable increase of 9.2% for the third quarter~~first six months of fiscal ~~2015. DXL comparable store growth~~2017, sales increased $3.0 million, or 1.3%, as compared to the first six months of fiscal 2017. The increase in sales was primarily due to non-comparable sales of $17.2 million, partially offset by sales from closed stores and a ~~1.8% increase~~decrease of 0.9%, or $2.0 million, in the number of transactions and an increase in dollars per transaction. Sales per square foot for our DXL retail stores continued to grow to $182, on a rolling 12-month basis, at the end of the third quarter as compared with $174 per square foot for the rolling 12-month period at the end of the third quarter last year.

~~During the third quarter of fiscal 2016, we opened our 200~~^th ~~DXL~~comparable store toward our target of 400 DXL stores. As we discussed above, store traffic is down across the retail industry, which we believe is due in part to the macroeconomic issues the country is currently facing. This has resulted in a slower than expected increase in our sales growth. However, our non-comparable DXL stores are outperforming plan and return on investment hurdles, which is also a strong indicator that our DXL brand awareness is growing and the performance of our store openings continue to get stronger.sales.

Our end-of-rack customer grew to ~~44.5%~~46.1% of our bottoms business from ~~42.9%~~44.6% in the ~~third~~second quarter of fiscal ~~2015.~~2016. Our end-of-rack customer, with a waist size of 46 inches or less, shops ~~41%~~52% more often than our customer with a waist size of 48 inches or more and, on an annual basis, spends twice as much.

~~For~~As discussed above, with our transformation of our store base complete, we are focused on growing our e-commerce business through an integrated strategy. We are implementing several initiatives to enhance our digital presence and provide our customers with improved functionality and increased touchpoints across all of our e-commerce platforms with the ~~first nine months~~objective of growing and retaining our customer base. On a trailing twelve-month basis, e-commerce sales as a percentage of net sales were 20.5% at the end of the second quarter of fiscal ~~2016, total sales were $327.6 million~~2017 as compared to ~~$318.2 million for~~19.4% at the ~~first nine months~~end of ~~fiscal 2015. The increase in sales~~the second quarter of $9.4 million was due to a 1.8% increase in comparable sales of $5.2 million, an increase in non-comparable store sales of $23.0 million and an increase of $0.6 million in other revenue, partially offset by $19.4 million in lost sales from closed and converted stores. Comparable sales for our 158 DXL retail stores increased 4.2%, or $6.6 million for the ~~first nine months of fiscal 2016.~~prior year.

For the ~~third~~second quarter of fiscal ~~2016,~~2017, our gross margin rate, inclusive of occupancy costs, was ~~44.4%~~46.1% as compared to a gross margin rate of ~~45.0%~~46.5% for the ~~third~~second quarter of fiscal ~~2015. The 60 basis point decrease was due to a decrease of 30~~2016. Our merchandise margins decreased 10 basis points ~~in merchandise margin~~over the second quarter of last year and ~~an increase in~~ occupancy costs ofincreased 30 basis points. The ~~30 basis point~~ decrease in merchandise margin was primarily related to an increase in promotional markdowns related to our inventory productivity initiatives as compared to the prior year’s second quarter. The increase of 30 basis points in occupancy costs is due partly to ~~a shift in~~ the timing of ~~clearance markdowns in fiscal 2015~~store openings during the first six months and also to the ~~fourth quarter~~deleveraging of ~~fiscal 2015. The increase in~~ occupancy costs ~~was due~~ to ~~occupancy expense increasing at a greater percentage than~~ sales. On a dollar basis, occupancy costs for the third quarter of fiscal 2016 increased approximately 4.0% over the prior year’s third quarter, primarily as a result of an increase in total square footage.

For the first ~~nine~~six months of fiscal ~~2016,~~2017, our gross margin rate, inclusive of occupancy costs, was 45.7% as compared to ~~46.2%~~a gross margin rate of 46.3% for the first ~~nine~~six months of fiscal ~~2015. This 50~~2016. The decrease of 70 basis ~~point decrease~~points was due to a ~~decrease~~70 basis point increase in ~~merchandise margins of 50 basis points,~~occupancy costs, primarily due to the timing of ~~clearance merchandise discussed above.~~earlier store openings during the first six months of fiscal 2017 as compared to fiscal 2016. On a dollar basis, occupancy costs for the first ~~nine~~six months of fiscal ~~2016~~2017 increased ~~2.9%~~approximately 5.6% over the prior ~~year.~~year’s first six months, primarily as a result of an increase of 3.3% in total square footage.

Merchandise margins for the first six months of fiscal 2017 were flat with the prior year. As discussed above, our inventory initiatives have resulted in a 7.4% decrease in inventory levels from a year ago, however, we have been able to successfully maintain a consistent merchandise margin.

As a percentage of sales, SG&A expenses for the ~~third~~second quarter of fiscal ~~2016~~2017 were ~~40.6%~~40.5% as compared to ~~42.6%~~39.3% for the ~~third~~second quarter of fiscal ~~2015.~~2016. For the first ~~nine~~six months of fiscal ~~2016,~~2017 SG&A expenses as a percentage of sales were ~~39.4%~~41.6% as compared to ~~41.2%~~38.8% for the first ~~nine~~six months of fiscal ~~2015.~~2016. On a dollar basis, SG&A ~~decreased~~increased by ~~$1.0~~$2.8 million and ~~$2.0~~$7.6 million for the ~~third~~second quarter and first ~~nine~~six months of fiscal ~~2016,~~2017, respectively. ~~These decreases were primarily~~The increase in the second quarter and first six months was principally due to ~~decreases~~an increase of $1.1 million and $4.6 million, respectively, in advertising ~~expense~~expense. As discussed above, we are increasing our investment in our marketing initiatives to help drive brand awareness, store traffic and ~~incentive accruals partially offset by~~our digital presence. The remainder of the increase was due to increases in store payroll and ~~healthcare costs.~~

~~For the third quarter and first nine months of fiscal 2016, pre-opening payroll, training and~~ other ~~incremental~~supporting costs ~~to support our~~associated with a greater DXL store ~~openings were $1.0 million and $2.4 million, respectively, as compared to the $1.4 million and $3.3 million for the third quarter and first nine months of fiscal 2015, respectively.~~base.

Depreciation and amortization for the ~~third~~second quarter of fiscal ~~2016~~2017 increased ~~$0.4~~$2.1 million to ~~$7.5~~$9.6 million as compared to ~~$7.1~~$7.5 million for the ~~third~~second quarter of fiscal ~~2015. For~~2016. The increase primarily relates to an impairment charge of $1.7 million taken in the ~~first nine months~~second quarter of fiscal ~~2016, depreciation and amortization increased $1.9 million~~2017 to ~~$22.4 million, as compared to $20.5 million in~~write-down certain store assets. The remainder of the ~~prior year period. The~~ increase ~~in depreciation and amortization is~~was due to the continued store growth associated with our DXL retail and outlet stores.

For the first six months of fiscal 2017, depreciation and amortization was $17.4 million as compared to $14.9 million for the first six months of fiscal 2016. The increase of $2.5 million includes the $1.7 million impairment charge taken in the second quarter of fiscal 2017.

Net interest expense for the ~~third~~second quarter and first ~~nine~~six months of fiscal ~~2016~~2017 of $0.8 million and ~~$2.3~~$1.6 million, respectively, ~~were~~was relatively flat as compared to the comparable periods of the prior year. As a result of our inventory initiatives undertaken to improve liquidity, we expect interest costs for fiscal ~~2016~~2017 will be similar to fiscal ~~2015~~2016 levels. ~~We expect that our total debt outstanding at the end of fiscal 2016 will be $60.0 to $66.0 million, a decrease from $68.1 million at the end of fiscal 2015. See “Liquidity and Capital Resources” for more discussion regarding our current Credit Facility, long-term debt and future liquidity needs.~~

At ~~October~~July 29, ~~2016,~~2017, we had total deferred tax assets of ~~$80.0~~$83.9 million, total deferred tax liabilities of ~~$15.5~~$13.5 million and a corresponding valuation allowance of ~~$64.7~~$70.6 million. The deferred tax assets ~~include~~included approximately ~~$50.0~~$56.8 million of net operating loss carryforwards and approximately ~~$5.3~~$4.9 million of deferred gain on our sale-leaseback and, to a lesser extent, other book/tax timing differences.

At the end of fiscal 2013, we established a full valuation allowance against our deferred tax assets. Based on our earnings guidance for fiscal ~~2016,~~2017, we believe that a full valuation allowance ~~remains~~continues to remain appropriate at this time.

Our tax ~~provision,~~provisions for the second quarter and first ~~nine~~six months of fiscal ~~2016~~2017 and fiscal ~~2015, represents an increase in our deferred tax liability for indefinite-lived intangibles as well as~~2016 primarily represent current state margin tax and foreign income tax.

Results for the second quarter and first six months of fiscal 2017 include an impairment charge of $1.7 million, or $0.04 per diluted share, associated with write-down of store assets.

For the ~~third~~second quarter of fiscal ~~2016,~~2017, we had a net loss of ~~$(4.5)~~$(3.7) million, or ~~$(0.09)~~$(0.08) per diluted share, compared with a net ~~loss~~income of ~~$(5.5)~~$0.2 million, or ~~$(0.11)~~$0.00 per diluted share, for the ~~third~~second quarter of fiscal ~~2015.~~ 2016. For the first six months of fiscal 2017, we have a net loss of $(9.8) million, or $(0.20) per diluted share, compared with net income of $0.4 million, or $0.01 per diluted share.

On a non-GAAP basis, assuming a normalized tax rate for both periods, adjusted net loss per share for the ~~third~~second quarter and first six months of fiscal ~~2016~~2017 was $(0.05) per diluted share and $(0.12) per diluted shares, respectively, as compared to ~~$(0.07)~~adjusted net income of $0.00 per diluted share and $0.01 per diluted share for the ~~third~~second quarter ~~of fiscal 2015.~~

~~For the~~and first ~~nine~~six months of fiscal 2016, the net loss was $(4.0) million, or $(0.08) per diluted share, compared with a net loss of $(7.0) million, or $(0.14) per diluted share, for the first nine months of fiscal 2015. On a non-GAAP basis, assuming a normalized tax rate for both periods, adjusted net loss per share for the first nine months of fiscal 2016 was ($0.05) per diluted share as compared to ($0.08) per diluted share for the first nine months of fiscal 2015.2016.

At ~~October~~July 29, ~~2016,~~2017, total inventory was ~~$128.2~~$112.3 million compared to ~~$125.0~~$117.4 million at January ~~30, 2016~~28, 2017 and ~~$133.3~~$121.3 million at ~~October 31, 2015.~~July 30, 2016. The ~~3.8%~~7.4% decrease of ~~$5.1~~$9.0 million from ~~October 31, 2015 is~~July 30, 3016 was due to inventory initiatives implemented in fiscal 2016 to improve timing of receipts and reduce weeks of supply on hand. ~~Clearance merchandise remained unchanged at 9.0%~~At July 29, 2017, our clearance inventory represented 7.5% of our total inventory, ~~at the end of the third quarter of fiscal 2016~~ as compared to ~~the end of the third quarter of fiscal 2015.~~7.7% at July 30, 2016.

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.

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, described below.~~Facility”). Our current cash needs are primarily for working capital (essentially inventory requirements), capital expenditures, growth initiatives, and, ~~growth initiatives.~~ as discussed further below, our stock repurchase program, which was announced in March 2017.

As discussed below, our capital expenditures for fiscal ~~2016~~2017 are expected to be ~~$30.0~~approximately $22.0 million, primarily related to the planned opening of approximately 2519 new DXL retail ~~stores~~ and ~~4 DXL~~1 outlet stores and information technology projects. However, we expect to receive approximately ~~$7.0 to $8.0~~$5.0 million in tenant allowances to offset these capital expenditures.

We expect to fund ~~our~~this store growth and stock repurchase program in fiscal ~~2016~~2017 primarily through ~~earnings.~~cash flow from operations, with periodic borrowings from our Credit Facility. We currently believe that our existing cash generated by operations together with our Credit Facility will be sufficient within current forecasts for us to meet our foreseeable liquidity requirements.

For fiscal ~~2016,~~2017, we expect ~~to generate free~~ cash flow ~~before DXL capital expenditures~~from operating activities of ~~$24.6~~$35.0 million to ~~$28.6 million. We will reinvest that cash to fund our DXL store growth in fiscal 2016. After DXL capital expenditures, we expect~~$40.0 million (including tenant allowances), and positive free cash flow of ~~$4.0~~$13.0 to ~~$8.0 million. We expect~~$18.0 million that ~~our total debt at the end of fiscal 2016~~ will be ~~approximately $60.0~~used to ~~$66.0 million, a decrease from $68.1 million at~~reduce outstanding debt and purchase shares of the ~~end~~Company’s common stock as part of ~~fiscal 2015.~~its stock repurchase program.

For the first ~~nine~~six months of fiscal ~~2016,~~2017, free cash flow ~~improved~~decreased by ~~$16.7~~$4.7 million to ~~$(13.7)~~$0.6 million from ~~$(30.4)~~$5.3 million for the first ~~nine~~six months of fiscal ~~2015.~~2016. This ~~improvement~~decrease in free cash flow was due to a decrease in earnings, primarily due to the ~~improvement~~$4.6 million increase in ~~operating results, lower capital expenditures and less inventory~~marketing expense as compared to ~~fiscal 2015. See “Non-GAAP Financial Measures” below regarding non-GAAP free cash flow.~~the prior year.

The following is a summary of our total debt outstanding at ~~October~~July 29, ~~2016~~2017 with the associated unamortized debt issuance costs:

(in thousands)	Gross Debt Outstanding		Less Debt Issuance Costs			Net Debt Outstanding		Gross Debt Outstanding		Less Debt Issuance Costs			Net Debt Outstanding
Credit facility	$	62,727	$	(369	)	$	62,358	$	53,724	$	(277	)	$	53,447
Equipment financing notes		8,289		(53	)		8,236		2,881		(16	)		2,865
Term loan, due 2019		13,000		(323	)		12,677		12,250		(242	)		12,008
Total debt	$	84,016	$	(745	)	$	83,271	$	68,855	$	(535	)	$	68,320

Our credit facility with Bank of America, N.A., effective October 29, 2014 (our “Credit Facility”) provides for a maximum committed borrowing of $125.0 million, which, pursuant to an accordion feature, may be increased to $175.0 million upon our request and the agreement of the lender(s) participating in the increase. The Credit Facility includes a sublimit of $20.0 million for commercial and standby letters of credit and a sublimit of up to $15.0 million for swingline loans. The maturity date of the Credit Facility is October 29, 2019. Our Credit Facility is described in more detail in Note 2 of the Notes to the Consolidated Financial Statements included in this Quarterly Report.

Borrowings made pursuant to the Credit Facility bear interest at a rate equal to the base rate (determined as the highest of (a) Bank of America N.A.’s prime rate, (b) the Federal Funds rate plus 0.50% and (c) the annual ICE-LIBOR (“LIBOR”) rate for the respective interest period) plus a varying percentage, based on our borrowing base, of 0.50%-0.75% for prime-based borrowings and 1.50%-1.75% for LIBOR-based borrowings.

We had outstanding borrowings of ~~$62.7~~$53.7 million under the Credit Facility at ~~October~~July 29, ~~2016.~~2017. At ~~October~~July 29, ~~2016,~~2017, outstanding standby letters of credit were ~~$2.9~~$3.3 million and outstanding documentary letters of credit were ~~$0.5~~$0.1 million. The average monthly borrowing outstanding under the Credit Facility during the first ~~nine~~six months ended ~~October~~July 29, ~~2016~~2017 was approximately ~~$51.9~~$58.6 million, resulting in an average unused excess availability of approximately ~~$58.4~~$46.0 million. Unused excess availability at ~~October~~July 29, ~~2016~~2017 was ~~$52.4~~$43.7 million. Our obligations under the Credit Facility are secured by a lien on substantially all of our assets, excluding (i) a first priority lien held by the lenders of the Term Loan Facility on certain of our equipment described below and (ii) intellectual property.

We have entered into twelve Equipment Security Notes (the “Notes”), whereby we borrowed an aggregate of $26.4 million. The Notes, which were issued between September 2013 and June 2014, were issued pursuant to a Master Loan and Security Agreement with Banc of America Leasing & Capital, LLC, dated July 20, 2007 and most recently amended on September 30, 2013. The Notes are secured by a security interest in all of our rights, title and interest in and to certain equipment. The Notes are for 48 months and accrue interest at fixed rates ranging from 3.07% to 3.50%. Principal and interest, are payable monthly, in arrears. The Company was subject to prepayment penalties through the second anniversary of each note. The Company is no longer subject to any prepayment penalties.

We have a $15.0 million senior secured term loan facility with Wells Fargo Bank, National Association as administrative and collateral agent (the “Term Loan Facility”). The Term Loan Facility bears interest at a rate per annum equal to the greater of (a) 1.00% and (b) the one month LIBOR rate, plus 6.50%. Interest payments are payable on the first business day of each calendar month, and increase by 2% following the occurrence and during the continuance of an “event of default,” as defined in the Term Loan Facility. The Term Loan Facility, which matures on October 29, 2019, provides for quarterly principal payments on the first business day of each calendar quarter, which commenced the first business day of January 2015, in an aggregate principal amount equal to $250,000, subject to adjustment, with the balance payable on the termination date.

The Term Loan Facility includes usual and customary mandatory prepayment provisions for transactions of this type that are triggered by the occurrence of certain events. In addition, the amounts advanced under the Term Loan Facility can be optionally prepaid in whole or part. All prepayments are subject to an early termination fee in the amount of 1% of the amount prepaid ~~if the prepayment is prior to~~through October 29, 2017. ~~There is no prepayment penalty after October 29, 2017~~.

The Term Loan Facility is secured by a first priority lien on certain of our equipment, and a second priority lien on substantially all of our remaining assets, excluding intellectual property.

The following table sets forth the open stores and related square footage at ~~October~~July 29, ~~2016~~2017 and ~~October 31, 2015,~~July 30, 2016, respectively:

	October 29, 2016				October 31, 2015				July 29, 2017				July 30, 2016
Store Concept	Number of Stores		Square Footage		Number of Stores		Square Footage		Number of Stores		Square Footage		Number of Stores		Square Footage
(square footage in thousands)
DXL Retail		188		1,513		163		1,349		206		1,630		176		1,432
DXL Outlets		12		60		9		45		14		72		11		56
Casual Male XL Retail		108		385		136		479		84		291		117		416
Casual Male Outlets		39		123		41		129		33		104		39		123
Rochester Clothing		5		51		5		51		5		51		5		51
Total Stores		352		2,132		354		2,053		342		2,148		348		2,078

Below is a summary of store openings and closings from January ~~30, 2016~~28, 2017 to ~~October~~July 29, ~~2016:~~2017:

Number of Stores:	DXL		DXL Outlets		Casual Male XL Retail			Casual Male XL Outlets			Rochester Clothing		Total Stores			DXL		DXL Outlets		Casual Male XL Retail			Casual Male XL Outlets			Rochester Clothing		Total Stores
At January 30, 2016		166		9		125			40			5		345
At January 28, 2017																	192		13		97			36			5		343
New stores⁽¹⁾		—		2		—			—			—		2			6		—		—			—			—		6
Replaced stores⁽²⁾		22		1		(16	)		(1	)		—		6			8		1		(10	)		(3	)		—		(4	)
Closed retail stores⁽³⁾		—		—		(1	)		—			—		(1	)		—		—		(3	)		—			—		(3	)
At October 29, 2016		188		12		108			39			5		352
At July 29, 2017																	206		14		84			33			5		342

Our capital expenditures were $13.8 million for both the first ~~nine~~six months of fiscal ~~2016 were $21.8 million as compared to $25.4 million for the first nine months of~~2017 and fiscal ~~2015. The $3.6 million decrease is primarily related to fewer DXL stores openings and improved buildout costs of the DXL stores~~2016. We have opened ~~in fiscal 2016 as compared to the prior year. The Company opened 22~~14 DXL retail stores and 31 DXL ~~outlet stores in~~outlets during the first ~~nine~~six months of fiscal ~~2016~~2017 as compared to 2610 DXL retail stores and 72 DXL ~~outlet stores in~~outlets for the first ~~nine~~six months of fiscal ~~2015.~~2016.

For fiscal ~~2016,~~2017, our capital expenditures are expected to be approximately ~~$30.0~~$22.0 million and we expect to receive approximately ~~$7.0 to $8.0~~$5.0 million in tenant allowances to offset these expenditures. Our budget includes approximately ~~$20.6~~$13.7 million, excluding any allowance, related to the opening of 2519 DXL retail stores and 41 DXL outlet stores, and approximately ~~$9.4~~$8.3 million for continued information technology projects and ~~other infrastructure~~general overhead projects. In addition, we expect to close approximately 2916 Casual Male XL stores and 43 Casual Male XL outlet stores, the majority of which are in connection with the opening of the DXL retail and outlet stores in the same geographic market.

There have been no material changes to the critical accounting policies and estimates disclosed in our Fiscal ~~2015~~2016 Annual Report. See Note 1 to the Consolidated Financial Statements included in this report for information on recent accounting pronouncements and changes in accounting principles.

Adjusted net ~~loss,~~income (loss), adjusted net ~~loss~~income (loss) per diluted share, free cash flow, free cash flow before DXL capital expenditures and EBITDA are non-GAAP measures. These non-GAAP measures are not presented in accordance with GAAP and should not be considered superior to or as a substitute for ~~net loss~~income (loss) 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 Quarterly Report may not be comparable to similar measures used by other companies. We believe that inclusion of these non-GAAP measures helps investors gain a better understanding of our performance, especially when comparing such results to previous periods and that they are useful as an additional means for investors to evaluate our operating results, when reviewed in conjunction with our GAAP financial statements. Reconciliations of these non-GAAP measures are presented in the following tables (certain columns may not foot due to rounding):

Adjusted net ~~loss~~income (loss) and adjusted net ~~loss~~income (loss) per diluted share. The above discussion includes an adjusted net ~~loss~~income (loss) for the ~~third~~second quarter and first ~~nine~~six months of fiscal ~~2016~~2017 and fiscal ~~2015~~2016 on a non-GAAP basis, which reflected an adjustment assuming a normal tax rate of 40%. We have fully reserved against our deferred tax assets and, therefore, net loss is not reflective of earnings assuming a “normal” tax position. Adjusted net ~~loss~~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%.

The following is a reconciliation of net ~~loss~~income (loss) to adjusted net ~~loss,~~income (loss), assuming a normal tax rate of 40% for the ~~third quarter and~~ first ~~nine~~six months of fiscal ~~2016~~2017 and fiscal ~~2015:~~2016:

	For the three months ended												For the nine months ended													For the three months ended											For the six months ended
	October 29, 2016						October 31, 2015						October 29, 2016						October 31, 2015							July 29, 2017						July 30, 2016					July 29, 2017						July 30, 2016
	$			Per diluted share			$			Per diluted share			$			Per diluted share			$			��	Per diluted share			$			Per diluted share			$			Per diluted share		$			Per diluted share			$			Per diluted share
(in thousands, except per share data)
Net loss (GAAP basis)	$	(4,452	)	$	(0.09	)	$	(5,472	)	$	(0.11	)	$	(4,039	)	$	(0.08	)	$	(7,025	)		$	(0.14	)
Net income (loss) (GAAP basis)																										$	(3,731	)	$	(0.08	)	$	199		$	0.00	$	(9,796	)	$	(0.20	)	$	413		$	0.01

Add back: Actual income tax provision		34						63						126						191							35						35					64						92
Income tax (provision) benefit, assuming
a normal tax rate of 40%		1,767						2,164						1,565						2,734							1,478						(94	)				3,893						(202	)

Adjusted net loss (non-GAAP basis)	$	(2,651	)	$	(0.05	)	$	(3,245	)	$	(0.07	)	$	(2,348	)	$	(0.05	)	$	(4,100	)		$	(0.08	)
Adjusted net income (loss) (non-GAAP basis)																										$	(2,218	)	$	(0.05	)	$	140		$	0.00	$	(5,839	)	$	(0.12	)	$	303		$	0.01

Weighted average number of common shares
outstanding on a diluted basis					49,552						49,116						49,532							49,072						48,556						49,953					49,146						49,902

Free Cash Flow and Free Cash Flow Before DXL Capital Expenditures. We define free cash flow as cash flow from operating activities less capital expenditures. Free cash flow before DXL capital expenditures is free cash flow with DXL capital expenditures added back. Free cash flow excludes the mandatory and discretionary repayment of debt. Free cash flow and free cash flow before DXL capital expenditures are metrics that management uses to monitor liquidity. We expect to fund our ongoing DXL capital expenditures with cash flow from operations. We believe this metric is important to investors because it demonstrates our ability to strengthen liquidity while also contributing to the funding of the DXL store growth.

The following table reconciles free cash flow and free cash flow before DXL capital expenditures:

	For the nine months ended						For the six months ended
(in millions)	October 29, 2016			October 31, 2015			July 29, 2017			July 30, 2016
Cash flow from operating activities (GAAP basis)⁽¹⁾	$	8.1		$	(5.0	)	$	14.3		$	19.1
Capital expenditures, infrastructure projects		(5.8	)		(8.1	)		(3.6	)		(4.1	)
Free Cash Flow, before DXL capital expenditures	$	2.3		$	(13.1	)	$	10.8		$	15.0
Capital expenditures for DXL stores		(16.0	)		(17.3	)		(10.2	)		(9.7	)
Free Cash Flow (non-GAAP basis)	$	(13.7	)	$	(30.4	)	$	0.6		$	5.3

EBITDA. EBITDA is calculated as earnings before interest, taxes, depreciation and amortization. We believe that EBITDA is useful to investors in evaluating our 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.

	For the three months ended						For the nine months ended						For the three months ended					For the six months ended
	October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015			July 29, 2017			July 30, 2016		July 29, 2017			July 30, 2016
(in millions)
Net loss (GAAP basis)	$	(4.5	)	$	(5.5	)	$	(4.0	)	$	(7.0	)
Net income (loss) (GAAP basis)													$	(3.7	)	$	0.2	$	(9.8	)	$	0.4
Add back:
Provision for income taxes		0.0			0.1			0.1			0.2			0.0			0.0		0.1			0.1
Interest expense		0.8			0.8			2.3			2.3			0.8			0.8		1.6			1.6
Depreciation and amortization		7.5			7.1			22.4			20.5			9.6			7.5		17.4			14.9
EBITDA (non-GAAP basis)	$	3.9		$	2.5		$	20.8		$	16.0		$	6.7		$	8.5	$	9.3		$	16.9

The following table is a reconciliation of non-GAAP measures used in our Fiscal ~~2016~~2017 Outlook:

In the normal course of business, our financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and foreign currency fluctuations. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of these and other potential exposures.

We utilize cash from operations and from our Credit Facility to fund our working capital needs. Our Credit Facility is not used for trading or speculative purposes. In addition, we have available letters of credit as sources of financing for our working capital requirements. Borrowings under the Credit Facility, which expires October 29, 2019, bear interest at variable rates based on Bank of America’s prime rate or LIBOR. At ~~October~~July 29, ~~2016,~~2017, the interest rate on our prime based borrowings was ~~4.0%~~4.75%. At ~~October~~July 29, ~~2016,~~2017, approximately ~~$56.0~~$47.0 million of our outstanding borrowings were in LIBOR contracts with an interest rate of ~~1.96%~~2.69%. At ~~October~~July 29, ~~2016,~~2017, we also had ~~$13.0~~$12.3 million outstanding under a term loan, which bears interest at a variable rate based on one-month LIBOR rates plus 6.5%.

Based upon a sensitivity analysis as of ~~October~~July 29, ~~2016,~~2017, assuming average outstanding borrowing during the first ~~nine~~six months of fiscal ~~2016~~2017 of ~~$51.9~~$58.6 million under our Credit Facility and ~~$13.0~~$12.3 million outstanding under our term loan, a 50 basis point increase in interest rates would have resulted in a potential increase in interest expense of approximately ~~$324,500~~$354,500 on an annualized basis.

Our Rochester Clothing store located in London, England conducts business in British ~~pounds.~~pounds and our two DXL stores located in Ontario, Canada conduct business in Canadian dollars. As of ~~October~~July 29, ~~2016,~~2017, sales from ~~our London Rochester Clothing store~~these stores were immaterial to consolidated sales. As such, we believe that movement in foreign currency exchange rates will not have a material adverse effect on our financial position or results of operations.

As required by Rule 13a-15 under the Exchange Act, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~October~~July 29, ~~2016.~~2017. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible

controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~October~~July 29, ~~2016,~~2017, our disclosure controls and procedures were effective.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended ~~October~~July 29, ~~2016~~2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

There have been no material changes to the risk factors as previously disclosed in Part I, Item 1A of our Fiscal ~~2015~~2016 Annual Report.

~~None.~~Share repurchase activity during the three months ended July 29, 2017 was as follows:

All shares purchased during the second quarter of fiscal 2017 were open market transactions.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		04-2623104
(State or other jurisdiction of incorporation or organization)		(~~IRS~~I.R.S. Employer Identification No.)

555 Turnpike Street Canton, MA		02021
(Address of principal executive offices)		(Zip Code)

	~~October 29, 2016~~
~~Expected volatility~~		~~39.3~~	%
~~Risk-free interest rate~~		~~0.78~~	%
~~Expected life~~	~~2.0 yrs~~
~~Dividend rate~~		—

	Projected
	Fiscal ~~2016~~2017
(in millions, except per share data)				per diluted share
Net ~~income (loss), GAAP basis~~loss (GAAP basis)	$~~(4.4)~~(11.7)-$~~0.0~~(16.7)
Add back:
Provision for income taxes		~~0.2~~0.1
Interest expense	~~2.9-3.2~~	3.0
Depreciation and amortization	~~29.9-31.0~~	33.7
EBITDA ~~non-GAAP basis~~(non-GAAP basis)	$~~30.0-~~20.0-$~~33.0~~25.0

Net ~~income (loss), GAAP basis~~loss (GAAP basis)	$~~(4.4)~~(11.7)-$~~0.0~~(16.7)			$~~(0.09)~~(0.24)-$~~0.00~~(0.34)
Income tax benefit, assuming 40% rate	$~~(1.8)-~~4.7-$~~0.0~~6.7			$~~(0.04)-~~0.10-$~~0.00~~0.13
Adjusted net ~~income (loss), non-GAAP basis~~loss (non-GAAP basis)	$~~(2.6)~~(7.0)-$~~0.0~~(10.0)			$~~(0.05)~~(0.14)-$~~0.00~~(0.21)
Weighted average common shares outstanding - diluted		~~49.9~~48.5

Cash flow from operating activities ~~GAAP basis~~(GAAP basis)	$~~34.0-~~35.0-$~~38.0~~40.0
Capital expenditures, infrastructure projects	~~(9.4)~~	(8.3	)
Free Cash Flow, before DXL capital expenditures (non-GAAP basis)	$~~24.6-~~26.7-$~~28.6~~31.7
Capital expenditures for DXL stores	~~(20.6)~~	(13.7	)
Free Cash Flow ~~non-GAAP basis~~(non-GAAP basis)	$~~4.0-~~13.0-$~~8.0~~18.0

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plan		Approximate dollar value of shares that may yet be purchased under the plan ⁽¹⁾

April 30, 2017 to May 27, 2017		492,157	$	2.31		492,157	$	9,039,264
May 28, 2017 to July 1, 2017		637,850	$	2.41		637,850	$	7,503,644
July 2, 2017 to July 29, 2017		79,080	$	2.33		79,080	$	7,319,343
Total		1,209,087	$	2.36		1,209,087	$	7,319,343

	Number of shares		Weighted-average exercise price per option		Weighted-average remaining contractual term	Aggregate intrinsic value
Stock Options
Outstanding options at beginning of year		—	$	—
Options granted		8,522	$	4.49
Options canceled		—	$	—
Options exercised		—	$	—
Outstanding options at end of quarter		8,522	$	4.49	9.9 years	$	—
Options exercisable at end of quarter		—

	Third Quarter			First Nine Months
	(in millions)
Sales for the third quarter and first nine months of fiscal 2015	$	99.6		$	318.2
Less 2015 sales for stores that have closed /converted		(5.5	)		(19.4	)
	$	94.1		$	298.8

Increase in comparable sales		0.8			5.2
Non-comparable sales, primarily DXL stores open less than 13 months		6.9			23.0
Other, net		0.1			0.6
Sales for the third quarter and first nine months of fiscal 2016	$	101.9		$	327.6


31.1		Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~October~~July 29, ~~2016,~~2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

	DESTINATION XL GROUP, INC.

Date: ~~November 18, 2016~~August 24, 2017	By:	/S/ John F. Cooney
		John F. Cooney
		Vice President, Chief Accounting Officer and Corporate Controller (Duly Authorized Officer and Chief Accounting Officer)

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