DESTINATION XL GROUP, INC.

The following risk factors are the important factors that we are aware could cause actual results, performance or achievements to differ materially from those expressed in any of our forward-looking statements. We operate in a continually changing business environment and new risk factors emerge from time-to-time. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. We cannot assure you that our projected results or events will be achieved or will occur.

Strategic Risks That May Affect Our Business

If we are unable to complete the announced Merger with FullBeauty, it could have a material adverse effect on our business, results of operations, financial condition, cash flows, and stock price, and, even if the Merger is completed, there can be no assurance that the combined company will realize the anticipated benefits of the Merger or achieve expected results.

On December 11, 2025, we announced that we had entered into a Merger Agreement with FullBeauty. The Merger, which is expected to close during the second quarter of fiscal 2026, is subject to customary closing conditions, including approval by the Company's stockholders. There is no assurance that all of the conditions will be satisfied, that the Merger will be completed on the announced terms, or that our stockholders will approve the Merger within the expected timeframe or at all. The closing of the Merger may be delayed, or the Merger may not be completed, for any number of reasons, including a failure to obtain stockholder approval.

If the Merger is not completed, we could suffer consequences that may adversely affect our business, financial condition, operating results, cash flows and stock price. To the extent that the market price of our common stock reflects the assumption that the Merger will be completed, the price of our stock could decline if it is not completed. We may experience adverse effects or changes to our relationships with customers, employees, suppliers, or other parties during the transition period or following a failure to complete the Merger. We may also experience increased employee attrition due to the uncertainties regarding future employment or job responsibilities as a result of the Merger. In addition, there may be potential litigation relating to the Merger instituted against us.

Further, even if the Merger is completed, there can be no assurance that we will be able to successfully integrate and scale our operations or realize the anticipated benefits and synergies of the Merger.

We may not be successful in executing our long-term strategy and growing our market share.

For us to be successful in the future and maintain growth, we must be able to grow our share of the big + tall men’s apparel market. Our growth is dependent on our ability to continue to build upon our DXL brand, maintain our existing customers and attract new customers. We have developed and are implementing long-term strategic initiatives to grow our business, but the timeline of these initiatives is dependent, to a degree, on overall market conditions.

Our failure to execute our long-term strategy successfully could prevent or delay us from growing our market share, which could have a material adverse effect on our results of operations, cash flows and financial position, including if we are unable to:

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build brand awareness to drive increased store and online traffic;

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build successful collaborations and alliances;

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grow our DXL digital business;

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maintain a state-of-the-art website;

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manage and grow our store portfolio;

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predict and respond to fashion trends, while offering our customers a broad selection of merchandise in an extended selection of sizes;

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grow our existing customer base;

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hire qualified store management and store associates;

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grow and then sustain the number of transactions, units-per-transaction and share of wallet; and

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operate at appropriate operating margins.

Changes in consumer health trends, including the increased use of GLP-1 and similar weight-loss medications, could adversely affect demand for our merchandise, though such trends may also create new opportunities.

The growing availability and adoption of GLP-1 receptor agonists and other prescription medications used for weight management may contribute to changes in body size, weight distribution, and apparel needs among consumers. To the extent these medications lead to sustained weight loss or reduced demand for extended-size apparel, particularly among men who historically have required big + tall sizing, demand for our core product offerings could decline, which could adversely affect our sales, inventory planning, and operating results.

In addition, rapid or uneven changes in customer sizing preferences could increase inventory risk, including higher markdowns to clear excess inventory, and may require adjustments to our merchandising strategy, sourcing, and supply chain that we may not be able to execute efficiently or on favorable terms.

At the same time, these trends may also present potential opportunities for our business. Customers experiencing weight changes may require replacement wardrobes more frequently, including during transitional sizing periods, which could increase purchase frequency or demand for a broader range of sizes and fits. On the other hand, big + tall customers on a weight loss journey may shop less often to avoid buying clothing in interim sizes. We may benefit from opportunities to expand adjacent size categories, introduce new fits or product lines, or strengthen customer relationships through personalized customer service, loyalty programs, or fit-focused offerings. We believe that our FiTMAP® technology, which is an innovative, contactless digital scanning technology licensed by Formcut until January 1, 2030 that captures 243 unique measurements, and our proprietary Size Mapping tool, which ensures a great fit for our scanned customers with most of our best-selling brands, as well as our custom clothing offerings, uniquely position us to help consumers respond to the positive effects of these medications. However, our ability to realize any such benefits will depend on our ability to anticipate and respond effectively to evolving consumer preferences, manage inventory and costs, and execute our strategic initiatives successfully.

Our marketing programs and efforts to drive awareness and traffic and to convert that traffic into an increased loyal customer base are critical to achieving market share growth within the big + tall men’s apparel market and may not be successful.

Our ability to increase our share of the big + tall men’s apparel market is largely dependent on effectively marketing our brand and merchandise to all of our target customers in several diverse market segments so that they will become loyal shoppers who spend a greater portion of their wallets on our product offerings. In order to grow our market share, we depend on the success of our marketing and advertising in a variety of ways, including streaming media advertising, advertising events, our loyalty program, direct mail, paid search, and digital marketing, including social media and customer prospecting. Our business is directly impacted by the success of these efforts and those of our vendors. Future marketing efforts by us, our vendors or our other licensors may be more costly than prior years and, if not successful, may negatively affect our ability to meet our sales goals and gain market share.

If our marketing campaigns and strategies are unable to drive traffic to our stores and website, the marketing costs incurred will have a negative impact on the Company's profitability.

Our direct business is a component of our growth strategy and the failure to develop our digital infrastructure could disrupt our business and negatively impact our sales.

We have made significant investments in capital spending and labor to develop our direct channels and increased investments in digital marketing to attract new customers. The growth of our overall sales is dependent on customers continuing to expand their online purchases in addition to in-store purchases. While it is our objective to continue to grow this business, there can be no assurance that this growth will continue or be sustainable.

Our success in growing our direct business will depend in part upon our development of an increasingly sophisticated e-commerce experience and infrastructure. Increasing sophistication requires that we provide additional website features, functionality and messaging in order to be competitive in the marketplace and maintain market share.

In addition, we are vulnerable to additional risks and uncertainties associated with e-commerce sales, including security breaches, cyber-attacks, consumer privacy concerns, changes in state tax regimes and government regulation of internet activities. Our failure to respond to these risks and uncertainties appropriately could reduce our direct sales, increase our costs and diminish our growth prospects, which could negatively affect our operating results.

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

Our customer’s shopping behavior continues to evolve across multiple channels and we are working to meet his needs, with real time store inventory visibility, our mobile app, and BOPIS (buy online pick-up in stores). We consider ourselves a customer-centric integrated commerce retailer, and we continue to make ongoing investments in our information technology systems to support these evolving capabilities.

Integrated commerce is rapidly evolving and our success depends on our ability to anticipate and implement innovations in sales and marketing technology and logistics in order to appeal to existing and potential customers who increasingly rely on multiple channels to meet their shopping needs. Our competitors are also investing in these initiatives, some of which may be more successful than our initiatives.

If the investment in our integrated commerce initiatives is not successful, if our systems are unable to support such initiatives, or if our competitors are more successful, our financial results and our market penetration may be adversely affected.

Our business may be adversely affected if we are unable to manage our store portfolio successfully.

We lease all of our store locations. Renewing and renegotiating these leases at acceptable lease terms is critical to the profitability of our stores. We worked closely with our landlords to renegotiate and restructure a majority of our lease portfolio from the onset of the COVID-19 pandemic; however, many of these renegotiated lease terms have renewed or are due to renew at higher rates than we had during the COVID-19 pandemic. If we are unable to renegotiate terms to optimize a store's profitability, we may choose not to renew certain locations when the opportunity arises.

One of our long-term strategic initiatives is to grow our store portfolio and we have identified multiple white space opportunities in new or underpenetrated markets. However, given the current market conditions and economic headwinds, we have paused opening new stores in fiscal 2026. We continue to actively review opportunities to relocate or convert some of our remaining Casual Male XL stores to DXL.

If we are unable to obtain favorable lease terms, we may not be able to maintain our current store base. In addition, the lack of store growth could negatively affect our ability to grow revenue and market share. Depending on market conditions and our Company's performance, similar to what we have seen in fiscal 2025, the pace at which we open store locations may have to be paused beyond fiscal 2026.

Operational Risks That May Affect Our Business

Our business may be adversely affected due to disruptions in the global supply chain.

Disruptions in the global supply chain in foreign ports, the impact of tariffs, the impact of climate change, and the shortages of vessels and shipping containers may impact our ability to import inventory in a timely manner. The imposition of tariffs and reciprocal tariffs, sanctions, import/export restrictions and other future actions may have a negative impact on the supply chain and may limit the availability of certain raw materials and result in increased costs. Instability in the Middle East continues to make accessing the Suez Canal a risk, thereby prompting vessels to avoid this route, which adds time and cost. Insurance costs to cover shipments have significantly increased due to risk of attacks on commercial vessels. In the event that commercial transportation is curtailed or substantially delayed, we may not be able to maintain adequate inventory levels of important merchandise on a consistent basis, which would negatively impact our sales and potentially erode the confidence of our customer base, leading to loss of sales and an adverse impact on our results of operations. Furthermore, we may continue to incur incremental freight costs, which could negatively harm our gross margin rates.

In 2025, the U.S. government announced the imposition of additional tariffs on certain goods imported from numerous countries, including Vietnam, India and Bangladesh. Multiple nations responded with reciprocal tariffs and other trade actions. The recent imposition and subsequent invalidation of tariffs by the U.S. government, along with the unpredictability of the rates and other potential actions that may be taken by the U.S. government and foreign governments (including trade restrictions, new or increased tariffs or quotas, embargoes, sanctions and counter sanctions, safeguards or customs restrictions) may materially increase our costs and reduce our margins. The unpredictability surrounding tariffs and trade policies has resulted in substantial uncertainty and may negatively impact our operational management and our ability to forecast with confidence.

In light of the implications of new tariffs, many companies, including ours, have had to reassess their global sourcing strategy in an effort to minimize the impact of these tariffs. During fiscal 2025, we took several actions to mitigate the impact of these tariffs, including acceleration of receipts, further diversifying suppliers and re-sourcing to countries with lower tariffs, working with longstanding factory partners to reduce costs, identifying further cost reductions across our business and planning for strategic price increases and growing our participation in the First Sale Initiative (a U.S. Customs approved program) with a majority of our vendors. However, there can be no assurance that our current or future actions to mitigate such tariffs will be successful.

Given the uncertainty regarding the treatment of tariff amounts previously paid and the scope and durability of current and future tariff measures, as well as the potential for additional trade actions by the U.S. or other countries, the specific impact to our business, results of operations, cash flows and financial condition is uncertain, but could be material. Further, any emerging nationalist trends in specific countries could alter the trade environment and consumer purchasing behavior which, in turn, could have a material effect on our financial condition and results of operations.

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

The majority of our merchandise for our stores and e-commerce operations is received into our centralized distribution center in Canton, Massachusetts, where it is then processed, sorted and shipped to our stores or directly to our customers. We depend in large part on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of the distribution center. Although we believe that our receiving and distribution process is efficient and well-positioned to support our strategic plans, events beyond our control, such as disruptions in operations due to fire or other catastrophic events, employee matters or shipping problems, labor shortages, severe weather, the impact of climate change or disruptions in our distribution center, could result in delays in the delivery of merchandise to our stores or directly to our customers.

With all of our management information systems centralized in our corporate headquarters, any disruption or destruction of our system infrastructure could materially affect our business. This type of disaster would be mitigated by our offsite storage and disaster recovery plans, but we would still incur business interruption that may impact our business for a significant period of time.

Although we maintain business interruption and property insurance, we cannot be sure that our insurance will be sufficient or that insurance proceeds will be timely paid to us in the event that our distribution center is shut down for any reason or we incur higher costs and longer lead times in connection with a disruption relating to our distribution center.

We are dependent on third parties to manufacture the merchandise that we sell.

We do not own or operate any manufacturing facilities and are therefore entirely dependent on third parties to manufacture the merchandise we sell. Without adequate supplies of merchandise to sell to our customers in the merchandise styles and fashions demanded by our particular customer base, sales would decrease materially and our business would suffer. We are dependent on these third parties’ ability to fulfill our merchandise orders and meet our delivery terms. In the event that manufacturers are unable or unwilling to ship products to us in a timely manner or continue to manufacture products for us, we would have to rely on other current manufacturing sources or identify and qualify new manufacturers. We might not be able to identify or qualify such manufacturers for existing or new products in a timely manner and such manufacturers might not allocate sufficient capacity to us in order to meet our requirements. Our inability to secure adequate and timely supplies of private-label merchandise would negatively impact proper inventory levels, sales and gross margin rates, and ultimately, our results of operations.

In addition, even if our current manufacturers continue to manufacture our products, they may not maintain adequate controls with respect to product specifications and quality and may not continue to produce products that are consistent with our standards. If we are forced to rely on manufacturers who produce products of inferior quality, then our brand and customer satisfaction would likely suffer, which would negatively impact our business. These manufacturers may also increase the cost to us of the products we purchase from them.

The U.S. Department of the Treasury has placed sanctions on China’s Xinjiang Production and Construction Corporation ("XPCC") for serious human rights abuses against ethnic minorities in China’s Xinjiang Uyghur Autonomous Region. In addition, in January 2021, the U.S. Customs and Border Protection issued a Withhold Release Order on products made in Xinjiang. In response to the problems in Xinjiang, we developed a Compliance Certificate of Traceability for our cotton vendors. Although we prohibit our vendors from doing business with XPCC, we could be subject to penalties, fines or sanctions and our brand could be harmed if any of the vendors from which we purchase product is found to have done business, directly or indirectly, with XPCC.

We work with a third-party audit vendor to ensure a responsible and ethical supply chain. We are and will continue to pursue our corporate responsibilities and create a positive effect on human rights as well as the environment. The Company publishes a Vendor Code of Conduct, which is a part of every agreement requiring compliance by the manufacturing facilities. If, despite third-party audits, the manufacturing facilities engage in workplace or human rights violations and we are unable to identify or correct such violations, it may negatively affect our business and harm our brand.

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

Due to the inflationary pressures, we are seeing cost increases in labor, occupancy and raw materials. We have secured raw materials in key item programs to reduce the impact on our gross margin. Fluctuations in the price, the imposition of tariffs, the availability and quality of fabrics or other raw materials used in the manufacturing of our merchandise could have a material adverse effect on our gross margin or on our ability to meet our customers’ demands. Several factors may affect our costs for raw materials including, among other things, demand, currency fluctuations, political instability, inflationary pressures, tariffs, fuel prices and weather, including the impact of global climate change. To the extent that we cannot offset cost increases with other cost reductions or efficiencies, such increased costs will need to be passed on to our customers. Such increased costs could lead to reduced customer demand, which could have a material adverse effect on our results of operations and cash flow.

On February 20, 2026, the U.S. Supreme Court ruled that certain tariffs imposed by the current administration under the International Emergency Economic Powers Act in 2025, including tariffs on global imports from China, Canada, and Mexico, were unlawful. However, not all tariffs imposed in 2025 will be impacted by this decision, and new tariffs have, and may continue to be, implemented under other statutory authorities. Following the U.S. Supreme Court’s ruling, the current administration issued a presidential proclamation imposing additional tariffs under U.S. trade laws, which can remain in effect for up to 150 days unless further extended by the U.S. Congress. The current administration may continue to impose additional tariffs under U.S. trade laws. These events introduce uncertainty regarding the treatment of tariff amounts previously paid and the scope and durability of current and future tariff measures. Even if certain tariffs affecting our Company are ultimately invalidated, we may not be able to fully recover increased costs associated with product delivery and related services from international vendors.

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

The United States big + tall men’s apparel market is highly competitive with many national and regional department stores, mass merchandisers, specialty apparel retailers, discount stores and online retailers offering a range of apparel products similar to the products that we sell. Besides retail competitors, we consider any manufacturer of big + tall men’s merchandise operating in outlet malls throughout the United States to be a competitor. It is also possible that another competitor, either a mass merchant or a men’s specialty store or specialty apparel catalog, could gain market share in big + tall men’s apparel due to more favorable pricing, locations, brand and fashion assortment and size availability. Many of our competitors and potential competitors may have substantially greater financial, manufacturing and marketing resources than we do.

The presence in the marketplace of various fashion trends and the limited availability of shelf space also can affect competition. We may not be able to compete successfully with our competitors in the future and could lose market share. A significant loss of market share would adversely affect our revenues and results of operations.

We maintain exclusivity arrangements with several of our national brands. The loss, reduction, or non‑renewal of these exclusivity agreements could diminish customer traffic, reduce our ability to command premium pricing, and negatively affect sales. Our strategic shift toward a higher private-brand penetration may reduce this risk. However, if the performance of our private brands does not meet expectations due to a lack of customer acceptance or a failure to provide competitive pricing, our revenues and gross margins may be negatively affected.

Our business may be negatively impacted and we may be liable if third parties misappropriate proprietary information of our customers and breach our security systems.

We may be harmed by security risks that we face in connection with our electronic processing and transmission of confidential customer information. The majority of our retail sales are settled through credit and debit card transactions. While our Board has a Cybersecurity and Data Privacy Committee (the “Cyber Committee”) to oversee the monitoring and management of cyber risk and data privacy for our Company, and we have not had any security breaches to date, any breach could expose us to risks of loss, litigation, and liability and could adversely affect our operations. Any breach could also cause our shoppers to stop shopping with us as a result of their lack of confidence in the security of their personally identifiable information, which could have a negative impact on our sales and profitability. We attempt to limit exposures to security breaches and sensitive customer data through the use of “tokenization” in connection with both in-store and online credit card transactions, which eliminates the storage of credit card numbers. Like many retailers, we have seen an increase in cyber-attack attempts, predominantly through phishing and social engineering scams, and in particular, ransomware. While none of these attempts has been successful, there can be no assurance that our continued security measures will be effective or sufficient in the future. If third parties are able to penetrate our network security or otherwise misappropriate the personal information or credit card information of our customers, or if third parties gain unauthorized and improper access to such information, we could be subject to liability. Such liability could include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims, or claims for other misuses of personal information, including unauthorized marketing purposes, and could ultimately result in litigation. Liability for misappropriation of this information could be significant.

Further, if a third party were to use this proprietary customer information in order to compete with us, it could have a material adverse impact on our business and could result in litigation.

We may be unable to effectively implement, manage, or adapt our artificial intelligence initiatives, and the steps we take may be insufficient relative to our competitors.

Our adoption of artificial intelligence (“AI”) technologies exposes us to operational, strategic, and compliance risks. Successful implementation of AI depends on the effective integration of new tools and processes, and we may experience delays, technical challenges, or disruptions that could adversely affect our operations. In addition, our planned investments in AI may not achieve the expected efficiencies or competitive advantages.

Our current use of AI is limited to AI platforms provided through our existing third‑party service providers. These tools are proprietary to us and are primarily used to improve workflow efficiencies. Changes by these third‑party service providers, including pricing adjustments, modifications to functionality, reduced service availability, or compatibility issues, could negatively impact our operations or increase costs. In addition, the growing consumer shift toward AI‑driven search and discovery may reduce the effectiveness of traditional digital channels. If we do not adapt to these changes, our customer acquisition and engagement efforts could be adversely affected.

The use of AI to process and analyze customer data increases our exposure to data privacy, cybersecurity, and regulatory risks. Any failure to protect data, comply with applicable regulations, or appropriately govern AI‑enabled processes could result in legal, financial, or reputational harm. Ensuring that our associates use only Company‑approved AI technologies presents an additional governance and compliance challenge. Integrating AI into our business processes may also require significant employee training and change‑management efforts, and resistance to such changes could negatively impact productivity.

If we are unable to effectively implement, manage, or adapt our AI initiatives, our business, financial condition, and results of operations, could be materially adversely affected.

Our ability to operate and expand our business and to respond to changing business and economic conditions depends on the availability of adequate capital.

The operation of our business, the rate of our expansion and our ability to respond to changing business and economic conditions all depend on the availability of adequate capital, which in turn depends on cash flow generated by our business and, if necessary, the availability of equity or debt capital.

The amount that we are able to borrow and have outstanding under our credit facility at any given time is determined using an availability formula based on eligible assets. As a result, our ability to borrow is subject to certain risks and uncertainties, such as advance rates and the amount and quality of inventory, which could reduce the funds available to us under our credit facility. In addition, because of the disruptions in the supply chain, inventory levels may be lower than expected. This directly impacts our borrowing base and there can be no assurance that we can effectively manage the balance of maintaining inventory and sufficient availability, especially during peak selling periods.

We cannot make assurances that our cash flow from operations or cash available under our credit facility will be sufficient to meet our needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we incur additional indebtedness, that indebtedness may contain financial and other covenants that may significantly restrict our operations, and we cannot ensure that we would be able to obtain refinancing or that such additional financing would be on favorable terms.

We may be unable to predict fashion trends and customer preferences successfully.

Customer tastes and fashion trends are volatile and tend to change rapidly. Our success depends in large part upon our ability to predict effectively and respond to changing fashion tastes and consumer demands and to translate market trends to appropriate saleable product offerings. If we are unable to predict or respond to changing styles or trends successfully and misjudge the market for products or any new product lines, our sales will be impacted and we may be faced with a substantial amount of unsold inventory or missed opportunities. In response, we may be forced to rely on additional markdowns or promotional sales to dispose of excess, slow-moving inventory, which would decrease our revenues and margins. In addition, the failure to satisfy consumer demand, specifically in our DXL stores and from our website, could have serious long-term consequences on our business, such as an adverse impact on our brand value and the loss of market share to our competitors.

The loss of any of our key trademarks or licenses could adversely affect demand for our products.

We own and use a number of trademarks and operate under several trademark license agreements. We believe that certain of these trademarks have significant value and are instrumental in our ability to create and sustain demand for and to market our products. We cannot be certain that these trademarks and licensing agreements will remain in effect and enforceable or that any license agreements, upon expiration, can be renewed on acceptable terms or at all. In addition, any future disputes concerning these trademarks and licenses may cause us to incur significant litigation costs or force us to suspend use of the disputed trademarks.

If our long-lived assets become impaired, we may need to record significant non-cash impairment charges.

Periodically, we review our long-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Specifically, if an individual store location is unable to generate sufficient future cash flows, we may be required to record a partial or full impairment of that store’s right-of-use assets and its property and equipment. In addition, significant negative industry or general economic trends, disruptions to our business and unexpected significant changes or planned changes in our use of the assets (such as store relocations or closures) may also result in impairment charges. If any such impairment charges are significant, it could adversely affect our financial position and results of operations.

The effects of climate change may adversely impact our business.

The concern that a gradual rise in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases ("GHG") in the atmosphere is very real and the belief that this will cause significant changes in weather patterns is widely held. This appears to be resulting in an increase in the frequency, severity, and duration of extreme weather conditions and natural disasters, as well as water scarcity and poor water quality. These events could adversely impact the availability and price of cotton and other raw materials, disrupting the supply chain and our ability to secure merchandise. Further, extreme weather conditions caused by climate change could negatively impact our financial results if our retail locations are unable to open, customers are unable to travel or our distribution center is unable to fulfill orders or deliver inventory. These events could also create adverse economic conditions and impact consumer confidence and discretionary spending. As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations.

We use a risk-based approach to evaluate the environmental impact throughout our value chain. We have an Environmental Policy, which describes our efforts to safeguard the environment and minimize our global footprint. We are also working to develop additional policies, standards and goals to help mitigate the risks associated with the effects of climate change, including working closely with our vendors and business partners to help identify such risks, develop standards and improve processes.

We may be unable to achieve our environmental, social and governance objectives.

We are committed to corporate social responsibility and sustainability, and we recognize the importance of environmental, social and governance ("ESG") issues. Our Sustainability and Governance Committee, comprising a cross-discipline of corporate management, previously worked with a third-party firm to assist us in the development of the Company's policies and initiatives and may again in the future. The ability to achieve our objectives is subject to risks and uncertainties, and we may fail to achieve our objectives. We may also incur additional costs and require additional resources to implement such policies and initiatives.

Our business is subject to evolving regulations and expectations with respect to environmental, social and governance matters that may expose us to increased risks.

An increased focus by local, state, regional, national, and international regulatory bodies on GHG emissions and climate change issues increases the risk to our business if we are unable to comply with the multiple and evolving policy changes. For example, in March 2024, the SEC adopted rules to enhance and standardize climate-related disclosures by public companies so that there is more consistent, comparable, and reliable information about the financial effects of climate-related risks on a public company’s operations and how it manages those risks. However, those rules have not taken effect due to ongoing legal challenges and a judicial stay, and in March 2025, the SEC announced that it voted to end its defense of the rules.

In addition, in October 2023, California enacted the Climate Corporate Data Accountability Act and the Climate Related Financial Risk Act that require large public and private companies that do business within the state to disclose their Scopes 1, 2, and 3 GHG emissions, with third-party assurance of GHG emissions information for certain entities, and to issue public reports on their climate-related financial risk and related mitigation measures, but those statutes are also subject to legal challenges, regulatory implementation uncertainty, and potential delays or changes in enforcement.

Given that both the SEC rules and the California statutes remain subject to ongoing litigation, it is unclear when, or in what form, these requirements will ultimately become effective. Courts could uphold, invalidate, narrow, or remand these rules, and regulators may revise or re-propose requirements in response to judicial decisions or changes in policy priorities. As a result, we face uncertainty regarding the scope, timing, and substance of future climate-related obligations. This uncertainty complicates our ability to plan for and implement compliance systems, internal controls, data collection processes, and assurance procedures. We may incur significant costs to prepare for compliance with requirements that are delayed, modified, or never implemented, or we may be required to make rapid and costly changes to our disclosures and operations if new or revised requirements take effect on an accelerated timeline. These efforts could divert management attention and resources from our core business activities.

General Risks That May Affect Our Business

Our business is seasonal and is affected by general political and economic conditions.

Our business is seasonal. Historically, a significant portion of our operating income has been generated during our second and fourth quarters. If, for any reason, we miscalculate the demand for our products during these quarters, our sales in that quarter could decline, resulting in higher labor costs as a percentage of sales, lower margins and excess inventory, which could cause our annual operating results to suffer. Due to our seasonality, the possible adverse impact from such risks is potentially greater if any such risks occur during our second and fourth quarters.

In addition, our operations may be negatively affected by local, regional or national political and economic conditions, such as levels of disposable consumer income, inflation, rising energy costs, consumer debt, interest rates, consumer confidence and other macro issues. The volatile political environment increases the chance of other legislative and regulatory changes at both the federal and state level that could affect us in ways we cannot predict. In addition, global economies, conflicts, trade negotiations and policies may directly or indirectly affect our business.

Our success depends significantly on our key personnel and our ability to attract and retain additional personnel.

Our success depends on the personal efforts, performance, and abilities of our key management, including our executive officers and senior leaders. The loss of any member of senior management could result in diminished organizational focus, weaker operating execution, reduced ability to identify and pursue strategic initiatives, challenges in identifying new store locations, and limitations on our ability to consummate potential acquisitions. Competition for highly skilled individuals with relevant industry experience is intense, and we may not be able to attract or retain employees of the caliber necessary to achieve our objectives.

We may experience increased associate attrition in connection with organizational changes, evolving leadership structures, or shifts in strategic priorities. Such changes can create uncertainty regarding future roles and responsibilities, disrupt established ways of working, and place pressure on our culture. These dynamics may lead to reduced employee engagement, weakened collaboration, or erosion of institutional knowledge across all levels of the company. Any significant loss of personnel or deterioration in culture could adversely affect our operations and impair our ability to execute our business strategy.

Labor shortages or increases in labor costs due to new regulations could harm our business.

Any labor shortage, particularly those of which occur in our distribution facility and our stores or during peak selling periods, may negatively impact our ability to process inventory in a timely manner and effectively staff our stores. Because of the tight labor market, our hourly rates have increased to attract candidates. If we are unable to pass on these higher costs through price increases or reduced workforce hours, our margins and profitability may be adversely impacted, which could have a material adverse effect on our business, results of operations or financial condition.

The failure to comply with laws, rules and regulations could negatively affect our business operations and financial performance.

Our business is subject to federal, state, and increasing local rules and regulations, such as state and local wage and hour laws, the Employee Retirement Income Security Act (“ERISA”), securities laws, import and export laws (including customs regulations), state privacy and information security regulations, unclaimed property laws, and many others. Some of these laws and regulations may increase the cost of doing business and have a material impact on our earnings. In addition, the complexity of the regulatory environment in which we operate and the related cost of compliance are both increasing due to legal and regulatory requirements and increased enforcement. We may also be subject to investigations or audits by governmental authorities and regulatory agencies, which can occur in the ordinary course of business or result from increased scrutiny from a particular agency toward an industry, country or practice. If we fail to comply with laws, rules and regulations or the manner in which they are interpreted or applied, we may be subject to government enforcement action, class action or other litigation, damage to our reputation, civil and criminal liability, damages, fines and penalties, and increased costs of regulatory compliance, any of which could adversely affect our results of operations and financial performance.

The global impact of a health pandemic, similar to the COVID-19 pandemic, may have an adverse effect on our business, financial results, liquidity, supply chain and workforce.

The COVID-19 pandemic and its variants caused global uncertainty and disruption that had a material impact on our business predominately in fiscal 2020 and early fiscal 2021, as well as a lingering negative effect on the global economy that directly impacted our business beyond the initial COVID-19 pandemic, including rising interest rates, labor shortages, increased material costs, global supply chain issues, inflationary pressures, and changes in consumer spending behaviors. With concerns about RSV, influenza, the measles, and avian flu in the news, another health pandemic could materially affect our financial results, access to sources of liquidity and inventory.

Risks Related to Our Corporate Structure and Stock

Our stock price has been and will likely continue to be volatile and fluctuate substantially.

The market price of our common stock has been and will likely continue to fluctuate substantially as a result of many factors, some of which are beyond our control. For example, from September 8, 2021, when we relisted on the Nasdaq Global market, through March 9, 2026, the reported price of our common stock has ranged from a low of $0.49 on March 9, 2026 to a high of $8.99 on November 17, 2021. Factors that could cause fluctuations in the market price of our common stock include the following:

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overall changes in the economy and general market volatility, including the effects of inflation and/or recession;

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news announcements regarding our quarterly or annual results of operations;

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quarterly comparable sales;

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acquisitions;

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announced merger;

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competitive developments;

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governmental regulation (such as increased wage and paid benefits laws);

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litigation affecting us; or

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market views as to the prospects of the Company or the retail clothing industry generally.

We may not be able to maintain the listing of our common stock on Nasdaq.

Our common stock currently trades on The Nasdaq Global Market. Nasdaq has continued listing standards that we must maintain to avoid delisting, including, among others, a minimum consolidated closing bid price requirement of $1.00 per share as set forth in Nasdaq Listing Rule 5450(a)(1). On February 4, 2026, we received a notice from Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive trading days, the Company no longer meets this requirement.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided a compliance period of 180 calendar days, or until August 3, 2026, in which to regain compliance with the minimum bid price requirement. In order to regain compliance, the consolidated closing bid price of the Company’s common stock must be at least $1.00 per share for a minimum of 10 consecutive business days during this period. In the event that the Company does not regain compliance within this period, the Company may be eligible to seek an additional compliance period of 180 calendar days if it (i) transfers its listing to the Nasdaq Capital Market and (ii) meets the continued listing requirement for market value of publicly traded shares and all other initial listing standards for the Nasdaq Capital Market (other than the minimum bid price requirement) and provides written notice to Nasdaq of its intent to cure the deficiency during this additional compliance period by effecting a reverse stock split, if necessary. There can be no assurance that the Company will be able to cure the deficiency. There also remains a risk that, if it appears to Nasdaq that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, the Company’s common stock may be subject to delisting. There can be no assurance that the Company will be able to regain compliance with the minimum bid price requirement or maintain compliance with the other listing requirements.

If we are unable to comply with Nasdaq’s continued listing standards and our common stock is delisted, our common stock would be eligible for quotation on "over-the-counter" markets, which are generally considered less efficient than Nasdaq and other national exchanges because of lower trading volumes, transaction delays and reduced security analyst and news media coverage. Any delisting of our common stock could adversely affect the market liquidity of our common stock, and the market price of our common stock could decrease. Furthermore, if our common stock is delisted, it could adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors, customers, suppliers and employees.

Our certificate of incorporation, as amended, limits transfers of our common stock and may, along with state law, inhibit potential acquisition bids that could be beneficial to our stockholders.

Our certificate of incorporation, as amended, contains provisions that restrict any person or entity from attempting to purchase our stock, without the prior approval of the Board, to the extent that such transfer would (i) create or result in an individual or entity becoming a five-percent or greater stockholder of our stock, or (ii) increase the stock ownership percentage of any existing five-percent stockholder without the prior approval of the Board. These provisions provide that any transfer that violates such provisions shall be null and void and would require the purported transferee, upon demand by us, to transfer the shares that exceed the five percent limit to an agent designated by us for the purpose of conducting a sale of such excess shares. These provisions would make the acquisition of our Company more expensive to the acquirer and could significantly delay, discourage, or prevent third parties from acquiring our Company without the prior approval of our Board.

In addition, we are subject to certain provisions of Delaware law, which could delay or make more difficult a merger, tender offer or proxy contest involving us. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in certain business combinations with any interested stockholder for a period of three years unless specific conditions are met. In addition, certain provisions of Delaware law could have the effect of delaying, deferring or preventing a change in control of our Company, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock. Such provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.