By Abigail Summerville

Dec 11 - Retailers Destination XL Group DXLG.O and FullBeauty Brands plan to merge, people familiar with the situation said on Thursday, creating a bigger player in the size-inclusive apparel market.

The combined company generates approximately $1.2 billion of annual net sales, and expects cost synergies of $25 million by 2027, said the sources who are not permitted to discuss the plans publicly.

FullBeauty shareholders are set to own 55% of the combined company while Destination XL (DXL) shareholders will own 45%, they said.

The plus-size clothing market broadly has grown amid a drive for more body positivity and even users of GLP-1 weight loss drugs like Ozempic are ready to spend on apparel as they drop clothing sizes, industry analysts have said. However, the risk to DXL and FullBeauty is that customers will lose enough weight that they have to shop elsewhere.

DXL operates over 250 stores across the DXL and Casual Male XL banners, which sell clothes for big and tall men. FullBeauty has a portfolio of over a dozen plus-size brands including Cuup, Woman Within and Roaman's.

DXL shares have fallen around 45% year-to-date as its total revenue has also declined year-over-year. Its shares were hovering around $1.50 on Thursday for an $80 million market capitalization. FullBeauty emerged from bankruptcy in 2019 and Oaktree Capital Management is its largest investor.

The combined company will be better positioned to meet customers, including those using GLP-1 medications, at every stage of their weight-fluctuation journey through offerings such as DXL’s FiTMAP and FullBeauty’s free exchange program, one of the sources said.

DXL is set to report third-quarter results on Thursday after the market close.

(Reporting by Abigail Summerville in New York, editing by Svea Herbst-Bayliss and Diane Craft)

((abigail.summerville@thomsonreuters.com))