• Duluth Holdings Inc. Announces Second Quarter 2023 Financial Results and Chief Financial Officer Update

    Source: Nasdaq GlobeNewswire / 31 Aug 2023 05:45:00   America/Chicago

    Net Sales of $139.1 million

    New highly automated 500,000 square foot fulfillment center in Adairsville, Georgia is live

    Strong financial condition with $211 million of liquidity

    Updated Fiscal 2023 outlook for EPS and Adjusted EBITDA

    MOUNT HOREB, Wis., Aug. 31, 2023 (GLOBE NEWSWIRE) -- Duluth Holdings Inc. (dba, Duluth Trading Company) (“Duluth Trading” or the “Company”) (NASDAQ: DLTH), a lifestyle brand of men’s and women’s workwear, casual wear, outdoor apparel and accessories, today announced its financial results for the fiscal second quarter ended July 30, 2023.

    Summary of the Second Quarter Ended July 30, 2023

    • Net sales of $139.1 million compared to $141.5 million in the prior year second quarter
    • AKHG sub-brand net sales increase 14.0% compared to prior year second quarter
    • Inventory composition healthy and well managed, down 4.5% compared to prior year second quarter
    • Adjusted EBITDA1 of $8.6 million, representing 6.2% of net sales
    • New highly automated fulfillment center opened ahead of schedule and on budget

    1See Reconciliation of net loss to EBITDA and EBITDA to Adjusted EBITDA in the accompanying financial tables.

    Management Commentary

    President and CEO Sam Sato commented, “Customer demand for our Spring & Summer collections was healthy as we sold through our seasonal offerings and drove increases in units and order volume during the quarter. As we navigate what remains a dynamic macro environment in which customers continue to seek value, we are managing the business prudently, controlling what we can control while staying keenly focused on elevating our unique brand and sub-brand positioning. Our updated outlook for fiscal 2023 reflects a continuation of consumers remaining selective in their discretionary spending. Importantly, our inventory position is in good shape and ended the quarter below prior year levels due to strong seasonal sell through and our disciplined efforts to appropriately plan our purchase and receipt flow.

    The continued success and momentum in our spring Garden, Landscaping and Planting collection, registering a second quarter sales increase of nearly 40%, combined with expansion of our AKHG sub-brand for women with sales growth of more than 30%, fueled solid women’s second quarter sales growth of roughly 3%. We saw strong overall AKHG sub-brand year-over-year sales growth in the quarter of 14%. With the large and growing consumer participation in outdoor recreation, our AKHG apparel collection for men and women represents a significant growth opportunity for Duluth.

    We’re also seeing a favorable response to our early Fall & Winter receipts and are particularly enthused about our core men’s Duluth assortment which is on an improving trend with the recent introduction of new colors and fits in the Long Tail T program and success in the Duluth Double Flex Denim pant program. We expect Men’s pants to be a high-volume driver for us this Fall with the support of robust marketing plans over the next few months.”

    Sato concluded, “We are incredibly excited to share the news that our new highly automated fulfillment center in Adairsville, GA is up and running ahead of schedule and on budget. The center represents a truly transformational advancement in our supply chain capabilities that moves us forward in meeting customers' growing expectations for faster online deliveries and positions us to gain operational efficiencies as early as our peak selling season this year. The investment to automate and expand capacity in our logistics network is a key pillar of our Big Dam Blueprint and I would like to thank all the team members who contributed to realizing this major milestone.”

    AKHG By Duluth Trading Company
    Double Flex Denim By Duluth Trading Company

    Operating Results for the Second Quarter Ended July 30, 2023

    Net sales decreased 1.7% to $139.1 million, compared to $141.5 million in the same period a year ago. Direct to-consumer net sales increased by 1.8% to $86.8 million driven by higher traffic and conversion rates. Retail store net sales decreased by 7.0% to $52.3 million due to slower store traffic, which was partially offset by continued strong conversion rates.

    Gross profit decreased to $71.5 million, or 51.4% of net sales, compared to $75.6 million, or 53.4% of net sales, in the corresponding prior year period. The decrease in gross profit margin rate was primarily due to a lower product margin rate amidst the continued promotional retail environment.

    Selling, general and administrative expenses increased 1.7% to $72.9 million, compared to $71.7 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses increased to 52.4%, compared to 50.7% in the corresponding prior year period.

    The increase in selling, general and administrative expense was partially due to higher occupancy costs from the new automated Southeast fulfillment center, coupled with investments in new headcount to drive ongoing strategic initiatives.

    Balance Sheet and Liquidity

    The Company ended the quarter with a cash balance of $11.1 million, net working capital of $84.6 million, and no outstanding balance on the Duluth Trading $200 million revolving line of credit.

    End of period inventory of $157.1 million represented a 4.5% decrease compared to prior period second quarter.

    Updated Fiscal 2023 Outlook

    The Company’s updated fiscal 2023 outlook is as follows:

    • Net sales in the range of $645 million to $660 million
    • Adjusted EBITDA1 in the range of $40 million to $42 million
    • EPS in the range of ($0.15) to ($0.08) per diluted share
    • Capital expenditures, inclusive of software hosting implementation costs, of approximately $55 million

    1See Reconciliation of forecasted net income to forecasted EBITDA and forecasted EBITDA to forecasted Adjusted EBITDA in the accompanying financial tables.

    Chief Financial Officer Update

    The Company announced today that Dave Loretta has decided to step down as Senior Vice President and Chief Financial Officer on September 15, 2023 to accept an employment opportunity outside the Company.

    A formal search process for the selection of a new Chief Financial Officer has been initiated by the Company. Until that process is completed, Michael Murphy, VP, Chief Accounting Officer will also serve as Interim Chief Financial Officer, effective September 15, 2023. Mr. Murphy, age 44, has been in his current position since 2019. Prior to joining the Company, Mr. Murphy served for 3 years as Chief Accounting Officer at First Business Financial Services, Inc. Mr. Murphy’s employment experience also includes 8 years at KPMG, LLP in several capacities, including as Senior Manager.

    “We appreciate Dave’s commitment to Duluth Trading since he joined us in 2017,” said Stephen Schlecht, Chairman of Duluth Trading. “I personally want to thank him for his contributions and wish him the best in his future endeavors.”

    Sam Sato, President and CEO, said, “I would like to thank Dave for his many contributions and leadership at Duluth over these past six years. Under Dave’s leadership, Duluth has elevated and strengthened its finance organization, anchored on a talented team with extensive experience across all finance functions. I am confident this will be a seamless transition as we search for a permanent replacement for Dave. It has been an honor to partner with Dave at Duluth and I wish him well in his next role.”

    “I’m proud of my time here at Duluth Trading Company,” commented Dave Loretta. “It has been a privilege to work alongside Sam and the many talented individuals across the organization. I believe Duluth is well positioned to execute against the strategic pillars of the Big Dam Blueprint. I wish the team all the best of continued success in the future.”

    Conference Call Information

    A conference call and audio webcast with analysts and investors will be held on Thursday, August 31, 2023 at 9:30 am Eastern Time, to discuss the results and answer questions.

    • Live conference call: 844-875-6915 (domestic) or 412-317-6711 (international)
    • Conference call replay available through June 8, 2023: 877-344-7529 (domestic) or 412-317-0088 (international)
    • Replay access code: 8347847
    • Live and archived webcast: ir.duluthtrading.com

    Investors can pre-register for the earnings conference call to expedite their entry into the call and avoid waiting for a live operator. To pre-register for the call, please visit https://dpregister.com/sreg/10181383/fa0d2c2d4d and enter your contact information. You will then be issued a personalized phone number and pin to dial into the live conference call. Investors can pre-register any time prior to the start of the conference call.

    About Duluth Trading

    Duluth Trading is a lifestyle brand for the Modern, Self-Reliant American. Based in Mount Horeb, Wisconsin, we offer high quality, solution-based casual wear, workwear and accessories for men and women who lead a hands-on lifestyle and who value a job well-done. We provide our customers an engaging and entertaining experience. Our marketing incorporates humor and storytelling that conveys the uniqueness of our products in a distinctive, fun way, and are available through our content-rich website, catalogs, and “store like no other” retail locations. We are committed to outstanding customer service backed by our “No Bull Guarantee” - if it’s not right, we’ll fix it. Visit our website at http://www.duluthtrading.com.

    Non-GAAP Measurements

    Management believes that non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods. Within this release, including the tables attached hereto, reference is made to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). See attached Table “Reconciliation of Net (Loss) Income to EBITDA and EBITDA to Adjusted EBITDA,” for a reconciliation of net (loss) income to EBITDA and EBITDA to Adjusted EBITDA for the three and six months ended July 30, 2023, versus the three and six months ended July 31, 2022.

    Adjusted EBITDA is a metric used by management and frequently used by the financial community, which provides insight into an organization’s operating trends and facilitates comparisons between peer companies, since interest, taxes, depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA excludes certain items that are unusual in nature or not comparable from period to period.

    The Company provides this information to investors to assist in comparisons of past, present and future operating results and to assist in highlighting the results of on-going operations. While the Company’s management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace the Company’s GAAP financial results and should be read in conjunction with those GAAP results.

    Forward-Looking Statements

    This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts included in this press release, including statements concerning Duluth Trading's plans, objectives, goals, beliefs, business strategies, future events, business conditions, its results of operations, financial position and its business outlook, business trends and certain other information herein, including statements under the heading “Updated Fiscal 2023 Outlook” are forward-looking statements. You can identify forward-looking statements by the use of words such as “may,” ”might,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “believe,” “estimate,” “project,” “target,” “predict,” “intend,” “future,” “budget,” “goals,” “potential,” “continue,” “design,” “objective,” “forecasted,” “would” and other similar expressions. The forward-looking statements are not historical facts, and are based upon Duluth Trading's current expectations, beliefs, estimates, and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond Duluth Trading's control. Duluth Trading's expectations, beliefs and projections are expressed in good faith, and Duluth Trading believes there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs, estimates, and projections will be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the forward-looking statements, including, among others, the risks, uncertainties, and factors set forth under Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC on March 17, 2023 and other factors as may be periodically described in Duluth Trading’s subsequent filings with the SEC. These risks and uncertainties include, but are not limited to, the following: the impact of inflation on our results of operations; the prolonged effects of economic uncertainties on store traffic and disruptions to our distribution network, supply chains and operations; our ability to maintain and enhance a strong brand and sub-brand image; adapting to declines in consumer confidence, inflation and decreases in consumer spending; effectively adapting to new challenges associated with our expansion into new geographic markets; our ability to meet customer delivery time expectations; natural disasters, unusually adverse weather conditions, boycotts, prolonged public health crises, epidemics or pandemics and unanticipated events; generating adequate cash from our existing stores and direct sales to support our growth; the impact of changes in corporate tax regulations and sales tax; identifying and responding to new and changing customer preferences; the success of the locations in which our stores are located; effectively relying on sources for merchandise located in foreign markets; transportation delays and interruptions, including port congestion; inability to timely and effectively obtain shipments of products from our suppliers and deliver merchandise to our customers; the inability to maintain the performance of a maturing store portfolio; our inability to deploy marketing tactics to strengthen brand awareness and attract new customers in a cost effective manner; our ability to successfully open new stores; competing effectively in an environment of intense competition; our ability to adapt to significant changes in sales due to the seasonality of our business; price reductions or inventory shortages resulting from failure to purchase the appropriate amount of inventory in advance of the season in which it will be sold due to global market constraints; the potential for further increases in price and availability of raw materials; our dependence on third-party vendors to provide us with sufficient quantities of merchandise at acceptable prices; the susceptibility of the price and availability of our merchandise to international trade conditions; failure of our vendors and their manufacturing sources to use acceptable labor or other practices; our dependence upon key executive management or our inability to hire or retain the talent required for our business; increases in costs of fuel or other energy, transportation or utility costs and in the costs of labor and employment; failure of our information technology systems to support our current and growing business, before and after our planned upgrades; disruptions in our supply chain and fulfillment centers; our inability to protect our trademarks or other intellectual property rights; infringement on the intellectual property of third parties; acts of war, terrorism or civil unrest; the impact of governmental laws and regulations and the outcomes of legal proceedings; changes in U.S. and non-U.S. laws affecting the importation and taxation of goods, including imposition of unilateral tariffs on imported goods; our ability to secure the personal and/or financial information of our customers and comply with the security standards for the credit card industry; and other factors that may be disclosed in our SEC filings or otherwise. Forward-looking statements speak only as of the date the statements are made. Duluth Trading assumes no obligation to update forward-looking statements to reflect actual results, subsequent events or circumstances or other changes affecting forward-looking information except to the extent required by applicable securities laws.

    (Tables Follow)

    DULUTH HOLDINGS INC.
    Condensed Consolidated Balance Sheets
    (Unaudited)
    (Amounts in thousands)

      July 30, 2023 January 29, 2023 July 31, 2022
              
    ASSETS         
    Current Assets:         
    Cash and cash equivalents $11,148  $45,548  $15,369 
    Receivables  5,758   6,041   5,764 
    Income tax receivable  140       
    Inventory, net  157,126   154,922   164,499 
    Prepaid expenses & other current assets  17,665   15,154   16,841 
    Total current assets  191,837   221,665   202,508 
    Property and equipment, net  125,970   112,564   114,616 
    Operating lease right-of-use assets  126,132   131,753   114,980 
    Finance lease right-of-use assets, net  45,742   47,206   48,669 
    Available-for-sale security  5,254   5,539   5,823 
    Other assets, net  7,853   8,727   6,725 
    Deferred tax assets  353       
    Total assets $503,141  $527,454  $493,321 
    LIABILITIES AND SHAREHOLDERS' EQUITY         
    Current liabilities:         
    Trade accounts payable $59,259  $56,547  $53,604 
    Accrued expenses and other current liabilities  28,215   40,815   28,961 
    Income taxes payable     1,761   583 
    Current portion of operating lease liabilities  15,993   15,571   13,422 
    Current portion of finance lease liabilities  2,964   2,842   2,763 
    Duluth line of credit         
    Current maturities of TRI long-term debt1  807   768   729 
    Total current liabilities  107,238   118,304   100,062 
    Operating lease liabilities, less current maturities  110,999   117,366   101,008 
    Finance lease liabilities, less current maturities  35,906   37,425   38,870 
    TRI long-term debt, less current maturities1  25,538   25,913   26,271 
    Deferred tax liabilities     1,249   2,729 
    Total liabilities  279,681   300,257   268,940 
    Shareholders' equity:         
    Treasury stock  (1,733)  (1,459)  (1,458)
    Capital stock  101,415   98,842   97,102 
    Retained earnings  127,299   133,172   131,943 
    Accumulated other comprehensive income, net  (295)  (148)  2 
    Total shareholders' equity of Duluth Holdings Inc.  226,686   230,407   227,589 
    Noncontrolling interest  (3,226)  (3,210)  (3,208)
    Total shareholders' equity  223,460   227,197   224,381 
    Total liabilities and shareholders' equity $503,141  $527,454  $493,321 
                 

    1Represents debt of the variable interest entity, TRI Holdings, LLC, that is consolidated in accordance with ASC 810, Consolidation. Duluth Holdings Inc. is not the guarantor nor the obligor of this debt.

    DULUTH HOLDING INC.
    Consolidated Statements of Operations
    (Unaudited)
    (Amounts in thousands, except per share figures)

      Three Months Ended Six Months Ended
      July 30, 2023 July 31, 2022 July 30, 2023 July 31, 2022
    Net sales $139,099  $141,511  $262,858  $264,415 
    Cost of goods sold (excluding depreciation and amortization)  67,616   65,903   125,724   121,744 
    Gross profit  71,483   75,608   137,134   142,671 
    Selling, general and administrative expenses  72,926   71,739   143,126   139,733 
    Operating (loss) income  (1,443)  3,869   (5,992)  2,938 
    Interest expense  880   879   1,814   1,755 
    Other income, net  109   78   257   124 
    (Loss) income before income taxes  (2,214)  3,068   (7,549)  1,307 
    Income tax (benefit) expense  (202)  727   (1,660)  289 
    Net (loss) income  (2,012)  2,341   (5,889)  1,018 
    Less: Net loss attributable to noncontrolling interest  (8)  (27)  (16)  (56)
    Net (loss) income attributable to controlling interest $(2,004) $2,368  $(5,873) $1,074 
    Basic earnings per share (Class A and Class B):            
    Weighted average shares of common stock outstanding  32,952   32,766   32,912   32,732 
    Net (loss) income per share attributable to controlling interest $(0.06) $0.07  $(0.18) $0.03 
    Diluted earnings per share (Class A and Class B):            
    Weighted average shares and equivalents outstanding  32,952   32,766   32,912   32,910 
    Net (loss) income per share attributable to controlling interest $(0.06) $0.07  $(0.18) $0.03 
                     

    DULUTH HOLDINGS INC.
    Consolidated Statements of Cash Flows
    (Unaudited)
    (Amounts in thousands)

      Six Months Ended
      July 30, 2023 July 31, 2022
    Cash flows from operating activities:      
    Net (loss) income $(5,889) $1,018 
    Adjustments to reconcile net income to net cash used in operating activities:      
    Depreciation and amortization  14,868   15,374 
    Stock based compensation  2,284   1,274 
    Deferred income taxes  (1,553)  27 
    Loss on disposal of property and equipment  16   23 
    Changes in operating assets and liabilities:      
    Receivables  283   (309)
    Income taxes receivable  (140)   
    Inventory  (2,204)  (41,827)
    Prepaid expense & other current assets  (1,351)  86 
    Software hosting implementation costs, net  (370)  (529)
    Deferred catalog costs     (25)
    Trade accounts payable  2,716   9,549 
    Income taxes payable  (1,761)  (6,231)
    Accrued expenses and deferred rent obligations  (7,343)  (18,974)
    Other assets  (20)  (519)
    Noncash lease impacts  (785)  (75)
    Net cash used in operating activities  (1,249)  (41,138)
    Cash flows from investing activities:      
    Purchases of property and equipment  (31,483)  (18,814)
    Principal receipts from available-for-sale security  88   79 
    Proceeds from disposals     8 
    Net cash used in investing activities  (31,395)  (18,727)
    Cash flows from financing activities:      
    Proceeds from line of credit  10,000    
    Payments on line of credit  (10,000)   
    Payments on TRI long term debt  (373)  (338)
    Payments on finance lease obligations  (1,397)  (1,336)
    Payments of tax withholding on vested restricted shares  (274)  (456)
    Other  288   313 
    Net cash used in financing activities  (1,756)  (1,817)
    Decrease in cash and cash equivalents  (34,400)  (61,682)
    Cash and cash equivalents at beginning of period  45,548   77,051 
    Cash and cash equivalents at end of period $11,148  $15,369 
    Supplemental disclosure of cash flow information:      
    Interest paid $1,814  $1,755 
    Income taxes paid $1,795  $6,619 
    Supplemental disclosure of non-cash information:      
    Unpaid liability to acquire property and equipment $1,336  $2,236 
             

    DULUTH HOLDINGS INC.
    Reconciliation of Net (Loss) Income to EBITDA and EBITDA to Adjusted EBITDA
    For the Fiscal Quarter and Six Months Ended July 30, 2023 and July 31, 2022
    (Unaudited)
    (Amounts in thousands)

      Three Months Ended Six Months Ended
      July 30, 2023 July 31, 2022 July 30, 2023 July 31, 2022
    (in thousands)              
    Net (loss) income $(2,012) $2,341  $(5,889) $1,018 
    Depreciation and amortization  7,455   7,854   14,868   15,374 
    Amortization of internal-use software hosting subscription implementation costs  1,150   787   2,420   1,420 
    Interest expense  880   879   1,814   1,755 
    Income tax (benefit) expense  (202)  727   (1,660)  289 
    EBITDA $7,271  $12,588  $11,553  $19,856 
    Stock based compensation  1,294   656   2,284   1,274 
    Adjusted EBITDA $8,565  $13,244  $13,837  $21,130 
                     

    DULUTH HOLDINGS INC.
    Reconciliation of Forecasted Net Loss to Forecasted EBITDA and Forecasted EBITDA to Forecasted Adjusted EBITDA
    For the Fiscal Year Ending January 28, 2024
    (Unaudited)
    (Amounts in thousands)

      Low High
    Forecasted      
    Net loss $(4,800) $(2,600)
    Depreciation and amortization  32,400   32,400 
    Amortization of internal-use software hosting subscription implementation costs  4,000   4,000 
    Interest expense  5,000   4,075 
    Income tax expense  (1,600)  (875)
    EBITDA $35,000  $37,000 
    Stock based compensation  5,000   5,000 
    Adjusted EBITDA $40,000  $42,000 
             

    Photos accompanying this announcement are available at:

    https://www.globenewswire.com/NewsRoom/AttachmentNg/610a0bce-22a0-4ea7-9f19-f3b18805175a

    https://www.globenewswire.com/NewsRoom/AttachmentNg/e8f042e0-0630-4315-8a62-ac2093ab0c45


    Investor Contacts:
    Tom Filandro
    ICR, Inc.
    (646) 277-1200
    DuluthIR@icrinc.com

    Primary Logo

    AKHG By Duluth Trading Company

    AKHG By Duluth Trading Company
    Double Flex Denim By Duluth Trading Company

    Double Flex Denim By Duluth Trading Company
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