Duluth Holdings Inc. (dba, Duluth Trading Company) saw second quarter net sales increase 1.8 percent to $141.6 million, compared to $139.1 million in the 2023 Q2 period.

Direct-to-consumer net sales increased by 5.6 percent to $91.7 million, said to be primarily driven by higher site conversion compared to the prior year, and Retail store net sales decreased 4.4 percent to $49.9 million, reportedly due to slower store traffic, partially offset by strong conversion rates.

“We are pleased to have returned to top-line growth in the second quarter, while also expanding our gross margin as we begin to see the benefits of our product development and sourcing initiatives,” commented company President and CEO Sam Sato. “During the quarter we saw a trend line improvement in both traffic and transactions with healthy shopper conversion, fueling 1.8 percent year-over-year net sales growth. The quarter strength was highlighted by product innovation wins including Dry on the Fly, Armachillo and DuluthFlex Fire Hose Sweat Management.”

Income Statement Summary

Gross profit increased to $74.0 million, or 52.3 percent of net sales (+90 basis points), compared to $71.5 million, or 51.4 percent of net sales, in the corresponding prior-year period, said to said to be driven by the company’s sourcing initiative.

Selling, general and administrative (SG&A) expenses increased 4.6 percent year-over-year (y/y) to $76.3 million, compared to $72.9 million in the year-ago Q2 period. The increase reportedly included the $2.4 million non-recurring estimated sales tax expense. Excluding this non-recurring expense, SG&A expenses increased $1.0 million to $73.9 million in the quarter, representing 52.2 percent of net sales and leveraging 20 basis points compared to the prior-year comparative period.

The company’s operating loss for the quarter amounted to $12.9 million, more than double the $6.0 million operating loss in Q2 last year.

The net loss for the period was $11.6 million, or a loss of 35 cents per diluted share, compared to a net loss of $5.9 million, or 18 cents per diluted share, in the year-ago Q2 period.

Fulfillment Center Network Plan
As part of the company’s in-depth review of the retail portfolio strategy, fulfillment center network, and benchmarking to identify structural opportunities to improve operating margin, working capital, and asset efficiency, in the second quarter of 2024, Duluth Trading began phase two of the fulfillment center network plan to maximize productivity and capacity. As a result, the company initiated a lease amendment for one of its legacy fulfillment centers to accelerate the lease expiration date from September 2030 to October 2024.

The company expects to incur total restructuring expenses related to the lease amendment of $7.4 million during the second and third quarters of 2024, $1.6 million of which was recognized during the second quarter. The company expects a total cash outlay of approximately $4.4 million related to this initiative, including $1.7 million to be paid in the current fiscal year.

Exiting the legacy facility is projected to reduce overhead expenses by approximately $1.2 million during the fourth quarter of the current fiscal year. The company expects an expense reduction of approximately $5.0 million and cash savings of $4.0 million annually.

“From a longer-term structural update, we have successfully moved into phase two of our fulfillment center network plan to maximize productivity and capacity, Sato added. “The tremendous success we are seeing with our near fully automated fulfillment center in Adairsville, GA, which processed 58 percent of total company volume during the first of half of our fiscal year, allowed for the planned exit of our Dubuque fulfillment center this October. Importantly, we will begin to realize the SG&A benefits in Q4.”

The highly automated Adairsville fulfillment center, which went live in Q3 last year, has reportedly shortened delivery times while driving lower cost per unit to fulfill an order, which was 32 percent of the cost of the three legacy fulfillment centers over the first half of the year. The success and productivity from the critical Adairsville facility investment has allowed the Company to accelerate phase two of its overall fulfillment center network plan.

Balance Sheet and Liquidity
The company ended the quarter with $9.8 million of cash and cash equivalents, net working capital of $79.8 million, no outstanding debt on the Duluth Trading $200 million revolving line of credit and $209.8 million of liquidity.

Fiscal 2024 Outlook
The company reaffirmed its fiscal 2024 outlook, excluding restructuring expense and sales tax expense accrual:

  • Net sales of approximately $640 million
  • Adjusted EPS of approximately 22 cents loss per diluted share
  • Adjusted EBITDA of approximately $39 million
  • Capital expenditures, inclusive of software hosting implementation costs, of approximately $25 million

“We entered the third quarter with a strong lineup of newness such as Duluth Reserve, Bullpen 3D and Souped up Sweats and we expanded our Plus size assortment including our successful Adjustabust, a bonded zip-front bra with a sleek silhouette and criss-crossed back offering extra support and security,” Sato shared. “On August 10th we successfully hosted our second underwear trade-up event engaging with existing and new customers throughout our local store markets. The event generated a lot of buzz and resulted in a jump in traffic, higher overall sales, and 40 percent of trade ups from our female shoppers, which remains a key strategic growth opportunity for Duluth.”

Image courtesy Duluth Holdings Inc.