Duluth Holdings Inc. reported net sales increased 20.8 percent to $68.6 million in the fiscal first quarter ended May 1 and affirmed its plans to continue opening stores across the Midwest.

The Belleville, Wis. company, which does business as Duluth Trading Co., said net sales increase was driven by 17.5 percent growth in direct net sales and 52.4 percent growth in retail net sales, with growth achieved across virtually all product categories.

The gain in direct net sales was attributed to positive customer response to the company’s national advertising and digital marketing campaigns, which drove an increase in website visits and increased sales through the company’s call center compared to the prior-year first quarter. The increase in retail net sales was primarily attributable to the opening of two new retail stores and one outlet store during fiscal 2015, coupled with growth in comparable store sales.

“We are off to a solid start this fiscal year,” said Stephanie Pugliese, Chief Executive Officer of Duluth Trading. “Net sales growth in both our direct and retail segments contributed to another record quarter, and marked our 25th consecutive quarter of increased net sales year-over-year.”

Gross profit increased 21.5 percent to $39.7 million, or 57.8 percent of net sales, compared to $32.7 million, or 57.5 percent of net sales, in the corresponding prior-year period. The increase in gross profit was primarily due to increased net sales. The 30 basis point improvement in gross margin was primarily attributable to improved product costs due to increased volume coupled with a product mix shift to higher margin products.

Selling, general and administrative expenses increased 14.8 percent to $34.4 million, compared to $29.9 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses decreased 270 basis points to 50.0 percent, compared to 52.7 percent, in the corresponding prior-year period.

As a percentage of net sales, advertising and marketing costs decreased 310 basis points to 22.0 percent, compared to 25.1 percent in the corresponding prior-year period, primarily attributable to timing of women’s television advertising. As a percentage of net sales, selling expense increased 10 basis points to 13.8 percent, compared to 13.7 percent in the corresponding prior-year period, primarily due to an increase in distribution labor due to our utilization of the company’s third party logistics providers (“3PLs”), which was partially offset by a decrease in shipping expenses due to favorable shipping rates as a result of being closer to our customers.

As a percentage of net sales, general and administrative expenses increased 30 basis points to 14.2 percent from 13.9 percent in the same period a year ago, primarily due to increases in consulting and professional fees, partially offset by a decrease in personnel expense. The prior-year three months ended May 3, 2015, included a $1.1 million payment related to a portion of the grantees’ tax liabilities associated with the grant of restricted stock awards. Excluding this $1.1 million payment, as a percentage of net sales, general and administrative expenses increased by 230 basis points, primarily due to the factors discussed above.

Adjusted EBITDA was $6.6 million, or 9.6 percent of net sales, compared to $4.7 million, or 8.2 percent of net sales, in the prior-year period.  Duluth Trading defines Adjusted EBITDA as consolidated net income (loss) before depreciation and amortization, interest expense and provision for income taxes adjusted for the impact of certain items, including non-cash and other items.

Net income was $3.2 million, or $0.10 per diluted share, compared to $2.7 million, or $0.11 per diluted share, in the prior-year period. Adjusted for income taxes, pro forma net income for the prior-year period was $1.6 million, or $0.07 per diluted share.

The pro forma net income gives effect to the conversion of the company to a “C” corporation, which was effective November 25, 2015. Prior to such conversion, the company was an “S” corporation and generally not subject to income taxes. The pro forma net income, therefore, includes an adjustment for income tax expense on the income attributable to controlling interest as if the company had been a “C” corporation as of February 4, 2013 at an assumed combined federal, state and local effective tax rate of 40 percent, which approximates the calculated statutory rate for each period.

Balance Sheet and Liquidity

The company ended the quarter with a cash balance of approximately $30.3 million, with working capital of $70.4 million, and no borrowings on its $40.0 million revolving line of credit.

Fiscal 2016 Outlook and Long-Term Financial Targets
The company reaffirmed its fiscal 2016 outlook as follows:

  • Net sales in the range of $370.0 million to $380.0 million
  • Adjusted EBITDA in the range of $40.0 million to $42.5 million
  • GAAP EPS in the range of $0.66 to $0.70 per diluted share
  • Capital expenditures of $24.0 to $25.0 million
  • Five new retail store openings, adding 55,000 to 65,000 additional selling square footage

“Our infrastructure investments are proceeding as planned,” Pugliese said. “During the first quarter, we began construction at our Belleville distribution center, which will add another 75,000 square feet of warehouse space by the third quarter of fiscal 2016. Our plans for an order management system and new e-commerce platform to better serve our customers are moving forward and we expect these initiatives will go-live during our first and second quarters of fiscal 2017, respectively.

“Our retail expansion plan to open five new stores in fiscal 2016 is also on track,” Pugliese continued. “We anticipate opening our LaCrosse, Wisconsin store in mid-June, followed by our Omaha, Nebraska store in early July. Our two Chicago metro stores are scheduled for the fall season and we recently entered into a lease to open a new store in King of Prussia, Pennsylvania, which will be our first store to serve our large customer concentration in the East.”

The company also reaffirmed its long-term financial targets of approximately 20 percent net sales growth, 25 percent adjusted EBITDA growth and 25 percent net income growth.