Duluth Holdings Inc. reported first-quarter net income that beat analysts’ estimates and revenue that fell short. The apparel and accessories company posted a net loss of $0.7 million, or 2 cents per diluted share, compared to net income of $0.4 million, or 1 cent per diluted share in the prior year-first quarter. Analysts expected a loss of 5 cents per share.

Net sales increased 19.7 percent to $100.2 million compared to $83.7 million in the prior-year first quarter and beating analysts’ expectations by $0.4 million.

“We achieved our 33rd consecutive quarter of increased net sales year-over-year. Our 20 percent top-line growth was driven by new stores, growth in the women’s business and direct segment growth, with direct sales in established omnichannel markets growing more than double the company average of 4 percent,” said Stephanie Pugliese, CEO of Duluth Trading. “While the late arrival of spring in several regions of the country did have a slight impact on quarterly sales, we were able to control expenses and our bottom line results were in line with our expectations. We expect to deliver on our 2018 financial guidance.”

Other Q1 Highlights Include

  • Gross margin decreased 230 basis points to 55.8 percent compared to 58.1 percent in the prior-year first quarter.
  • Operating loss of $0.3 million compared to operating income of $0.7 million in the prior-year first quarter
  • Adjusted EBITDA1 of $2.6 million compared to $2.7 million in the prior-year first quarter
  • The company opened two retail stores in Anchorage, AK, and West Fargo, ND, totaling approximately 40,000 gross square feet
  • 33rd consecutive quarter of increased net sales year-over-year

Operating Results for the First Quarter Ended April 29, 2018

Net sales increased 19.7 percent to $100.2 million, compared to $83.7 million in the same period a year ago. The net sales increase was driven by a 3.8 percent growth in direct net sales and a 70.7 percent growth in retail net sales, with growth in virtually all product categories and in both men’s and women’s business. The increase in retail net sales was primarily due to having 13 more stores during the first quarter of 2018 as compared to the same period a year ago.

Gross profit increased 15.0 percent to $55.9 million, or 55.8 percent of net sales, compared to $48.6 million, or 58.1 percent of net sales, in the corresponding prior-year period. The 230 basis point decrease in gross margin was primarily attributable to a decrease in product margins due to end of winter clearance, increase in inventory reserves and higher freight cost as a result of retail expansion, coupled with a slight decline in shipping revenues.

Selling, general and administrative expenses increased 17.3 percent to $56.2 million, compared to $47.9 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses decreased 110 basis points to 56.1 percent, compared to 57.2 percent in the corresponding prior-year period. As a percentage of net sales, advertising and marketing costs decreased 360 basis points to 21.6 percent compared to 25.2 percent in the corresponding prior-year period, primarily due to a decrease in catalog expense as a result of the adoption of the new revenue standard and a planned decrease in catalog spend as a percentage of net sales, coupled with leverage gained from a higher mix of retail sales. As a percentage of net sales, selling expenses increased 150 basis points to 16.1 percent, compared to 14.6 percent in the corresponding prior-year period, primarily due to an increase in customer service expense due to retail store growth and an increase in distribution costs, partially offset by leverage in shipping expenses due to increased retail net sales. As a percentage of net sales, general and administrative expenses increased 100 basis points to 18.4 percent compared to 17.4 percent in the corresponding prior-year period, primarily due to depreciation, hosting fees and personnel expenses due to growth in the business.

Balance Sheet and Liquidity

The company ended the quarter with a cash balance of approximately $1.2 million, with net working capital of $40.0 million and $21.3 million outstanding on its $60.0 million revolving line of credit. Effective May 17, 2018, the company terminated its $60 million revolving line of credit and entered into a new credit agreement. The new credit agreement provides for borrowings of up to $80.0 million in revolving credit and additional borrowings of $50.0 million in a delayed draw term loan, for a total credit facility of $130.0 million.

Fiscal 2018 Outlook

The company reiterated its previously issued fiscal 2018 outlook. Its fiscal 2018 outlook is provided on a 53-week period, compared to a 52-week period in fiscal 2017.

  • Net sales in the range of $555.0 million to $575.0 million
  • Adjusted EBITDA1 in the range of $51.0 million to $54.0 million
  • EPS in the range of $0.79 to $0.84 per diluted share, with an effective tax rate of 26 percent
  • Capital expenditures, net of proceeds from finance lease obligations, of $45.0 million to $55.0 million
  • 15 new store openings, adding approximately 255,000 of additional gross square footage
  • Fiscal 2018 capital expenditures primarily include the company’s plan to open 15 retail stores, investments in technology and infrastructure improvements.

Photo courtesy Duluth Holdings Inc.