Duluth Holdings Inc., the parent of  Duluth Trading, sharply raised its guidance for the year after reporting third-quarter earnings tripled year over year on record margins. Sales gains 7.2 percent.

Highlights for the third quarter ended October 31, 2021

  • Net sales increased 7.2 percent to $145.3 million compared to $135.5 million in the third quarter of 2020 and increased 21.3 percent when compared to the same period in 2019;
  • Gross margin improved 520 basis points to 57.6 percent compared to 52.4 percent in the prior year third quarter;
  • Operating income increased $2.0 million, to $4.9 million compared to $2.9 million in the prior year third quarter;
  • Net income was $2.8 million, or $0.09 per diluted share, compared to net income of $0.9 million, or $0.03 per diluted share in the prior year third quarter; and
  • Adjusted EBITDA increased 15.3 percent to $13.2 million compared to $11.4 million in the prior year third quarter.

Management commentary
President and CEO, Sam Sato commented, “Our third quarter results reflect continued strength in customer demand for our core product offering and strong operating performance in the face of supply chain disruptions. Despite the congestion in the transportation networks, our business was able to maneuver and generate healthy sales growth of 7.2 percent and net income growth of over 200 percent, led by significant gross profit margin improvement. We are encouraged with the holiday selling trends to date and expect to end the year strong.

“As we near the end of 2021 and look into 2022 and beyond, I’m excited with the progress we’ve made on developing our long-range Big Dam Blueprint and the insights that will inform our strategic growth opportunities. The building blocks of the blueprint will inform critical long-term investments in our business, many of which are underway today and will be embedded in our near-term plans. Importantly, the investments we make will be thoughtful and purposeful, matching the growth and needs of the business. The core pillars of our strategic plans are:

  • Lead with a digital and customer first mindset in all aspects of our strategic initiatives;
  • Intensify our efforts to optimize our owned DTC channels by truly understanding how our customer wants to engage with Duluth;
  • Evolve our multi-brand platform to enable long term growth through product development that meets our customer’s end use;
  • Continually test and learn in alternative channels that can lead to incremental growth on top of our goal of reaching $1 billion in sales by 2025; and
  • Invest in the enablement and future proofing of our enterprise through thoughtful, value creating investments in supply chain and digital capabilities.”

Operating results for the third quarter ended October 31, 2021
Net sales increased 7.2 percent to $145.3 million, compared to $135.5 million in the same period a year ago and increased 21.3 percent versus the third quarter of 2019. Retail store net sales increased by 22.3 percent to $60.1 million, a significant increase over last year’s third quarter when store traffic was adversely affected by the pandemic. For a more normalized comparison, retail store sales were up 3.3 percent compared with the third quarter of 2019. Direct-to-consumer net sales decreased by 1.4 percent to $85.2 million compared to the third quarter last year when online shopping was boosted by heavier discounts and customer store traffic was light due to covid concerns. For a more normalized comparison, direct-to-consumer sales increased 38.4 percent compared to the third quarter of fiscal 2019.

Net sales in store markets increased 10.5 percent to $103.0 million, compared to $93.6 million in the same period a year ago. The increase was driven by a continued ramp up in store traffic and positive conversion trends as compared to the prior year. Net sales in non-store markets increased slightly by 0.7 percent, to $41.1 million.

Men’s apparel net sales growth increased 7.5 percent driven by growth in year-round workwear, while women’s apparel net sales increased 5.6 percent driven by strength in woven bottoms and flannels.

Gross profit increased 17.8 percent to $83.6 million, or 57.6 percent of net sales, compared to $71.0 million, or 52.4 percent of net sales, in the corresponding prior year period. The increase in gross profit was driven by a higher mix of full-price sales due to lower clearance inventory and successfully dialing back promotional activity.

Selling, general and administrative expenses increased 15.5 percent to $78.8 million, compared to $68.2 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses increased to 54.2 percent, compared to 50.3 percent in the corresponding prior year period.

The increase in selling, general and administrative expense was primarily due to higher personnel costs, coupled with increased advertising expense as we pulled back in the prior year due to our uncertainty about customer demand resulting from the pandemic.

The effective tax rate related to controlling interest was 25 percent compared to 29 percent in the corresponding prior year period.

Balance Sheet and Liquidity
The company ended the quarter with a cash balance of approximately $20.4 million, an inventory balance of $165.1 million, net working capital of $89.9 million and no outstanding balance on its $150.0 million revolving senior credit facility.

Updated Fiscal 2021 Outlook
The company updated its fiscal 2021 outlook as follows:

  • Net sales in the range of $700 million to $715 million;
  • Adjusted EBITDA in the range of $73 million to $75 million;
  • EPS in the range of $0.81 to $0.86 per diluted share; and
  • Capital expenditures, inclusive of software hosting implementation costs, of approximately $18 million.

The Prior Outlook Called For:

  • Net sales in the range of $610.0 million to $620.0 million;
  • Adjusted EBITDA in the range of $51.0 million to $55.0 million;
  • EPS in the range of $0.60 to $0.66 per diluted share;
  • Capital expenditures of $38.0 million to $42.0 million; and
  • 15 new store openings, adding approximately 215,000 of additional gross square footage.

Photo courtesy Duluth Trading