Duluth Holdings, Inc. reported earnings before non-recurring items more than doubled in the fiscal first quarter ended May 1 as strong improvements in gross margins offset a slight decline in sales. The parent of Duluth Trading reaffirmed its guidance for the year.

Highlights for the First Quarter Ended May 1, 2022

  • Net sales of $122.9 million compared to $133.4 million in the prior-year first quarter;
  • Gross margin improved 470 basis points to 54.6 percent compared to 49.9 percent in the prior-year first quarter;
  • Net loss of ($1.3) million, or ($0.04) per diluted share, compared to net income of $0.5 million, or $0.02 per diluted share in the prior-year first quarter; excluding the $3.9 million carryover of freight costs, net income would have been $1.6 million, or $0.05 per diluted share; and
  • Adjusted EBITDA of $7.9 million, reflects 6.4 percent of net sales.

Management Commentary
President and CEO, Sam Sato commented, “Our first-quarter results demonstrate our continued operational effectiveness in the face of an uneven macro environment. With our inventories in a healthy position at quarter-end and digital marketing tactics that draw on elevated data analytics, we are meeting the needs of our customers and executing our strategies for long-term brand growth. The efficiency of our omnichannel model is producing a consistently strong gross profit margin, which for Q1 was 54.6 percent, an increase of 470 basis points over last year.”

“We are excited to bring our evolving portfolio of brands to life with the launch of Duluth by Duluth Trading Co. and our rebranding of Alaskan Hardgear as AKHG, which is now expanded to include Women’s. Both brands stand behind our commitment to product innovation and long-standing quality. Duluth is our core workwear brand, while AKHG serves our customer’s desires to be active in the outdoors and equips them for the adventures they are taking on. We’re pleased with the customer response to our new brand positioning and expect the momentum to continue building,” Sato concluded.

Operating Results
(First Quarter Ended May 1, 2022)

Net sales decreased 7.9 percent to $122.9 million, compared to $133.4 million in the same period a year ago. Retail store net sales increased slightly by 0.4 percent to $45.2 million. Direct-to-consumer net sales decreased by 12.1 percent to $77.7 million compared to the first quarter of last year primarily due to heavier clearance sales, coupled with continued supply chain disruptions during the prior year. Direct-to-consumer net sales decreased 18.8 percent and 22.9 percent in fiscal February and March, respectively, as compared to the prior year, but April ended strong with direct-to-consumer net sales increasing 10.8 percent as our inventory position continues to improve.

Net sales in-store markets decreased 5.4 percent to $85.1 million, compared to $89.9 million in the same period a year ago. Net sales in non-store markets decreased by 12.5 percent, to $36.8 million driven by fewer clearance sales due to managing with an improved inventory system during the current quarter.

Gross profit increased 0.8 percent to $67.1 million, or 54.6 percent of net sales, compared to $66.5 million, or 49.9 percent of net sales, in the corresponding prior-year period. Absent the $3.9 million carryover of expedited freight costs that were expensed during the current quarter, our first-quarter gross profit margin would have been approximately 58 percent. The increase in gross profit rate was driven by fewer clearance sales due to improved inventory position.

Selling, general and administrative expenses increased 5.2 percent to $68.0 million, compared to $64.6 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses increased to 55.3 percent, compared to 48.5 percent in the corresponding prior-year period.

The increase in selling, general and administrative expenses was primarily due to investments in new headcount, as well as increased brand development expenses to support the launch of Duluth by Duluth Trading Co. and the rebrand of Alaskan Hardgear as AKHG.

The effective tax rate related to controlling interest was 25 percent compared to 16 percent in the corresponding prior year period. The effective tax rate in the prior year was impacted by changes to certain discrete items.

Balance Sheet and Liquidity
The company ended the quarter with a cash balance of $40.4 million, an inventory balance of $152.2 million, net working capital of $106.0 million, and no outstanding Duluth Trading bank debt.

Fiscal 2022 Outlook
Duluth maintained its outlook for the year. The company’s fiscal 2022 outlook is as follows:

  • Net sales in the range of $730 million to $755 million;
  • Adjusted EBITDA in the range of $84 million to $88 million;
  • EPS in the range of $0.93 to $1.02 per diluted share; and
  • Capital expenditures, inclusive of software hosting implementation costs, of approximately $40 million.

Photo courtesy Duluth Trading Company