Duluth Holdings, the parent of Duluth Trading, slightly increased its annual outlook after reporting a profit against a loss in the first quarter. Sales grew 21.4 percent year-over-year.

Management Commentary
“We are pleased to report a solid first quarter with net sales growing more than 21 percent to $133 million year-over-year. Operating income was positive at $2 million and adjusted EBITDA was $10 million. We also reduced inventory by $31 million compared to the prior-year period. In addition, our balance sheet is as strong as it has been in recent years, which positions us well to execute our strategic initiatives. Direct channel sales increased almost 2 percent against tough direct channel comps in the first quarter last year. Retail store sales were up 93 percent, a significant increase from the comparable period when all stores were closed for roughly half of the quarter,” said Steve L. Schlecht, non-executive Chairman, Duluth Trading. “Our customers are responding favorably to our spring/summer collections as they head outdoors, and our strong omnichannel will continue to serve our customers well, regardless of how they want to shop.”

“Having completed my last quarter as Executive Chairman and CEO on May 2, I am pleased to introduce Sam Sato, our new president and Chief Executive Officer, who is a 30-year retail industry veteran with a proven track record in omnichannel growth and expertise across retail operations and product categories. Prior to joining Duluth Trading, Sam was CEO of Finish Line, a specialty retailer that operated over 900 U.S. branded locations and achieved $1.8 billion in net sales under his leadership. I am very confident that we have a new leader in Sam who will help us write our next chapter of growth and profitability,” concluded Schlecht.

Operating Results for the First Quarter Ended May 2, 2021

  • Net sales increased 21.4 percent to $133.4 million, compared to $109.9 million in the same period a year ago. Retail store net sales were $45.1 million and direct-to-consumer sales were $88.3 million. Retail store net sales increased by 92.6 percent while direct-to-consumer net sales grew 2.1 percent. The increase in retail store net sales was primarily due to temporary store closures in the prior year from March 20, 2020 through the end of the first quarter of 2020.
  • Net sales in store markets increased 33.3 percent, to $89.9 million, compared to $67.4 million in the same period a year ago. The increase was driven by a continued ramp-up in store traffic as compared to the prior year. Net sales in non-store markets increased 1.9 percent, to $42.0 million, compared to the heavy volume in the prior year resulting from increased digital advertising to promote our online warehouse clearance and global sale events, coupled with extended free shipping offers.
  • Men’s apparel net sales increased 23.6 percent driven by growth in seasonal outerwear and outdoor active. Women’s apparel net sales increased 13.9 percent driven by strength in woven bottoms, including shorts, skorts and capris.
  • Gross profit increased 27.2 percent to $66.5 million, or 49.9 percent of net sales, compared to $52.3 million, or 47.6 percent of net sales, in the corresponding prior-year period. The increase in gross margin rate was driven by a reduction in promotional, clearance and sitewide sales events as compared to the period of slower store traffic in the first quarter of fiscal 2020.
  • Selling, general and administrative expenses decreased 9.3 percent to $64.6 million, compared to $71.3 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses decreased to 48.5 percent, compared to 64.9 percent in the corresponding prior-year period.
  • The decrease in selling, general and administrative expense was primarily due to decreased traditional advertising, reduced digital prospecting spend, the elimination of third-party logistics, and $1.6 million of non-recurring COVID-19 related expenses that were incurred during the first quarter of the prior fiscal year. The decrease was partially offset by increased wages due to company retail locations being open for the full fiscal quarter.
  • The effective tax rate related to controlling interest was 16 percent, which was impacted by changes to certain discrete items during the quarter. Excluding these non-recurring discrete items, the effective tax rate was 25 percent for both the current and the prior-year quarter.
  • Net income was $0.5 million, or 2 cents per diluted share, compared to a net loss of $15.1 million, or 47 cents, per diluted share in the prior-year first quarter.
  • Adjusted EBITDA increased to $10.1 million compared to a loss of $11.6 million in the prior-year first quarter.

Balance Sheet and Liquidity
The company ended the quarter with a cash balance of approximately $26.1 million, net working capital of $73.9 million, and $17.6 million outstanding on its $50.0 million term loan.

On May 14, 2021, the company terminated its Credit Agreement, dated as of May 17, 2018, as amended, and entered into a new credit agreement (the “New Credit Agreement”). The New Credit Agreement matures on May 14, 2026 and provides for borrowings of up to $150.0 million that are available under a revolving senior credit facility, with a $5.0 million sub-limit for issuance of standby letters of credit and a $10.0 million sub-limit for swing line loans. At the company’s option, the interest rate applicable to the Revolver will be a floating rate equal to the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus the applicable rate of 1.25 percent to 2.00 percent determined based on the company’s rent adjusted leverage ratio, or the base rate plus the applicable rate of 0.25 percent to 1.00 percent based on the company’s rent adjusted leverage ratio. The New Credit Agreement is secured by essentially all company assets and requires the company to maintain compliance with certain financial and non-financial covenants, including a maximum rent adjusted leverage ratio and a minimum fixed charge coverage ratio as defined in the New Credit Agreement.

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

  • Net sales in the range of $695 million to $710 million
, up from a range of $680 million to $700 million previously;
  • Adjusted EBITDA in the range of $68 million to $71 million, up from a range of $66 million to $70 million previously;
  • EPS in the range of $0.66 to $0.72 per diluted share
, up from a range of 64 cents to 70 cents previously; and
  • Capital expenditures, inclusive of software hosting implementation costs, of $15 million to $16 million
, up from approximately $15 million previously.

Photo courtesy Duluth Trading Company