Duluth Holdings Inc., the parent of Duluth Trading Company, reported sales in the third quarter rose 25.0 percent. The company showed a loss in the period.
Highlights for the Third Quarter Ended October 29, 2017
• Net sales increased 25.0 percent to $83.7 million compared to $67.0 million in the prior-year third quarter
• Gross margin decreased 120 basis points (bps) to 56.6 percent compared to 57.8 percent in the prior-year third quarter
• Net loss of $0.8 million, or $0.03 per diluted share compared to net income of $0.5 million, or $0.01 per diluted share in the prior-year third quarter
• Adjusted EBITDA decreased 24.9 percent to $1.9 million compared to $2.5 million in the prior-year third quarter
• During the third quarter, the company opened three retail stores in St. Charles, MO, Thornton, CO and Avon, OH
• 31st consecutive quarter of increased net sales year-over-year
“This marks our 31st consecutive quarter of increased net sales year-over-year. Our 25 percent top line growth reflects our commitment to investing in our omnichannel model. We are growing our brand, attracting new customers, and the direct growth in our established store markets continues to perform well,” said Stephanie Pugliese, Chief Executive Officer of Duluth Trading.
“On the retail side of the business, we have completed our plan of opening 15 new stores in fiscal 2017. I am proud of our team’s execution of opening new stores on schedule and within budget. In total, we added approximately 173,000 selling square feet, and all our new stores are performing very well. We continue to attract new customers through our retail stores and during the third quarter, new customers acquired through retail was up 81 percent.”
“We remain committed to investing in our omnichannel model and believe it is vital to building brand awareness and delivering holistic growth to our company. Based on our results to date, we are reaffirming our fiscal 2017 outlook.”
Operating Results for the Third Quarter Ended October 29, 2017
Net sales increased 25.0 percent to $83.7 million, compared to $67.0 million in the same period a year ago. The net sales increase was driven by a 3.6 percent growth in direct net sales and a 100.7 percent growth in retail net sales. Growth was achieved in virtually all product categories. The increase in retail net sales was primarily attributable to an increase of 12 stores in the third quarter of 2017 as compared to the same period a year ago.
Gross profit increased 22.4 percent to $47.4 million, or 56.6 percent of net sales, compared to $38.7 million, or 57.8 percent of net sales, in the corresponding prior-year period. The 120 basis point decrease in gross margin was primarily due to a continuing decline in shipping revenues coupled with an increase in freight cost from the company’s distribution center to the retail stores. The company’s product margins were up as compared to the prior-year period primarily due to improved initial mark-up and product mix.
Selling, general and administrative expenses increased 26.7 percent to $48.0 million, compared to $37.9 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses increased 80 basis points to 57.4 percent, compared to 56.6 percent in the corresponding prior-year period. As a percentage of net sales, advertising and marketing costs decreased 160 basis points to 20.2 percent, compared to 21.8 percent in the corresponding prior-year period, primarily attributable to a decline in digital advertising and catalog costs as percentage of net sales, which was partially offset by an increase in television and retail store advertising as a percentage of net sales. As a percentage of net sales, selling expenses increased 60 basis points to 15.8 percent, compared to 15.2 percent in the corresponding prior-year period, primarily due to an increase in customer service expenses due to retail store growth, which was partially offset by leverage in shipping expenses from an increase in the proportion of retail net sales. As a percentage of net sales, general and administrative expenses increased 170 basis points to 21.4 percent, compared to 19.7 percent in the corresponding prior-year period, primarily due to an increase in store occupancy and equipment expense, an expense in connection with the retirement of a senior management employee and an increase in depreciation expense.
Balance Sheet and Liquidity
The company ended the quarter with a cash balance of approximately $1.0 million, with net working capital of $86.6 million, and $9.9 million available on its $60.0 million revolving line of credit. Effective November 1, 2017, the company’s borrowing availability under its revolving line of credit increased to $80.0 million through December 31, 2017. On January 1, 2018, the company’s borrowing availability under its revolving line of credit will decrease to $60.0 million through July 31, 2019.
Fiscal 2017 Outlook
The company reaffirmed its fiscal 2017 outlook as follows:
• Net sales in the range of $455.0 million to $465.0 million
• Adjusted EBITDA1 in the range of $47.0 million to $49.5 million
• EPS in the range of $0.66 to $0.71 per diluted share