Duluth Holdings, Inc, the parent of Duluth Trading, reported a steeper loss than expected in the third quarter that ended October 30 and reduced its guidance for the year as markdowns were used to clear slow-selling merchandise in the latest quarter. Sales in the period were up 1.3 percent.
Highlights for the third quarter, ended October 30, 2022 include:
- Net sales increase of 1.3 percent to $147.1 million compared to $145.3 million in the prior year’s third quarter;
- AKHG sub-brand registers 44 percent year-over-year growth led by women’s;
- Total company women’s sales increase by 10 percent;
- Well-managed inventories positioned in core year-round goods, down 4 percent compared to Q3 2020; and
- Adjusted EBITDA of $1.7 million, down 86.8 percent from $12.9 million a year ago.
President and CEO, Sam Sato said, “The customer response to our updated brand positioning has been strong and led to a Q3 increase in net sales of 1.3 percent. That said, we are seeing the impacts of the inflationary environment on our core consumers which we believe will continue through Q4 and into next year. In Q3 we took appropriate actions aligned with the shift in consumer behavior resulting in a contraction in our selling gross margins. Reflecting a softer consumer backdrop, we are updating our full-year guidance. Importantly, our brand continues to strongly resonate with consumers, and our inventories, below levels from two years ago, are in a healthy position to support peak holiday shopping.
“During the third quarter, we continued the introduction of our AKHG outdoor recreational assortment for Women with great success in new Fall and Winter seasonal items. Our Women’s business overall increased by 10 percent and represented 32 percent of total third-quarter company sales. We are excited to have reconfigured 20 stores with an expansion of our Women’s footprint and the investments we’ve made in product innovation and great brand marketing to build our Women’s collections are paying off by cementing Duluth Trading Co. as a balanced, co-gender lifestyle brand that leverages our customer shopper profile where female shoppers make up 50 percent of the purchases. We remain committed to the strategic pillars of our Big Dam Blueprint leading with a digital-first mindset, while we future-proof our business through key infrastructure investments. We are in a strong financial position and our Duluth brand and sub-brands continue to broadly resonate with consumers.”
Operating results for the third quarter ended October 30, 2022
- Net sales increased 1.3 percent to $147.1 million, compared to $145.3 million in the same period a year ago. Wall Street’s consensus estimate had been $144.3 million;
- DTC net sales increased by 6.8 percent to $91.0 million due to growth in website visits, coupled with increased promotional activity during the current quarter. Retail store net sales decreased by 6.6 percent to $56.1 million due to continued slower store traffic, which was partially offset by continued strong conversion rates;
- Gross profit decreased to $76.9 million, or 52.3 percent of net sales, compared to $83.7 million, or 57.6 percent of net sales, in the corresponding prior year period. The decrease in gross profit margin was primarily driven by increased promotional activity during the current period;
- SG&A expenses increased 7.0 percent to $84.3 million, compared to $78.8 million in the same period a year ago. As a percentage of net sales, SG&A expenses increased to 57.3 percent, compared to 54.2 percent in the corresponding prior year period;
- The increase in SG&A expenses was primarily due to increased digital advertising to drive brand awareness and store traffic, and increased depreciation from continued capital investments;
- The operating loss was $7.39 million against operating income of $4.9 million;
- The effective tax rate related to controlling interest was 25 percent in both the current and prior year periods; and
- The net loss came to $6.2 million, or 19 cents a share, against earnings of $2.8 million, or 9 cents, a year ago. Wall Street’s consensus estimate had called for a loss of 11 cents.
The company ended the quarter with a cash balance of $9.4 million, an inventory balance of $204.7 million, net working capital of $98.7 million, and $10.0 million outstanding on the Duluth Trading revolving line of credit.
The company’s updated fiscal 2022 outlook is as follows:
- Net sales in the range of $650 million to $680 million (prior, $680 million to $705 million);
- Adjusted EBITDA in the range of $42 million to $49 million (prior, $69 million to $73 million);
- EPS in the range of $0.05 to $0.20 per diluted share (prior, $0.61 to $.71 per diluted share); and
- Capital expenditures, inclusive of software hosting implementation costs, of approximately $35 million (prior, approximately $40 million).
Photo courtesy Duluth/AKHG