Duluth Holdings Inc. (dba, Duluth Trading Company) posted net sales of $127.1 million in the fiscal third quarter ended October 27, a decline of 8.1 percent compared to $138.2 million in the Q3 period last year. Direct-to-consumer (DTC) net sales decreased 8.3 percent to $79.8 million, primarily driven by lower site conversion compared to the prior-year quarter. Retail Store net sales decreased 7.8 percent to $47.2 million, reportedly due to slower store traffic, partially offset by strong conversion rates.

“Impacted by a combination of uncertain macro environment and unseasonably warm weather, our third quarter performance did not meet our expectations. Despite the macro and weather-related impacts, we were pleased to see growth in our average order value and a double-digit increase in digital traffic,” said company President and CEO Sam Sato. “That said, these were not enough to offset the year-over-year contraction in transactions. As a result, we began taking the necessary actions to increase our unit selling velocity beginning in late October, and I am pleased to report that our top-line trends have meaningfully improved, leading into the all-important black Friday week and continuing through Cyber Monday.”

Gross profit margin increased 210 basis points to 52.3 percent in Q3, compared to 50.2 percent in the prior-year Q3 period, reportedly driven by the company’s sourcing initiative. Gross profit decreased to $66.4 million, compared to $69.4 million in the Q3 period last year.

Selling, general and administrative (SG&A) expenses increased 1.2 percent to $82.9 million, compared to $81.8 million in the Q3 period last year. As a percentage of net sales, SG&A expenses deleveraged to 65.2 percent, compared to 59.2 percent in the Q3 period last year, primarily driven by higher fixed costs and depreciation from foundational strategic investments and partially offset by efficiencies across logistics and the fulfillment center network.

Duluth Trading posted a net loss of $28.5 million, or a loss of 85 cents per share, and an Adjusted net loss of $13.8 million, or a loss of 41 cents per share, in the third quarter, compared to a net loss of $10.5 million in the prior-year third quarter. The Adjusted net loss of $13.8 million excludes $6.2 million of restructuring expense and $10.1 million valuation allowance on a deferred tax asset.

Adjusted EBITDA decreased $5.2 million from the prior-year Q3 period to negative $6.8 million in the 2024 third quarter.

Fulfillment Center Changes
As part of the company’s in-depth review of the retail portfolio strategy, fulfillment center network, and benchmarking to identify structural opportunities to improve operating margin, working capital, and asset efficiency, the company identified phase two of the fulfillment center network plan to maximize productivity and capacity.

As previously mentioned, the company went live with an automated fulfillment center in Adairsville, GA, during the third quarter of last year. The Adairsville facility processed over 65 percent of the total network volume and has shortened delivery times while driving lower cost per unit to fulfill an order, which was 27 percent of the cost of the three legacy fulfillment centers during the third quarter. The success and productivity of the Adairsville facility investment allowed the company to implement phase two of its overall fulfillment center network plan. The lease amendment for one of its legacy fulfillment centers, accelerating the lease expiration date from September 2030 to October 2024, was successfully completed in Q3.

The company incurred total restructuring expenses related to the lease amendment of $7.7 million during the second and third quarters of 2024, $6.2 million of which was recognized during the third quarter.

Exiting the legacy facility is projected to reduce overhead expenses by approximately $1.2 million during the fourth quarter of the current fiscal year. The company expects an expense reduction of approximately $5.0 million and cash savings of $4.0 million annually.

Balance Sheet and Liquidity
The company ended the quarter with $9.3 million of cash and cash equivalents, net working capital of $60.6 million, $44.0 million outstanding debt on the Duluth Trading, $200 million revolving line of credit, and $165.3 million of liquidity.

“As we enter the final peak selling weeks of the Holiday season, we are committed to prudently managing our inventory and ending the fiscal year in a clean, high-quality position,” Sato said.

Fiscal 2024 Outlook
The company is issuing new guidance for its fiscal 2024, superseding its previous guidance.

For fiscal 2024, the company now expects:

  • Net sales of approximately $640 million;
  • Full-year gross margin reduction of approximately 125 basis points versus prior year;
  • SG&A expenses, excluding the sales tax contingency, to deleverage by approximately 80 bps versus prior-year; and
  • Capital expenditures, including software hosting implementation costs, cost approximately $23 million.

“Looking past fiscal 2024, leveraging our advanced sourcing and product innovation functions, and led by our new Chief Merchant Eli Getson, we are significantly enhancing our go-forward assortment and inventory management,” Sato continued.

“Key initiatives tied to our Big Dam Blueprint are delivering tangible improvements, including product cost reductions driven by our successful direct sourcing initiative and another quarter of cost per unit fulfillment benefits, a direct result from leveraging our fully operational and highly automated Adairsville fulfillment center,” the CEO noted. “There is much work ahead of us, and we are laser-focused on improving operational and financial performance over the long term.”

Sato concluded, “As we look ahead to 2025 and beyond, we are building upon the success of our strategic initiatives, making meaningful progress on structural improvements, and embarking on Enterprise Planning, an end-to-end cross-functional initiative to significantly enhance our operational and strategic planning processes.”

Image courtesy Duluth Holdings Inc.