Duluth Holdings Inc. (Nasdaq:DLTH) reported net sales increased 20.8 percent to $68.6 million in the fiscal first quarter ended May 1, as it continued to spend on new stores and television advertising.
The Belleville, WI company, which sells work and casual outdoor clothing with performance attributes directly to consumers as Duluth Trading Co., reported direct sales made via its catalog and website grew 17.5 percent and accounted for 87.9 percent of its sales, while retail sales rose 52.4 percent from the year earlier quarter. Growth was achieved across virtually all the company’s product categories.
The gain in direct net sales was attributed to positive customer response to the company’s national advertising and digital marketing campaigns, which focused on its Dry on the Fly products, which are made from an outdoor wicking, water-repelling type of fabric.
Retail net sales rose primarily due to the opening of two new retail stores and one outlet store during fiscal 2015, coupled with growth in comparable-store sales. Duluth did not disclose same-store sales, but said its stores continue to recoup their cost of investment within 24 months. It ended the quarter with 11 stores, radiating west and south from its home in Wisconsin to Omaha and Sioux Falls, SD.
“They are profitable for us and they’re hitting our sales per-square-foot that we have modeled to, [or] at least that amount,” Duluth Trading CEO Stephanie Pugliese said. “So we feel really good about the new stores we just opened.”
Duluth embarked on a major spending spree last year leading up to a November initial public offering that netted approximately $40 million for expansion projects and $52 million to pay out its former S Corp. shareholders.
During its fiscal first quarter, the company began processing returns from its direct business at a new leased location in Madison, Wisc. It is also upgrading its e-commerce platform to enhance personalized marketing and to display local availability so smartphone and other online shoppers can see whether an item is available for in-store pickup at a local store.
Gross profit increased 21.5 percent to 57.8 percent of net sales, compared to 57.5 percent of net sales in the year earlier quarter due to higher net sales and a shift to higher margin products, including women’s clothing.
Selling, general and administrative expenses increased 14.8 percent to $34.4 million, yet came in at a lower percentage of of net sales (50 percent), compared to 52.7 percent in the corresponding prior-year period. Advertising and marketing costs decreased 310 basis points to 22 percent of net sales due primarily to a decision to delay a television advertising campaign targeting women by one month to allow for warmer weather.
“It’s a little bit more wear-now in most of the country at that point,” Pugliese explained.
Adjusted EBITDA was $6.6 million, or 9.6 percent of net sales, compared to $4.7 million, or 8.2 percent of net sales, in the prior-year period. Net income reached $3.2 million, or 10 cents per diluted share, up from $2.7 million, or 11 cents.
Duluth Trading reaffirmed its fiscal 2016 forecast and long-term financial targets, which calls for approximately 20-percent net sales growth, 25-percent adjusted EBITDA growth and 25-percent net income growth.
The forecast assumes it will open five new stores spanning 55,000 to 65,000 square feet of selling space in fiscal 2016, starting with LaCrosse, Wisc. in mid June, followed by Omaha, Neb. in early July. Two Chicago metro stores, including an 11,000-square-foot build-to-suit prototype, are scheduled to open this fall.
“We recently entered into a lease to open a new store in King of Prussia, Pennsylvania, which will be our first store to serve our large customer concentration in the East,” Pugliese said.
