Duluth Holdings Inc., the parent of Duluth Trading, reported fourth-quarter earnings rose 18.4 percent due to strong expense controls and a 7 percent gain in comparable-store sales.

Highlights for the fourth quarter ended February 2, 2020 (13 weeks compared to 14 weeks last year)

  • Net sales increased 3.6 percent to $259.6 million compared to $250.5 million in the prior-year fourth quarter, which included $7.7 million of net sales from the 14th week;
  • Gross margin increased to 52.8 percent compared to 52.4 percent in the prior-year fourth quarter;
  • Operating income increased 10.1 percent to $33.1 million, or 12.8 percent of net sales, compared to $30.1 million, or 12.0 percent of net sales in the prior-year fourth quarter;
  • Net income was $24.4 million, or $0.75 per diluted share, compared to $20.6 million, or $0.64 per diluted share in the prior-year fourth quarter;
  • Adjusted EBITDA increased 13.7 percent to $39.9 million compared to $35.1 million in the prior-year fourth quarter
  • The company opened three new retail stores in Bloomington, MN; Franklin, TN and Knoxville, TN, totaling approximately 29,000 gross square feet; and
  • 40th consecutive quarter of increased net sales year-over-year.

Highlights for the Fiscal Year Ended February 2, 2020 (52 weeks compared to 53 weeks last year)

  • Net sales increased 8.4 percent to $615.6 million compared to $568.1 million in the prior-year, which included $7.7 million of net sales from the 53rd week;
  • Gross margin decreased to 53.3 percent compared to 54.6 percent in the prior-year;
  • Operating income decreased to $28.1 million, or 4.6 percent of net sales, compared to $37.2 million, or 6.5 percent of net sales in the prior-year;
  • Net income was $18.9 million, or $0.58 per diluted share, compared to $23.2 million, or $0.72 per diluted share in the prior-year;
  • Adjusted EBITDA1 was flat compared to the prior-year at $51.9 million; and
  • The company opened 15 retail stores, totaling approximately 215,000 gross square feet, and ended the year with a total of 61 stores

Management Commentary
“We entered the fourth quarter well prepared to serve our customers during the peak holiday season, yet like many retailers, significant headwinds of a shortened holiday shopping season and unseasonably warm weather limited our fourth quarter potential. Net sales grew 7 percent on a comparable 13-week basis and due to our intense focus on managing expenses, reported operating margin improved 80 basis points year-over-year,” said Stephen L. Schlecht, Founder and Chief Executive Officer of Duluth Trading.

Operating Results for the Fourth Quarter Ended February 2, 2020 (13 weeks compared to 14 weeks last year)
Net sales increased 3.6 percent to $259.6 million, compared to $250.5 million in the same period a year ago. The increase was driven by an 11.6 percent growth in retail net sales, partially offset by a 0.6 percent decline in direct net sales. The inclusion of the 53rd week in fiscal 2018 amounted to an additional $7.7 million of net sales. The increase in retail net sales was attributed to the opening of 15 new retail stores during fiscal 2019, partially offset by a decline in existing store sales. Direct net sales growth in established markets with a store continued to outpace markets without a store.

Women’s business net sales increased 9.2 percent driven by fall and winter gear and the expansion of the women’s plus line. Men’s business net sales increased 2.1 percent driven by new products and growth in Alaskan Hardgear, partially offset by lower outerwear sales due to unseasonably warm weather in many parts of the country.

Gross profit increased 4.4 percent to $137.1 million, or 52.8 percent of net sales, compared to $131.2 million, or 52.4 percent of net sales, in the corresponding prior-year period. The increase in gross margin rate was primarily due to leverage gained from higher retail sales, partially offset by global promotions and clearance activity throughout the quarter.

Selling, general and administrative expenses increased 2.7 percent to $103.9 million, compared to $101.1 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses decreased to 40.0 percent, compared to 40.4 percent in the corresponding prior-year period.

The increase in selling, general and administrative expenses was primarily due to increased occupancy, equipment and personnel costs to support the growth in the number of retail stores and increased demand during the peak season. The leverage gained was primarily driven by net sales growth and further benefited from reduced catalog spend, improved shipping rates and efficiencies gained at our distribution centers and call center. Contributing to these efficiencies was the ability to leverage the new distribution center in Dubuque, IA allowing the company to lessen its reliance on more costly third-party logistics companies during the peak season. The company also benefited from further omnichannel momentum with 10.7 percent of direct orders fulfilled and shipped directly from a retail store.

Balance Sheet and Liquidity
The company ended the quarter with a cash balance of approximately $0.5 million, with net working capital of $83.4 million, $20.0 million outstanding on its $50.0 million term loan, $19.3 million outstanding on its $80.0 million line of credit and $30.8 million in fiscal 2019 of capital expenditures.

Fiscal 2020 Outlook
Given the unpredictability of the effects of the coronavirus on, among other things, consumer behavior, store traffic, store closings, production capabilities, timing of deliveries, employees, economic activity and the market generally in the coming weeks and months, the company is unable to provide specific earnings guidance at this time.

In response to expected impacts to sales plans, the company is focusing on managing expense and capital spending levels by reducing new store openings, deferring certain technology and infrastructure projects, adjusting inventory receipt plans, and evaluating its bank line of credit to confirm access to the maximum capacity and commitment available.

Photo courtesy Duluth Trading Co.