Duluth Holdings Inc. (dba, Duluth Trading Co.) on Thursday reaffirmed its guidance for fiscal 2019 after reporting net income for the third quarter ended November 3 of $0.2 million, or 1 cent per diluted share. That was up from a loss of $3.2 million, or (10) cents per diluted share in the year-ago period.
Q3 marked the 39th straight quarter of year-over-year net sales growth for the company as its brick-and-mortar expansion rolled on with three stores opened in the quarter and on pace for 15 in the fiscal year.
“We are pleased to report healthy top-line growth of 12 percent and improved third-quarter operating margin and earnings growth on a year-over-year basis,” said Stephen L. Schlecht, founder and CEO of Duluth Trading. “Our entire team has been hard at work to set the stage for the all-important holiday shopping season and I believe we entered the fourth quarter better prepared to serve our customers than any time in the last two years.”
- Net sales increased 12.2 percent to $119.8 million compared to $106.7 million in the prior-year third quarter
- Gross margin decreased 250 basis points to 54.6 percent compared to 57.1 percent in the prior-year third quarter
- Operating income of $1.3 million compared to operating loss of $2.6 million in the prior-year third quarter
- Net income of $0.2 million, or $0.01 per diluted share, compared to a net loss of $3.2 million, or $0.10 per diluted share, in the prior-year third quarter
- Adjusted EBITDA of $7.3 million compared to $1 million in the prior-year third quarter
- The company opened three retail stores in Round Rock, TX, Hoover, AL, and Sandy, UT, totaling approximately 47,000 gross square feet
- 39th consecutive quarter of increased net sales year-over-year
Third-Quarter Operating Results
Net sales increased 12.2 percent, to $119.8 million, compared to $106.7 million in the same period a year ago. Net sales were driven by a 2.9 percent growth in direct net sales and 24.1 percent growth in retail net sales, with increases in both our men’s and women’s businesses. At the end of the third quarter, the company had 58 stores compared to 43 stores in the same period a year ago.
Gross profit increased 7.2 percent, to $65.4 million, or 54.6 percent of net sales, compared to $61 million, or 57.1 percent of net sales, in the corresponding prior-year period. The 250-basis point decrease in gross margin rate was primarily attributable to a decrease in product margins due to additional global promotions, coupled with recent clearance activity.
Selling, general and administrative expenses increased 0.8 percent to $64 million, compared to $63.5 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses decreased 600 basis points to 53.5 percent, compared to 59.5 percent in the corresponding prior-year period. As a percentage of net sales, general and administrative expenses decreased 50 basis points to 22.1 percent, compared to 22.6 percent in the corresponding prior-year period, primarily due to leverage gained from a higher mix of retail sales.
As a percentage of net sales, selling expenses decreased 110 basis points to 15.4 percent, compared to 16.5 percent in the corresponding prior-year period, largely due to gained efficiencies at both the distribution center and call center. As a percentage of net sales, advertising and marketing costs decreased 440 basis points to 16 percent, compared to 20.4 percent in the corresponding prior-year period, primarily due to lower catalog circulation and advertising leverage gained from a higher mix of retail sales.
Balance Sheet and Liquidity
The company ended the quarter with a cash balance of $2.2 million, net working capital of $108.7 million, $20 million outstanding on its $50 million term loan, and $70.5 million outstanding on its $80 million revolving line of credit.
Fiscal 2019 Outlook
The company reaffirmed its fiscal 2019 outlook as follows:
- Net sales in the range of $610 million to $620 million
- Adjusted EBITDA in the range of $51 million to $55 million
- EPS in the range of $0.60 to $0.66 per diluted share
- Capital expenditures of approximately $38 million
- 15 new store openings, adding approximately 215,000 of additional gross square footage