Duluth Holdings Inc., the parent of Duluth Trading, reported a wider loss in the third quarter but they were in line with expectations. Sales grew 27.4 percent.

Highlights for the Third Quarter Ended October 28, 2018

  • Net sales increased 27.4 percent to $106.7 million compared to $83.7 million in the prior-year third quarter
  • Gross margin increased 50 basis points to 57.1 percent compared to 56.6 percent in the prior-year third quarter
  • Operating loss of $2.6 million compared to operating loss of $0.6 million in the prior-year third quarter
  • Net loss of $3.2 million, or $0.10 per diluted share, compared to net loss of $0.8 million, or $0.03 per diluted share, in the prior-year third quarter
  • Adjusted EBITDA1 of $1.0 million compared to $1.9 million in the prior-year third quarter
  • The company opened four retail stores in Golden, CO; Ramsey, NJ; Canton, OH and Greensboro, NC, totaling approximately 79,000 gross square feet
  • 35th consecutive quarter of increased net sales year-over-year

Management Commentary

“We are pleased with our third quarter results, which were in-line with our expectations and also marked our 35th consecutive quarter of increased net sales year-over-year. We continue to see strong contribution from our new stores and growth from our Women’s business,” said Stephanie Pugliese, chief executive officer of Duluth Trading.

“Throughout the year, our team worked tirelessly and our results year-to-date put us in a strong position heading into the holiday season. We expect to deliver on our fiscal 2018 guidance. We have made significant investments during the year that strengthen our competitive position and enable us to provide an outstanding customer experience, including:

  • improvements in the e-commerce and mobile experience;
  • buy-online-pickup-in-store and ship-from-store in seven of our stores;
  • mini-distribution center in our Greensboro retail store;
  • electronic gift cards;
  • launch of our Women’s plus line;
  • 15 new store locations to touch and experience our products; and
  • upgrades to our Belleville distribution center.”

Operating Results for the Third Quarter Ended October 28, 2018

Net sales increased 27.4 percent to $106.7 million, compared to $83.7 million in the same period a year ago. The net sales increase was driven by a 10.5 percent growth in direct net sales, or 6.6 percent after adjustment for the change in revenue recognition standards, and a 58.4 percent growth in retail net sales, with increases in both the men’s and women’s businesses. The increase in retail net sales was primarily due to having 43 stores in the third quarter of 2018 as compared to 26 stores in the same period a year ago.

Gross profit increased 28.6 percent to $61.0 million, or 57.1 percent of net sales, compared to $47.4 million, or 56.6 percent of net sales, in the corresponding prior-year period. The 50-basis point increase in gross margin was primarily attributable to an increase in product margin, partially offset by a decline in shipping revenues.

Selling, general and administrative expenses increased 32.3 percent to $63.5 million, compared to $48.0 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses increased 210 basis points to 59.5 percent, compared to 57.4 percent in the corresponding prior-year period. As a percentage of net sales, advertising and marketing costs increased 20 basis points to 20.4 percent compared to 20.2 percent in the corresponding prior-year period, primarily due to an increase in women’s television advertising to fuel the growth in the women’s business, offset by a decrease in catalog expense due to a planned decrease in catalog spend as a percentage of net sales. As a percentage of net sales, selling expenses increased 70 basis points to 16.5 percent, compared to 15.8 percent in the corresponding prior-year period, primarily due to an increase in customer service expense as a result of the growth in retail stores, partially offset by a decrease in shipping expenses due to leverage from an increase in the proportion of retail net sales. As a percentage of net sales, general and administrative expenses increased 120 basis points to 22.6 percent compared to 21.4 percent in the corresponding prior-year period, primarily due to an increase in information technology support and outside services and an increase in depreciation as a result of more stores.

Balance Sheet and Liquidity

The company ended the quarter with a cash balance of $2.5 million, with net working capital of $85.1 million, and $65.0 million outstanding on its $80.0 million revolving line of credit.

Fiscal 2018 Outlook

The company’s fiscal 2018 outlook is provided on a 53-week period, compared to a 52-week period in fiscal 2017. The company reaffirmed its fiscal 2018 outlook as follows:

  • Net sales in the range of $555.0 million to $575.0 million
  • EPS in the range of $0.79 to $0.84 per diluted share, with an effective tax rate of 26 percent
  • The company has completed its plan of opening 15 new stores, which added approximately 250,000 of additional gross square footage

The company updated its fiscal 2018 outlook as follows:

  • Adjusted EBITDA in the range of $53.0 million to $56.0 million, up from previous guidance of $51.0 million to $54.0 million
  • Capital expenditures, net of proceeds from finance lease obligations, of $50.0 million to $55.0 million