Duluth Holdings, the parent of Duluth Trading, reported improved third-quarter earnings as sales grew 13.2 percent.

“We’re pleased to report third-quarter net sales growth of 13 percent to $136 million, largely driven by a 40 percent growth in direct sales year-over-year. Effective and timely brand messaging, coupled with strong product lines, drove top-line sales momentum during the third quarter,” said Steve Schlecht, executive chairman and CEO, Duluth Trading. “Customer traffic from our digital channel continued at the same strong pace as the second quarter with 15 million site visits, up 30 percent to last year. All 65 of our retail stores were open during the quarter. Retail store sales declined just 16 percent year-over-year, which was the best store performance we’ve seen since the pandemic began.”

Schlecht continued, “While the remainder of the holiday shopping season is difficult to predict, we’ve done everything within our control to be prepared for our peak fourth quarter. We are fully staffed across all our operations, inventory levels are in good shape, and we’re fortunate to have customer-centric technologies in place like buy-on-line, pick-up in store. We remain confident in our brand, the strength of our omnichannel model and our team’s ability to provide an exceptional customer experience this holiday season and beyond.”

Operating Results For The Third Quarter Ended November 1, 2020
Net sales increased 13.2 percent, to $135.5 million, compared to $119.8 million in the same period a year ago. Revenues came in just ahead of Wall Street’s consensus estimate of $136.10 million.

The sales increase was attributed to a 40.3 percent increase in DTC net sales, partially offset by a 15.5 percent decrease in retail store net sales. The increase in DTC net sales was driven by a shift of existing customers to online as well as new buyer growth. Total new buyer growth increased 22.9 percent compared to the same period a year ago. The decrease in retail store net sales was due to continued COVID-19 safety concerns keeping store traffic at subdued levels.

Net sales in non-store markets increased 37.5 percent, to $40.6 million, compared to $29.5 million in the same period a year ago. The increase was driven by new buyer growth and effective digital advertising to promote Pink Buck Naked, Big Dam Birthday and global sales events. Net sales in store markets increased 5.6 percent, to $93.8 million, compared to $88.8 million in the same period a year ago. The increase was driven by growth in online sales from both existing customers and new buyers, with direct-to-consumer sales in store markets increasing 45.9 percent, partially offset by a decline in in-store sales. We believe the difference in the increase in website and catalog sales between store and non-store markets continues to demonstrate the importance of our retail stores in building brand awareness and expanding our loyal customer base.

Men’s business net sales increased 12.4 percent driven by growth in core products, Alaskan Hardgear and apparel newness. Women’s business net sales increased 15.1 percent driven by comfortable basics, workwear essentials and plus line apparel.

Gross profit increased 8.7 percent, to $71.0 million, or 52.4 percent of net sales, compared to $65.4 million, or 54.6 percent of net sales, in the corresponding prior-year period. The decrease in gross margin rate was primarily driven by promotional, clearance and sitewide sales events to continue moving inventory during the period of slower store traffic and drive top-line growth. The decrease was partially offset by reduced store delivery costs from lower store sales volumes.

Selling, general and administrative expenses increased 6.5 percent to $68.2 million, compared to $64.0 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses decreased to 50.3 percent, compared to 53.5 percent in the corresponding prior-year period. The positive leverage was primarily due to shifting to a more efficient digital marketing approach as customer purchasing patterns migrated to online.

The increase in selling, general and administrative expense was due to increased shipping costs to support website sales, higher retail overhead costs driven by new store growth and increased depreciation expense associated with investments in technology, partially offset by reduced catalog spend and national TV advertising.

Operating income increased to $2.8 million compared to operating income of $1.3 million in the prior-year third quarter.

Net income increased to $0.9 million, or $0.03 per diluted share, compared to net income of $0.2 million, or $0.01 per diluted share, in the prior-year third quarter. Wall Street’s consensus estimate had called for a loss of 2 cents.

Adjusted EBITDA increased 57.4 percent to $11.4 million compared to $7.3 million in the prior-year third quarter.

Balance Sheet and Liquidity
The company ended the quarter with a cash balance of $12.8 million, an inventory balance of $213.4 million, net working capital of $136.6 million, $48.9 million outstanding on its $70.5 million term loan, and $43.0 million outstanding on its $80.0 million revolving line of credit.

Fiscal 2020 Outlook
Given the unpredictability of the effects of COVID-19 on, among other things, consumer behavior, store traffic, store operations, production capabilities, the timing of deliveries, its 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 has reduced its planned capital spend levels from the beginning of the fiscal year by 40 percent to approximately $17.0 million primarily by decreasing fiscal 2020 new store openings to four and deferring certain technology and infrastructure projects, as well as continuing to focus on managing expense, extending payment terms and adjusting inventory receipt plans.

Photo courtesy Duluth Trading Company