Duluth Holdings Inc., the parent of Duluth Trading Company, reported earnings rose 39.3 percent in the fourth quarter on a 24.7 percent revenue gain.

Highlights for the Fourth Quarter Ended January 28, 2018

  • Net sales increased 24.7 percent to $217.8 million compared to $174.7 million in the prior-year fourth quarter
  • Gross margin decreased 210 basis points to 53.3 percent compared to 55.4 percent in the prior-year fourth quarter
  • Operating income increased 29.3 percent to $29.5 million, or 13.6 percent of net sales, compared to $22.9 million, or 13.1 percent of net sales in the prior-year fourth quarter
  • Net income was $19.5 million, or $0.60 per diluted share, compared to $14.0 million, or $0.43 per diluted share, in the prior-year fourth quarter. Excluding the impact of the U.S. Tax Cuts and Jobs Act (the “Tax Act”), net income was $17.6 million, or $0.55 per diluted share.
  • Adjusted EBITDA increased 31.4 percent to $32.4 million compared to $24.7 million in the prior-year fourth quarter
  • The company opened five new retail stores in Louisville, KY; Woodbury, MN; Grandville, MI; Waukesha, WI and Wixom, MI, totaling approximately 75,000 gross square feet
  • 32nd consecutive quarter of increased net sales year-over-year

Highlights for the Fiscal Year Ended January 28, 2018

  • Net sales increased 25.3 percent to $471.4 million compared to $376.1 million in the prior year
  • Gross margin decreased 150 bps to 55.4 percent compared to 56.9 percent in the prior year
  • Operating income increased 5.9 percent to $37.1 million, or 7.9 percent of net sales, compared to $35.0 million, or 9.3 percent of net sales in the prior year
  • Net income was $23.4 million, or $0.72 per diluted share, compared to $21.3 million, or $0.66 per diluted share, in the prior year. Excluding the impact of the Tax Act, net income was $21.5 million, or $0.67 per share.
  • Adjusted EBITDA increased 12.8 percent to $46.4 million compared to $41.2 million in the prior year
  • The company opened 15 retail stores, totaling approximately 228,000 gross square feet, and ended the year with a total of 31 stores

Management Commentary

“Fiscal 2017 was a year of solid growth for the Duluth Trading brand as reflected by more than 25 percent top-line growth and 23 percent growth in total new customers. We opened 15 stores and continued to expand our retail store footprint into the Eastern and Western United States. Net sales in our men’s business grew 22 percent and our women’s business grew 37 percent, exceeding the $100 million milestone and accounting for almost a quarter of our total annual sales. This marks our 32nd consecutive quarter of increased net sales year-over-year,” said Stephanie Pugliese, chief executive officer of Duluth Trading.

“With each new store opening, we are attracting more customers to the Duluth Trading brand and during fiscal 2017, new customers acquired through our retail segment accounted for 25 percent of total new customer growth. We continue to see higher sales growth in markets with an established store, which supports our long-term strategy to significantly expand our total market opportunity through continued strength in online capabilities and the full expression of the brand in a brick and mortar setting.”

“Looking ahead to 2018, we intend to greatly enhance our customers’ omnichannel experience with the completion of the order management system and e-commerce platform in the first half of the year. We plan to open 15 new stores that will reach into major customer markets like Texas and that will give us a coast-to-coast presence from Portland, Maine to Portland, Oregon. We are making investments to ensure the long-term growth potential of our business and are underway with executing our 2018 plan.”

Operating Results for the Fourth Quarter Ended January 28, 2018

Net sales increased 24.7 percent to $217.8 million, compared to $174.7 million in the same period a year ago. The net sales increase was driven by a 8.5 percent growth in direct net sales and a 98.8 percent growth in retail net sales, with growth in all product categories and in both men’s and women’s business. The increase in retail net sales was attributable to the opening of 15 new retail stores during fiscal 2017.

Gross profit increased 19.9 percent to $116.0 million, or 53.3 percent of net sales, compared to $96.8 million, or 55.4 percent of net sales, in the corresponding prior-year period. The 210 basis point decrease in gross margin was primarily due to an increase in global promotional days and flash sales, coupled with the continuing decline in shipping revenues.

Selling, general and administrative expenses increased 17.0 percent to $86.5 million, compared to $73.9 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses decreased 260 basis points to 39.7 percent, compared to 42.3 percent in the corresponding prior-year period. As a percentage of net sales, advertising and marketing costs decreased 370 basis points to 16.4 percent compared to 20.1 percent in the corresponding prior-year period, primarily due to a planned decrease in catalog spend coupled with a decline in digital and television advertising as percentage of net sales, primarily attributable to leverage gained from higher retail net sales. As a percentage of net sales, selling expenses increased 40 basis points to 14.1 percent, compared to 13.7 percent in the corresponding prior-year period, primarily due to an increase in customer service expense due to retail store growth, partially offset by leverage in shipping expenses due to increase proportion of retail net sales. As a percentage of net sales, general and administrative expenses increased 70 basis points to 9.2 percent compared to 8.5 percent in the corresponding prior-year period, primarily due to store occupancy, depreciation and personnel expenses.

Balance Sheet and Liquidity

The company ended the quarter with a cash balance of approximately $2.9 million, with net working capital of $51.5 million and no borrowings on its $60.0 million revolving line of credit.

Fiscal 2018 Outlook

Fiscal 2018 outlook is provided on a 53-week period, compared to a 52-week period in fiscal 2017.

  • Net sales in the range of $555.0 million to $575.0 million
  • Adjusted EBITDA in the range of $51.0 million to $54.0 million
  • EPS in the range of $0.79 to $0.84 per diluted share, with an effective tax rate of 26 percent based on the company’s provisional estimates from the impacts of the Tax Act
  • Capital expenditures, net of proceeds from finance lease obligations of, $45.0 million to $55.0 million
  • 15 new store openings, adding 240,000 to 250,000 of additional gross square footage