In her first quarterly call since returning to Duluth Holdings, Inc. as president and CEO, Stephanie Pugliese said the company is “taking decisive actions to get this great company and unique and powerful brand back on the path to profitability and growth,” including rationalizing SKUs, reducing costs and complexity across multiple areas and exploring store closings while investing in innovation.

Pugliese’s comments come as Duluth widened its loss in the first quarter ended May 4 on a 12.0 percent sales decline, although it reiterated its guidance for the year.

On May 5, Pugliese returned to the CEO role, succeeding Sam Soto, who was retiring. Pugliese was Duluth’s president and CEO from February 2015 to August 2019 and had been with the brand for 11 years. She left to join Under Armour, where she ran their U.S. operations and eventually oversaw all of the Americas.

“I am leading with a sense of urgency, clarifying direction and taking action,” said Pugliese on the analyst call. “Our operating model and processes need to be simplified quickly to restore financial health in the business.”

Pugliese said Duluth has introduced an expense reduction program to drive annualized savings of approximately $15 million, of which at least $10 million of cost benefits will be realized in the current fiscal year.

“These expense actions are designed to reduce complexity in the business and increase our focus on innovation and our brand enablers,” she said.

Duluth is also embracing a holistic approach to its overall expense structure, which Pugliese indicated is “higher than it needs to be.” She said Duluth will be examining processes, systems and team structures across the organization to reduce expenses and drive efficiencies further. “These efforts are directly aligned with my philosophy to simplify our operations as we shift our focus and the majority of our time and energy to brand awareness, solution-based product and product innovations and exceptional customer service,” said Pugliese.

Pugliese said she is excited to return to Duluth and still believes in the brand’s potential. “Our customers have a deep affection for Duluth and they genuinely want us to succeed. What sets us apart in the marketplace is our unique blend of high-quality solution-based products infused with our brand attributes: Authentic, Humorous, Hardworking, and Humble. Our products and our brand evoke an emotional connection that is truly distinctive in today’s crowded retail landscape,” she stated.

However, a foremost focus in the future is increasing brand awareness to help new consumers discover the brand. Pugliese said, “Reinvigorating our distinctive voice and storytelling capabilities that have historically differentiated Duluth in the marketplace to drive customer acquisition and retention.”

In product, the focus will be on providing solutions. “Our year-round core product is foundational to our business, enhanced by new innovative solutions,” said Pugliese.

Successful innovations during the first quarter included the men’s Flex Fire Hose HD and Wrinklefighter shirts, the introduction of women’s NoGa Air, and innovations in AKHG. Pugliese said, “We know that when we clearly communicate the solutions we offer, we win. That is why, going forward, we will drive to a more focused product assortment that resonates clearly with our customers.”

Duluth is on track to reduce apparel SKUs by over 5 percent in fall 2025 and by 20 percent in Spring/Summer 2026. The retailer is also on track to reduce the SKU count in its non-apparel hardgoods portfolio by double digits starting in fall 2025. Pugliese said, “This will create productivity gains in the assortment and enhance our ability to be more efficient in inventory purchases and marketing activities.”

Pugliese said the company still has plans for innovation in growth areas, including core men’s and women’s workwear and adjacencies such as first-layer and outdoor products.

Finally, elevating customer service will involve leveraging the retailer’s omnichannel model to meet customers’ needs across e-commerce and physical retail.

Pugliese said a large part of Duluth’s success would rely on building on the progress made over the past few years in systems, sourcing, distribution, and real estate strategy.

She said Duluth’s direct-to-factory sourcing initiative is showing “great results,” with the program not only reducing the cost of goods but bringing innovation faster to market. Pugliese said, “We will continue to leverage this strategic initiative as we adjust our product assortment and more clearly define our go-to-market strategy. We expect that over time, the flow-through of margin improvement will be further enhanced by the resetting of promotional activity, which we started in Q1 and have shown some early signs of success.”

Pugliese said the optimization of its fulfillment network had yielded automation, cost-per-unit savings as well as faster click-to-delivery times. Duluth will continue to reevaluate its operational protocols and planning processes to improve the backlog issues the brand faced during the prior holiday season.

In real estate, with nearly 25 percent of store leases up for renewal through the end of 2026, the company is exploring the option of closing or remodeling stores. Duluth is also looking at closing underperforming stores beyond near-term lease expirations.

“While we have substantial work ahead, I am confident in our path forward,“ said Pugliese. “Our commitment to elevating and celebrating what sets Duluth apart in the marketplace, coupled with decisive actions to right-size our expense structure and sharpen our focus on brand and product enablers, is our path to future success.”

First-Quarter Results
Heena Agrawal, SVP and CFO, stated that the first quarter marked progress on four key priorities set for 2025: resetting promotions, restoring price integrity, improving inventory management, and strengthening operational execution.

Sales in the quarter reached $102.7 million, down 12 percent compared to last year and down 10.2 percent, excluding the shift in wholesale shipments from Q1 to Q2 versus last year. As part of the promotion reset, the number of days on promotion was reduced by 35 percent, and the depth of promotions was lowered from 25 percent to 20 percent on average.

Direct channel sales, excluding wholesale, declined 14.6 percent as web traffic decreased, with conversions remaining roughly flat, partially offset by a higher average order value (AOV).  Retail sales fell 2.6 percent as the retailer partially offset lower traffic with improved shopper conversion. Retail store sales and profitability trends improved as Duluth reduced promotions. Agrawal said, “While we are continuing to fine-tune and reduce the frequency of promotions, we are seeing success with shallower promotions driven by higher AOV and improved retail sales trends and profitability.”

Gross margins declined 80 basis points due to greater clearance penetration and deeper discounting during February’s Big Dam clearance event. In March and April combined, the gross margin improved by over 300 basis points compared to last year due to reduced costs resulting from its direct-to-factory sourcing strategy, as well as the resetting of the depth and frequency of promotions.

Adjusted SG&A was $65.2 million, which was $5.4 million lower than last year, but deleverage as a percent of sales by 290 basis points due to lower sales and higher shipping and fulfillment costs.

The net loss of $15.3 million, or 45 cents a share, and adjusted net loss of $10.8 million, or 32 cents, compared to a net loss of $7.9 million, or 24 cents, in the prior year first quarter. Adjusted net loss of $10.8 million excludes $4.1 million related to additions to a valuation allowance on a deferred tax asset and impairment expenses of $0.4 million, net of tax.

Adjusted EBITDA decreased $5.6 million from the prior year to a negative $3.8 million.

Tariff Update
Duluth currently anticipates approximately $14 million in additional product costs from the 10 percent tariff implemented in April 2025. Duluth’s exposure to China is minimal, with less than 1 percent of current-year receipts impacted. Agrawal said, “We will be implementing targeted price increases in select categories and items based on price elasticity and key price thresholds to recover the increase in cost. We are also partnering with vendors to share in the cost impacts. Finally, given our current inventory position, especially in year-round goods, we are further managing the timing of future receipt of goods.”

Outlook
Duluth is maintaining its guidance for the year, based on its expectation that it will be able to offset the current tariff rate through targeted price increases, vendor negotiations, and management of future receipts. Agrawal also said Duluth’s moves to reduce expenses are being made “in part to protect from the top line headwinds as we continue to reset promotions, as well as recognition of the current uncertain macroeconomic and customer environment.”

The outlook calls for:

  • Net sales in the range of $570 million to $595 million.
  • Adjusted EBITDA in the range of $20 million to $25 million.

Image courtesy Duluth Trading/Stephanie Pugliese