Duluth Holdings Inc., doing business as Duluth Trading Company, reported net income in the second quarter ended July 29 rose 48.9 percent on a 28.3 percent revenue gain.

Highlights for the Second Quarter Ended July 29, 2018

  • Net sales increased 28.3 percent to $110.7 million compared to $86.2 million in the prior-year second quarter
  • Gross margin decreased 50 basis points to 56.2 percent compared to 56.7 percent in the prior-year second quarter
  • Operating income increased 33.9 percent to $9.9 million compared to operating income of $7.4 million in the prior-year second quarter
  • Net income increased 48.9 percent to $6.4 million, or $0.20 per diluted share compared to net income of $4.3 million, or $0.13 per diluted share in the prior-year second quarter
  • Adjusted EBITDA increased 38.6 percent to $13.1 million compared to $9.5 million in the prior-year second quarter
  • The company opened six retail stores in Colorado Springs, CO; Lubbock, TX; Denton, TX; Portland, OR; Columbus, OH and Arlington, TX, totaling approximately 92,000 gross square feet
  • 34th consecutive quarter of increased net sales year-over-year

Management Commentary

“We posted strong results for the second quarter and achieved our 34th consecutive quarter of increased net sales year-over-year. Our 28 percent top-line growth was fueled by new stores, a growing contribution from our women’s business and customer demand for our spring and summer products,” said Stephanie Pugliese, chief executive officer of Duluth Trading.

“Our team achieved some significant milestones this quarter. We opened six stores, bringing our total store count to eight new stores this year. Three of the stores opened this quarter were in the state of Texas, one of our top three direct states. All six stores opened strong, and we are on track to open seven more stores during the remainder of the year, for a total of 15 new stores in fiscal 2018 as planned. We also successfully implemented two major IT projects. Our order management system went live in May, and our -commerce platform was launched to our customers the first week of August.”

“These results demonstrate the strength of the Duluth Trading brand and validate the investments we have made in building our omnichannel presence over the past few years. For the balance of the year, we plan to focus on product innovation, digital marketing, opening the remaining seven stores and the completion of key technology and infrastructure projects to prepare us for our peak selling season. We are pleased with our first half results and optimistic about the rest of the year. We expect to deliver on our fiscal 2018 guidance.”

Operating Results for the Second Quarter Ended July 29, 2018

Net sales increased 28.3 percent to $110.7 million, compared to $86.2 million in the same period a year ago. The net sales increase was driven by a 5.5 percent growth in direct net sales and a 74.4 percent growth in retail net sales, with growth in virtually all product categories and in both men’s and women’s business. The increase in retail net sales was primarily due to having 16 more stores during the second quarter of 2018 as compared to the same period a year ago.

Gross profit increased 27.2 percent to $62.2 million, or 56.2 percent of net sales, compared to $48.9 million, or 56.7 percent of net sales, in the corresponding prior year period. The 50 basis point decrease in gross margin was primarily attributable to a slight increase in product margin, which was more than offset by a decline in shipping revenues and an increase in freight cost.

Selling, general and administrative expenses increased 26.0 percent to $52.3 million, compared to $41.5 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses decreased 90 basis points to 47.3 percent, compared to 48.2 percent in the corresponding prior-year period. As a percentage of net sales, advertising and marketing costs decreased 310 basis points to 14.3 percent compared to 17.4 percent in the corresponding prior-year period, primarily due to a decrease in catalog expense due to a planned decrease in catalog spend as a percentage of net sales, coupled with leverage gained from a higher mix of retail sales. As a percentage of net sales, selling expenses increased 60 basis points to 14.7 percent, compared to 14.1 percent in the corresponding prior-year period, primarily due to an increase in customer service expense as a result of growth in the number of retail stores, partially offset by leverage in shipping expenses due to increased retail net sales. As a percentage of net sales, general and administrative expenses increased 160 basis points to 18.3 percent compared to 16.7 percent in the corresponding prior-year period, primarily due to depreciation and occupancy expenses due to growth in the business.

Balance Sheet and Liquidity

The company ended the quarter with a cash balance of approximately $2.4 million, with net working capital of $73.9 million and $35.0 million outstanding on its $80.0 million revolving line of credit.

Fiscal 2018 Outlook

The company reiterated its previously issued fiscal 2018 outlook. Its 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
  • Capital expenditures, net of proceeds from finance lease obligations, of $45.0 million to $55.0 million2
  • 15 new store openings adding approximately 250,000 of additional gross square footage

Photo courtesy Duluth Holdings