Duluth Holdings Inc. (dba, Duluth Trading Company) (“Duluth
Trading” or the “Company”) (NASDAQ: DLTH), a lifestyle brand of
men’s and women’s workwear, casual wear, outdoor apparel and
accessories, today announced its financial results for the fiscal
second quarter ended July 31, 2022.
Highlights for the Second Quarter Ended July 31,
2022
- Net sales of $141.5 million compared to $149.1 million in the
prior year second quarter
- Gross margin of 53.4%, compared to 54.6% in the prior year
second quarter; excluding the non-recurring $1.3 million inventory
write down, most of which came from product damaged in-transit,
current quarter gross margin would have been 54.4%
- Net income of $2.4 million, or $0.07 per diluted share,
compared to net income of $9.0 million, or $0.27 per diluted share
in the prior year second quarter
- Adjusted EBITDA1 of $13.2 million, reflects 9.4% of net
sales
1See Reconciliation of net income to EBITDA and EBITDA to
Adjusted EBITDA in the accompanying financial tables.
Management Commentary
President and CEO, Sam Sato commented, “During the second
quarter we were not immune to the heightened level of macro
uncertainty and inflationary pressures impacting discretionary
spending. As a result, we have prudently revised our full year
guidance. Despite that backdrop, I am pleased with the underlying
performance of our business and the progress we are making on our
key strategic initiatives. We ended the second quarter with
inventories up 22% compared to last year and 14% excluding
in-transit goods. Importantly, nearly 90% of the inventory growth
is in year-round evergreen goods. Simply stated, we are in a much
healthier inventory position with improved flow of new, seasonal
receipts and better in-stock positions to support overall sales
growth. We continue to manage expenses well in the face of
inflationary headwinds and our strong balance sheet allows us to
remain committed to key investments in support of our Big Dam
Blueprint to build out our infrastructure and technical skillsets,
while also investing in our teams as we focus on the long
term.”
Sato concluded, “During the second quarter we were encouraged
with the recent launch of our AKHG Women’s collection that fills
the open space for innovative and technical outdoor clothing
designed for women. This new offering directly addresses our
customer’s desire for apparel and gear that meet their active work
and outdoor recreational activities, in addition to staying true to
the Duluth Trading heritage of designing for quality, durability
and problem-solving functionality. The customer
response to our expanded Women’s categories overall has been strong
and confirms our view of long-term growth potential embedded in our
strategic plans. In particular, we see the Women’s apparel
categories across our sub-brands having out-sized expansion
opportunities.”
Operating Results for the Second Quarter Ended July 31,
2022
Net sales decreased 5.1% to $141.5 million, compared to $149.1
million in the same period a year ago. Direct-to-consumer net sales
increased slightly by 0.1% to $85.3 million. Retail store net sales
decreased by 12.0% to $56.2 million due to slower store traffic,
which was partially offset by continued strong conversion
rates.
Net sales in store markets decreased 6.3% to $100.4 million,
compared to $107.1 million in the same period a year ago. The
decrease was also driven by slower store traffic as compared to the
prior year second quarter. Net sales in non-store markets decreased
by 1.9%, to $39.9 million.
Gross profit decreased 7.1% to $75.6 million, or 53.4% of net
sales, compared to $81.4 million, or 54.6% of net sales, in the
corresponding prior year period. The decrease in gross profit
margin was primarily driven by a non-recurring $1.3 million
inventory write down on product, mostly consisting of goods damaged
while in-transit, which decreased gross profit margin by 1.0%.
Selling, general and administrative expenses increased 5.0% to
$71.7 million, compared to $68.3 million in the same period a year
ago. As a percentage of net sales, selling, general and
administrative expenses increased to 50.7%, compared to 45.8% in
the corresponding prior year period.
The increase in selling, general and administrative expense was
primarily due to increased digital advertising to drive brand
awareness and store traffic, investments in new headcount, as well
as increased depreciation from continued capital investments.
The effective tax rate related to controlling interest was 23%
compared to 25% in the corresponding prior year period.
Balance Sheet and Liquidity
The Company ended the quarter with a cash balance of $15.4
million, an inventory balance of $164.5 million, net working
capital of $102.4 million, and no outstanding Duluth Trading bank
debt.
On July 8, 2022, the Company entered into the First
Amendment to its Credit Agreement (the “First Amendment”). To
support future investments, the First Amendment increased the
revolving commitment from $150 million to $200 million,
as well as extended the maturity date from May 14, 2026 to
July 8, 2027.
Updated Fiscal 2022 Outlook
The Company’s updated fiscal 2022 outlook is as follows:
- Net sales in the range of $680 million to $705 million
- Adjusted EBITDA in the range of $69 million to $73
million1
- EPS in the range of $0.61 to $.71 per diluted share
- Capital expenditures, inclusive of software hosting
implementation costs, of approximately $40 million
1See Reconciliation of forecasted net income to forecasted
EBITDA and forecasted EBITDA to forecasted Adjusted EBITDA in the
accompanying financial tables.
Conference Call Information
A conference call and audio webcast with analysts and investors
will be held on Thursday, September 1, 2022 at 9:30 am Eastern
Time, to discuss the results and answer questions.
- Live conference
call: 844-875-6915 (domestic) or 412-317-6711 (international)
- Conference call
replay available through September 8, 2022: 877-344-7529 (domestic)
or 412-317-0088 (international)
- Replay access code:
7457377
- Live and archived
webcast:
ir.duluthtrading.com
Investors can pre-register for the earnings conference call to
expedite their entry into the call and avoid waiting for a live
operator. To pre-register for the call, please visit
https://dpregister.com/7457377 and enter your
contact information. You will then be issued a personalized phone
number and pin to dial into the live conference call. Investors can
pre-register any time prior to the start of the conference
call.
About Duluth Trading
Duluth Trading is a lifestyle brand for the Modern, Self-Reliant
American. Based in Mount Horeb, Wisconsin, we offer high quality,
solution-based casual wear, workwear and accessories for men and
women who lead a hands-on lifestyle and who value a job well-done.
We provide our customers an engaging and entertaining experience.
Our marketing incorporates humor and storytelling that conveys the
uniqueness of our products in a distinctive, fun way, and are
available through our content-rich website, catalogs, and “store
like no other” retail locations. We are committed to outstanding
customer service backed by our “No Bull Guarantee” - if it’s not
right, we’ll fix it. Visit our website at
http://www.duluthtrading.com.
Non-GAAP Measurements
Management believes that non-GAAP financial measures may be
useful in certain instances to provide additional meaningful
comparisons between current results and results in prior operating
periods. Within this release, including the tables attached hereto,
reference is made to adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA). See attached Table
“Reconciliation of Net Income (Loss) to EBITDA and EBITDA to
Adjusted EBITDA,” for a reconciliation of net income (loss) to
EBITDA and EBITDA to Adjusted EBITDA for the three and six months
ended July 31, 2022, versus the three and six months ended August
1, 2021.
Adjusted EBITDA is a metric used by management and frequently
used by the financial community, which provides insight into an
organization’s operating trends and facilitates comparisons between
peer companies, since interest, taxes, depreciation and
amortization can differ greatly between organizations as a result
of differing capital structures and tax strategies. Adjusted EBITDA
excludes certain items that are unusual in nature or not comparable
from period to period.
The Company provides this information to investors to assist in
comparisons of past, present and future operating results and to
assist in highlighting the results of on-going operations. While
the Company’s management believes that non-GAAP measurements are
useful supplemental information, such adjusted results are not
intended to replace the Company’s GAAP financial results and should
be read in conjunction with those GAAP results.
Forward-Looking Statements
This press release includes “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements, other than statements of historical facts
included in this press release, including statements concerning
Duluth Trading's plans, objectives, goals, beliefs, business
strategies, future events, business conditions, its results of
operations, financial position and its business outlook, business
trends and certain other information herein, including statements
under the heading “Updated Fiscal 2022 Outlook” are
forward-looking statements. You can identify forward-looking
statements by the use of words such as “may,” ”might,” “will,”
“should,” “expect,” “plan,” “anticipate,” “could,” “believe,”
“estimate,” “project,” “target,” “predict,” “intend,” “future,”
“budget,” “goals,” “potential,” “continue,” “design,” “objective,”
“forecasted,” “would” and other similar expressions. The
forward-looking statements are not historical facts, and are based
upon Duluth Trading's current expectations, beliefs, estimates, and
projections, and various assumptions, many of which, by their
nature, are inherently uncertain and beyond Duluth Trading's
control. Duluth Trading's expectations, beliefs and projections are
expressed in good faith, and Duluth Trading believes there is a
reasonable basis for them. However, there can be no assurance that
management's expectations, beliefs, estimates, and projections will
be achieved and actual results may vary materially from what is
expressed in or indicated by the forward-looking statements.
Forward-looking statements are subject to risks and uncertainties
that could cause actual performance or results to differ materially
from those expressed in the forward-looking statements, including,
among others, the risks, uncertainties, and factors set forth under
Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on
Form 10-K filed with the SEC on March 25, 2022 and other factors as
may be periodically described in Duluth Trading’s subsequent
filings with the SEC. These risks and uncertainties include, but
are not limited to, the following: the prolonged effects of
COVID-19 on store traffic and disruptions to our distribution
network, supply chains and operations; our ability to maintain and
enhance a strong brand image; effectively adapting to new
challenges associated with our expansion into new geographic
markets; generating adequate cash from our existing stores to
support our growth; effectively relying on sources for merchandise
located in foreign markets; transportation delays and
interruptions, including port congestion; inability to timely and
effectively obtain shipments of products from our suppliers and
deliver merchandise to our customers; the inability to maintain the
performance of a maturing store portfolio; the impact of changes in
corporate tax regulations; identifying and responding to new and
changing customer preferences; the success of the locations in
which our stores are located; our ability to attract and retain
customers in the various retail venues and locations in which our
stores are located; competing effectively in an environment of
intense competition; our ability to adapt to significant changes in
sales due to the seasonality of our business; price reductions or
inventory shortages resulting from failure to purchase the
appropriate amount of inventory in advance of the season in which
it will be sold in global market constraints; increases in costs of
fuel or other energy, transportation or utility costs and in the
costs of labor and employment; failure of our information
technology systems to support our current and growing business,
before and after our planned upgrades; and other factors that may
be disclosed in our SEC filings or otherwise. Forward-looking
statements speak only as of the date the statements are made.
Duluth Trading assumes no obligation to update forward-looking
statements to reflect actual results, subsequent events or
circumstances or other changes affecting forward-looking
information except to the extent required by applicable securities
laws.
(Tables Follow)
DULUTH HOLDINGS
INC.Condensed Consolidated Balance
Sheets(Unaudited) (Amounts in
thousands)
|
|
July 31, 2022 |
|
January 30, 2022 |
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
15,369 |
|
|
$ |
77,051 |
|
Receivables |
|
|
5,764 |
|
|
|
5,455 |
|
Inventory, net |
|
|
164,499 |
|
|
|
122,672 |
|
Prepaid expenses & other current assets |
|
|
16,841 |
|
|
|
17,333 |
|
Prepaid catalog costs |
|
|
35 |
|
|
|
10 |
|
Total current assets |
|
|
202,508 |
|
|
|
222,521 |
|
Property and equipment,
net |
|
|
114,616 |
|
|
|
110,078 |
|
Operating lease right-of-use
assets |
|
|
114,980 |
|
|
|
120,911 |
|
Finance lease right-of-use
assets, net |
|
|
48,669 |
|
|
|
50,133 |
|
Available-for-sale
security |
|
|
5,823 |
|
|
|
6,554 |
|
Other assets, net |
|
|
6,725 |
|
|
|
5,353 |
|
Total assets |
|
$ |
493,321 |
|
|
$ |
515,550 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Trade accounts payable |
|
$ |
53,604 |
|
|
$ |
45,402 |
|
Accrued expenses and other current liabilities |
|
|
28,961 |
|
|
|
47,504 |
|
Income taxes payable |
|
|
583 |
|
|
|
6,814 |
|
Current portion of operating lease liabilities |
|
|
13,422 |
|
|
|
12,882 |
|
Current portion of finance lease liabilities |
|
|
2,763 |
|
|
|
2,701 |
|
Current portion of Duluth long-term debt |
|
|
— |
|
|
|
— |
|
Current maturities of TRI long-term debt1 |
|
|
729 |
|
|
|
693 |
|
Total current liabilities |
|
|
100,062 |
|
|
|
115,996 |
|
Operating lease liabilities,
less current maturities |
|
|
101,008 |
|
|
|
107,094 |
|
Finance lease liabilities,
less current maturities |
|
|
38,870 |
|
|
|
40,267 |
|
Duluth long-term debt, less
current maturities |
|
|
— |
|
|
|
— |
|
TRI long-term debt, less
current maturities1 |
|
|
26,271 |
|
|
|
26,608 |
|
Deferred tax liabilities |
|
|
2,729 |
|
|
|
2,867 |
|
Total liabilities |
|
|
268,940 |
|
|
|
292,832 |
|
Commitments and
contingencies |
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
Treasury stock |
|
|
(1,458 |
) |
|
|
(1,002 |
) |
Capital stock |
|
|
97,102 |
|
|
|
95,515 |
|
Retained earnings |
|
|
131,943 |
|
|
|
130,868 |
|
Accumulated other
comprehensive income, net |
|
|
2 |
|
|
|
489 |
|
Total shareholders' equity of Duluth Holdings Inc. |
|
|
227,589 |
|
|
|
225,870 |
|
Noncontrolling interest |
|
|
(3,208 |
) |
|
|
(3,152 |
) |
Total shareholders' equity |
|
|
224,381 |
|
|
|
222,718 |
|
Total liabilities and shareholders' equity |
|
$ |
493,321 |
|
|
$ |
515,550 |
|
|
|
|
|
|
|
|
|
|
1Represents debt of the variable interest entity, TRI Holdings,
LLC, that is consolidated in accordance with ASC 810,
Consolidation. Duluth Holdings Inc. is not the guarantor nor the
obligor of this debt.
DULUTH HOLDING
INC.Consolidated Statements of
Operations(Unaudited)(Amounts in
thousands, except per share figures)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 31, 2022 |
|
August 1, 2021 |
|
July 31, 2022 |
|
August 1, 2021 |
Net sales |
|
$ |
141,511 |
|
|
$ |
149,127 |
|
|
$ |
264,415 |
|
|
$ |
282,546 |
|
Cost of goods sold (excluding
depreciation and amortization) |
|
|
65,903 |
|
|
|
67,701 |
|
|
|
121,744 |
|
|
|
134,577 |
|
Gross profit |
|
|
75,608 |
|
|
|
81,426 |
|
|
|
142,671 |
|
|
|
147,969 |
|
Selling, general and
administrative expenses |
|
|
71,739 |
|
|
|
68,339 |
|
|
|
139,733 |
|
|
|
132,987 |
|
Operating income |
|
|
3,869 |
|
|
|
13,087 |
|
|
|
2,938 |
|
|
|
14,982 |
|
Interest expense |
|
|
879 |
|
|
|
1,182 |
|
|
|
1,755 |
|
|
|
2,490 |
|
Other income, net |
|
|
78 |
|
|
|
56 |
|
|
|
124 |
|
|
|
72 |
|
Income before income
taxes |
|
|
3,068 |
|
|
|
11,961 |
|
|
|
1,307 |
|
|
|
12,564 |
|
Income tax expense |
|
|
727 |
|
|
|
3,014 |
|
|
|
289 |
|
|
|
3,119 |
|
Net income |
|
|
2,341 |
|
|
|
8,947 |
|
|
|
1,018 |
|
|
|
9,445 |
|
Less: Net loss attributable to
noncontrolling interest |
|
|
(27 |
) |
|
|
(45 |
) |
|
|
(56 |
) |
|
|
(91 |
) |
Net income attributable to
controlling interest |
|
$ |
2,368 |
|
|
$ |
8,992 |
|
|
$ |
1,074 |
|
|
$ |
9,536 |
|
Basic earnings per
share (Class A and Class B): |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of
common stock outstanding |
|
|
32,766 |
|
|
|
32,624 |
|
|
|
32,732 |
|
|
|
32,582 |
|
Net income per share
attributable to controlling interest |
|
$ |
0.07 |
|
|
$ |
0.28 |
|
|
$ |
0.03 |
|
|
$ |
0.29 |
|
Diluted earnings per
share (Class A and Class B): |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and
equivalents outstanding |
|
|
32,766 |
|
|
|
32,813 |
|
|
|
32,910 |
|
|
|
32,786 |
|
Net income per share
attributable to controlling interest |
|
$ |
0.07 |
|
|
$ |
0.27 |
|
|
$ |
0.03 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DULUTH HOLDINGS
INC.Consolidated Statements of Cash
Flows(Unaudited)(Amounts in
thousands)
|
|
Six Months Ended |
|
|
July 31, 2022 |
|
August 1, 2021 |
Cash flows from
operating activities: |
|
|
|
|
|
|
Net income |
|
$ |
1,018 |
|
|
$ |
9,445 |
|
Adjustments to reconcile net
income to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation and
amortization |
|
|
15,374 |
|
|
|
14,516 |
|
Stock based compensation |
|
|
1,274 |
|
|
|
1,007 |
|
Deferred income taxes |
|
|
27 |
|
|
|
(312 |
) |
Loss on disposal of property
and equipment |
|
|
23 |
|
|
|
67 |
|
Changes in operating assets
and liabilities: |
|
|
|
|
|
|
Receivables |
|
|
(309 |
) |
|
|
(642 |
) |
Inventory |
|
|
(41,827 |
) |
|
|
14,165 |
|
Prepaid expense & other current assets |
|
|
86 |
|
|
|
(1,332 |
) |
Software hosting implementation costs, net |
|
|
(529 |
) |
|
|
(1,220 |
) |
Deferred catalog costs |
|
|
(25 |
) |
|
|
975 |
|
Trade accounts payable |
|
|
9,549 |
|
|
|
2,889 |
|
Income taxes payable |
|
|
(6,231 |
) |
|
|
(6,992 |
) |
Accrued expenses and deferred rent obligations |
|
|
(18,974 |
) |
|
|
(4,908 |
) |
Other assets |
|
|
(519 |
) |
|
|
(1,035 |
) |
Noncash lease impacts |
|
|
(75 |
) |
|
|
(111 |
) |
Net cash (used in) provided by
operating activities |
|
|
(41,138 |
) |
|
|
26,512 |
|
Cash flows from
investing activities: |
|
|
|
|
|
|
Purchases of property and
equipment |
|
|
(18,814 |
) |
|
|
(4,984 |
) |
Principal receipts from
available-for-sale security |
|
|
79 |
|
|
|
71 |
|
Proceeds from disposals |
|
|
8 |
|
|
|
55 |
|
Net cash used in investing
activities |
|
|
(18,727 |
) |
|
|
(4,858 |
) |
Cash flows from
financing activities: |
|
|
|
|
|
|
Proceeds from line of
credit |
|
|
— |
|
|
|
5,000 |
|
Payments on line of
credit |
|
|
— |
|
|
|
(5,000 |
) |
Payments on delayed draw term
loan |
|
|
— |
|
|
|
(48,250 |
) |
Payments on TRI long term
debt |
|
|
(338 |
) |
|
|
(303 |
) |
Payments on finance lease
obligations |
|
|
(1,336 |
) |
|
|
(1,237 |
) |
Payments of tax withholding on
vested restricted shares |
|
|
(456 |
) |
|
|
(363 |
) |
Other |
|
|
313 |
|
|
|
199 |
|
Net cash used in financing
activities |
|
|
(1,817 |
) |
|
|
(49,954 |
) |
Decrease in cash, cash
equivalents |
|
|
(61,682 |
) |
|
|
(28,300 |
) |
Cash and cash equivalents at
beginning of period |
|
|
77,051 |
|
|
|
47,221 |
|
Cash and cash equivalents at
end of period |
|
$ |
15,369 |
|
|
$ |
18,921 |
|
Supplemental
disclosure of cash flow information: |
|
|
|
|
|
|
Interest paid |
|
$ |
1,755 |
|
|
$ |
2,519 |
|
Income taxes paid |
|
$ |
6,619 |
|
|
$ |
10,461 |
|
Supplemental
disclosure of non-cash information: |
|
|
|
|
|
|
Unpaid liability to acquire
property and equipment |
|
$ |
2,236 |
|
|
$ |
2,052 |
|
DULUTH HOLDINGS
INC.Reconciliation of Net Income (Loss) to EBITDA
and EBITDA to Adjusted EBITDAFor the Fiscal
Quarter and Six Months Ended July 31, 2022 and August 1,
2021(Unaudited)(Amounts in
thousands)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 31, 2022 |
|
August 1, 2021 |
|
July 31, 2022 |
|
August 1, 2021 |
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,341 |
|
$ |
8,947 |
|
$ |
1,018 |
|
$ |
9,445 |
Depreciation and amortization |
|
|
7,854 |
|
|
7,242 |
|
|
15,374 |
|
|
14,516 |
Amortization of internal-use software hosting |
|
|
|
|
|
|
|
|
|
|
|
|
subscription implementation costs |
|
|
787 |
|
|
405 |
|
|
1,420 |
|
|
774 |
Interest expense |
|
|
879 |
|
|
1,182 |
|
|
1,755 |
|
|
2,490 |
Income tax expense |
|
|
727 |
|
|
3,014 |
|
|
289 |
|
|
3,119 |
EBITDA |
|
$ |
12,588 |
|
$ |
20,790 |
|
$ |
19,856 |
|
$ |
30,344 |
Stock based compensation |
|
|
656 |
|
|
637 |
|
|
1,274 |
|
|
1,007 |
Adjusted EBITDA |
|
$ |
13,244 |
|
$ |
21,427 |
|
$ |
21,130 |
|
$ |
31,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
DULUTH HOLDINGS
INC.Reconciliation of Forecasted Net Income to
Forecasted EBITDA and Forecasted EBITDA to Forecasted Adjusted
EBITDAFor the Fiscal Year Ending January 29,
2023(Unaudited)(Amounts in
thousands)
|
|
Low |
|
High |
Forecasted |
|
|
|
|
|
|
Net income |
|
$ |
20,000 |
|
$ |
23,200 |
Depreciation and amortization |
|
|
32,200 |
|
|
32,300 |
Amortization of internal-use software hosting subscription
implementation costs |
|
|
3,000 |
|
|
3,000 |
Interest expense |
|
|
4,100 |
|
|
3,700 |
Income tax expense |
|
|
6,700 |
|
|
7,700 |
EBITDA |
|
$ |
66,000 |
|
$ |
69,900 |
Stock based compensation |
|
|
3,000 |
|
|
3,100 |
Adjusted EBITDA |
|
$ |
69,000 |
|
$ |
73,000 |
|
|
|
|
|
|
|
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/65f2d287-33d6-49a0-a6ff-41d2389b080a
Investor Contacts:
Tom Filandro
ICR, Inc.
(646) 277-1200
DuluthIR@icrinc.com
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