Q2 2024 Duluth Holdings Inc Earnings Call
Good morning, and welcome to the Duluth Holdings second quarter 2023 conference call.
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Thank you and welcome to today's call to discuss Duluth, Trading's second quarter financial results. Our earnings release, which was issued this morning is available on our Investor Relations website at IR Dot Duluth, Tradings Dot com under press releases.
I'm here today, with Sam Sato, President and Chief Executive Officer, and Dave Loretta Senior Vice President and Chief Financial Officer on today's call management will provide prepared remarks, and then we will open the call to your questions.
Before we begin I would like to remind you that the comments on today's call will include forward looking statements, which can be identified by the use of words, such as estimate anticipate expect and similar phrases.
We're looking statements by their nature involve estimates projections goals forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward looking statements.
Such risks and uncertainties include but are not limited to those that are described in our most recent annual report on Form 10-K, and other SEC filings as applicable. These forward looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events.
And with that I'll turn the call over to Sam Sato, President and Chief Executive Officer Sam.
Good morning, and thanks for joining today's call.
Before I review, our second quarter results I'm thrilled to share an update on two of our key strategic initiatives that are cornerstones to our big dam blueprint.
I'll start with the exciting news that our newest highly automated fulfillment center located in <unk>, Georgia has.
<unk> begun fulfilling customer online orders and replenishing our store inventories.
The scheduled ramp up is on time and gives us confidence that our October target date for being fully operational is achievable.
Representing a significant investment to future proof our business. This upgrade to our logistics network will support meaningful long term growth.
Address our customers' expectations for faster delivery and immediately generate cost efficiencies that will build over time.
Yeah.
I'll share more about this shortly but first I'd like to thank all our team members and vendor partners responsible for delivering on this key milestone.
In addition to going live and are highly automated fulfillment center I'm equally excited to share progress on the growth of our sourcing of product innovation functions with the on boarding of several new team members that are deep and extensive experience in apparel design and manufacturing.
This team accelerates our efforts to develop and bring to market innovative products that serve a purpose or solve a problem for our customers.
Duluth has a long track record of bringing first to market fabrications and features to our customers representing a strong price value proposition supported by cut through marketing that is fun and memorable.
The sourcing team will augment and strengthen this competitive advantage, allowing us to enhance the pipeline of new products, while improving our speed to market feeling greater full price selling and sub brand loyalty, while generating significant product cost savings over time.
This strategic initiative, coupled with the go live of our highly automated fulfillment center sets the stage for meaningful and sustainable long term profitable growth.
Now turning to our second quarter performance and the current consumer environment.
Customer demand for our offer remains strong as evidenced by continued growth in units sold.
Increased buyer tenants and online visits all with higher conversion rates.
We shipped more orders in the second quarter compared to last year as demand for our spring and summer collections were healthy.
As we navigate what remains a dynamic macro environment in which customers continue to seek value. We are managing the business prudently controlling what we can control while staying keenly focused on elevating our unique brand and sub brand positioning.
Importantly, our inventory position is in good shape and ended the quarter below prior year levels due to strong seasonal sell through and our disciplined efforts to appropriately plan, our purchases and receipt flow.
Total net sales for the second quarter were $139 million, which was down one 7% to last year and can largely be attributed to lower store traffic in the month of May which subsequently trended flat to slightly positive beginning in June .
We are very pleased by our strong online performance, which grew by nearly 2% in the quarter.
Importantly, our second quarter conversion rate improved year over year, both in store and online as our Assortments and marketing efforts resonated with our broadening customer base.
Double clicking on our online performance visits to our website were up in the quarter driven by fire volume of mobile traffic, which accounts for nearly 70% of all online visits sale.
Sales transactions through mobile devices increased roughly 8% and accounted for 55% of direct channel sales.
We continue to realize the benefits from last Fall's web platform upgrade which enables faster load times on mobile devices and easier navigation contributing to an increase of 50 basis points in our mobile conversion rate.
With our direct channel representing 62% of the total an increase of 200 basis points from last year. Our results continue to prove that our digital first strategy balanced with an Omnichannel service model is delivering on our customers' shopping expectations with Duluth.
Moving down the P&L, we delivered adjusted EBITDA of $8 6 million for the second quarter and while we're not satisfied with the bottom line EPS results. The investments we are making now in technology supply chain and product innovation are keys to unlocking and fueling longer term.
Profitable growth.
Our balance sheet strength with no drawings on our 200 million line of credit at second quarter end and not expected at year end supports our multiyear strategy to invest in the key growth drivers of the business, while being funded by operating cash flows.
We have strategically managed our inventories to support the programs that have momentum and minimized end of season clearance, which is in a healthy position and below last year.
As I mentioned demand for our spring and summer collections were strong and we continued to deliver great results in key collections like garden, and landscaping and planning.
These collections delivered a sales increase of nearly 40% in the second quarter.
Our women's heirloom gardening bib overall was again the number one style for the quarter.
Our plans are to make this hero product a year round item, which we've designed with a soft fleece lining option to add warmth and comfort during cooler months.
Our total women's business grew almost 3% during the quarter with increases in Duluth branded collections like Heirloom garden, but also in the base layer under <unk> and the newer a cage G collections.
Growing our women's apparel segment, which now represents 35% of total apparel sales is a key strategic initiative and continues to gain momentum.
Success in the women's business is being derived from a combination of outstanding product design expansion into relevant categories, and our secret sauce of utilizing proven fabrications across styles and uses.
The womens Bra collection was up nearly 50% in the quarter and represents a significant growth opportunity engineered with unique comfort fabrics and features in a wide range of fits and sizes.
We're seeing great response from the newly released our material O T looks bra, which is infused with made into J technology that features soft touch seamless comfort.
And all around support elements.
As we lap last year's launch of women's H H G. We're pleased to see continued interest in demand for our outdoor recreation offering.
We saw notable success in our lightweight access point collection made for ultimate endurance on the trails and the stone run collection, which provides the same functionality with a more structured and durable design.
For fall, we are introducing new soft and cozy cross layer styles in the Ath G nowhere and bamboo programs.
We're also expanding our use of sherpa and fleece linings within AK, H G, which broadens our assortment during seasonal transition periods.
And our long success in flannel shirts continues as we expand new styles colors and prints.
Overall, the 8-K H G sub brand grew 14% in the second quarter, and we expect a similar growth rate in the back half of 2023.
8-K, H G represents a significant growth opportunity for Duluth.
We draw so much inspiration and product design ideas from our loyal way forger community sharing their stories of work and play and the apparel They love that helps enable their passion.
I encourage you to visit our Duluth way forward your webpage to view the imagery and read about the folks that helped shape our brand offering as they embrace and lived the true spirit of our family of brands.
We're pleased with the favorable response to our early fall and winter collections and are particularly enthused about our core men's Duluth assortment with the recent introduction of new colors NPS in the long tail T program as well as the increased demand for our Duluth ballroom double flex denim Pan.
Which features new combinations of styles washes and fits.
We expect men's pants to be a high volume driver for us This fall with the support of robust marketing plans over the next few months.
We've also recently launched a new men's collection called power cord, which strikes the right balance between business casual and job site utility.
Designed with abrasion resistant kundera nylon twill pants, combined durability with sharp styling that pair well with buttoned down long sleeve shirts, polo's or even a long sleeve Henley.
The new power cord collection is off to a great start and addresses the needs of our customers who are transitioning back to the office more regularly.
Excitingly, our pipeline of new and innovative products is full this year and we still have several key items that we'll be launching in the fourth quarter.
This includes a new addition to our Buck naked underwear collection that features a soft and smooth fabric, allowing for more extensive pattern printing, including photo images.
Our new fire hose Carpenter pants, featuring our strongest most durable flex fire hose fabric to date.
And a new womens 8-K, H D fitness apparel assortment launching in January just in time for new year's resolutions.
We've also been busy rolling out new pattern and printed underwear styles for men and women are Buck naked collaboration with Pabst Blue Ribbon was a customer favorite and is being followed up with several additional collaborations with favorite beer brands dropping in September .
Product newness combined with data driven marketing strategies are proving to effectively increase customer retention rates and increased brand awareness.
Our year to date retention rate on prior year customers is up 200 basis points with much of that driven by our longer term and most loyal customers.
Our active buyer file overall is up year over year and orders per customer is up mid single digits driven by increased FERC purchase frequency.
Within the paid social channels are return on AD spend was up over 60% in the quarter from retained customers and new customer acquisition rates have been on an improving trend all year long.
Our marketing strategy provides nimble and informed shifts when appropriate and we're looking to realize efficiency gains in the back half of 2023.
New customer acquisition will continue to be a focus and an expanded reach of new influencers and online content creators will be powerful sources of new buyers.
As I mentioned in my opening comments the go live of our newest high.
Highly automated fulfillment center in <unk>, Georgia represents a significant milestone within our strategic roadmap.
This facility is the largest and most efficient within our fulfillment network and we remain on track to process up to 60% of online customer orders and store inventory replenishment through this new facility by the end of Q3.
The efficiency gains will help us realize healthy reductions in cost per unit processing as well as faster delivery times to a greater portion of our direct customer base.
We're poised to fulfill our customers' needs and meet the peak demands as it builds towards the holiday selling season.
Our inventory is in great shape, we're accelerating receipt of new product innovation.
Our marketing plans are as sharp as ever and our customer service teams are prep to deliver a superior omnichannel experiences.
But the critical investments, we've made and will continue to make we're well positioned to meet the needs of our customers and drive sustainable long term growth and profitability.
I look forward to sharing more on our third quarter call and we'll now turn it over to Dave to provide more details on our second quarter results and outlook for the year.
<unk>.
Thanks, Sam and good morning.
For the second quarter, we reported net sales of $139 1 million down one 7% compared to $141 5 million last year and brings our year to date sales close to flat to last year.
Sales in our direct channel were up one 8% in the quarter driven by an increase in web visits of roughly 1%.
And increased conversion of nearly 50 basis points across both mobile devices and desktop.
Sales on mobile devices increased high single digits and continues to become the digital channel of choice for our customers with enhancements made to site speed navigation and product information.
Our retail channel sales were down 7% with store traffic down 2% compared to last year, which is an improvement from the trend traffic in the first quarter.
Our store teams are also continuing to drive increases in the conversion rate on the store visits with outstanding customer service and compelling Assortments and targeted offers.
As Sam mentioned, the demand for our seasonal and year round offering was strong generating positive growth in items sold and orders shipped.
The slight decrease in net sales was largely attributed to a lower average retail and order value due to lower levels of full price selling and a higher level of promotional and clearance sales.
Our quarter end inventory position is healthy with spring and summer goods down to high single digit penetration to the total.
From low teens last year and.
And clearance is down more than 300 basis points year over year to roughly 7% of the total.
As planned we began to receive an offer new fall and winter seasonal items sooner than last year and a customer response has been strong.
We've also improved the flow of our core year round items and are experiencing demand build for some of the largest programs spanning men's pants tops and underwear.
Total men's division sales during the quarter were down three 5%, while women's was up nearly 3% with increases for women's in Duluth, AK HG and firstly our categories.
We drove higher sell through rates in part through the use of incremental events and targeted offers enabling us to keep our inventory turning.
Our second quarter gross profit margin was 51, 4% compared to 53, 4% last year and reflects a lower mix of full price sales.
Gross profit dollars declined five 5% from last year.
We did see stabilization in product gross margins relative to last year near the end of the quarter.
Turning to expenses SG&A for the second quarter increased one 7% to $72 9 million or 52, 4% of sales compared to $71 7 million last year or 57% of sales.
This included an increase of $2 8 million in general and administrative expenses, an increase of $1 $1 million and selling expenses.
And a decrease of $2 7 million in advertising and marketing expenses.
Selling expenses as a percentage of net sales increased 100 basis points to 16% compared to 15% last year.
And was the result of higher outbound shipping costs from rate increases as.
As well as a greater volume of direct orders shipped with lower average order values.
Within selling expense costs related to variable labor in our stores and fulfillment centers declined compared to last year and leveraged as a percentage of sales due to efficiency gains made from scheduling and continuous improvement initiatives across our fulfillment network.
Advertising and marketing costs were $11 9 million in the quarter compared to $14 6 million last year and as a percentage of sales decreased 180 basis points to eight 5% compared to 10, 3% last year.
Our investment in brand awareness through National AD channels, and TV streaming was flat compared to last year and our digital media channel spend was reduced along with lower creative costs.
We saw stronger results with increased web traffic from organic search and email activities that focused on new product arrivals and clearance messaging that helped drive the increase in retention and reactivation rates.
We also continue to realize high return on media spend through social channels. When we highlight product innovation features and benefits.
Overall customer counts increased mid single digits during the quarter, while maintaining roughly flat sales per customer productivity.
General and administrative expenses during the second quarter were $38 8 million or 27, 9% of net sales compared to $36 million or 25, 4% last year.
Similar to the first quarter the increase over last year reflects the incremental fixed cost for the new automated fulfillment center that is now operational and additional personnel expenses associated with the new facility and our corporate functions in the area of product development sourcing and.
Stock compensation costs.
Adjusted EBITDA for the second quarter was $8 6 million or six 2% of sales compared to $13 2 million or nine 4% of sales last year.
Our net loss per share was <unk>.
Versus a profit per share of seven cents in the second quarter last year.
Moving to the balance sheet.
We ended the quarter with net working capital of 85 million <unk>.
Including $11 million in cash and zero outstanding on our 200 million line of credit.
The healthy inventory flow during the second quarter lifted free cash flow and increased our cash balance by $2 million from the end of the first quarter.
We remain on target for overall capital expenditures of $55 million this year funded by cash.
With the lion's share of that spend associated with the new fulfillment center in <unk>, Georgia.
As Sam mentioned, we're pleased to see this project go live and ramp production up over the course of Q3 to begin realizing efficiency gains in our selling costs related to the fulfillment center activities.
As well as faster delivery times to a greater portion of our direct customer base.
Our inventory balance ended the quarter down four 5% from the same period last year and is in a healthy position with the mix of seasonal goods weighted to more fall winter versus spring summer, reflecting the strong sell through on spring summer and planned earlier receiving on fall.
Winter goods.
Total clearance units on hand are down over 10% from last year as a result of actively managing markdowns during the season to optimize sales and inventory turnover.
We are confirming our net sales guidance for the year of $645 million to $660 million.
We have reduced the EPS and adjusted EBITDA estimates, reflecting our first half results and our second half outlook, and which we see consumers remaining somewhat price sensitive.
We now expect full year adjusted EBITDA of 40 to 42 million and.
And the loss per share of <unk> 15 to eight.
We expect full year gross profit margins will be down 50 to 100 basis points.
And SG&A to be flat to up 50 basis points.
Before I turn it back to Sam I want to take a moment to address my decision to step down as senior Vice President and Chief Financial Officer on September 15th.
I have accepted an unemployment opportunity outside the company.
But I want to emphasize that it's been a privilege and an honor to work alongside Sam and the many talented individuals' across this organization.
I believe Duluth is well positioned to execute against the strategic pillars of the Big Dam blueprint.
And I wish the team all the best and continued success in the future.
I'll now pass it back to Sam.
Thanks, Dave.
Can't think Dave enough for his many contributions and leadership at Duluth over the past six years.
Under Dave's leadership, Duluth has elevated and strengthen its finance organization anchored on a deep bench of talent with extensive experience across all finance functions.
Yet most confidence this will be a seamless transition as we search for a permanent replacement for days.
I'd like to take this opportunity to welcome Mike Murphy, our current Vice President and Chief Accounting Officer, who will serve as interim Chief Financial Officer.
Mike has been in his current position since 2019.
Prior to joining the company Mike served for three years as Chief Accounting Officer at first business financial services as well as eight years at KPMG.
In closing, it's been an honor to partner with Dave and I wish him much success in his future endeavors.
And with that we'll open the call for questions.
We will now begin the question and answer session to.
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At this time, we will pause momentarily to assemble our roster.
Our first question will come from Janine Stichter with BTG.
You May now go ahead.
Hi, Good morning, I was hoping you could elaborate a bit more on the cadence of what you thought that the quarter. It sounds like with the weekend and I think you said you bought them from Manhattan. So maybe just some thoughts on what changed there and how much of it.
Thank you congratulations.
Friendly environment versus some of the product.
Doug.
And like I said, the customer shopping events like father's day, and I'd love to hear about it from a top line standpoint, and then also from a margin standpoint, where I think you mentioned some high cyclical Bob It sounds like bond acquire thank you.
Yeah, Hi, Janine.
This is Dave so the quarter did.
Play out with May being the toughest month.
For us.
Both retail and direct toward down.
But as we entered the June things were improving.
Thursday.
<unk> was a big event for us.
And it continued to build into July I would say July was our best month.
And we saw positive traffic into the stores as well as.
At a pretty high growth rate in the direct channel so.
But when you blend it together.
The results are being down just under 2% margin pressure was certainly part of the impact as we continue to find ways to drive.
Traffic and transactions into the business the margin pressure.
Did impact with the 200 basis points down from.
From last year, but as I as I did call out on my <unk>.
Our remarks the.
As we came out of July we're now starting to comp last year's period, when when gross margin pressures were really first starting to impact the business in and so far as we as we look through August gross margins are up.
Our up to last year.
But the top line is still slightly down so top line, we're seeing kind of a continuing trend, but the margin has stabilized and has started to turn for us.
And a good way on that front.
Great and then on the promotions or some of the pricing actions that you've been taking just to keep the product.
And maybe speak to the potential for on product cost reductions are sourcing benefits that you see.
Like you might need to keep that.
Prices in place for longer.
Yes, Jeanine this is Sam.
Yes. So we were we're going to be and continue to be targeted with our with our offers.
You know.
We try to balance.
The consumer sensitivity with the integrity of our brand and pricing strategy. So.
We're not going to we're not going to have a fire sale so to speak there's.
A balance there.
As I said in my prepared remarks, we've now.
On boarded.
Several new members to our sourcing group and with.
With the intent of over the long term of creating a structural change to our pricing.
Model and ultimately gives us more flexibility when when businesses a bit more challenge.
And so we think the ramp up will occur over the next couple of years, but certainly see a tremendous opportunity for us to drive increased.
Gross product margins.
Over the long term.
Great. Thanks, so much and basketball.
Thank you.
Our next question will come from Jonathan Komp with Baird.
You May now go ahead.
Yes, hi, Thank you good morning, I wanted to follow up on the guidance you are holding the full year revenue, but lowering the margin again and participating in the promotional environment could you just maybe.
Elaborate a little further.
Thoughts on the strategy to participate in the price promotion, you're seeing and why that's the right move for the brand here.
Yeah.
There John .
Clearly theres theres pricing pressure that we're feeling from from the consumer out there yet the demand is still robust as we said we shipped more orders sold more units.
But the price point is is.
What the consumers are telling us.
It needs to be.
Value for them.
The proceed so we're confident that the brand has got the momentum and where we're seeing some of the optimism that keeps us from a top line standpoint.
Confident is in is in some of the core categories of men's while the quarter mens was down about three 5%.
It is an improving trend from the last two quarters.
And as we're entering in the.
In our third quarter here, we're seeing that play out with newness in some of our styles in the men's category.
Innovation in some other items that are bringing to market. In fact is this back half of the year, we're really bringing a significant amount of new new items to market that.
That we think is going to drive sustain that top line, which we're pleased with.
But pricing pressures are still keeping keeping the margin impact.
Weighted on the bottom line results.
And maybe just a follow up Sam.
When I think of the Big Dam blueprint.
Yes, this year being a transition you're still you're not guiding to too much profitability in terms of the EBIT dollars. So could you maybe talk about what's temporary impact in the business that might that might benefit future years and.
Are you pursuing the right strategies growth at the current margin level, but you have today.
Yeah. Thanks.
Jonathan.
Yes, I mean as I am.
As I as I talked.
<unk> talked at the at the beginning of my remarks.
Two really exciting.
Pillars to the to the Big Dam Blueprint is is our.
Is our highly automated fulfillment center and our sourcing group and so when you think about that relative to the structural change of the business.
Mid and long term implication of that from a sustainability in both sales growth and profitability.
They are they are two really critical unlock so from a fulfillment perspective.
It's not only about cost efficiencies and and being much more.
Efficient from a CP you perspective, but also delivers on the consumers' expectations not just from us but in general.
A faster deliveries, especially click to doorbell and and the online part of our business as the majority of.
How we sell products.
And so that has <unk>.
Real application to not only scaling our current business, but as the business continues to grow.
And we consider other avenues for growth be it wholesale or or anything else.
That fulfillment center as the key part of our network becomes an unlock from from a delivery.
And fulfillment perspective.
The sourcing piece.
Last year, we announced the hiring of our first.
Director of material innovations.
Excuse me and is up <unk>.
Vertical operation you know that's a critical component not just in terms of design and product development and at the core of who Duluth is it's about bringing.
High quality.
Well priced products that are innovative and solve a problem and so investing in.
A more dynamic and experienced sourcing group will also bring a change to our pricing model and.
Allow for longer term greater greater profits and flow through so.
Yes, I think that in the near term.
Some of these challenges.
Challenges in the P&L are really related to.
Two things one is the investment in our enablers, what we're calling our enablers for the enterprise and then too.
The choppy macro conditions and the sensitivity that consumers are still showing.
But we've we've been through these times in the past and ultimately our are our brand loyalty in the affinity consumers have for Duluth, ultimately leads back to higher full price selling based on our innovative products and what we bring to market. So I'm confident that.
That.
Part will will occur and then it's about us ensuring that we've got the right infrastructure in place to take advantage of that and scale the business in a more cost efficient way that's sustainable.
Okay. That's helpful. Just last one for me Dave that the inventory.
When I look the current inventory relative to annual sales it looks like about a mid 20%.
Ratio inventory relative to full year sales prior to Covid It was more like 18% to 19%.
Is there some aspect of the business that requires more inventory today relative to several years ago or what other factors are you.
Are you looking at when you highlighted.
Comfort with the current inventory base.
Thank you.
Yes.
Longer term is as Sam described some of the sourcing initiatives and even the logistics initiatives those will be.
Those will enable us to turn inventory quicker.
Be more shorten the lead times.
On on new products, and and allow us to operate with.
Less inventory relative to sales.
In this environment that we're in we're getting the product in that's new and fresh.
Earlier and really still.
I mean off of some of the supply chain issues from the last two years.
Our focus was was more about making sure we've got full fullness in our assortments the size ranges and we're measuring where the categories really have relevance to the customer. So I'd say inventory turns are going to improve this year. So we're moving in the right direction, but.
But the urgency isn't isn't to manage that down and stifle the demand.
From a customer standpoint, and so it's a secondary initiative primary is to keep keep the brand robust with with newness and but we're confident that inventory turns will return and even.
Exceed any prior year period that we've realized because because of those investments.
Okay got it thanks again.
Thank you.
Our next question will come from Jim Duffy with Stifel. You May now go ahead.
Thank you good morning.
Hi, Sam Hi, Dave Thanks for all the help on juniors.
Dave I'm going to let you off easy I think focus most of my questions Sam.
Tim.
Sure.
Can you please speak to marketing strategies for the second half of the year I'm, specifically interested in media mix and messaging and messaging as it relates to brand and versus specific products.
And then I'll have some follow ups. Thanks.
Yes, sure. So as you know Jim you know marketing is.
Fluid ends.
Dynamic complex.
Part of the business and.
Excuse me, we continue to learn more and more about.
The right combinations to engage our customers.
And just at a high level, we're focused on specifically we've got this this great loyal.
Current customer that's been with us and so we wanted to make sure that we're continuing to serve up.
Product and content that that keeps them engaged with our brand.
As well as new customer acquisitions.
On an improving trend and obviously our focus to continue to build on new customers and bringing new folks into the into the brand is a critical component. So.
Across the spectrum, where we have found continued success, it's a combination of.
Top of the funnel in.
In terms of brand building and that really comes through a lot of streaming.
When it comes to traditional network television as an example, when we placed big bets.
During certain times of the year and specifically around certain programming.
We get a pretty good lift in in visits to our site and then and then when it comes to our current consumer base.
When we want to talk specifically about products product features.
Bring for instance way forward your stories to them, we do that largely through social media and different social owned platforms, and we get big lift from from that including video content, whether it's our Youtube channel or or other places so.
<unk>.
We're targeting into what is a really broad mix of media.
Oh streaming audio has become really important to us and so that's become a big part of our initiative and so really it's it's based on where we're trying to attract a broader visibility and brand awareness.
That that influences, where we invest and then when we go deeper into the funnel, where we're where we're trying to create greater.
Education and understanding around our product innovation that leads ultimately to transactions.
We're doing that on a much more personalized targeted basis.
Okay.
The follow up and related question the gains you're seeing in women's in.
To suggest that the core men's offering is in decline I understand you have a lot of newness coming for the second half of the year, but can you speak to how you're allocating marketing spend to recruiting new consumers through women's <unk> versus stay.
Stabilizing that core core men's offering or trying to drive growth in that.
Yeah, Yeah, so the men's business for the quarter was down three 5%.
But it wasn't an improved trend from Q1 and I think what's exciting is what we're seeing is.
Some of our core offer for men's that we're bringing newness to whether it's new colors and fits in our in our big long tail T program or we're really starting to see increased demand for our double flex denim pant and we're bringing.
Additional styles washes and fifth so some of that core program.
As we're evolving it a bit I talked in my prepared remarks about new new items like the new fire hose.
Pant, which is our most durable flex.
Flex fire hose fabric to date those are things that we're doing too.
Re new and and evolve.
Our many of our core programs, which we believe.
The long term will we'll bring that core business back to back to growth.
Specific to women's we're really excited and we talked.
A year and a half or so ago about the women's opportunity.
Not only being.
A really great white space for us but.
Has become one of our internally.
Focus street, our strategic initiatives and we continue to see.
Season over season, not only growth in top line sales and profitability, but we're getting more and more feedback from her and really allowing us to extend our brand and our offer into adjacent categories.
As an example base layer women's intimates.
Really really competitive market and yet as we've introduced it and have gotten feedback and learned more about what she wants and potentially what's missing in the marketplace are our product development and design team has done a great job of.
Bringing that to market and having it be a part of our assortment in that business just continues to grow and expand and so I think that we've got a tremendous opportunity to to really optimize our women's offer which today, while it's it's much larger than it was a year and a half ago, it's 35% of our <unk>.
Total.
And so when you think about that in the scheme of things, we got a long way to go in terms of building that business and then lastly specific to your question around marketing.
We really don't look at it as an either or we're going to invest in those in those businesses for him and for her and we're going to do it in a way that's that's appropriate not only from a brand position, but in terms of frequency and the types of stories that we tell and so we don't look at it as trading off dollars we allocate.
Certain monies at the beginning of the year, but.
Our brand and creative teams.
Really have the flexibility throughout the year to.
To change and rebalanced and refocused initiatives based on some of the things that we're seeing relative to consumer demand or consumer feedback.
That's helpful. Thanks, and Sam just wanted to standpoint about allocation of capital can you speak to any differences in cohort behavior that you're seeing between men and women I am curious whether she is.
A higher lifetime value or has higher repeat purchase frequency then you're you're male consumer.
Yes, it's interesting.
At a high level, what's always been fascinating to me at Duluth, and something that that I think is.
It's hard to develop and so when you have it you have to make sure you keep your eyes on that and that is.
We've talked about we have.
A 50 50 ratio of women and men buyers and while our business is at 50% women's and 50% men's we have a lot of female buyers that are buying for him and so that's also what's led to our belief that there is an opportunity for us.
To better assort, our stores and provide a more compelling offer specifically for her because she is shopping our brand and so what we're seeing is as we're as we're expanding the women's business, we're seeing frequency and.
With our most loyal customers basket size increase.
I wouldn't say, it's necessarily more men than women I would just say in totality as we've expanded into women's and added additional categories. We're seeing for sure more frequency in shopping.
Okay. Thank you.
Yes. Thank you.
Our next question will come from Dylan Carden with William Blair.
You May now go up.
Great. Thank you I appreciate it.
I just want to make sure I understand.
The balance of the guidance here you are coming out of the second quarter with a nice at least inflection here it seemingly in sales with cleaner inventories.
But the incremental downside to margins on the year is it still kind of a promotional overhang.
I have that right.
That's right doing that.
Really the update that we made was an overhang.
Given the pricing pressures that we think will will continue.
Okay.
And so I guess the question embedded in that is do not feel given kind of what are you driving the inflection through heightened promotional activity is that sort of ticked up incrementally.
It's kind of been asked this I guess different ways on the call, but I guess why not kind of hold price more as opposed to give up the margin.
Well no we haven't seen heightened.
It's been improving.
Over the last six months.
Relative to the prior year, we see it.
We see it stabilizing but not recovering from a from that pressure standpoint that we that we entered the year, we anticipated the back half would be starting to see more recovery and a little more of the full price.
And that might play out, but we are.
But we're not going to expect it and we're planning for for that pressure to continue so back half of the year guidance.
Implies.
Gross profit margins compressing 20 to 50 basis points.
To get to the full year guidance that articulated in and Thats that significantly down from from the first part of this year in the first quarter in particular so.
All the <unk>.
Sure that.
That the goal would be to again keep keep inventory moving and keep the customers.
Gauged through through the period that they are in Finland.
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Add to that.
Because I think that there is an important distinction here.
The frequency of events and promotions.
We're reducing the issue becomes the customer is responding in terms of their purchases when we do run targeted promotions.
Or a couple of our big events.
They are just spending more and purchasing more during those periods.
Thus driving our full price selling down and so.
We're going to be balanced and targeted in the amount of offers that we put out there and that.
Degree that we discount our products.
But ultimately when we when we do those things just.
What we're seeing is customers are just.
Responding to a greater degree and purchasing more during those periods then.
Then then they're not.
Got it.
So I guess as you're.
Kind of looking at negative.
The margin here operating margin the swing factor looking at next year.
Presumably kind of recovering some full price selling on gross margin, but sort of holding that constant in the low 50 range.
How should we think about the efficiencies of the SG&A.
Leverage opportunity.
New distribution channel, you can kind of quantify that or.
As we look to next year.
Well at this stage still.
And it's probably not appropriate meeting to talk about next year, we will provide that the team will provide that on our fourth quarter call coming up.
So, but you can look into the back part of this year and then in our fourth quarter. When we anticipate when we see just incremental sales growth and it doesn't need to be much leverage on SG&A as immediate we expect leverage on SG&A in the fourth quarter.
And really in the back half of the year. So.
It doesn't take much top line to start to see it flow through which is kind of where we're at in the business model.
Okay.
And then the new distribution I apologize I forgot allows for a bigger wholesale business do I have that right. How are you thinking about expansion of wholesale.
Yes, well it allows for.
A larger business in totality.
That facility.
The plan is to have it fulfill.
About 60% of our online and.
Retail store inventory replenishment about 60% of that.
By the end of Q3, and so the opportunity for us to just grow the business in general whether it's a combination of our current.
Retail and DTC businesses or or bolting on a wholesale business and even as.
As we've talked.
The road the potential of an acquisition that network not only has the capacity to do that but it's going to do it at a highly cost efficient manner.
Got it thank you very much.
Thanks, gentlemen.
This concludes our question and answer session as well as the conference.
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