Q3 2024 Duluth Holdings Inc Earnings Call

Speaker 1: Good morning and welcome to the Duluth Holdings Inc. 3rd quarter, 2023, earnings conference call. All participants.

Good morning, and welcome to the Duluth Holdings, Inc. Third quarter 'twenty twenty-three earnings conference call.

All participants will be in listen only mode should.

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Speaker 1: After today's presentation, there will be an opportunity to ask questions.

After todays presentation, there will be an opportunity to ask questions.

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Please note this event is being recorded.

Speaker 1: I would now like to turn the conference over to Nica McKee. Please go ahead.

I would now like to turn the conference over to meet some Mckee. Please go ahead.

Speaker 1: Thank you and welcome to today's call to discuss dilute trading third quarter financial results. Our earnings release, which is issued this morning, is available on our Investor Relations website at ir.dilutetrading.com under press release.

Thank you and welcome to today's call to discuss Duluth, Trading's third quarter financial results. Our earnings release, which was issued this morning is available on our Investor Relations website at IR Dot Duluth trading dotcom under press releases.

Speaker 2: I'm here today with Sam Sado, President and Chief Executive Officer, and Mike Murphy, Vice President, Chief Accounting Officer, and Interim Chief Financial Officer. On today's COF Management will provide prepared remarks, and then we will open the COF to your questions.

Here today, with Sam Sato, President and Chief Executive Officer, and Mike Murphy, Vice President Chief Accounting Officer, and interim 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.

Speaker 2: 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 phrase.

Looking statements, which can be identified by the use of words, such as estimate anticipate expect and similar phrases.

Speaker 2: Forward-looking statements by their nature involve estimates, projections, goals, forecast, and assumptions and are subject to risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking states.

Forward 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.

Speaker 2: Such risk and uncertainties include, but are not limited, to those that are described in our most recent annual report on form 10K and other SEC filings of Zápagol.

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.

Speaker 2: 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.

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.

Speaker 2: And with that, I'll turn the call over to Sam Sado, President and Chief Executive Officer. Sam?

And with that I'll turn the call over to Sam Sato, President and Chief Executive Officer Sam.

Thank you for joining today's call.

Speaker 3: Reflecting on what has remained a dynamic consumer environment in which we continue to see customers gravitating to value. Our third quarter performance was hampered by lower traffic in both our direct and retail channels as well as an under penetrated position in spring summer goods following strong unit cell-throughs during the second quarter.

Reflecting on what has remained a dynamic consumer environment in which we continued to see customers gravitating to value. Our third quarter performance was hampered by lower traffic in both our direct and retail channels as well as an underpenetrated position in spring summer goods following strong unit.

Sell throughs during the second quarter.

Speaker 3: In addition to managing the business prudently on both the inventory and expense fronts, we strategically post a higher than planned level of events combined with select pull forward of fall winner receipts, enabling us to maintain high levels of in-store shopper conversion, as well as improve our conversion and retention rates in our direct channel.

In addition to managing the business prudently on both the inventory and expense fronts, we strategically post a higher than planned level of events combined with select pull forward a fall winter receipts, enabling us to maintain high levels of in store shopper conversion as well as improve our conversion and retention.

Churn rates in our direct channel.

Speaker 3: To be clear, we are not satisfied with our performance and we've made adjustments to improve the trend in the business for the final quarter of the fiscal year.

To be clear, we are not satisfied with our performance and we've made adjustments to improve the trend in the business for the final quarter of the fiscal year.

Speaker 3: I'm pleased to report that we've experienced a solid improvement in business trends over the Black Friday through Cyber Monday period, which gives us confidence the tactical adjustments we are making are resonating with our customers.

I am pleased to report that we've experienced a solid improvement in business trends over the black Friday through cyber Monday period, which gives us confidence the tactical adjustments, we are making are resonating with our customers.

Speaker 3: Let me outline at a high level the actions we're taking to improve our business performance.

Let me outline at a high level the actions, we're taking to improve our business performance.

Speaker 3: In the fourth quarter, we're introducing more new products than we ever have, as well as pulling forward select items from our spring, 2024 sort.

In the fourth quarter, we're introducing more new products than we ever have as well as pulling forward select items from our spring 2024 Assortments.

Speaker 3: We're chasing and in some cases expediting freight for targeted best sellers to capitalize on these winning products throughout the holiday season.

We're chasing and in some cases expediting freight for targeted best sellers to capitalize on these winning products throughout the holiday season.

Speaker 3: And we've added back global events and pulsed our Black Friday deals throughout November .

And we've added back global events and pulse, our black Friday deals throughout November.

Speaker 3: Despite the challenging third quarter results, we registered notable merchandising wins, highlighting that our brand and sub-brands remain strong. And our product innovation engine is creating winning assortment.

Despite the challenging third quarter results, we registered notable merchandising wins, highlighting that our brand and sub brands remained strong and our product innovation engine is creating winning assortments.

Speaker 3: He wins for the third quarter included continued strength in our garden, landscaping, and planting category, which now represents over 10% of our total women's business.

Key wins for the third quarter included.

<unk> strength in our garden landscaping and planting category, which now represents over 10% of our total women's business.

Speaker 3: Our heirloom garden collection posted triple digit growth in the quarter over last year fueled by new prints and colors and expanding offering into extended sizes and a very successful line version of the heirloom gardening bib.

Our heirloom Garden collection posted triple digit growth in the quarter over last year fueled by new prints and colors and expanding offering into extended sizes and a very successful lined version of the heirloom gardening bib.

Speaker 3: The customer is loving the added warmth from the line bib so she can wear her favorite overalls year round.

The customer is loving the added warmth from the line bid. So she can wear her favorite overalls year round.

Speaker 3: The heirloom gardening bib is our newest hero product. In fact, this product is the first purchase for nearly 40% of all new female customers and is number one in organic search for the garden overalls, a clear indication that our peril styles have a foothold in this space.

The heirloom gardening bid is our newest hero product in fact this product is the first purchase for nearly 40% of all new female customers and is number one in organic search for the garden overalls, a clear indication that our apparel styles have a foothold in this space.

Speaker 3: We continued to see strength in women's bras, which posted another quarter of year-over-year growth of 50%.

We continue to see strength in women's Broz, which posted another quarter of year over year growth of 50%.

Speaker 3: He's responding well to innovation in the broad category with an emphasis on soft fabrications and the seamless looking field.

Can you just responding well to innovation in the bra category with an emphasis on soft fabrications and the seamless look and feel.

Speaker 3: Our cop collections include Armicelo, Adjust the Bust, and Free Rain.

Our top collections include our mature low adjust the bust and free range.

Speaker 3: Our newest bra, our machillo T-lux, which leverages our Jade infused our machillo fabric, and first ever molded cup bra, has quickly become our number one style.

Our newest bra are mature low T Lux, which leverages, our jade infused our material of fabric and first ever molded cut bra has quickly become our number one style.

Speaker 3: Women's AKHG had another solid quarter of growth and increased by just under 20%.

Women's H H G had another solid quarter of growth and increased by just under 20%.

Speaker 3: The customer continues to respond well to our meltwater collection and we're also seeing a strong start to out-of-war sales driven by the Puffin collection.

Customer continues to respond well to our meltwater collection and we're also seeing a strong start to outerwear sales driven by the Puffin collection.

Speaker 3: We also introduced the first women's parka in AKHG and she's loving the added length and new waterproof innovation.

We also introduced the first womens parka in a cage G and she's loving the added length and new waterproof innovation.

Speaker 3: The Luth continues to show strength in its core programs. Within men's, the Luth Flex Fire Hose and Denom were up double digits.

They lose continued to show strength in its core programs within men's Duluth Flex fire hose in denim were up double digits supported by our pants destination marketing, our Duluth flex fire hose pants delivered solid growth in the quarter with notable strength in standard and slim fit.

Speaker 3: supported by our PANTS destination marketing, our Duluth Flex FireHose PANTS delivered solid growth in the quarter with notable strength in standard and slim fits, an indication that these fits are attracting a younger customer. Now,

It's an indication that these fits are attracting a younger customer.

Now a brief review of our third quarter results.

Speaker 3: Total net sales for the third quarter were 138 million down 6.1% with our retail channel down 9% and our direct channel down 4%.

Total net sales for the third quarter were 138 million down six 1% with our retail channel down, 9% and our direct channel down 4%.

Speaker 3: As I mentioned, the third quarter was impacted by lower traffic across channels and our under penetrated position in spring summer goods during the first half of the quarter.

As I mentioned, the third quarter was impacted by lower traffic across channels and are underpenetrated position in spring summer goods during the first half of the quarter.

Speaker 3: To maintain brand integrity, we remain competitive with our offers, but made the strategic decision to limit the depth of discounts in the third quarter.

To maintain brand integrity, we remain competitive with our offers but made the strategic decision to limit the depths of discounts in the third quarter.

Speaker 3: And while this may have also contributed to lower top line sales, we believe holding the line on price integrity is paramount to the long-term health of our business.

And while this may have also contributed to lower topline sales, we believe holding the line on price integrity is paramount to the long term health of our business.

Speaker 3: Further, our product grossed margin declines to last year stabilized considerably in the third quarter. And the erosion that we did see was almost exclusively from mix as customers shopped less at full price and gravitated to maximizing their spend during periods in which we post events.

Further our product gross margin declines to last year stabilized considerably in the third quarter.

And the erosion that we did see was almost exclusively from mix as customers shopped less at full price and gravitated to maximizing their spend during periods in which we post events.

Speaker 3: When looking across our full price, promotional and clearance sales buckets, product gross margins were essentially flat to swipe leop in each.

When looking across our full price promotional and clearance sales buckets product gross margins were essentially flat to slightly up in each.

Speaker 3: We'll continue to balance our efforts in the fourth quarter to stay competitive and drive the business while preserving the long-term price integrity of our brand.

We will continue to balance our efforts in the fourth quarter to stay competitive and drive the business, while preserving the long term price integrity of our brands.

Speaker 3: Mike will provide greater details on the P&L, but our net loss per share in the third quarter was 32 cents versus a loss of 19 cents in the third quarter last year.

Mike will provide greater details on the P&L, but our net loss per share in the third quarter was 32.

Versus a loss of 19 cents in the third quarter last year.

Speaker 3: As our teams continue to optimize efficiencies in our marketing spend and with customers gravitating to a greater mix of promotional sales throughout the quarter, we made the strategic decision to pull back on advertising spend and de levered ad leverage in the third quarter.

As our teams continue to optimize efficiencies in our marketing spend and with customers gravitating to a greater mix of promotional sales throughout the quarter. We made the strategic decision to pull back on advertising spend and de Levered AD leverage in the third quarter.

Speaker 3: Our Q3 marketing spend effectively balanced brand awareness and high converting digital tactics within our media mix.

Our Q3 marketing spend effectively balanced brand awareness and high converting digital tactics within our media mix.

Speaker 3: Digital conversion media achieve strong year-over-year performance within both paid.

Digital conversion media achieved strong year over year performance within both paid.

Speaker 3: social and email which drove an 11% increase in reactivated customers.

Social and email, which drove an 11% increase and reactivated customers.

Speaker 3: Importantly, our inventory is in a very healthy position with a significantly higher level of newness, coupled with a 30% decrease in clearance inventory.

Importantly, our inventory is in a very healthy position with a significantly higher level of newness, coupled with a 30% decrease in clearance inventory.

Speaker 3: Our quarter-end inventory balance of 174 million was 15% below last year, with a strong mix of fall winter and year-round good.

Our quarter end inventory balance of $174 million was 15% below last year with a strong mix of fall winter and year round goods.

Speaker 3: Our continued focus on effectively managing our inventory will enable us to increase profitability, enhance cash flows, and better serve our customers both now and in the future.

Our continued focus on effectively managing our inventory will enable us to increase profitability enhanced cash flows and better serve our customers both now and in the future.

Speaker 3: As touched on last quarter, we're also excited about our pipeline of new and innovative products that we have begun to introduce from the fourth quarter.

As touched on last quarter. We're also excited about our pipeline of new and innovative products that we have begun to introduce during the fourth quarter.

Speaker 3: This includes newness in our core categories of bucknaked and fire hose, as well as within our sub-brand AKH Street.

This includes newness in our core categories of Buck naked and fire hose as well as within our sub brand 8-K H D.

Speaker 3: Our customer loves the performance of our dry on the fly technology, so we've added this to underwear and also to a new T.

Our customer loves the performance of our dry on the fly technology. So we've added this to underwear and also to a new T.

Speaker 3: This high performance fabric has superior wicking and drying benefits that derives from the special fiber-shape and fabric blend, which is unique to Duluth.

This high performance fabric has superior wicking, and drawing benefits that derives from the special fiber shape and fabric blend which is unique to Duluth.

Speaker 3: The new T combines the performance of a technical fabric, the weight and hand feel of a cotton T and comes in both long tail and unlong tail silhouette.

The new T combines the performance of a technical fabric the weight and hand feel of a cotton T and comes in both long tail and unlock tail silhouettes.

Speaker 3: We will also be offering a new Men's FireHose Co. Pants featuring the strongest flex fabric on the marketplace, but still with a lighter weight than our original Flex FireHose.

We will also be offering a new men's fire hose carpenter pants, featuring the strongest flex fabric on the marketplace, but still with a lighter weight than our original flex firehouse.

Speaker 3: where confident this will be a hero product and another example of Duluth DNA by offering customers innovative products that solve a problem.

We're confident this will be a hero product in another example of Duluth DNA by offering customers innovative products that solve a problem.

Speaker 3: In November , we also delivered newness in No Yank. This is our favorite layering tank, and we're offering it in a new rib fabric in two different styles, and also brought in a boat next silhouette in our core fabric.

In November we also delivered newness and no Yang this is her favorite layering tank and we're offering it in a new rib fabric in two different styles and also brought in a boat next silhouette and our core fabric.

Speaker 3: She told us she loves this collection and now there will be even more options to complete her outfit.

She has told US she loves this collection and now there will be even more options to complete her outfit.

Speaker 3: And finally, as I mentioned earlier, women's AKHG continues to deliver a significant growth.

And finally as I mentioned earlier Womens 8-K, H D continues to deliver significant growth.

Speaker 3: We're very excited to announce this January . We will be launching a new women's AKHG fitness apparel line, which will include an assortment of styles from tanks, shorts, to hybrid jackets, and after sweat sweat.

We're very excited to announce this January we will be launching a new womens AKG fitness apparel line, which will include an assortment of styles from tanks shorts to hybrid jackets and after sweat sweats.

Speaker 3: We're bringing in product for the new year as customers are focused on self-care and starting the new year off right.

We're bringing in product for the new year as customers are focused on self care and starting the new year off right.

Speaker 3: Given the strong start to the holiday season over Black Friday through Stiber Monday, coupled with our strong assortment of new and innovative products, we're positioned well heading into the remaining weeks of peak holiday selling.

Given the strong start to the holiday season over Black Friday through cyber Monday, coupled with our strong assortment of new and innovative products, we're positioned well heading into the remaining weeks of peak holiday selling.

Speaker 3: There's still a lot of business in front of us and the trend we are seeing gives us confidence that our high quality solution-based products will continue to resonate with our customers, gift givers, and new to file consumers.

There's still a lot of business in front of us and the trend we're seeing gives us confidence that our high quality solution based products will continue to resonate with our customers gift givers and new to file consumers.

Speaker 3: Looking forward, we remain resolute on executing critical foundational strategic investments, and I'd like to provide updates on a few key components that represent cornerstones to our big Dan Blueprint.

Looking forward, we remain resolute on executing critical foundational strategic investments and I'd like to provide updates on a few key components that represent cornerstones to our big dam blueprint.

Speaker 3: We're making great progress on several important initiatives that will serve as enablers for long-term profitable growth, including our global supply chain strategy, our sourcing and product innovation strategy, as well as our technology roadmap.

We're making great progress on several important initiatives that will serve as enablers for long term profitable growth, including our global supply chain strategy, our sourcing and product innovation and strategy as well as our technology roadmap.

Speaker 3: First, as I shared during the second quarter call, our new highly automated fulfillment center in a Dearsville, Georgia, went live in September with a ramp-up plan to process up to 60% of all online orders and store repunishment volume by the end of Q3.

First as I shared during the second quarter call, our new highly automated fulfillment center in <unk>, Georgia went live in September with our ramp up plan to process up to 60% of all online orders and store replenishment volume by the end of Q3.

Speaker 3: I'm pleased to report that we reached this goal and the facility is fully operational and exceeding output expectations thus far in the fourth quarter.

I'm pleased to report that we reached this goal and the facility is fully operational and exceeding output expectations, thus far in the fourth quarter.

Speaker 3: In addition to shortening delivery times to keep pace with evolving customer expectations, the enhanced capabilities in this facility will provide both labor and shipping efficiency gains.

In addition to shortening delivery times to keep pace with evolving customer expectations. The enhanced capabilities. In this facility will provide both labor and shipping efficiency gains.

Speaker 3: In October , we already benefited from lower costs per unit to fulfill in order in this facility, which is less than half the cost of our three legacy fulfillment centers, and will result in meaningful cost savings over time.

In October we already benefited from lower cost per unit to fulfill an order in this facility, which is less than half the cost of our three legacy fulfillment centers and will result in meaningful cost savings over time.

Speaker 3: We also continue to make progress with the growth of our sourcing and product innovation functions, which we believe is another critical strategic initiative to drive sustainable, long-term, profitable growth.

We also continue to make progress with the growth of our sourcing and product innovation functions, which we believe is another critical strategic initiatives to drive sustainable long term profitable growth.

Speaker 3: Several team members were onboarded in the second quarter. And I'm pleased to share that we have recently hired a new vice president of sourcing.

Several team members were on boarded in the second quarter and I'm pleased to share that we have recently hired a new vice president of sourcing someone with deep and extensive sourcing experience, who previously led large sourcing functions, including at J crew.

Speaker 3: someone with deep and extensive source in experience who previously led large source in functions including at J. Crout.

Speaker 3: This initiative will enable us to further accelerate the introduction of high quality, innovative products more frequently, while increasing our speed to market at a reduced cost.

This initiative will enable us to further accelerate the introduction of high quality innovative products more frequently while increasing our speed to market at a reduced cost.

Speaker 3: In fact, as we move into and throughout next year, we expect this initiative to deliver significant improvement in our initial markups across our assortments, and these will continue to build over time.

In fact, as we move into and throughout next year. We expect this initiative to deliver significant improvement in our initial mark ups across our Assortments and these will continue to build over time.

Speaker 3: Finally, we have also made great strides with completing several foundational initiatives to execute our technology and transformation roadmap, which becomes the primary focus of our capital expenditure outlays in fiscal 2024.

Finally, we have also made great strides with completing several foundational initiatives to execute our technology and transformation roadmap, which becomes the primary focus of our capital expenditure outlays in fiscal 2024.

That said total capital spend in 2024 will be down considerably compared to 2023.

Speaker 3: With the successful completion of a Dairsville and the progress we've made on our sourcing and product innovation and technology initiatives, our confidence only continues to grow in the investment strategy outlined by our Big Dan Blu-

With the successful completion of a dansville and the progress we've made on our sourcing and product innovation and technology initiatives, our confidence only continues to grow in the investment strategy outlined by our Big Dam blueprint.

Speaker 3: I look forward to sharing more on our fourth quarter call and we'll now turn it over to Mike to provide more details on our third quarter results. Mike?

I look forward to sharing more on our fourth quarter call and we'll now turn it over to Mike to provide more details on our third quarter results Mike.

Thanks, Sam and good morning.

Speaker 4: For the third quarter, we reported total net sales of 138.2 million, down 6.1% compared to 147.1 million last year, which brings our year-to-date sales decline to 2.5% first last year.

For the third quarter, we reported total net sales of $138 2 million down six 1% compared to $147 1 million last year, which brings our year to date sales declined to two 5% versus last year.

Speaker 4: Our direct channel sales declined 4.4% as lower web visits were partially offset by increased conversion of 70 basis points.

Our direct channel sales declined four 4% as lower web visits were partially offset by increased conversion of 70 basis points.

Speaker 4: However, sales on mobile devices increased roughly 2% with even greater improvement in conversion up 80 basis points, indicating that our investments and continued focus on the mobile experience is paying off.

However, sales on mobile devices increased roughly 2% with even greater improvement in conversion up 80 basis points, indicating that our investments and continued focus on the mobile experience is paying off.

Speaker 4: Our retail channel sales were down 8.8%. Driven by a store traffic decline of more than 6% compared to last year, coupled with a moderate decrease in shopper conversion.

Our retail channel sales were down eight 8% driven by a store traffic decline of more than 6% compared to last year, coupled with a moderate decrease in shopper conversion.

Speaker 4: Total men's division sales decreased 7% during the quarter, while women's was down 3%.

Total men's division sales decreased 7% during the quarter, while women's was down 3%.

Speaker 4: Women's momentum from the previous record is slowed, but continue to grow as a percentage of our overall business as compared to the prior.

Women's momentum from the previous three quarters slowed but continued to grow as a percentage of our overall business as compared to the prior year.

Speaker 4: As Sam mentioned, the actions we are taking have resulted in improvements in business trends over Black Friday through Cyber Monday. We are pleased with our improved quarterly sales trends, but we also recognize that we have many important selling days ahead of us leading up to Chris.

As Sam mentioned the actions, we're taking have resulted in improvements in business trends over black Friday through cyber Monday.

We are pleased with our improved quarter to date sales trends, but we also recognize that we have many important selling days ahead of us leading up to Christmas.

Speaker 4: That said, we are lowering our guidance largely based on our Q3 results, which I will provide more details on shortly.

That said, we are lowering our guidance largely based on our Q3 results, which I will provide more details on shortly.

Speaker 4: Our third quarter gross profit margin was 50.2% compared to 52.3% last year, and reflects a lower mix of full price sales this quarter first last year, while gross profit dollars of 69.4 million decline 9.8% from last year.

Our third quarter gross profit margin was 52% compared to 52, 3% last year and reflects a lower mix of full price sales this quarter versus last year, while gross profit dollars of $69 4 million declined nine 8% from last year.

Speaker 4: As mentioned last quarter, we started to see our year-over-year product gross margin decoy and stabilize at the end of Q2. And that remained consistent throughout Q2.

As mentioned last quarter, we started to see our year over year product gross margin declines stabilize at the end of Q2 and that remained consistent throughout Q3.

Speaker 4: However, as noted by SAM, we continue to see customers gravitate towards value and choosing to purchase during sale events more often.

However, as noted by Sam we continue to see customers gravitate towards value and choosing to purchase during sale events more often.

Speaker 4: Turning to expenses, SGNA for the third quarter decreased 2.9 percent to 81.8 million or 59.2 percent of sales compared to 84.3 million last year or 57.3 percent of sales. This included an increase of 700,000 in general and administrative expenses, a decrease of 1.8 million in advertising and marketing expenses, and a decrease of 1.4 million in selling expenses.

Turning to expenses SG&A for the third quarter decreased two 9% to $81 8 million or 59, 2% of sales compared to $84 3 million last year or 57, 3% of sales.

This included an increase of 700000 in general and administrative expenses, a decrease of $1.8 million in advertising and marketing expenses and a decrease of $1 4 million in selling expenses.

Speaker 4: Selling expenses as a percentage of net sales increase 10 basis points to 17.2% compared to 17.1% last year driven by higher outbound shipping costs that resulted from contractual rate increases as well as lower average order values on our direct channel order.

Selling expenses as a percentage of net sales increased 10 basis points to 17, 2% compared to 17, 1% last year driven by higher outbound shipping costs that resulted from contractual rate increases as well as lower average order values on our direct channel orders.

Speaker 4: Within our selling costs, expenses related to variable labor across the store fleet and the fulfillment centers declined to last year. The year-over-year leverage gained as a percentage of sales in Q2 nearly doubled in Q2.

Within our selling costs expenses related to variable labor across the store fleet in the fulfillment centers decline to last year and the year over year leverage gained as a percentage of sales in Q2 nearly doubled in Q3.

Speaker 4: This is a direct result of the efficiency gains we continue to realize from the investments made across our fulfillment center network. Most notably, our new highly automated center in a dare'sville that went live in September .

This is a direct result of the efficiency gains we continue to realize from the investments made across our fulfillment Center network, most notably our new highly automated center in of Dares Bill that went live in September.

Speaker 4: As Sam mentioned, and worth repeating, the cost per unit we achieved in October at this new facility reflects savings of more than 50% compared to our other three centers.

As Sam mentioned and worth repeating the cost per unit, we achieved in October at this new facility reflects savings of more than 50% compared to our other three centers.

Speaker 4: We expect the cost per unit benefits to be even more meaningful in Q4 and continue into fiscal 2024.

We expect the cost per unit benefits to be even more meaningful in Q4 and continue into fiscal 2024.

Speaker 4: Advertising and marketing costs were 17.8 million in the third quarter compared to 19.6 million last year And as a percentage of sales decreased 40 basis points to 12.9 percent compared to 13.3 percent last

Advertising and marketing costs were $17 8 million in the third quarter compared to $19 6 million last year and as a percentage of sales decreased 40 basis points to 12, 9% compared to 13, 3% last year.

Speaker 4: Our investment in brand awareness through national ad channels and TV streaming increased slightly for this last year, while our digital media channel spend was reduced.

Our investment in brand awareness through National AD channels, and TV streaming increased slightly versus last year, while our digital media channel spend was reduced.

Speaker 4: During Q4, we will continue to balance brand awareness and conversion marketing tactics with new cut-through creative concepts and a planned increase of digital media and bus.

During Q4, we will continue to balance brand awareness and conversion marketing tactics with new cutter creative concepts.

The planned increase of digital media investments.

Speaker 4: The digital media investments focus on social media and influencers and online video and streaming, supplemented with a strong investment in search and shopping channels.

Digital media investments focus on social media, and Influencers and online video and streaming supplemented with a strong investment in search and shopping channels.

Speaker 4: We expect to deliver greater year-over-year advertising leverage in the fourth quarter compared to what we experienced in Qt.

We expect to deliver greater year over year advertising leverage in the fourth quarter compared to what we experienced in Q3.

Speaker 4: General and administrative expenses during the third quarter were 40.3 million or 29.1% of net sales compared to 39.6 million or 26.9% less.

General and administrative expenses during the third quarter were $40 3 million or 29, 1% of net sales compared to $39 6 million or 26, 9% last year.

Speaker 4: The increase in GNA expenses over last year reflect incremental costs associated with the F4 mentioned strategic initiatives, including depreciation and personnel expenses associated with the New Adirisville fulfillment center, as well as additional personnel costs to support the growth of our sourcing and product innovations function.

The increase in G&A expenses over last year reflect incremental costs associated with the aforementioned strategic initiatives, including depreciation and personnel expenses associated with the new <unk> fulfillment center as well as additional personnel costs to support the girl of our sourcing and product innovation.

Speaker 4: We expect our fourth quarter overhead expenses to be slightly less than Q4 of last.

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We expect our fourth quarter overhead expenses to be slightly less in Q4 of last year.

Speaker 4: Adjust the EBITDA for the third quarter was negative 1.6 million or negative 1.9% of sales compared to a positive 1.7 million or 0.7% of net sales last.

Adjusted EBITDA for the third quarter was negative $1 6 million or negative one 9% of sales compared to a positive $1 7 million or 7% of net sales last year.

Speaker 4: Our net loss per share was 32 cents versus a net loss per share of 19 cents in the third quarter last year.

Our net loss per share was 32 cents versus a net loss per share of <unk> 19 cents in the third quarter last year.

Speaker 4: Moving on to the balance sheet, we ended the quarter with networking capital of 62 million, including 8 million in cash and 36 million outstanding on our 200 million dollar line of credit.

Moving onto the balance sheet, we ended the quarter with net working capital of $62 million, including $8 million in cash and $36 million outstanding on our $200 million line of credit.

Speaker 4: Our Q3 debt levels were in line with plans, and importantly, we expect all outstanding debt balances to be fully paid off by the end of next.

Our Q3 debt levels were in line with plans and importantly, we expect all outstanding debt balances to be fully paid off by the end of next week.

Speaker 4: Our inventory balance ended the quarter down 15% compared to the third quarter last year. We planned inventory down year over year throughout 2023, which is reflective of our continued focus on being more efficient and driving increased inventory terms.

Our inventory balance ended the quarter down 15% compared to the third quarter last year, we planned inventories down year over year throughout 2023, which is reflective of our continued focus on being more efficient and driving increased inventory turns.

Speaker 4: Importantly, we feel good about the current mix between year-round and seasonal goods heading into the peak selling

Importantly, we feel good about the current mix between year round and seasonal goods heading into the peak selling season with total clearance units on hand down by more than 30% from last year, driven by higher sell through of spring summer items in Q2.

Speaker 4: With total clearance units on hand, found by more than 30% from last year, driven by higher south-through of spring-summer items and queues.

Speaker 4: We remain on track for our total capital expenditure plan of approximately 55 million this

We remain on track for a total capital expenditure plan of approximately $55 million this year.

Speaker 4: which will be funded by cash and as we've shared on previous calls, the bulk of which relates to our new fulfillment center in Adairsville, George.

Which will be funded by cash and as we've shared on previous calls the bulk of which relates to our new fulfillment center in a data as Phil Georgia.

Speaker 4: Now moving on to full ear guidance. We are updating as follows.

Now moving on to full year guidance, we are updating as follows.

Speaker 4: Net sales in the range of 640 million to 655.

Net sales in the range of 640 million to $655 million.

Speaker 4: EPS in the range of negative 25 cents to negative 15 cents.

EPS in the range of negative 25 to negative <unk> 15 cents.

Speaker 4: and adjusted EBITDA in the range of 35 to 39 millis.

And adjusted EBITDA in the range of 35% to $39 million.

Speaker 4: These estimates reflect a full-year girls' profit margin decline of approximately 150 basis points and full-year S-GNA expenses as a percentage of sales to be roughly flat to up 70 basis points compared to last.

These estimates reflect our full year gross profit margin decline of approximately 150 basis points and full year SG&A expenses as a percentage of sales to be roughly flat to up 70 basis points compared to last year.

Speaker 4: Our teams remain focused on prudently managing the business, controlling what's within our control, and continuing to execute on a strong peak.

Our teams remain focused on prudently managing the business controlling what's within our control and continuing to execute on a strong peak season.

Speaker 4: On behalf of SAM and the entire leadership team, I'd like to wish everyone a happy and healthy holiday season. With that, we'll open up the call for questions. Thank you.

On behalf of Sam and the entire leadership team I'd like to wish everyone, a happy and healthy holiday season.

With that we'll open up the call for questions.

We will now begin the question and answer session.

Speaker 1: To ask a question, you may pre-star then one on your telephone keypad.

You ask a question you May press Star then one on your telephone keypad.

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Speaker 1: Which draw your question, please press star then two. At this time we will pause momentarily to assemble the ross.

Yeah.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble the roster.

Speaker 1: And our first question will come from Janine Stitchler of BTIG. Please go ahead.

And our first question will come from Janine Stichter slur of BTG. Please go ahead.

Speaker 5: Hi, good morning. One to ask about Black Friday and Cyber Monday specifically understanding. It was very strong, strong starts to holiday season. How do you think about extra putting that into your go-forward outlook, just knowing that I think for you and for the industry in general, we've seen consumer shopping more around promotions. And then I have a follow up. Thank you. Hi, Janine.

Hi, Good morning wanted to ask about Black Friday, and cyber Monday, specifically understanding it was very strong Shaun thaxter holiday season, how do you think about extrapolating that into your go forward Atlas just knowing that I think for you and for the industry in general we've seen.

Shopping more around promotions and then I have a follow up thank you.

Hi, Janine how are you.

Speaker 3: Yeah, I mean, we're obviously pleased with the solid start to the holiday shopping period and saw a solid trend improvement in the business.

Yes.

We're obviously pleased with the solid start to the holiday shopping period in and saw a solid trend improvement in the business.

Speaker 3: from Black Friday through Svipra Monday. Yeah, obviously, we continue to see the consumer sensitivity around.

From Black Friday through cyber Monday.

Obviously, we continue to see the consumer sensitivity around around price and.

Speaker 3: around price and certainly the Q3 results.

Certainly the Q3 results as we look at it by price bucket.

Speaker 3: as we look at it by price bucket, you know, is a clear indicator of that. And so while the trend certainly improved, you know, we're taking a slight tempered look to the remaining, you know, upcoming weeks, still a lot of business to do. And we're watching that closely, you know, still think that there's

It is a clear indicator of that and so while the trend certainly improved.

We're taking a slight tempered look too.

The remaining.

Coming weeks still a lot of business to do and we're watching that closely.

Still think that there is there's some some consumer.

Speaker 3: There's some consumer sensitivity and we're watching that closely. At the same time, as we continue to share.

Sensitivity and we're watching that closely at the same time.

As we continue to to share.

Speaker 3: You know, while we've got to be promotional and in the case of Q3, we post events more frequently than we have historically. You know, we're not going to, we're not going to chase.

While we've got to be promotional in the case of Q3, we post events.

More frequently than we have historically.

We're not going to we're not going to chase.

Speaker 3: bad sales meaning we're not going to discount the product to the point where where it's not providing both top line and

Bad sales, meaning we're not going to discount the product to the point, where we're at is not providing both top line and <unk>.

Speaker 3: and flow through to the bottom line and damaging the brand position. So while the trend changed over the course of Black Friday weekend through Cyber Monday, it was during a highly promotional time and so we're just being cautious in terms of extrapolating that throughout the rest of the quarter.

And.

And flow through to the bottom line.

And damaging the brand position so so while the trend change over the course of Black Friday weekend through cyber Monday.

It was it was during a highly promotional time and so and so we're just being cautious in terms of extrapolating that throughout the rest of the quarter.

Speaker 5: Great. And then also want to ask around the inventory. It sounds like there's a fairly large bifurcation between some of the items that are really working some of the hero products and then kind of the balance of the assortment. So how does that inform how you think about Q intensity and bringing product to market going forward? Is there an opportunity to kind of maybe shrink the Q intensity and invest more deeply behind some of these clear winners?

Great and then also wanted to ask around the inventory it sounds like there's a fairly large bifurcation between some of the items that are really working some of the hero products and then kind of the balance of the assortment, but how does that inform how you think about your intensity and bringing product to market in Florida is there an opportunity to kind of maybe shrink the SKU.

<unk> intends to invest more deeply behind some of the clear winners.

Speaker 3: Yeah, absolutely. So I mean, you know, it's a dynamic kind of

Yeah, absolutely. So I mean, you know, it's a it's a dynamic kind of.

Speaker 3: fluid scenario. So, you know, we've got some hero products, key year round goods that, you know, we're on, we're on pretty fast recovery. So we're writing orders.

Fluid scenario. So we've got some some hero products key year round goods that.

We're on we're on pretty fast recovery. So we're writing orders an.

Speaker 3: on a regular basis and flowing those goods, whether it's flex fire hose or some of our key unders product.

On a regular basis and flowing those goods, whether it's flex fire hose or.

Some of our key <unk> products at the same time, we're looking at these opportunities of products and categories that we're starting to see greater growth in <unk> and we're working hard to to not only ensure that we stay in stock at the right time, but that we're looking forward and explore.

Speaker 3: At the same time, we're looking at these opportunities of products and categories that we're starting to see greater growth and we're working hard to not only ensure that we stay in stock at the right time, but that we're looking forward and exploring those opportunities.

Any of those opportunities.

Speaker 3: I think what's interesting about some of the things we've got going right now is the continued innovation against franchise like FireHose, CarpenterPant, that is coming in. Then we identify new categories like our AKG fitness line across women and men.

I think what's interesting about some of the things we've got going right now is the.

The continued innovation against franchise like like fire hose Carpenter path that.

That is coming in.

Then we identify new categories like our <unk>.

Fitness line across women's and men's.

Speaker 3: You know, no yank has been a staple for us and the team worked hard to introduce a few new silhouettes and new fabrications and so it's kind of a, you know, we're looking at new opportunities within new categories that we aren't currently participating in as well as evolving, expanding, you know, kind of true blue categories and items that have really made to lose what we are today.

No Yank has been a staple for us and the team worked hard to introduce a few new silhouettes and new fabrications and so it's kind of a.

We're looking at new opportunities within new categories that we are currently participating in as well as.

Evolving expanding.

You know kind of true blue.

Categories and items that have that have really made duluth, what we are today.

Great. Thanks, so much and best of luck with after the holidays.

Speaker 6: Thank you very much.

Thank you very much.

Speaker 1: next question comes from Jonathan Combe of Baird. Please go ahead.

The next question comes from Jonathan Komp of Baird. Please go ahead.

Speaker 7: Yeah, hi, good morning. Sam, I just want to follow up on the topic of...

Yeah, Hi, good morning, Sam I, just wanted to follow up on the topic of.

Speaker 7: Promotions in discounting and just understand the strategy. You highlighted clearance units down a lot. Not intending to chase sales, but I think through yesterday you had 40% off everything. There's still more frequency of deals. Maybe go a little more in depth to strategy there why pursue those deals at all. The Oversus may be a more profitable base of revenue if you didn't. And then.

Promotions and discounting and just understand the strategy you highlighted clearance units down a lot.

Intending to chase sales, but.

I think through yesterday, you had 40% off everything.

Theres still more frequency of deal just can you maybe.

So a little more in depth the strategy there why why pursue those deals at all.

Oh versus maybe a more profitable base of revenue if you didn't.

And then.

Speaker 7: How should we think about the gross margin level you need going forward for this to be a healthy level of profitability for the total company?

How should we think about the gross margin level you need going forward for this to be a help.

Healthy level of profitability for the total company.

Speaker 3: Yeah, sure. Thanks, Jonathan. Yeah, I mean, it's a complex and kind of tricky scenario when you're balancing brand integrity with.

Yeah sure Thanks, Jonathan Yeah.

It's a it's a.

The complex and kind of tricky scenario, when you're when you're balancing brand integrity with with market competitiveness and so.

Speaker 3: with market competitiveness. So the whole house, what we call a whole house global events that we have, we're comping those.

The whole house, what we call a whole house global events that we have we were comping those in and actually we're not we're not adding a lot more of those we are pulsing in.

Speaker 3: And actually we're not adding a lot more of those. We are pulsing in.

Speaker 3: certain item kind of promotions. And as I said, you know, it's considerably more price promotional out there than it has been over the last couple of years. And so in order to remain competitive, yeah, we're having to...

Certain item kind of promotions.

And as I said.

It's it's considerably more price promotional out there than it has been over the last couple of years and so in order to remain competitive yeah, we're having to promote a bit more frequently but as I said that the depth of our promotion in terms of the discount discounting is not.

Speaker 3: promote a bit more frequently, but as I said, the depth of our promotion in terms of, the discounting is not significantly deeper, and that's where we're gonna draw the line a bit. So yeah, I mean, we're always thinking about, how much is too much, how much is too little, how do we ensure that we continue to drive, fell through, brand awareness,

<unk> deeper and that's where we're going to draw the line a bit.

Yes, I mean, we're all.

Always thinking about how much is too much how much is too little.

Do we ensure that we continue to drive.

Sell through brand awareness.

Speaker 3: because all of those things, you know, have implications.

Because all of those things have implications.

Speaker 3: you know, into the future and certainly, certainly, as it relates to kind of mind share.

Into the future and certainly certainly.

As it relates to kind of mind share.

Speaker 3: You know, could we do less promoting? Yeah, I mean, we always could. Does that necessarily improve?

Could could we do less promoting yeah, I mean, we always could.

Does that necessarily improve or help us meet some of our other.

Speaker 3: or help us meet some of our other required measurements like cell throes and market share. No, we probably give some of that back. Margin rate, the rate itself might increase, but.

Required measurements like sell throughs in market share no, we probably give some of that back margin rate the rate itself might increase, but but total profitability for the company both near term and in the immediate future would be hurt so.

Speaker 3: But total profitability for the company, both near term and in the immediate kind of future would be hers.

Speaker 3: I mean, it's tricky and I know the basis of your question, Jonathan, you and I have talked about this a lot and I think just know that, you know, we're internally talking about the balance of, you know, promotions versus regular price. You know, the fact of the matter is when we look at our sales mixed as I shared in the prepared remarks. Customers are just...

I mean, it's tricky and I know.

No I know the basis of your question, Jonathan you and I have talked about this a lot and and.

Just know that.

We're internally talking about the balance of <unk>.

Promotions versus regular price. The fact of the matter is when we look at our sales mix as I shared in the prepared remarks.

Customers are just gravitating.

Speaker 3: more greatly to value. And so when we do run these events, the sales numbers jump during those events and they're just, they're choosing to purchase less during regular price periods. The great news is in all of our buckets, clearance included, although clearance is significantly down from a year ago, but all three of our buckets, regular price promotions and clearance, our margin rates are actually

More greatly the value and so when we do run these events.

The sales numbers jump during those events and and they're just they're choosing to purchase less.

Our regular price periods.

The Great news is in all of our buckets clearance included although clearance is significantly down from a year ago, but all three of our buckets regular price promotions and clearance our margin rates are actually slightly.

Speaker 3: slightly flat to slightly up in all three buckets. And so in totality, versus a year ago, and even when we look back a couple years ago, margin rates by bucket aren't that far off.

Slightly flat to slightly up in all three buckets and so in totality.

Versus a year ago, and even when we look back a couple of years ago margin rates by bucket arent that far off.

Speaker 3: The percentage of sales are being driven more by that promotional bucket right now than they are regular price or clearance. So we're sensitized to it. You know, we're trying to remain competitive, but at the same time not jeopardize our brand position, but know we also have to ensure that we're delivering sell through so that it doesn't come back to bite us next quarter. And me.

Just the percentage of sales are being driven more by that promotional bucket right now than they are.

Then they are regular price or clearance so.

We are sensitized to it we're trying to remain competitive but at the same time not jeopardize our brand position.

But no. We also have to ensure that we're delivering sell through so that it doesn't come back to bite us next quarter.

Just as a follow up is that right.

Speaker 7: At some point in the future, getting back to mid, maybe high 50s gross margin might be required to drive higher profitability for this business. Is that sort of a

So at some point in the future getting back to you.

Mid maybe high <unk> gross margin might be.

Required to drive higher profitability for this business is that.

That's sort of a reasonable.

Speaker 3: expectation and is there a path to get there or not? Are there other paths to drive better profitability? Yeah, absolutely. I think the way you're thinking about it is right. And what I would point you to is, as I mentioned, the enablers to our Big Dan Blueprint, specifically logistics,

Expectations and is there a path to get there or not.

Okay paths to drive better profitability.

Yes, absolutely I think I think the way Youre thinking about it is right and what I would point you to is.

As I mentioned.

The enablers to our Big Dam blueprint.

Specifically logistics.

The <unk>.

Speaker 3: That not only benefits us from a consumer expectation perspective, but certainly from a speed and expense perspective. It's significantly more efficient than our legacy film.

<unk> Bill.

That not only that only benefits us from a consumer expectation perspective, but certainly from a speed and expense perspective.

It's significantly more efficient than our legacy fulfillment centers. The second part is our sourcing and product innovation initiative.

Speaker 3: The second part is our sourcing and product innovation initiative.

Speaker 3: you know, last call we mentioned we on board it several new members we just hired a new VP of sourcing and she's got unbelievable experience in the industry and and she'll bring not only you know a greater depth of experience and expertise but you know she's gonna really help us.

Last call. We mentioned we on boarded several new members, we just hired a new VP of sourcing and she's got unbelievable experience in the industry and she'll bring not only.

A greater depth of experience and expertise, but she is going to really help us.

Speaker 3: start to optimize the team that we're hiring to bring more innovation more frequently quicker.

Start to optimize.

Optimize the team that were hiring to bring more innovation more frequently quicker and quite frankly with with expansions in IMU and so.

Speaker 3: and quite frankly with expansions in IMU and so

Speaker 3: You know, we're addressing how we structurally change the financial model of the organization from the top, meaning I am used.

We're addressing how we structurally change the financial model of the organization from the top meaning I am use through the P&L on expenses like variable related to our fulfillment centers and then of course, we've got a whole technology transformation roadmap that will help.

Speaker 3: Through the P&L on expenses like variable related to our fulfillment centers. And then of course we've got a whole technology transformation roadmap that will help us make better, faster, more informed decisions. That's more future looking than it is kind of review looking.

Make better faster more informed decisions.

That's more future looking than it is kind of rearview looking.

Speaker 3: So yeah, I think, I think numerically the way you're thinking about it is right. And I think that we've got, we've got a solid plan to deliver those things. And they're starting to, you know, come to fruition.

Yeah, I think I think numerically the way Youre thinking about it is right and I think that we've got we've got a solid plan to deliver those things and they are starting to starting to come to fruition.

Speaker 7: And then could you just maybe talk about the factors and the fourth quarter guidance that looks like the revenue range? You know, someone wide could be down slightly to maybe up mid-single to this year over year. So just how are you thinking about the factors embedded in the near-term outlook?

Okay, and then could you just maybe talk about the factors in the fourth quarter guidance it looks like the revenue range.

Yes, it was somewhat wide could be down slightly to maybe up mid single digits year over year. So just how are you thinking about.

The factors embedded in the near term outlook.

Speaker 3: Yeah, so I'll start at the top line, you know, the the re-guide really was just what's primarily

Yeah, So I'll start at the top line.

The re guide really was just.

Well its primarily.

Speaker 3: driven by the actualization of the Q3 number. Q4, you know, while we don't share quarterly numbers.

Driven by the actualization of the Q3 number.

Q4, while we don't share quarterly numbers.

Speaker 3: what we had in our internal plans for the back half of the year, Q4 remains intact and it's really the Q3 actualization. It does call for an improvement in trend from Q3 and year-to-date and we remain optimistic and bullish in that regard for a couple of reasons.

What we had in our internal plans for the back half of the year Q4 remains intact and it's really it's really the Q3 actualization. It does call for an improvement in trend from Q3 and year to date and.

We remain optimistic and bullish in that regard.

There are a couple of reasons one is as I mentioned in my prepared remarks, some of the things that our team has been working on more tactically to change the trend, including chasing in kind of hot hot sellers as well as fast forwarding some new introductions into.

Speaker 3: As I mentioned in my prepared remarks, some of the things that our teams have been working on more tactically to change the trend, including chasing in, kind of hot sellers, as well as fast forwarding some new introductions into Q4. So things like

Into Q4, so things like.

Speaker 3: I already mentioned it, but like AKHG fitness, whole new categories for us.

You mentioned, it but like AKG fitness whole new category for us the expansion of no yank tanks.

Speaker 3: the expansion of no-yank tanks, big category for us. And we believe bringing in the new spring products will get us some upside as well as, you know, talk about fire hose, HD, and then...

Big category for Us.

And we believe bringing in the new spring products will will will get us some upside as well as I talked about fire hose.

And then and then.

Speaker 3: Our double flex denim program has really done well. And so we're chasing that in to take advantage of that during this.

Our double flex denim program has really done well and so we're chasing that and to take advantage of that during this this.

Speaker 3: this big sales period. So Q4 is largely intact, so that's part one. Part two is...

Peak sales period. So so Q4 is largely intact. So that's part one part two is.

Speaker 3: You know, again, while I don't want to lean too heavily on what we saw Black Friday through Cyber Monday, it was a solid enough business trend that it just affirms our confidence that Q4 is a deliverable quarter that that that then brings our year end to, you know, within that range.

Dan while I don't want to lean too heavily on what we saw black Friday through cyber Monday.

It was a solid enough business trend that it just affirms our confidence that Q4 is that deliverable quarter that that.

That brings our year end too.

Within that range.

Speaker 7: just last one for me. Oh, I'll be fast. It's just given some of that.

And just last one for me.

Yes.

Just given some of that.

Speaker 7: activity that looks almost more like liquidation online. It's best made still part of the ongoing plan. And should we think?

Activity.

Almost more like liquidation online as best as best made still part of the ongoing plan and should we think.

Speaker 3: acquisition, they're off the table until the core business is stable for longer. Just to see me thoughts on those two. Thanks again. Yeah, so, yeah, so a couple things. Our intent is not for it to look like kind of a liquidation. In fact,

Acquisitions are off the table until the core business is stable for longer just any thoughts on those two thanks again, yes. So yes, so a couple of things.

Our intent is not not for it to look like kind of a liquidation in fact.

Speaker 3: you know, we're being purposeful, as I said, in the frequency of our global events, and then really, you know, offering kind of post deals.

We are being purposeful as I said in in the frequency of our global events, and then and then really offering.

Most deals.

Speaker 3: I wouldn't say in reaction to the marketplace, but recognizing that the marketplace is significantly more price competitive and consumers are much more price-sensitive than they have been in recent years. Best made, actually, we announced the sale of best made.

I wouldn't say in reaction to the marketplace, but recognizing that the marketplace is significantly more price competitive and consumers are much more price sensitive than they than they had been in recent years.

Best made actually we announced the sale of best made.

Okay.

Speaker 3: three weeks ago or something like that. And so in fact, the original founder, we were talking with. And ultimately, he repurchased the brand from us.

Three weeks ago, or something like that and so in fact.

The original founder.

We were talking with and ultimately he repurchased the brand from us and the fact of the matter is as we continue to work hard on on growing.

Speaker 3: And the fact of the matter is, as we continue to work hard on growing the Duluth business, AKHG is starting to get a lot of traction as well as our women's initiative. And so our focus was to get our product development and merchandising team.

The Duluth business.

<unk> is starting to get a lot of traction.

As well as our women's initiative and so our focus was to get our product development and merchandising teams.

Speaker 3: really narrowly focused on making those brands kind of the winners in the near term. So this was an intentional act to just narrow their focus on those two brands.

Really narrowly focused on making those brands kind of the winners in the near term and so this was.

An intentional act to just narrow the focus on those two brands.

Speaker 3: And then the last thing I would say relative to acquisitions is, you know, we're still in the kind of vetting mode, you know, we're vetting different, you know, potential acquisitions, but, you know, as we've always talked, you know, we're not going to stray too far from where we are. We're going to remain focused on Duluth and AKHG.

And then the last thing I would say relative to acquisitions as we are still in the kind of vetting mode. We're vetting, we're vetting different.

Potential acquisitions, but.

As we've always talked you know, we're not going to stray too far from where we are we're going to remain focused on Duluth and AKG. If an opportunity presents itself. We'll we'll look more deeply but I'll tell you right now we're in the crawl stage, we're not we're not aggressively seeking.

Speaker 3: If an opportunity presents itself, you know, we'll look more deeply, but I'll tell you right now, you know, we're in the crawl stage. We're not aggressively seeking out acquisitions as the next phase of growth. We think we've got some near-term opportunities with Duluth and AKHG. Okay. Thanks a lot. Thank you.

Seeking out acquisitions as the next phase of growth, we think we've got some near term opportunities with Duluth and AKG.

Okay, Thanks, and best of luck for holiday here.

Thanks, Jonathan same to you.

Speaker 1: The next question comes from Dylan Carden of William Blair. Please go ahead.

The next question comes from Dylan Carden of William Blair. Please go ahead.

Speaker 8: Thanks. Curious on the promotion just falling up at that? I mean...

Thanks.

Curious on the promotion just following up with the I mean.

Speaker 8: I don't know if you can answer this per se, but you know, one thought would be that you've kind of trained your customer over time to sort of look for these.

I don't know if you can answer this per se, but.

One thought would be that you've kind of trained your customer over time, just sort of look for these.

Speaker 8: rapid fire promotions and you know the evidence of that potentially being that even if you pull back on promotions the McShift still skews higher clearance higher promo is that something that

Rapid fire promotions and the evidence of that potentially being that.

Even if you pull back on promotions the mix shift still skews higher clearance higher promo is that something that.

Speaker 8: you think is a valid concern or is this sort of more of reflection of the environment for a value seeking concern?

Do you think is a valid concern or is this sort of more a reflection of the environment for a value seeking consumer.

Speaker 3: Yeah, I'd say a couple of things, Dylan, one is we are highly, highly sensitized to that. And that's part, as I mentioned in my answer to Jonathan is

Yes, I'd say a couple things one is we are highly highly sensitized to that and that's part as I mentioned in my.

My answer to Jonathan is.

Speaker 3: You know, internally we talk about this balance, the balance of being competitive with the broader marketplace with brand position.

Internally, we talk about this balance the balance of.

Of being competitive with the broader marketplace with brand positioning.

Speaker 3: And, you know, we have strategically while...

And we have we have strategically while while.

Speaker 3: you know, maybe it doesn't appear that way. We've strategically shied away from...

Maybe it doesn't appear that way, we've strategically shied away from more and deeper.

Speaker 3: more and deeper at the expense of driving greater top line. And we do that purposefully because at the end of the day, that additional top line doesn't necessarily flow through. And importantly, it starts to, I think, wait into this area of training the customer to think about Duluth as an off-priced brand only.

At the expense of driving greater top line and we do that purposely because at the end of the day that additional topline doesn't necessarily flow through and importantly, it starts to I think Wade into this area of training the customer to think about Duluth as an off.

Rice brand only and so we're highly sensitized to that I think candidly that as as promotional as the marketplaces today and as sensitive.

Speaker 3: And so we're highly sensitized to that. I think can't it leave that as...

Speaker 3: as promotional as the marketplaces today and as sensitive to price and discretionary spend that the consumer is as well.

Two two price in discretionary spend that the consumer is as well that the level of promoting we're doing today is as such that the brand.

Speaker 3: that the level of promoting we're doing today is such that the brand is not being compromised.

Is not being compromised longer term and importantly, I think that's why we're putting so much energy into the service, we provide consumers, whether it's click to doorbell speed or in our stores.

Speaker 3: And importantly, I think that's why we're putting so much energy into the service we provide consumers, whether it's flipped to doorbell speed or in our stores.

Speaker 3: You know, our metrics in the stores continue to be solid. Our measurable KPIs, whether it's conversion or units for transaction continue to be positive year over year, stores continue to be cash flow positive and for-wall profitable in the midteens. And so we know that customers are coming to us.

Our metrics in the stores continue to be solid.

Our measurable kpis, whether it's conversion.

Or units per transaction continue to be.

Positive year over year stores continue to be cash flow positive in four wall profitable in the mid teens.

And so we know that customers are coming to us.

Speaker 3: Secondarily, the investments we're making in product innovation and sourcing, that's the core of who Duluth is and that's at the heart of our DNA. And so we're gonna continue to invest in bringing...

Secondarily, the investments, we're making in product innovation and sourcing.

That's that's the core of who Duluth is and Thats at the heart of our DNA and so we're going to continue to invest in bringing really high quality problem solving products.

Speaker 3: really high quality problem solving product.

Speaker 3: that are leading the marketplace, bring those to market. And we believe that the price value of the products we make are goods will withstand the test the time relative to price promote.

That are leading the marketplace.

Bring those to market and we believe that the price value of the products, we make are goods.

Will withstand the test of time relative to price promoting.

Great. Thank you.

Speaker 8: And then I'm kind of curious the drag from not having the inventory and spring somewhere good in the front part of the quarter. Was that?

And then I'm kind of curious the.

The drag.

From not having the inventory in spring summer goods in the front part of the quarter was that.

Speaker 8: Was that simply just poor management on inventory where you did you pull back too quickly? Was that weather related? Um, just kind of trying to understand particularly if you can maybe even size, you know, the right view. if you

Sure.

Is that simply just poor management on inventory were you did you pull back too quickly was that weather related.

Just kind of trying to understand particularly if you can maybe even size.

Alright, do you estimate that that had.

Speaker 3: Yeah, so, so a couple of things I'll say there again, Dylan, pretty, you know, complex answer to what seems like a simple question.

Yes, so couple of things I'll say, there again Dylan.

Complex.

Right answer to what seems like a simple question.

Speaker 3: At a high level, I'll start with saying, you know, philosophically, you know, we talked about this for a little while now, you know, we're going to continue to reduce inventories and get our stock to sales ratios in line, you know, I think.

At a high level I'll start with saying philosophically, we talked about this for a little while now we're going to continue to.

So reduce inventories and get our stock to sales ratios in line I think.

Speaker 3: you know, our turns are slower than I want them to be. And obviously there's all kinds of benefits that comes with faster turns, you know, not least of which is greater profitability and cash flow, but also...

Our turns are slower than I want them to be and obviously theres all kinds of benefits that comes with faster turns.

Not least of which is greater greater profitability and cash flow, but also.

Speaker 3: the expectations around cell thros and those types of things increase. And so at a high level, that's why the inventories are down and they'll continue to be down, as we move into the next couple of years.

The expectations around sell throughs, and and those types of things increase and so.

At a high level.

That's why the inventories are down and they'll continue to be down as well.

<unk> move into the next couple of years.

Speaker 3: in terms of spring-stummer goods or previous seasons carryover, it was largely based on greater cell-throughs during the season. So we typically have excess inventory that we carry over from season to season, that will sell in the following season.

In terms of spring summer goods or or or previous seasons carryover. It was largely based on greater sell throughs. During the season. So we typically have excess inventory that we carry over from season to season that will sell in the following season and.

Speaker 3: And because of some of the price sensitivities that were happening and that shift, we started to see into this promotional bucket, we were selling more units. So if you go back and look at our comments on the last couple of calls, unit sales were up. And so we're selling through

Cause of some of the price sensitivities that were happening in that shift we started to see into this promotional bucket. We were selling more units. So if you go back and look at our our comments on the last couple of calls unit unit sales were up.

And so we're selling through more goods.

Speaker 3: And what ends up happening is the total sell-through for the season is just higher, which limits our carryover. So it's a little bit of a double-edged sword, because in a perfect world, you'd want to sell everything at 100% at full price, and not have any markdowns into the next season.

And what ends up happening is the total sell through for the season is just higher which limits our carryover. So it's a little bit of a double edged sword because in a perfect world you'd want to sell everything at 100% at full price and not have any markdowns into the next season.

Speaker 3: But simultaneously, it then forces you to be better planning in terms of your receipt.

But simultaneously.

Then forces you to be better planning in terms of your receipts for the following season's goods and so one of the things we're starting to institute as you've heard now a couple of fall season is we are starting to move or four seasons. We are starting to move that next season's goods up earlier to.

Speaker 3: for the following seasons goods. So one of the things we're starting to institute as you've heard now, a couple of falls seasons is we're starting to move or seasons. We're starting to move the next season's goods up earlier to start setting our floors earlier. So for instance,

Start setting our floors earlier. So for instance, this fall we started to receive goods in in July we typically we'll set up in late August and we brought certain items in earlier.

Speaker 3: this fall we started to receive goods in July . We typically will set up in late August and we brought certain items in earlier.

Speaker 3: And I think that that's the right way to run the business. A little early receipts on the next season's goods and not rely on carryover of previous season's products.

And I think that's the right way to run the business.

Little early receipts on the next season's goods and not rely on carryover of previous seasons products.

Speaker 8: Great, and then final one for me, the new distribution capacity in Georgia, can you remind us as far as expanding out some of the wholesale? That's not part of this initiative, right? That would come later.

Great and then final one for me.

<unk>.

New distribution capacity in Georgia can you remind us as far as expanding out some of the wholesale.

That's not part of this initiative right, though that would come later.

Speaker 3: Well, it is connected so the capabilities of a Dare'sville allows us absolutely to expand in the wholesale. The other component though is really about the work we're doing with product innovation and sourcing. So the ability for us to develop products on a faster timeline with greater IMU efficiency.

Well it is connected so the capabilities of our <unk> Bill allows us absolutely to expand in the wholesale.

The other component, though is really about.

The work, we're doing with product innovation and sourcing so the ability for us to develop products on a faster timeline with greater <unk> efficiencies that plays a role and then there is an organizational requirement.

Speaker 3: that plays a role and then there's an organizational requirement, you know, to really, I think, optimize host-day opportunity. And so we're building the parts for it and ultimately we'll come together but all of these things we're doing are with the broader intention of

Really I think optimize wholesale opportunity and so we're building the parts for it.

And ultimately will come together, but all of these things we're doing are with this.

The broader intension of.

Speaker 3: of wholesale, acquisition, expansion into more stores as an example. All of the technological and logistical things.

Wholesale acquisition expansion into.

More stores as an example, all of the technological and logistical things and then product development.

Speaker 3: and then product development initiatives all are with those types of considerations in mind.

<unk> all are with those types of considerations in mind.

Speaker 8: So could you see wholesale, that relationship expanded in next year or is that too related?

So could you see wholesale.

That relationship expand into next year or is that too early to.

Speaker 3: Yeah, I think that that's probably a bit early, never stayed, never stayed, never, um...

Yes, I think thats, probably a bit early never say never say never.

Speaker 3: In fact, we are now testing with Costco. We see that as an opportunity to...

In fact, we are we are now testing with Costco.

We see that as an opportunity to two.

Speaker 3: to provide key items to a company that's got very similar.

Two.

Provide key items to a company that's got very similar.

Speaker 3: has a number of similar customers to Duluth and it becomes a bit of a gateway item to broaden our customer base. The initial test we ran was in summer in a very small base, did really well. They've come back for this period right now and then we're looking to expand with them as we go into next year. And their amount of requires a much less...

Has a number of similar customers to Duluth, and it becomes a bit of a gateway item too.

Rod in our customer base. The initial test we ran was in.

Was in summer and a very small base did really well.

They've come back.

This period right now.

And then and then we're looking to expand with them as we go into next year.

And their model requires much less.

Speaker 9: reliance on a organizational structure to support them. And so, given the way we're testing with them, we think that there's an opportunity for us to continue to build our brand awareness and a business with a retailer that's got millions of customers of which we see great overlap with Duluth. Excellent, really appreciate it, too.

Reliance on a organizational structure to support them.

And so given the way we're testing with them. We think that there is an opportunity for us to continue to build our brand awareness and a business with.

A retailer that's got.

Millions of customers of which we see great overlap with Duluth.

Excellent really appreciate it and thank you.

Yeah, you bet. Thank you very much.

Speaker 1: Concludes our question and answer session. The conference has now also concluded. Thank you for attending today's presentation, and you may now disconnect.

This concludes our question and answer session. The conference has now also concluded thank.

You for attending today's presentation and you may now disconnect.

Speaker 10: I.

Yeah.

[music].