Q1 2025 Duluth Holdings Inc Earnings Call
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Operator: Good morning everyone, and welcome to the Duluth Holdings Inc. first quarter 2024 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. If you ask a question, you may press star and one on your touch-tone telephone. To withdraw your question, you may press star and... Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Nitza McKee. Ma'am, please go ahead.
Speaker Change: Good morning, everyone and welcome to the Duluth Holdings incorporated first quarter 2024 conference call.
Speaker Change: All participants will be in a listen only mode.
Speaker Change: Need assistance. Please you know a conference specialist by pressing the star key followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions.
Speaker Change: You ask a question you May press star and one of your Touchtone telephone.
Speaker Change: So the draw your questions you May press star two.
Speaker Change: Please also note today's event is being recorded.
Speaker Change: At this time I'd like to turn the floor over to Mr. Mckee Ma'am. Please go ahead.
Nitza McKee: Thank you and welcome to today's call to discuss Duluth Trading's first quarter financial results. Our earnings release, which was issued this morning, is available on our investor relations website at ir.duluthtrading.com under the press release section. I'm here today with Sam Sato, President and Chief Executive Officer, and Heena Agrawal, Senior Vice President and Chief Financial Officer.
Speaker Change: Thank you and welcome to today's call to discuss Duluth, Trading's first 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 I'm here today, with Sam Sato, President and Chief Executive Officer and.
Speaker Change: In the agro Boyle 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.
Nitza McKee: 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. 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 statement.
Nitza McKee: Such risk 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 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.
Speaker Change: 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.
Speaker Change: 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 such risks and uncertainties include but are not limited to those that are.
Speaker Change: Scribe and our most recent annual report on Form 10-K, and other SEC filings as applicable. These forward looking statements speak only as 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.
Samuel M. Sato: Thank you for joining today's call. Let me begin by stating that, despite some key quarter wins, we are not satisfied with our first quarter results, which fell short of our internal expectations. Our top-line performance, at a decline of 5.7%, was hampered by challenging traffic and a subpar in-stock position following stronger-than-expected unit sales late in the fourth quarter. In fact, we entered the first quarter with inventory levels 19% below the prior year.
Samuel M. Sato: Thank you for joining today's call.
Samuel M. Sato: Let me begin by stating that despite some key quarter wins, we are not satisfied with our first quarter results, which fell short of our internal expectations our.
Samuel M. Sato: Our topline performance and a decline of five 7% was hampered by challenging traffic and a subpar in stock position following stronger than expected unit selling late in the fourth quarter.
Samuel M. Sato: In fact, we entered the first quarter with inventory levels, 19% below the prior year.
Samuel M. Sato: We took swift action to improve our in-stock position in core items, which improved throughout the quarter and into Q2. Let me highlight a few actions we're focused on to improve our results. We are doubling down on our efforts to further leverage technology to deliver more targeted advertising to drive incremental traffic both online and in-store. We continue to leverage additional streaming platforms and vendor technologies to hone our marketing efforts and to better target specific audiences and markets.
Samuel M. Sato: We took swift action to improve our in stock position in core items, which improved throughout the quarter and into Q2.
Samuel M. Sato: Let me highlight a few actions we're focused on to improve our results.
Samuel M. Sato: We are doubling down on our efforts to further leverage technology to deliver more targeted advertising to drive incremental traffic both online and in stores.
Samuel M. Sato: We continue to leverage additional streaming platforms and vendor technologies to hone, our marketing efforts and to better target specific audiences and markets.
Samuel M. Sato: Across our 65-storey fleet, we're elevating the events to emotionally engage with existing and new customers within our local markets. For example, during the first quarter, we successfully tested an underwear trade-up event. On the day of the event, store traffic jumped more than 50 percent, contributing a 120 basis point benefit for the entire quarter.
Samuel M. Sato: Across our 65 store fleet, we're elevating events, she emotionally engage with existing and new customers within our local markets. For example, during the first quarter, we successfully tested and underwear trade up event.
Samuel M. Sato: On the day of the event store traffic jumped more than 50% contributing 120 basis point benefit for the entire quarter.
Samuel M. Sato: And more than one-third of the underwear trade-ups were from female shoppers, which remains a key strategic growth opportunity for Duluth. Additionally, during the quarter, we completed a comprehensive benchmarking study to identify opportunities to improve our operating margin, working capital, and asset efficiency. More to come on this initiative over the coming quarters. And finally, we've engaged a third-party expert to partner with our internal team to conduct an in-depth review of our retail strategy to identify efficiencies and solidify our go-forward plan. As you can see, we're not standing still.
Samuel M. Sato: And more than one third of the underwear tradeoffs were from female shoppers, which remains a key strategic growth opportunity for Duluth.
Samuel M. Sato: During the quarter, we completed a comprehensive benchmarking study to identify opportunities to improve our operating margin working capital and asset efficiency.
Samuel M. Sato: More to come on this initiative over the coming quarters.
Samuel M. Sato: And finally, we've engaged.
Samuel M. Sato: A third party expert to partner with our internal team to conduct an in depth review of our retail strategy to identify efficiencies and solidify our go forward plan.
Samuel M. Sato: As you can see we're not standing still we've taken immediate action to improve our near term performance. We're in the process of identifying opportunities to build on our successes and drive further efficiencies across our operations and we are controlling what we can control.
Samuel M. Sato: We've taken immediate action to improve our near-term performance. We're in the process of identifying opportunities to build on our successes and drive further efficiencies across our operations, and we are controlling what we can control. Although there is much work ahead of us, we have made significant progress on our foundational initiatives aligned with our long-term strategic roadmap. Let me highlight a few key wins during the quarter.
Samuel M. Sato: Although there is much work ahead of US we have made significant progress on our foundational initiatives aligned with our long term strategic roadmap.
Samuel M. Sato: Let me highlight a few key wins during the quarter.
Samuel M. Sato: Our Daresville unit fulfillment costs were 56% lower compared to the prior year average of the remaining three fulfillment centers, and we processed 60% of total volume in the first quarter through this facility. We are now moving into phase two of evaluating our performance center network footprint. In mid-April, we diversified our carrier base, lowering our outbound shipping costs.
Samuel M. Sato: Our Darris Vail unit fulfillment costs were 56% lower compared to the prior year average of the remaining three fulfillment centers and we processed 60% of total volume in the first quarter through this facility.
Samuel M. Sato: We are now moving into phase II of evaluating our fulfillment center network footprint.
Samuel M. Sato: In mid April we diversified our carrier base lowering our outbound shipping costs.
Samuel M. Sato: As discussed on our last call, we meaningfully advanced our sourcing and product innovation function. This is a critical strategic breakthrough for the business, which will allow us to bring to market high quality, innovative products more frequently, increase our speed to market, and significantly reduce our product costs. I'm pleased to report that this initiative is delivering product cost improvements above our expectations, and we have a clear line of sight to continue benefits this year.
Samuel M. Sato: As we discussed on our last call, we meaningfully advanced our sourcing and product innovation functions. This is a critical strategic unlock for the business, which will allow us to bring the market high quality innovative products more frequently increase our speed to market and significantly reduce our product costs.
Samuel M. Sato: I'm pleased to report that this initiative is delivering product cost improvements above our expectations and we have clear line of sight to continued benefits this year.
Samuel M. Sato: We continue to see the positive outcomes from our previous replatforming investments in our DuluthTrading.com website to the next generation of e-commerce tailored for mobile usability. In the quarter, our mobile penetration continued to grow, accounting for over half of our digital sales and more than two-thirds of site visits. We remain focused on enhancing digital accessibility while providing a frictionless shopping experience.
Samuel M. Sato: We continue to see the positive outcomes from our previous re platforming investments in our Duluth trading Dot Com web site to the next generation of ecommerce tailored for mobile usability.
Samuel M. Sato: In the quarter, our mobile penetration continued to grow accounting for over half of our digital sales and more than two thirds of site visits.
Samuel M. Sato: We remain focused on enhancing digital accessibility, while providing a frictionless shopping experience.
Samuel M. Sato: Now, some product innovation highlights that resonated with consumers. The first layer of business grew 4% driven by both men and women. We tested photo rating prints on BuckSmooth during the holidays, selling out quickly, and have expanded it with new prints and more inventory received in April for Father's Day. We shipped the Father's Day 3-pack to Costco as a test to increase our reach with our target consumers who shop at Costco.
Samuel M. Sato: Now some product innovation highlights that resonated with consumers.
Samuel M. Sato: The first layer business grew 4% driven by both mens and womens.
Samuel M. Sato: We tested photo ready prints on Buck smooth during the holidays selling out quickly and then expand it with new prints and more inventory received in April for father's day.
Samuel M. Sato: We shipped a father's day three pack to Cosco as a test to increase our reach with our target consumer who shops at Costco.
Samuel M. Sato: We're excited to see what opportunities this test enables moving forward. As I mentioned earlier, we tested a successful underwear trade-up event in April that was extremely well received and drove 120 basis points of traffic to stores for the quarter. Women's First Layer grew 8%, serving as an accelerator for the overall franchise. Success in Women's First Layer was driven by Armachillo, Buck Naked, and Lost Lake.
Samuel M. Sato: We're excited to see what opportunities this test enables moving forward.
Samuel M. Sato: As I mentioned earlier, we tested a successful underwear trade up events in April that was extremely well received and drove 120 basis points of traffic to stores for the quarter.
Samuel M. Sato: Womens first layer grew 8% serving as an accelerator for the overall franchise.
Samuel M. Sato: Success in women's first layer was driven by our mature low but can they get and lost lake.
Samuel M. Sato: Drivers with strategic significance include building out the bra business, delivering a 200% increase within Armachillo and representing 45% of that collection for her, and our continued focus on size inclusivity with the launch of Lost Lake Plus, driving 25% of the swim collection for her in the first season. Our Duluth Flex Firehose Collection grew 1% as our innovation in Firehose HD and Firehose Sweat Management Pants delivered significant volume for the quarter. Excitingly, we held a Firehose HD try-on event in stores, which resulted in 25% of the transactions, including a pair of Firehose HD pants.
Samuel M. Sato: Drivers with strategic significance include building out the bra business, delivering a 200% increase within our mature, though and representing 45% of that collection for her.
Samuel M. Sato: And our continued focus on size inclusivity with the launch of lost Lake plus driving 25% of the swim collection for her in the first season.
Samuel M. Sato: Our Duluth Flex fire hose collection grew 1% as our innovation and fire hose H D and fire hose Sweat management pants delivered significant volume for the quarter.
Samuel M. Sato: Excitingly, we held a fire hose H D try on event in stores, which resulted in 25% of the transactions, including a pair of fire hose H D parents.
Samuel M. Sato: The strength in our Women's Heirloom Garden Collection continues, posting a 4% increase for the quarter, driven by overalls and print. We continue to build awareness with our female consumer and saw a year-over-year increase in our women's only buyers for the eighth straight quarter. The Heirloom bib overall consistently ranked as the number one style this quarter, and our Show Us Your Bibs campaign was supported through social, retail, and print. It's been tagged over 550,000 times across Meta and TikTok, with big content seeing the highest engagement rate across our own social channels since the start of the campaign.
Samuel M. Sato: The strength in our women's Arizona Garden collection continues posting a 4% increase for the quarter driven by overall in France.
Samuel M. Sato: We continue to build awareness with our female consumer and saw a year over year increase in our womens only buyers for the eighth straight quarter.
Samuel M. Sato: The early bird overall consistently ranked as the number one style this quarter and our show US Your bids campaign was supported through social retail and print.
Samuel M. Sato: It's been tagged over 550000 times across meta and tick tock with bid content seen the highest engagement rate across our own social channels since the start of the campaign.
Samuel M. Sato: In the latter half of Q4 last year, we expanded our quick-drying, dry-on-the-fly technology into tees and underwear across both men's and women's. Customers are responding favorably to the new fabrics, and these programs are up to a strong start, exceeding our expectations thus far. AKHG Fitness, with a successful launch in the latter half of Q4, is on track to add approximately 100 basis points of growth to overall company sales this year.
Samuel M. Sato: In the latter half of Q4 last year, we expanded our quick drawing dry on the fly technology into Ts and underwear across both mens and womens.
Samuel M. Sato: Customers are responding favorably to the new fabrications and these programs are off to a strong start exceeding our expectations thus far.
Samuel M. Sato: H H G fitness with a successful launch in the latter half of Q4 is on track to add approximately 100 basis points of growth to the overall company sales this year.
Samuel M. Sato: In Q1, this new collection represented 26% of AKHG sales and will continue to be a growth driver as we expand the offering in outdoor recreational fitness. Successive prints and collage drove buzz and full-price sales in Q1. For women's heirloom bibs, our top three regular-price prints were fur, gnomes, and daisies.
Samuel M. Sato: In Q1, this new collection represented 26% of AK H D sales and will continue to be a growth driver as we expand the offering in outdoor recreational fitness.
Samuel M. Sato: Successful prints and co labs drove buzz and full price sales in Q1 within women's heirloom bibs or top three regular priced prints were for knowns and Daisy with.
Samuel M. Sato: We continued our beer collaboration with our men's barbecue shirt featuring Busch Light, which was the number one choice with twice the sell-through of the overall style. In summary, although our first quarter did not meet our internal expectations, we delivered several key wins. We took swift and appropriate near-term action to improve the trajectory of the business. We are in the process of identifying and implementing opportunities to drive efficiencies across our operations. And our foundational investments are paying off, setting the stage for long-term, sustainable, profitable growth.
Samuel M. Sato: Continued our beer collaboration with our men's barbecue shirt, featuring Bush light, which was the number one choice with twice the sell through of the overall style.
Samuel M. Sato: In summary, although our first quarter did not meet our internal expectations, we delivered several key wins.
Samuel M. Sato: We took swift and appropriate near term actions to improve the trajectory of the business.
Samuel M. Sato: We are in the process of identifying and actioning opportunities to drive efficiencies across our operations.
Samuel M. Sato: And our foundational investments are paying off setting the stage for long term sustainable profitable growth.
Samuel M. Sato: I remain proud of our team's unwavering dedication to operating with excellence, flexibility, and agility, always with our customers at the center of all that we do, celebrating a can-do spirit, enabling anyone who takes on life with their own two hands as our greater purpose. Now I'll turn it over to Heena to discuss our 2.1 financials and our full year outlook.
Samuel M. Sato: I remain proud of our team's unwavering dedication to operating with excellence flexibility and agility always with our customers at the center of all that we do celebrating their can do spirit, enabling anyone who takes on life with their own two hands as our greater purpose.
Speaker Change: Now I'll turn it over to <unk> to discuss Q1 financials and our full year outlook.
Speaker Change: Yeah.
Heena Agrawal: Thanks, Sam, and good morning. Let me start by reflecting on my first 90 days with the business. This is a resilient organization. The team has been resolute in taking on the challenge to future-proof the business. I'm encouraged to see meaningful impact from investments in talent and infrastructure to enable the company to capture the next inflection point of growth. I'm impressed by this team that embodies the desire to excel, the dedication, and can-do spirit of the Duluth brand.
Speaker Change: Thanks, Dan and good morning, let me start by reflecting on my first 90 days with the business.
Speaker Change: Is that a resilient organization.
Speaker Change: The team has been resolute in taking on the challenge and future proof the business.
Speaker Change: <unk> seen meaningful impact from investments in talent and infrastructure to enable the company to capture the next inflection point of growth.
Speaker Change: I'm impressed by this team that embodies the desire to access the dedication and candy stood at all if they didn't then.
Heena Agrawal: Our strengths span our brand, our unique and loyal consumer base, our innovative and superior product design, our cutting-edge and engaging storytelling, and the capabilities we have built through key hires, infrastructure, and technology. The opportunity, and, in turn, the significant work ahead of us, is to build on this progress. First, to unlock the full profit potential of Duluth's current business.
Speaker Change: All skin and Iran are unique and loyal since you might be.
Speaker Change: Innovative and superior product design.
Speaker Change: And engaging storytelling and the capabilities, we have built two key high infrastructure and technology.
Speaker Change: Kennedy and in done significant work ahead of us.
Speaker Change: It's debate on this project.
Just to unlock the full profit potential of the current business.
Heena Agrawal: Next, to strategically deploy capital to unlock growth and white space opportunities. Let me first elaborate on unlocking the full profit potential of Duluth's current business. We are focused on three key areas of opportunity. As Sam mentioned, first, an in-depth review of our real estate portfolio strategy and operating productivity.
Speaker Change: And strategically deploy capital.
Speaker Change: Growth and white space opportunity.
Speaker Change: Let me first elaborate on unlocking the full profit potential of Duluth business Yeah.
Speaker Change: We have focused on three key areas of opportunity.
Samuel M. Sato: Sam mentioned, but an in depth review of our real estate portfolio strategy and operating productivity.
Heena Agrawal: Embarking on Phase 2 of our Fulfillment-Centered Network Footprint to Maximize Productivity and Capacity, and third, leveraging the insights from a comprehensive benchmarking study to unlock structural gains in operating margin, working capital, and asset efficiency. As we get deeper into the work behind these three strategic work streams, we look forward to updating you on our progress and the potential our current business unlocks. Our next lever is the strategic allocation of capital to drive growth in our current channels and capture white space opportunities.
Samuel M. Sato: In embarking on phase two of our fulfillment center network footprint to maximize productivity and capacity.
Samuel M. Sato: And third leveraging the insights from our comprehensive benchmarking study.
Samuel M. Sato: Structurally game in operating margin working capital and asset efficiency.
Samuel M. Sato: As we get deeper into the work behind these three strategic work stream.
Samuel M. Sato: Look forward to updating you on our projects and the potential guidance business unlocked.
Samuel M. Sato: Our next lever is the strategic allocation of capital to drive growth and that's why into channels and capture the white space opportunity.
Heena Agrawal: To drive growth in our current channels, we are focused on consumer acquisition and retention to drive traffic to our stores and digital channels. Additionally, we continue to leverage our learning from TESS, for example, Costco, as we look to unlock white space opportunities. Recognizing there is much work ahead of us, I'm excited to leverage my experience collaborating with our leadership and teams across the organization to unlock the full potential of our business.
Samuel M. Sato: And I'll start and channels, we have focused on consumer acquisition and retention to traffic driver to our stores and digital channels.
Samuel M. Sato: Additionally, we continue to leverage our learning from that for example, as possible as we look to unlock white space opportunity.
Samuel M. Sato: That's it magazine that has much work ahead of us.
Samuel M. Sato: I'm excited to leverage my experience collaborating with our leadership team across the organization.
Samuel M. Sato: The full potential of our business.
Heena Agrawal: Moving to our Q1 results. Today, we reported first quarter 2024 net sales of $116.7 million, adjusted EBITDA of $1.8 million, and an EPS loss of $0.24. Starting with the top line, our Q1 2024 net sales were $116.7 million, down 5.7%, impacted by lower traffic and in-stock levels. This quarter, sales benefited from the Father's Day Order shipped to Costco worth 310 basis points. The women's business declined 3.3%, driven by softness in woven bottoms and no yanks, partially offset by continued growth in the heirloom garden selection, the first-layer business, and the dry-on-the-fly selection. Patent bids and accessories drove continued strength in the women's business.
Samuel M. Sato: Moving to our Q1 results.
Samuel M. Sato: Today, we reported first quarter 'twenty 'twenty four net sales of $116 7 million adjusted EBITDA of 1.8 million and an EPS loss of 24 cents.
Heena Agrawal: The men's apparel business declined 7.1% due to softness in dry-on-the-fly bottoms, long tails, and AKHG. The decline in AKHG was largely driven by a low in-stock position on our No. 1 Pant Collection. Within men, we saw strength in the Duluth Flex Firehose Program, Double Flex Denim, and Buff Naked.
Samuel M. Sato: Starting with the top line, our Q1 'twenty 'twenty four net sales were $116 7 million.
Samuel M. Sato: Five 7% impacted by lower traffic and in stock levels.
This quarter sales benefited from the father's day, all day check the possible like 300, and then basis point.
Samuel M. Sato: The women's business declined three 3% driven by softness in Wuhan buttons, and known yet partially offset by continued growth in the AG guidance election before their business and dry on the fly selection.
Samuel M. Sato: But SSAT and the continued strength in the women's business.
The men's apparel business declined 7.1% due to softness in dry on the fly Barton long days and 8-K H D. Smith.
Samuel M. Sato: Decline in E. H G was largely driven by a low in stock position on our number one back to collection.
Samuel M. Sato: Then we saw strength in the Duluth Flex fireworks program double like denim and Buck naked.
Heena Agrawal: From a channel perspective, retail store sales declined 7% as a result of challenging traffic. However, we continue to see healthy shopper conversions. Direct channels saw a failed decline of 10% driven by lower traffic and reduced in-stock levels.
Samuel M. Sato: From a channel perspective retail store sales declined 7% as a result of challenging traffic. However, we continue to see healthy shoppers and version.
Samuel M. Sato: Direct channel saw a sales decline of 10% driven by lower traffic and reduced in stock levels.
Heena Agrawal: Mobile penetration of site visits continued to inch higher, up 100 basis points over last year, and mobile sales accounted for 55 percent of digital sales, reflecting an increase of 300 basis points over last year. Moving to growth margin, for the first quarter of 2024, our growth margin contracted 20 basis points to 52.8% versus our expectation to see growth margin improvement starting in Q1. While new product costs came in better than expected, we are seeing a delay in impact-to-growth margins as we sell through older, higher-cost inventories.
Samuel M. Sato: Mobile penetration of site visits continue to inch higher up 100 basis points over last year and mobile sales accounted for 55% of digital sales, reflecting an increase of 300 basis points over last year.
Samuel M. Sato: Moving to gross margin for the first quarter of 2024 hour gross margin contracted 20 basis points to 52, 8% versus our expectation.
Samuel M. Sato: Margin improvement starting in Q1.
Samuel M. Sato: While new product costs came in better than expected, we are seeing a delay and in fact, the gross margin as we sell through older higher cost inventory.
Heena Agrawal: Our AURs increased slightly versus last year, driven by a lower mix of clearance sales from Better Inventory Lifecycle Management. Given the better-than-expected product costing we are experiencing, we continue to have line of sight to delivering full-year gross margin expansion of approximately 200 basis points. Now on to SG&A.
Samuel M. Sato: <unk> increased slightly versus last year, driven by a lower mix of currency from better inventory lifecycle management.
Given the better than expected product costing we are experiencing we continue to have line of sight do they live.
Samuel M. Sato: Full year gross margin expansion of approximately 200 basis points.
Heena Agrawal: For the first quarter, SG&A increased by 0.6% to $70.6 million and deleveraged by 380 basis points compared to last year at 60.5% of sales. As guided in the prior call, we expect SG&A to increase, mainly driven by higher fixed costs and depreciation from strategic investments, partially offset by improvements in variable cost benefits being realized from these initiatives. For the quarter, advertising expenses grew 4.9%, deleveraging by 110 basis points to 10.3% of sales as we continued to invest in our brands and support new product innovation.
Samuel M. Sato: Now onto SG&A.
Samuel M. Sato: For the first quarter SG&A increased by 6% to $70 6 million and Deleveraged by 380 basis points to last year at 65% of fee.
Samuel M. Sato: As guided in the prior calls we expect SG&A to increase mainly driven by higher fixed costs and depreciation from strategic investments.
Samuel M. Sato: Partially offset by improvements in variable cost benefits being realized from these initiatives.
Samuel M. Sato: For the quarter advertising expenses grew 4.9% deleveraging by 110 basis point to 10.3 per cent of C. As we continued to invest behind our brands and support new product innovation.
Heena Agrawal: Variable or selling expenses, which include outbound shipping costs as well as labor across our contact centers, fulfillment centers, and store fleets, continue to improve, leveraging by 130 basis points. We diversified our carrier base, lowering our outbound shipping costs starting mid-April, and continued to realize efficiencies from our Adairsville fulfillment center.
Samuel M. Sato: Variable selling expenses, which include outbound shipping costs as well as labor across I've got that center consignment centers and store fleet continues to improve leveraging by 130 basis points.
Douglas: Douglas decided I'll caveat would be lowering outbound shipping costs, starting mid April and continued to realize efficiencies from a data center.
Samuel M. Sato: Center.
Heena Agrawal: Fixed expenses, or general and administrative expenses, increased 6.2%, deleveraging by 400 basis points, primarily from annualizing depreciation and fixed costs from strategic initiatives like the Adairsville investment initiated in Q3 of 2023. Q1 net loss was $7.9 million, or minus $0.24 per diluted share, compared to a net loss of minus $3.9 million or minus $0.12 per diluted share last year. First quarter adjusted EBITDA was positive $1.8 million. Our balance sheet remains strong, with liquidity of $195.8 million.
Samuel M. Sato: Fixed expenses, our general and administrative expenses increased 6.2% deleveraging by 400 basis points, primarily from Annualizing depreciation and fixed costs from strategic initiatives like the days when investment initiated in Q3 of <unk>.
Samuel M. Sato: 123.
Samuel M. Sato: Q1, net loss was seven 9 million or minus 24 cents per diluted share compared to a net loss of minus three 9 million or minus 12 cents per diluted share last year.
Samuel M. Sato: First quarter adjusted EBITDA was positive one 8 million.
Samuel M. Sato: Our balance sheet remains strong with liquidity of 195.8 million.
Heena Agrawal: We took on $11 million of outstanding debt on our line of credit as we accelerated inventory receipts in core items into April, and we ended the quarter with $6.8 million of cash and cash equivalents. The inventory balance was down 6% or $8.5 million.
Samuel M. Sato: He took on 11 million of outstanding debt on our line of credit as the accelerated inventory receipts in core items into April and we ended the quarter with $6 8 million of cash and cash equivalents.
Samuel M. Sato: Inventory balance was down 6% or eight 5 million.
Heena Agrawal: Our inventory composition is healthy, with 93% of current products and 7% in clearance, flat to prior years. Our capital expenditures were $4.3 million versus $22.8 million in the prior year, primarily used to invest in strategic digital capabilities as per our IT roadmap. Now turning to our outlook for fiscal year 2024, we are updating our full-year guidance to approximately $640 million in net sales, the low end of our previous range. This includes 60 basis points from Costco's Father's Day shipments and 150 basis points of growth from the 53rd week. We expect the first half to be down mid to high single digits.
Samuel M. Sato: Inventory composition is healthy with 93% and currency products, and 7% and clear game plan to try and get.
Samuel M. Sato: Our capital expenditures were $4 3 million versus $22 8 million in the prior year, primarily used to invest in strategic digital capabilities as part of I D Road map.
Samuel M. Sato: Now turning to our outlook for fiscal year 'twenty 'twenty four we.
Samuel M. Sato: We are updating our full year guidance to approximately $640 million and let's say the low end of our previous range. This includes 60 basis points from Costco father's day shipment and 150 basis points of growth from the 50 <unk> week, we expect the first half.
Samuel M. Sato: It would be down mid to high single digits.
Heena Agrawal: We expect growth margin for the full year to be up approximately 200 basis points driven by our sourcing and product development initiatives. Growth margin will be flat in the first half and improve in the back half as we sell through older, higher-cost inventory. Reiterating the expectation of a further improvement in margin in the coming years as we continue to optimize our sourcing. We expect SG&A to deleverage by approximately 100 basis points.
We expect gross margin for the full year to be up approximately 200 basis points, driven by our sourcing and product development initiatives gross margin will be flat in the first half and improve in the back half as we sell through older higher cost inventory.
Speaker Change: Do they think the expectation of a further improvement in margin in the out years as we continue to optimize our sourcing.
Speaker Change: We expect SG&A deleverage by approximately 100 basis points.
Heena Agrawal: Advertising expenses are planned to be in line with sales growth at approximately 11% of sales. Variable or selling expenses will continue to leverage by over 100 basis points, driven by transportation savings from the addition of carriers as of mid-April and continuing advisable efficiencies. Fixed expenses, or general and administrative expenses, will increase in 2024, deleveraging by over 200 basis points, primarily from annualizing depreciation and fixed costs of strategic initiatives. With that, we are confirming the low end of our prior full-year adjusted EBITDA guidance range, or approximately $39 million, and EPS of negative $0.22.
Speaker Change: Cause I think expenses are planned to be in line with sales growth of approximately 11% of phase.
Being able our selling expenses will continue to leverage by over 100 basis points.
Speaker Change: Then by Transportation savings from addition of categories as of mid April and continuing a days and efficiencies.
Speaker Change: Fixed expenses, our general and administrative expenses will increase in 'twenty 'twenty four deleveraging by over 200 basis points, primarily from Annualizing depreciation and fixed cost of strategic initiatives.
Speaker Change: With that we are confirming the low end of our prior full year adjusted EBITDA guidance range or approximately 39 million and EPS of negative 22 cents. This includes estimated diluted shares of approximately 33 million and a tax rate of 25%.
Heena Agrawal: This includes estimated diluted shares of approximately $33 million and a tax rate of 25%. Our capital expenditure spend is on track to be reduced by more than half to approximately $25 million, with the primary focus on our strategic technology roadmap. In closing, we are focused on driving traffic and improved in-stock positions, maximizing return from our foundational investment, and Drive Sizing are cost structures, our capital expenditures are normalizing, and our liquidity remains strong. With that, we'll open the call to questions.
Speaker Change: Capital expenditure spend is on track to be reduced by more than half to approximately $25 million with the primary focus on our strategic technology roadmap.
Speaker Change: In closing we are focused on driving traffic and improved in stock position maximizing their gun from my foundational investments and right sizing our cost structure, our capital expenditures are normalizing and our liquidity remains strong.
Speaker Change: With that we open the call for questions.
Operator: And ladies and gentlemen, at this time, if there are no questions, I'd like to turn the floor back over to Sam for any closing remarks.
Speaker Change: And ladies and gentlemen at this time in showing no questions I'd like to turn the floor back over to Sam for any closing remarks.
Samuel M. Sato: Thank you again for joining this morning's call. I want to reiterate our near-term focus is on improving results and unlocking the full potential of the current business. Although our first quarter did not meet internal expectations, we delivered several key wins and took swift and appropriate near-term action to improve the trajectory of the business. We're in the process of identifying and actioning opportunities to drive efficiencies across our operations. And our foundational investments are paying off, setting the stage for long-term, sustainable, profitable growth. Thanks again, and we'll speak to you again during our next quarterly call.
Samuel M. Sato: Thank you again for joining this morning's call.
Samuel M. Sato: To reiterate our near term focus is on improving results and unlocking the full potential of the current business.
Samuel M. Sato: Although our first quarter did not meet internal expectation.
Samuel M. Sato: We delivered several key wins.
Samuel M. Sato: We took swift and appropriate near term action to improve the trajectory of the business.
Samuel M. Sato: We're in the process of identifying and actioning opportunity to drive efficiencies across our operations.
Samuel M. Sato: And our foundational investments are paying off setting the stage for long term sustainable profitable growth.
Samuel M. Sato: Thanks, again, and we'll speak to you again during our next quarter's call.
Operator: Ladies and gentlemen, that does conclude today's conference call and presentation. We thank you for joining us. You may now disconnect your lines.
Speaker Change: Ladies and gentlemen that does conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.