Q2 2025 Duluth Holdings Inc Earnings Call

Speaker Change: and his name is David.

Speaker Change: The End

Nitza McKee: Good morning and welcome to the Duluth Holdings Inc. 2nd quarter, 2024 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: Good morning and welcome to the Duluth Holdings Inc. 2nd quarter 2024 Conference Call. Our participants will be in listen-only mode. Should you need assistance, please signal a conference specialist, by pressing the star key follow by zero.

Nitza McKee: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please know the event is being recorded.

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

Speaker Change: To ask a question you may press star, then one on your telephone keypad.

Melissa: To withdraw your question please press star then too. Please know this event is being recorded. I would now like to turn the conference over to meet some of the keys. Please go ahead.

Nitza McKee: I would now like to turn the conference over to Nitza McKee. Please go ahead.

Nitza McKee: Thank you and welcome to today's call to discuss Duluth Trading's 2nd quarter financial results. Our earnings release, which was issued this morning, is available on our investor relations website at ir.duluthtrading.com under press releases. 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 second quarter financial results. Our earnings release, which was issued this morning, is available on our investor relations website at IR. Duluthtrading.com under press releases.

Speaker Change: I'm here today with Sam Sato, President and Chief Executive Officer, and Heena Agrawal, 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 for 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 our subject to risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K and other FCC filings, as applicable.

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, forecast, and assumptions.

Speaker Change: and our subject to risk and uncertainties that could cause actual results or outcomes to different materialy from those expressed in the forward-looking statement.

Speaker Change: 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 as applicable.

Nitza McKee: 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.

Sam Sato: He's forward-looking statements speak only as a big 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.

Sam Sato: 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. I'm pleased with our second quarter performance as we delivered top line sales growth of 1.8% while expanding our gross margin 90 basis points, as we began to see the benefits of our sourcing initiatives. The quarter was highlighted by strength in women's and our first layer business, as well as strength in our cooling technologies across our machillo and dry on the fly. Keep me consumers cool during the hot summer months. We saw a trend line improvement in both conversion and transactions, coupled with healthy increases over last year in both average order value and units per transaction.

Sam Sato: Thank you for joining today's call. I'm pleased with our second quarter performance as we deliver top-line sales growth of 1.8% while expanding our gross margin 90 basis points as we began to see the benefits of our sourcing initiatives.

Speaker Change: The quarter was highlighted by strength in women's and our first layer of business, as well as strength in our cooling technologies across our macho and dry on the fly, to meet consumers, cool during the hot summer months.

Speaker Change: We saw a trend line improvement in both conversion and transactions coupled with healthy increases over last year in both average order value and units per transaction.

Sam Sato: Before I review our second quarter results, I'm excited to update you on a key addition to our leadership team. On August 12, Eli gets and joins the loose training company as our senior vice president and chief merchandising officer. Eli has more than 20 years of leadership and expertise. Most recently, Eli served as the senior vice president and general merchandise manager at Academy Sports and Outdoors, where he was responsible for merchandising, strategic planning, and product innovation. Eli brings with him a wealth of experience and knowledge and has hit the ground running. with a forwarder sharing his insights on future calls.

Speaker Change: Before I review our second quarter results, I'm excited to ask that you on a T-addition to our leadership team.

Eli Getson: On August 12th, Eli Getson joined the Loose Training Company as our Senior Vice President and Chief Merchandising Officer.

Eli Getson: Eli has more than 20 years of leadership and expertise. Most recently, Eli served as the Senior Vice President and General Merchknife Manager at Academy Sports and Outdoors, where he was responsible for merchandising strategic planning and product innovation.

Speaker Change: Eli Grings with him, a wealth of experience and knowledge, and has hit the ground running.

Sam Sato: I'm excited to provide an update on the progress we are making on our key strategic initiatives, including product development and sourcing, logistics, network optimization, and our retail store portfolio strategy. As mentioned in prior calls, we are seeing the benefits of our sourcing and product innovation efforts. This remains a critical strategic unlock for the business, which is allowing us to bring to market high quality, innovative products more frequently, increase our speed to market, and significantly reduce our product costs. As Heena will discuss, we remain on track to realize significant product cost benefits this year; more to come over the next several years.

Speaker Change: with a forwarder sharing his insights on future calls.

Speaker Change: I'm excited to provide an update on the progress we are making on our key strategic initiatives, including product development and so on.

Speaker Change: Logistics, Network Optimization, and a retail store portfolio strategy.

Speaker Change: As mentioned in prior calls, we are seeing the benefits of our sourcing and product innovation efforts.

Speaker Change: This remains a critical strategic unlock for the business, which is allowing us to bring to market high quality, innovative products more frequently, increase our speed of market, and significantly reduce our product costs.

Speaker Change: As Heena will discuss, we remain on-track to realize significant product cost benefits this year with more to come over the next several years.

Sam Sato: I shared on the first quarter call that we identified and began phase two of our fulfillment center network plan to maximize productivity and cost. Our highly automated fulfillment center at Dersville is now efficiently processing nearly 60 percent of all online orders and replenishment volume. This has increased overall network capacity and enabled us to exit one of our legacy fulfillment centers with the variable CPU in the Dersville 65 percent lower than the average legacy facilities and elimination of fixed costs from the exit. We anticipate annualized run rate savings of approximately $5 million, with expected benefits to start late in the fourth quarter of this year.

Heena: I share it on the first quarter call that we identified and began Phase 2 of our full filmist Center Network Plan to maximize productivity and cost.

Heena: Our highly automated fulfillment center at Derisville is now officially processing nearly 60 percent of all online orders and replenishment volume.

Heena: This has increased overall network capacity and enabled us to exit one of our legacy fulfillment centers.

Heena: With the variable CPU in a bear's bill 65% lower than the average legacy facilities and elimination of fixed costs from the exit.

Heena: We anticipate annualized one rate savings of approximately $5 million with expected benefits to start late in the fourth quarter of this year.

Sam Sato: We're making great progress on our retail store portfolio strategy. Stores are a critical component of our omnichannel strategy, with nearly two thirds of new consumers preferring to shop in store. In addition, our omnichannel consumers spend more on average per order and shop at more than twice the frequency of our single-channel consumers. Stores also offer important services like returns, buy online pickup, and store, and fulfilling orders, creating a seamless consumer experience. Combining the digital first strategy with a relevant and productive store portfolio is critical to winning an omnichannel ecosystem.

Heena: We're making great progress on our retail store portfolio strategy. Stores are a critical component of our omnichannel strategy with nearly two-thirds of new consumers preferring to shop in store.

Heena: In addition, our omnichannel consumers spend more on average for order and shop at more than twice the frequency of our single channel consumers.

Heena: Stores also offer important services like returns, buy online pick up in store and fulfilling orders creating a seamless consumer experience.

Heena: Combining the digital first strategy with a relevant and productive store portfolio is critical to winning an in-an-on-me-channel ecosystem.

Sam Sato: The three key pillars of our retail store portfolio strategy include new stores, existing store evaluation and rationalization, and revamping marketing to drive traffic and brand awareness. As we look to future new sites, our primary criteria are location, market share opportunity with our target customer, and productivity. Format and assortment will be based on our store of the future with equal representation of men’s and women’s products. We've recently signed two LOIs in our targeting new store openings in the second half of next year. In terms of our current fleet, about 25% of our stores are coming up for lease renewals through 2026.

Heena: The three team pillars of our retail store portfolio strategy include new stores, existing story evaluation and rationalization and revamping marketing to drive traffic and brand awareness.

Heena: As we look to future new sites, our primary criteria, our location, market share opportunity with our target customer and productivity.

Heena: 4-man and assortment will be based on our story of the future with equal representation of men and women's products.

Heena: We've recently signed two L.O.I.s and our targeting new solar openings in the second half of next year.

Heena: In terms of our current fleet, about 25% of our stores are coming up for lease renewals through 2021-26.

Sam Sato: for evaluating these locations for remodel, relocation, or exit.

Heena: for evaluating these locations for remodel, relocation, or exit.

Sam Sato: In the short term, we're leveraging our strengths to capture market share and to optimize our marketing spend. Longer term, we're focused on building our existing presence in priority markets and entering new priority markets.

Heena: In the short term, we're leveraging our strengths to capture a market share and to optimize our marketing spend.

Heena: Longer term, or focus on building our existing presence in priority markets and entering new priority markets.

Sam Sato: We look forward to updating you on our retail store portfolio strategy on future calls. Our key strategies are on track with benefits flowing through. In addition, we're leveraging the benchmarking study to identify and implement structural improvements to improve the business model with a sense of urgency.

Heena: With a forward to updating you on our retail store portfolio strategy on future calls.

Heena: Our key strategies are on track with benefits flowing through. In addition, we're leveraging the benchmarking study to identify and implement structural improvements to improve the business model with a sense of urgency.

Sam Sato: Let me now provide key second quarter highlights on product innovation and consumer and brand marketing successes. Our level of newness sequentially improved in the second quarter and increased by more than 300 basis points when compared to last year. Some product innovation highlights that resonated with consumers include our women's business grew nearly 6% this quarter with positive results across both brands, particularly in Duluth. Growth was largely driven by strength in the women's first layer business, which grew by 22%. We continue to see success across our Armatello, self-naked and dry on the fly collections, and women's bras flourished with a 20% increase, driven by the popularity of our tea left bra, as well as plus sizes.

Speaker Change: Let me now provide key second quarter of highlights on product innovation and consumer and brand marketing successes.

Speaker Change: Our level of newness sequentially improved in the second quarter and increased by more than 300 basis points when compared to last year.

Speaker Change: Some product innovation highlights that resonated with consumers include our women's business grew nearly 6% this quarter with positive results across both brands, particularly in the loop.

Speaker Change: Growth was largely driven by strength in the women's first layer business, which grew by 22%.

Speaker Change: We continue to see success across our armoured cello, plopinated and dry in the fly collections, and women's bras flourish with a 20% increase driven by the popularity of our T-laps bra as well as plus sizes.

Sam Sato: Additionally, our heirloom garden collection continues to be a favorite for her, as evidence by growth of 18% this quarter, bolstered by a variety of new prints. In our men's business, the Duluth brand delivered growth of 1% this quarter. The men's Armatello collection led the way with a strong 10% increase, while woven shorts saw an 8% uplift driven by the success of the Duluth Flex Firehold Sweat Management and Dry on the Fly lines. These collections were all haloed by our cooling technology focus that ran for the majority of June and July. Our double flex denim collection also performed well, with a growth of 3%.

Speaker Change: Additionally, our Aero-Moon Garden Collection continues to be a favorite for her as evidence by growth of 18% this quarter, bolstered by a variety of new prints.

Speaker Change: In our business, the Zoo's brand delivered growth of 1% this quarter.

Speaker Change: The men's armatillo collection led the way with a strong 10% increase, while woven short saw an 8% uplift driven by the success of the Duluth Flex fire hose sweat management and dry on the fly lines.

Speaker Change: These collections were all halo by our cooling technology focus that ran for the majority of June and July.

Sam Sato: Our focus on expanding the woven shirt category resulted in growth of more than 40% driven by strength in barbecue shirts and our Wrinkle Fighter collection. Within AKHG, we saw double-digit growth in our women's loss late collection, as well as renew bamboo across both men's and women's. With regard to our recently lost fitness collection, we remain encouraged by its performance in the first half, and, as previously stated, is on track to be a meaningful part of our overall AKHG business this year. As part of our hero underwear collection, we launched Volpenn 3D in July, in enhancement to our Volpenn technology that provides even more support and lift while reducing chasing and pinching.

Speaker Change: Our Devil Flex Standard Collection also performed well with a growth of 3%.

Speaker Change: Our focus on expanding the woven shirt category resulted in growth of more than 40% driven by strength in barbecue shirts and our wrinkle fighter collection.

Speaker Change: With NAKHG, we saw double-digit growth in our women's law-slate collection, as well as renewed bamboo across both men's and women's.

Speaker Change: With regards to our recently lost fitness collection, we remain encouraged by its performance in the first half, and as previously stated, is on track to be a meaningful part of our overall AKHG business this year.

Speaker Change: As part of our hero underwear collection, we launched Vulcan 3D in July, an enhancement to our Vulcan technology that provides even more support and lift while reducing tracing and pinching.

Sam Sato: In early August, we introduced souped-up sweats to lose take on a better basic, which features a heftier 14-ounce brush cotton for added softness and warmth. and later this month, we're excited to launch two new Duluth Footwear collections, Founders and Ground Effect, which will expand our work and casual offerings.

Speaker Change: In early August, we introduced souped up sweats to loose take on a better basic, which features a hip-tier 14-ounce brush cotton for added softness and warmth.

Speaker Change: and later this month, we're excited to launch two new Duluth Footwear Collections, Founders and Ground Effect which will expand our work and casual offerings.

Sam Sato: Looking ahead, we're introducing several exciting collaborations and new prints. In the coming weeks, we will continue our beer underwear collaborations with the launch of Hands alongside a Dozens Forever collab featuring a new on-brand underwear print. Building on the success of the Bush barbecue shirt from earlier this year, we're launching a Bush hoodie, t-shirt, and socks in October. We're adding new prints to our popular Heirloom Garden collection that will continue to drive excitement throughout the fall, harvest season.

Speaker Change: Looking ahead, we're introducing several exciting collaborations and new prints.

Speaker Change: In the coming weeks, we will continue our beer underwear collaborations with the launch of hands alongside a pleasant forever collab featuring a new on-brand underwear frame.

Speaker Change: Building on the success of the Bush barbecue shirt from earlier this year, we're launching a Bush-footed T-shirt and soft in October.

Speaker Change: We're adding new prints to our popular heirloom garden collection that will continue to drive excitement throughout the fall of harvest season.

Sam Sato: Our strategic shift towards targeting younger consumers continues to gain momentum. New consumers are five years younger than existing consumers, with the average age trending younger for the past several years. Further, when looking at our active customer file for the quarter, the biggest gains in both customer town and sales growth came from customers below 50 years old. And importantly, women's buyers increased in penetration within our target customer.

Speaker Change: Our strategic shift towards targeting younger consumers continues to gain momentum. New consumers are five years younger than existing consumers with the average age trending younger for the past several years.

Speaker Change: Further, when looking at our active customer files for the quarter, the biggest gains in both customer town and sales growth came from customers below 50 years old and importantly, women's buyers increase in penetration within our target customer.

Sam Sato: We're building on the success with our mobile-first strategy as mobile penetration continues to grow as a percentage of total, both across visits and sales on our website. In the quarter, 70% of visits and 57% of sales came through a mobile device, reflecting increases of 100 basis points and 230 basis points, respectively. Further, conversion on mobile devices improved 10 basis points, and we saw a sales increase of nearly 10% in the quarter.

Speaker Change: We're building on the success with our mobile first strategy as mobile penetration continues to grow as a percentage of total both across visits and sales on our website.

Speaker Change: In the quarter, 70% of visits and 57% of sales came through a mobile device reflecting increases of 100 basis points and 230 basis points respectively.

Speaker Change: Further, conversion on mobile devices improved 10-bass points and we saw sales increase of nearly 10% in the quarter.

Operator: Good morning and welcome to the Duluth Holdings Inc. 2nd quarter, 2024 conference call. All participants will be in 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. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please know this event is being recorded.

Sam Sato: On the marketing front, in the second quarter, we successfully focused our paid media on brand awareness, driving higher orders, conversion, and average order value. This is the first time we invested in Amazon Prime Video for Mother's Day and Father's Day targeting new buyers in the 40- to 50-year-old cohort. We continue to grow our influencer program and launch targeted social and search tactics to drive consumer engagement, resulting in improved traffic trains. Our email optimization drove 10% higher traffic sequentially versus the prior quarter.

Speaker Change: On the marketing front, in the second quarter, we successfully focused our paid media on brand awareness, driving higher orders, conversion, and average order value.

Speaker Change: This is the first time we invested in Amazon Prime Video for Mother's Day and Father's Day targeting new buyers in the 40 to 50 year old co-hosts.

Nitza McKee: I would now like to turn the conference over to Nitza McKee, please go ahead. Thank you and welcome to today's call to discuss Duluth trading's 2nd quarter financial results. Our earnings release, which was issued this morning, is available on our investor relations website at ir.deluthtrading.com under press releases. I'm here today with Sam Sato, President and Chief Executive Officer, and Heena Agrawal, Senior Vice President and Chief Financial Officer. On today's call, management will provide prepared remarks, and then we will open the call for your questions.

Speaker Change: We continue to grow our influencer program and lost targeted social and search tactics to drive consumer engagement, resulting in improved traffic trains. Our email optimization drove 10% higher traffic sequentially versus the prior quarter.

Sam Sato: We have exciting marketing campaigns and events planned for the second half of the year. On August 10, we hosted our second in-store underwear trade-off event with much fanfare. The event was even more successful than the April event as we not only experienced an increase in in-store traffic, but the brand building and awareness also drove higher traffic online. We are also pleased to see an increase in the proportion of women participating in the underwear trade-offs, a strategic consumer target as we continue to grow our women's business.

Speaker Change: We have exciting marketing campaigns and events planned for the second half of the year.

Speaker Change: On all just 10, we hosted our second in-store underwear trade-up event with much fanfare. The event was even more successful than the April event, as we not only experienced an increase in in-store traffic.

Nitza McKee: 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, 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 statement. 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 FCC filings as applicable. These forward-looking statements seek only as of the date of this conference call and should not be relied upon as predictions of future events.

Speaker Change: with a brand building and awareness also drove higher traffic online.

Speaker Change: We are also pleased to see an increase in the proportion of women participating in the underwear trade-offs, a strategic consumer target as we continue to grow our women's business.

Sam Sato: We're thrilled to be partnering again with Yellowstone, which returns this November. We've planned some exciting new creative to air during the premiere episode and just in time for the holiday season. The creative will include a new brand spot as well as a custom vignette featuring a Yellowstone cast member.

Speaker Change: We're thrilled to be partnering again with Yellowstone, which returns this November.

Speaker Change: We've planned some exciting new creative to air during the premier episode and just in time for the holiday sun season.

Speaker Change: The creative will include a new brand spot, as well as a custom vignette featuring a Yellowstone cast member.

Sam Sato: As we move into the back after the year, we'll be leaning further into audio media with several podcasts, as well as streaming media with Amazon Prime, Max, and Hulu. Collectively, these networks reach nearly 80% of our target for you to 50-year-old consumer and more than 70% of existing Duluth buyers.

Speaker Change: As we move into the back after the year, we'll be leaning further into audio media with several podcasts, as well as streaming media with Amazon Prime, Max, and Hulu.

Sam Sato: 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. I'm pleased with our second quarter performance as we delivered top-line sales growth of 1.8 percent while expanding our gross margin 90 basis points as we began to see the benefits of our sourcing initiatives. The quarter was highlighted by strength in women's and our first layer of business as well as strength in our cooling technologies across our machillo and dry on the fly to meet consumers cooled during the hot summer months. We saw a trend-line improvement in both conversion and transactions coupled with healthy increases over last year in both average order value and units per transaction.

Speaker Change: Collectively, these networks reach nearly 80% of our target for you to 50-year-old consumer, and more than 70% of existing delude buyers.

Sam Sato: In summary, we return the business to top line growth and expanded growth margin. Importantly, we're realizing benefits from our long-term strategic initiatives, including logistics and supply chain, product development and sourcing, and our digital mobile-first efforts.

Speaker Change: In summary, we return to business to top-lying growth and extended growth margin.

Speaker Change: Importantly, we're realizing benefits from our long-term strategic initiatives, including logistics and supply chain, product development and sourcing, and our digital mobile-first efforts.

Sam Sato: We filled an important merchandising leadership role. We're delivering a higher level of product, newness, and innovation, which is resonating with both existing and new customers. We're taking swift action on structural initiatives like phase two of our fulfillment center network restructuring plan, and we've made great progress on our retail store portfolio strategy.

Speaker Change: We still have an important merchandising leadership role.

Speaker Change: We're delivering a higher level of product, newness, and innovation, which is resonating with both existing and new customers.

Sam Sato: Before I review our second quarter results, I'm excited to update you on a key addition to our leadership team. On August 12, Eli Getson joined the Loose Training Company as our Senior Vice President and Chief Merchandising Officer. Eli has more than 20 years of leadership and expertise. Most recently, Eli served as the Senior Vice President and General Merchandising Manager at Academy Sports and Outdoors, where he was responsible for Merchandising, Strategic Planning, and Product Innovation. Eli brings with him a wealth of experience and knowledge and has hit the ground running, with a forwarder sharing his insights on future calls.

Speaker Change: We're taking swift action on structural initiatives like Phase 2 of our fulfillment center, network restructuring plan, and we've made great progress on our retail store portfolio strategy.

Sam Sato: We ended the quarter in a strong financial position. During the quarter, we paid off the $11 million of outstanding debt on our line of credit, leaving us debt-free. Our total liquidity stood at $210 million, and our ending cash balance was approximately $10 million. We're leveraging and benefiting from the heat of deep experience, expertise, and leadership in identifying and driving structural improvements and strategic priorities with financial discipline. Our can-do spirit continues to feel all that we do.

Speaker Change: We ended the quarter in a strong financial position. During the quarter we paid off at $11 million about sending debt on our line of credit, leaving us debt free.

Speaker Change: Our total liquidity stood at $210 million, and our Indian cash balance was approximately $10 million.

Heena: We're leveraging and benefiting from Heena's deep experience, expertise, and leadership in identifying and driving structural improvements and strategic priorities with financial discipline.

Sam Sato: I'm excited to provide an update on the progress we are making on our key strategic initiatives, including product development and sourcing, logistics, network optimization, and our retail store portfolio strategy. As mentioned in prior calls, we are seeing the benefits of our sourcing and product innovation efforts. This remains a critical strategic unlock for the business, which is allowing us to bring to market high-quality, innovative products more frequently, increase our speed to market, and significantly reduce our product costs. As Heena will discuss, we remain on track to realize significant product cost benefits this year with more to come over the next several years.

Sam Sato: I'm incredibly proud of our team's hard work in what remains a dynamic consumer environment, and I look forward to building upon our many successes.

Speaker Change: Our can-do spirit continues to feel all that we do. I'm incredibly proud of our team's hard work in what remains a dynamic consumer environment. And I look forward to building upon our many successes.

Heena Agrawal: Now I'll turn the call over to Hina to discuss two financials and our whole year outlook. Thanks, Sam, and good morning. According to Sam's comments, I am proud of the team for delivering top-line sales growth coupled with gross margin expansion this quarter in what remains a resilient and value-seeking consumer environment. We not only successfully returned the business to growth with expanding gross margins, but also took important steps towards improving the structural aspects of our business model. As I stated on our first call, our primary focus is to unlock the full-profit potential of the enterprise and to strategically deploy capital to unlock growth and wide space opportunities.

Speaker Change: Now, we'll turn the call over to Heena to discuss two two financials and our full year outlook.

Heena: Thanks, Sam, and good morning. Echoing Sam's comments, I am proud of the team for delivering top line sales growth, coupled with Gloss margin expansion this quarter, in what remains a resilient and value-seeking consumer environment.

Speaker Change: We not only successfully returned the business to go with expanding growth margins, but also took important steps towards improving the structural aspects of our business model.

Sam Sato: I shared on the first quarter call that we identified and began phase two of our fulfillment center network plan to maximize productivity and cost. Our highly automated fulfillment center at dersville is now efficiently processing nearly 60 percent of all online orders and replenishment volume. This has increased overall network capacity and enabled us to exit one of our legacy fulfillment centers with the variable CPU in the dersville 65 percent lower than the average legacy facilities and elimination of fixed costs from the exit. We anticipate annualized run rate savings of approximately $5 million with expected benefits to start late in the fourth quarter of this year.

Speaker Change: As I stated on our first call, our primary focus is to unlock the full profit potential of the enterprise and to strategically disloyal capital to unlock growth and wide space opportunities.

Heena Agrawal: Realizing savings from phase 2 of the fulfillment center optimization, evaluating the existing store portfolio to increase productivity and profitability, and allocating capital to new stores are key steps towards making structural changes to drive sustainable, profitable growth. As Sam mentioned, we started phase two of our Fulfillment Center Network to maximize productivity and capacity. We are leveraging our most efficient and cost-effective address for Fulfillment Center for a planned exit out of our Dubuque, Iowa facility by the end of October. We expect to begin realising savings late in Q4 for a full year annualised run rate savings of $5 million.

Speaker Change: Realizing Savings.

Speaker Change: from Phase 2 of the full film and center optimization.

Speaker Change: Evaluating the existing store portfolio to increase productivity and profitability and allocating capital to new stores are key steps towards making structural changes to drive sustainable profitable growth.

Speaker Change: As Sam mentioned, we started Phase 2 of our full film and center networks to maximize productivity and capacity.

Sam Sato: We're making great progress on our retail store portfolio strategy. Stores are a critical component of our omnichannel strategy with nearly two-thirds of new consumers preferring to shop in storage. In addition, our omnichannel consumers spend more on average per order and shop at more than twice the frequency of our single-channel consumers. Stores also offer important services like returns, buy online pickup and store, and fulfilling orders creating a seamless consumer experience. Combining the digital first strategy with a relevant and productive store portfolio is critical to winning an omnichannel ecosystem.

Sam Sato: We are leveraging our most efficient and cost-effective a Derisville Full Filmen Center for a planned exit out of our debut Iowa facility by the end of October.

Sam Sato: This will incur restructuring expenses of 7.4 million with 4.4 million in cash and 3 million in right off.

Sam Sato: The 7.4 million in restructuring expenses will be spread between 2 quarters, with 1.6 million recognised in Q2 and 5.8 million in Q3 this year.

Sam Sato: We expect to begin realizing savings late in Q4 for a full year annualized run rate savings of $5 million.

Heena Agrawal: Adding more colour to the progress on our retail store portfolio strategy that Sam spoke about earlier. We have identified priority markets and are on track to open two new sites in the back half of 2025. As it relates to our existing fleet, 15 stores or almost 25% of our current store portfolio are coming up for renewal by 2026. We are actively evaluating options, including remodel, relocate, or exit, to enhance the productivity and profitability of our portfolio. We are revamping our store marketing efforts to include local advertising, experiential events, and targeted digital marketing to drive traffic and brand and store awareness in priority markets starting this fall.

Sam Sato: The three team pillars of our retail store portfolio strategy include new stores, existing store evaluation and rationalization, and revamping marketing to drive traffic and brand awareness. As we look to future new sites, our primary criteria are location, market share opportunity with our target customer, and productivity. Format and assortment will be based on our store of the future with equal representation of men and women's products. We've recently signed two LOIs and are targeting new store openings in the second half of next year. In terms of our current fleet, about 25% of our stores are coming up for least renewals through 2026, for evaluating these locations for remodel, relocation, or exit.

Sam Sato: Adding more colours to the progress on a retail store portfolio strategy that Sam spoke about earlier. We have identified priority markets and are on track to open two new sites in the back half of 2025.

Sam Sato: As it relates to our existing fleet, 15 stores are almost 25 percent of our current store portfolio are coming up for a new year by 2026.

Sam Sato: We are actively evaluating options, including remodel, relocate or exit to enhance the productivity and profitability of our portfolio.

Sam Sato: We are revamping our store marketing efforts to introduce local advertising, experiential events and targeted digital marketing to drive traffic and brand and store awareness in priority markets starting this fall.

Sam Sato: In the short term, we're leveraging our strengths to capture market share and to optimize our marketing spend. Longer term, we're focused on building our existing presence in priority markets and entering new priority markets.

Heena Agrawal: More to come on the glide path of our strategic initiatives and structural improvements to the business model in future calls.

Sam Sato: More to come on the glide path of our strategic initiatives and structural improvements to the business model in future calls.

Heena Agrawal: Now, speaking to our Q2 results, today we reported second quarter 2024 net sales of $141.6 million, up 1.8% with growth margin expansion of 90 basis points versus last year to 52.3%. Our reported EPS loss is 11 cents, and adjusted EPS loss is 2 cents, favourable to last year by 4 cents. Adjustments to EPS include 1.6 million in restructuring charges and a one-time sales tax contingency of 2.4 million. Adjusted EBITDA for the quarter was $10.6 million at 7.5% of net sales, up $2 million or 23.9% versus last year. Starting with our top line, our Q2 2024 net sales growth of 1.8% to 141.6 million was fueled by strong growth in the average order growth.

Sam Sato: Now, speaking to our Q2 results.

Sam Sato: We look forward to updating you on our retail store portfolio strategy on future calls. Our key strategies are on track with benefits flowing through. In addition, we're leveraging the benchmarking study to identify and implement structural improvements to improve the business model with a sense of urgency.

Speaker Change: Today, we reported 2nd quarter 2021 net sales of 141.6 million, up 1.8% with gross margin expansion of 90 basis points versus last year to 52.3%.

Speaker Change: Our reported EPS loss is 11 cents and adjusted EPS loss is 2 cents. favorable to last year by 4 cents.

Sam Sato: Let me now provide key second quarter highlights on product innovation and consumer and brand marketing successes. Our level of newness sequentially improved in the second quarter and increased by more than 300 basis points when compared to last year. Some product innovation highlights that resonated with consumers include, our women's business grew nearly 6% this quarter with positive results across both brands, particularly in Duluth. Growth was largely driven by strength in the women's first layer business, which grew by 22%.

Speaker Change: Adjustments to EPS include 1.6 million in restructuring charges and a one-time sales tax contingency of 2.4 million.

Speaker Change: Adjusted EBITDA for the quarter was $10.6 million at 7.5% of net sales up to $2 million or 23.9% versus last year.

Speaker Change: Starting with that top line, a Q2-20-24 net sales growth of 1.8% to 141.6 million was fueled by strong growth in the average order value, driven by higher units for transaction.

Sam Sato: We continue to see success across our armatello, self-naked, and dry-and-the-fly collections, and women's bras flourished with a 20% increase driven by the popularity of our tea-lapse bra, as well as plus sizes. Additionally, our heirloom garden collection continues to be a favorite for her as evidence by growth of 18% this quarter, bolstered by a variety of new prints. In our midst, business, the Duluth brand delivered growth of 1% this quarter. The men's armatello collection led the way with a strong 10% increase while woven short saw and 8% uplift driven by the success of the Duluth flex, fire hose sweat management, and dry-and-the-fly lines.

Heena Agrawal: The value driven by higher units per transaction, all months of the quarter were positive, with June representing the strongest growth contributor. Shopper conversion increased slightly over the prior year and remains strong across both our direct and retail channels. Our women's business hosted strong quarter growth of 5.8%, driven by strength in the first-layered business. Men's strength improved sequentially to almost flat year-over-year, driven by strength in Armachillo and the double-flex Dylan collection. From a channel perspective, both direct and retail channels saw improved sales versus trial quarter. Retail store sales declined 4.4% as traffic trends improved sequentially, declining 4% versus 7% in the trial quarter.

Speaker Change: All months of the quarter were positive, with June representing the strongest blows in tribute day.

Speaker Change: Schoppers' inversion increased slightly over the prior year and remains strong across both our direct and retail channels.

Speaker Change: A women's business hosted strong quarter growth of 5.8% driven by strength in the first

Speaker Change: Men's Trend improved sequentially to almost flat year over year, driven by strengths in armachalo and the doubles like denim collection.

Sam Sato: These collections were all haloed by our cooling technology focus that ran for the majority of June and July. Our Duluth flex denim collection also performed well with a growth of 3%. Our focus on expanding the woven short category resulted in growth of more than 40% driven by strength in barbecue shirts and our wrinkle fighter collection. Within AKHG, we saw double-digit growth in our women's loss late collection, as well as fitness collection, we remain encouraged by its performance in the first half.

Speaker Change: From a channel perspective, both direct and retail channels, so in huge sales versus trial quarter, retail stores sales declined 4.4% as traffic trends improved sequentially, declining 4% versus 7% in the trial quarter.

Heena Agrawal: Direct channel sales grew 5.6% – a significant reversal from Q1, benefiting from double-digit growth in units per transaction. In addition, mobile sanitation of site visits and sales continue to increase over last year. Moving to growth margin, for the second quarter, our growth margin expanded 90 basis points to 52.3%, driven by improved product cost from our direct-to-factory sourcing initiative. We have now sold through the older, higher cost inventory, and our growth margin year-to-date is 30 basis points higher than last year. Partially offsetting the improvement in product cost was a lower AUR driven by deeper promotions and a higher than planned mix of clearance sales this quarter.

Speaker Change: Direct Channel says blue 5.6% of admitricant reversals from Q1, benefiting from double digits growth in units per transaction.

Speaker Change: In addition, Mogul's penetration of site visits and saves continues to increase over last year.

Speaker Change: Moving to those margin. For the second quarter, Agrawal's margin expanded 90 basis points to 52.3 percent, driven by improved product cost from RDS to factory sourcing initiative.

Sam Sato: And, as previously stated, is on track to be a meaningful part of our overall AKHG business this year. As part of our hero underwear collection, we launched Volpin 3D in July, in enhancement to our Volpin technology that provides even more support and lift while reducing tracing and pinching. In early August, we introduced souped-up sweats to lose take on a better basic, which features a heftier 14-ounce brush cotton for added softness and warmth, and later this month, we're excited to launch two new Duluth Footwear Collections, Founders and Ground Effect, which will expand our work and casual offerings.

Speaker Change: We have now sold through the older higher cost inventory, and Agrawal's margin year to date is 30 basis point higher than last year.

Speaker Change: Partially offsetting the improvement in product costs was a lower AUR driven by deeper promotions and the higher-than-clans mix of clearance sales this quarter.

Heena Agrawal: Moving to second quarter as GNA expenses, as GNA expenses increased 4.6% to 76.3 million at 53.9% of sales. This included a non-recording 2.4 million estimated sales tax expense for prior fiscal years. Excluding the one-time sales tax expense, adjusted as GNA increased by 1.3% to 73.9 million and leveraged by 20 basis points to last year at 52.2% of sales, ahead of our expectations. The favorable leverage was mainly driven by efficiencies across logistics and our fulfillment center network, partially offset by higher fixed cost and depreciation from foundational investments. For the quarter, advertising expenses declined slightly compared to last year, leveraging by 20 basis points to 8.3% of sales.

Speaker Change: Moving to 2nd quarter as DNA Expenses.

Speaker Change: S. ENA expenses increased 4.6% to 76.3 million at 63.9% of sales. This included a non-recaring 2.4 million estimated sales tax expense for prior fiscal years.

Sam Sato: Looking ahead, we're introducing several exciting collaborations and new prints. In the coming weeks, we will continue our beer underwear collaborations with the launch of hands alongside a dozens forever collab featuring a new on-brand underwear print. Building on the success of the Bush barbecue shirt from earlier this year, we're launching a Bush hoody t-shirt and socks in October. We're adding new prints to our popular heirloom garden collection that will continue to drive excitement throughout the fall, harvest season.

Speaker Change: Excluding the one-time sales tax expense, adjusted S-E-N-A increased by 1.3% to 73.9 million and leveraged by 20 basis points to last year at 62.2% of sales ahead of our expectations.

Speaker Change: The favourable leverage was mainly driven by efficiencies across logistics and our fulfilment centre network, partially offset by higher fixed costs and depreciation from foundational investment.

Sam Sato: Our strategic shift towards targeting younger consumers continues to gain momentum. New consumers are five years younger than existing consumers with the average age trending younger for the past several years. Further, when looking at our active customer file for the quarter, the biggest gains in both customer count and sales growth came from customers below 50 years old. And importantly, women's buyers increased in penetration within our target customer. We're building on the success with our mobile first strategy as mobile penetration continues to grow as a percentage of total both across visits and sales on our website.

Speaker Change: For the quarter, advertising expenses declined slightly compared to last year, leveraging by 20 basis points to 8.3% of sales.

Heena Agrawal: For the first half, advertising expenses as a percent of sales are in line with last year as we continue to invest behind our grants, support new product innovation, and drive omnichannel sales. Variable or selling expenses, which include outbound shipping costs as well as labor across our customer contact center, fulfillment centers, and store fleets, continue to improve, leveraging by 120 basis points. The favorable leverage was driven by optimizing our outbound shipment network, new parcel agreements, and efficiencies across the fulfillment center network, particularly at Adaisville. Fixed expenses are general and administrative expenses, excluding the sales tax contingency, increased 6.7% de-laveraging by 120 basis points, primarily from annualizing depreciation and fixed costs from strategic initiatives like the Adaisville Investment initiated in Q3 of 2023.

Speaker Change: For the first half advertising expenses as a percent of sales are in line with last year as we continue to invest behind our grants, support new product innovation and drive on the channel sales.

Speaker Change: Variable or selling expenses, which include out-ground shipping costs, as well as labor, across our customer contact center, full salesman centers, and store fleet continue to improve, leveraging by 120 basis points.

Sam Sato: In the quarter, 70% of visits and 57% of sales came through a mobile device reflecting increases of 100 basis points and 230 basis points respectively. Further, conversion on mobile devices improved 10 basis points and we saw a sales increase of nearly 10% in the quarter.

Speaker Change: The favourable leverage will driven by optimizing our outbound shipment network, new partial agreements and efficiencies across the full-fillment centre network, particularly at a

Speaker Change: Fixed expenses, or general and administrative expenses, excluding the sales tax contingency, increased 6.7%.

Sam Sato: On the marketing front, in the second quarter, we successfully focused our paid media on brand awareness driving higher orders, conversion, and average order value. This is the first time we invested in Amazon Prime video for Mother's Day and Father's Day targeting new buyers in the 40- to 50-year-old cohort. We continue to grow our influencer program and launched targeted social and search tactics to drive consumer engagement resulting in improved traffic trains. Our email optimization drove 10% higher traffic sequentially versus the prior quarter.

Speaker Change: D-Laboraging by 120 basis points, primarily from annualising depreciation and fixed costs from strategic initiatives, like the Aderisville investment initiated in Q3 of 2023.

Heena Agrawal: As mentioned earlier, we recognized two discrete expenses this quarter. The first was a 1.6 million restructuring expense from the exit of one of our legacy fulfillment centers. The second was a 2.4 million estimated sales tax expense recorded in SG&A. After reviewing the company's sales tax positions, it was determined that certain local sales taxes within one state had not been fully collected in the prior fiscal years, resulting in a contingency expense. Our Q2 adjusted net loss was $0.6 million or 2 cents per diluted share, compared to a net loss of $2 million or 6 cents per diluted share last year.

Speaker Change: As mentioned earlier, we recognized two discrete expenses this quarter. The first was a 1.6 million re-structuring expense from the exit of one of our legacy fulfillment centers. The second was a 2.4 million estimated sales tax expense.

Speaker Change: recorded in SG&A. After reviewing the company's sales tax positions, it was determined that certain local sales taxes within one state had not been fully selected in the prior fiscal years, resulting in a contingency expense.

Sam Sato: We have exciting marketing campaigns and events planned for the second half of the year. On August 10, we hosted our second in-store underwear trade-off event with much fanfare. The event was even more successful than the April event as we not only experienced an increase in in-store traffic but the brand building and awareness also drove higher traffic online. We are also pleased to see an increase in the proportion of women participating in the underwear trade-offs, a strategic consumer target as we continue to grow our women's business.

Speaker Change: Artue to adjusted net loss was 0.6 million of 2 cents per diluted share compared to a net loss of 2 million.

Heena Agrawal: Adjusted EBITDA was positive $10.6 million in the second quarter and positive $12.4 million year-to-date. Inventory balance was up 7% or approximately 11.6 million, with clearance inventory at 11% versus 7% last year and 89% in current products. Our capital expenditures for the first half were 8 million versus 34 million in the prior year, primarily used to invest in strategic digital capabilities as per our technology roadmap. As Sam mentioned, during the quarter, we paid off 11 million of outstanding debt, ending the period with no debt on our line of credit. We had 9.8 million of cash and cash equivalents at the end of the quarter.

Speaker Change: or 6 cents for diluted share last year. Adjusted Eva Dahl was positive 10.6 million in the second quarter and positive 12.4 million year to date.

Sam Sato: We're thrilled to be partnering again with Yellowstone which returns this November. We've planned some exciting new creative to air during the premiere episode and just in time for the holiday season. The creative will include a new brand spot as well as a custom vignette featuring a Yellowstone cast member. As we move into the back after the year, we'll be leaning further into audio media with several podcasts as well as streaming media with Amazon Prime, Max and Hulu. Collectively, these networks reach nearly 80% of our target for you to 50-year-old consumer and more than 70% of existing Duluth buyers.

Speaker Change: Inventory balance was up 7% or approximately 11.6 million, with clearance inventory at 11% versus 7% last year, and 89% in current products.

Speaker Change: Our capital expenditures for the first half were 8 million, versus 34 million in the prior year. Primarily used to invest in strategic digital capabilities as for our technology roadmap.

Speaker Change: As Sam mentioned during the quarter, we paid off 11 million of outstanding debt, ending the period with no debt on our line of credit.

Sam Sato: We had 9.8 million of cash and cash is equivalent at the end of the quarter. Our balance sheet remains strong with liquidity of 210 million.

Heena Agrawal: Our balance sheet remains strong, with liquidity of 210 million. Now, turning to our outlook for fiscal year 2024, we are reconforming our full year top-line sales guidance of 640 million, which includes 60 basis points from the Costco order and approximately 150 basis points of growth from the 53rd week. Our adjusted EPS guidance is negative 22 cents, which excludes the impact of restructuring and the one-time sales tax expense. We are reaffirming our adjusted EBITDA guidance of $39 million for the full year. We expect to continue to benefit from year-over-year growth, margin expansion in the second half, driven by lower product costs, partially offset by higher clearance inventory.

Sam Sato: In summary, we return the business to top line growth and expanded growth margin. Importantly, we're realizing benefits from our long-term strategic initiatives including logistics and supply chain, product development and sourcing and our digital mobile first efforts. We filled an important merchandising leadership role. We're delivering a higher level of product, newness and innovation, which is resonating with both existing and new customers. We're taking swift action on structural initiatives like phase two of our fulfillment center network restructuring plan, and we've made great progress on our retail store portfolio strategy.

Speaker Change: Now turning to our outlook for fiscal year 2024, we are reconfirming our Folier top-line sales guidance of 640 million, which includes 60 basis points from the Costco order and approximately 150 basis points of growth from the 53rd week.

Speaker Change: Our adjusted EPS guidance is negative 22 cents, which excludes the impact of restructuring and the one-time sales tax expense. We are reaffirming our adjusted EBIT done guidance of 39 million for the full year.

Speaker Change: We expect to continue to benefit from your over year growth margin expansion in the second half.

Sam Sato: We ended the quarter in a strong financial position. During the quarter, we paid off the $11 million of outstanding debt on our line of credit, leaving us debt-free. Our total liquidity stood at $210 million and our ending cash balance was approximately $10 million. We're leveraging and benefiting from heat of deep experience, expertise, and leadership in identifying and driving structural improvements and strategic priorities with financial discipline. Our can-do spirit continues to feel all that we do.

Speaker Change: Driven by Loretta, of course.

Heena Agrawal: We are now projecting full-year growth margin expansion of 150 basis points. Our product sourcing and innovation efforts are expected to continue to reduce product costs and expand margins for the next four years as we increase the percentage of product sourced direct from factory. We expect SGNA, excluding the sales tax contingency, to de-leverage by approximately 80 basis points and improvement versus trial guidance as we realize additional savings from efficiencies in fixed expenses like services and contracts, and benefits from our fulfillment center network optimization initiative expected to begin late in Q4. Advertising expenses are planned to be in line with sales growth at approximately 11% of sales.

Speaker Change: Partially offset by higher clearance inventory. We are now suggesting folio-growth margin expansion of 150 basis points.

Speaker Change: Our product sourcing and innovation efforts are expected to continue to reduce product cost and expand margin for the next four years as we increase the percentage of product sourced direct from factory.

Speaker Change: We expect SG&A, excluding the same tax contingency, to deal average by approximately 80 basis points, and improvement versus higher guidance, as we realize additional savings from efficiencies in fixed expenses, like services and contracts.

Sam Sato: I'm incredibly proud of our team's hard work in what remains a dynamic consumer environment, and I look forward to building upon our many successes.

Heena Agrawal: Now I'll turn the call over to Hina to discuss two two financials and our whole year outlook. Thanks, Sam, and good morning. Echoing Sam's comments, I am proud of the team for delivering top-line sales growth coupled with growth margin expansion this quarter. In what remains a resilient and value-seeking consumer environment. We not only successfully returned the business to growth with expanding growth margins, but also took important steps towards improving the structural aspects.

Speaker Change: and benefits from our fulfillment center network optimization initiative, expected to begin late in Q4.

Speaker Change: advertising expenses are planned to be in line with sales growth at approximately 11% of sales.

Heena Agrawal: Variable or selling expenses will continue to leverage by over 120 basis points, driven by transportation savings from addition of carriers as of mid-April and continuing a digital efficiency. Fixed expenses or general and administrative expenses are expected to be higher, de-laveraging by approximately 200 basis points, primarily from annualizing depreciation and fixed costs of strategic initiatives. With that, we are confirming our full year adjusted EBITDA guidance of $39 million. Our adjusted EPS guidance is minus 22 cents, with estimated diluted shares of approximately 33 million and a tax rate of 23%. Our liquidity remains strong, and our capital expenditure 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: Variable or selling expenses will continue to leverage by over 120 basis points driven by transportation savings from addition of carriers as of mid April and continuing additional efficiencies.

Speaker Change: Fixed expenses, or general and administrative expenses are expected to be higher, de-leveraging by approximately 200 basis points, primarily from annualizing depreciation and fixed cost of strategic initiatives.

Heena Agrawal: As I stated on our first call, our primary focus is to unlock the full-profit potential of the enterprise and to strategically deploy capital to unlock growth and wide space opportunities. Realizing savings from phase two of the fulfillment center optimization, evaluating the existing store portfolio to increase productivity and profitability and allocating capital to new stores are key steps towards making structural changes to drive sustainable, profitable growth. As Sam mentioned, we started phase two of our Fulfillment Center network to maximize productivity and capacity.

Speaker Change: With that, we are informing our full year adjusted EBITDA guidance of 39 million. Our adjusted EPS guidance is minus 22 cents with estimated diluted shares of approximately 33 million and a tax rate of 23%.

Speaker Change: Our liquidity remains strong and our capital expenditure is on track to be reduced by more than half to approximately 25 million with the primary focus on our strategic technology

Heena Agrawal: In closing, as we build on a solid Q2, we are focused on managing our business prudently, maximizing return from our foundational investment, and taking swift structural actions to improve our business model to unlock profitability and invest in growth.

Speaker Change: In closing, as we build on a solid Q2, we are focused on managing our business to it.

Heena Agrawal: We are leveraging our most efficient and cost-effective adhesives Fulfillment Center for a planned exit out of our debut IOA facility by the end of October. We expect to begin realizing savings late in Q4 for a full year annualized run rate savings of 5 million dollars. Adding more color to the progress on our retail store portfolio strategy that Sam spoke about earlier. We have identified priority markets and are on track to open two new sites in the back half of 2025.

Speaker Change: Maximizing return from our foundational investments and taking swift structural actions to improve our business model to unlock profitability and invest in growth.

Nitza McKee: With that, we open the call for questions. We will now begin the question and answer session. To ask a question, you are pressed star, then one on your telephone keypad. To withdraw your question, please press star, then two. We will pause momentarily to assemble our roster.

Speaker Change: with that we'll open the call for questions.

Speaker Change: Thanks for watching!

Rumi: Rumi, I'll begin the question and answer session. To ask a question you may press start and one on your telephone key path. To withdraw your question, please press start and two.

Speaker Change: We'll pause momentarily to assemble our roster.

Janine Stichter: The first question comes from Janine Siktert at BTIG. Hi, good morning, and congratulations on the progress. We want to start out with some questions around the store fleet.

Speaker Change: The first question?

Speaker Change: Come from Janine Victor at BTIG.

Janine Victor: Hey, good morning and congratulations on the progress.

Janine Victor: and one to start out with some questions around the door fleet.

Janine Stichter: I guess first off, we'll left you here more about the two size tier planning for next year and what you look for in terms of site selection. Then, as you think about the 25% of the fleet that's up for renewal, maybe some parameters of how these stores look first as the rest of the fleet, either in terms of performance or profitability, and how we should think about what the range of outcomes might look like for this portion of the fleet.

Janine Victor: So I guess first off, I'll let you hear more about the two sites you're planning for next year on what you look for in terms of site selection and then as you think about the 25% of the fleet that's up for a new year.

Heena Agrawal: As it relates to our existing fleet, 15 stores or almost 25% of our current store portfolio are coming up for renewal by 2026. We are actively evaluating options including remodel, relocate or exit to enhance the productivity and profitability of our portfolio. We are revamping our store marketing efforts to include local advertising, experiential events and targeted digital marketing to drive traffic and brand and store awareness in priority markets starting this fall.

Janine Victor: and you'll have some sort of parameters of how these stories look versus the rest of the sweet, either in terms of performance or profitability and how we should think about what's a range of outcomes that might look like for this portion of the sweet.

Sam Sato: Hi, Janine. I'll maybe take the first part of your question, and I'll allow Hena to dive in a little more detail. The two LLIs were excited for their locations.

Speaker Change: Yeah, I'll maybe take the first part of your question, and I'll allow.

Hina: Hina to dive in a little more detail.

Sam Sato: We haven't announced it publicly yet. We keep that pretty close to the vest, but as was stated in our prepared remarks, our primary criteria is obviously location, and we look at adjacencies. It's the size of the opportunity within the market share for our target consumer. Then undoubtedly, we've got some financial criteria that we look at. We stated on our last call that in 2023, our entire fleet was four-wall profitable, and yet we continue to look for improvement and want to ensure that we set appropriate hurdle rates on key metrics so that the store fleet continues to be additive to the company's results, both in terms of sales and profits.

Hina: The two L.O.I.s were cited for their locations. We haven't announced it publicly yet. We keep that pretty close to the vast budget.

Hina: As was stated in our prepared remarks, our primary criteria is obviously location and we look at a Jason Seas.

Heena Agrawal: More to come on the glide path of our strategic initiatives and structural improvements to the business model in future calls.

Hina: It's the size of the opportunity within the market share for our target consumer and then undoubtedly we've got some...

Heena Agrawal: Now, speaking to our Q2 results, today we reported 2nd quarter 2024 net sales of 141.6 million, up 1.8% with growth margin expansion of 90 basis points versus last year to 52.3%.

Hina: Financial Criteria.

Hina: that we look at, you know, we stayed as on our last call that in 2023.

Heena Agrawal: Our reported EPS loss is 11 cents and adjusted EPS loss is 2 cents favorable to last year by 4 cents. Adjustments to EPS include 1.6 million in restructuring charges and a one-time sales tax contingency of 2.4 million. Adjusted EBITDA for the quarter was 10.6 million dollars at 7.5% of net sales, up 2 million dollars or 23.9% versus last year. Starting with our top line, our Q2 2024 net sales growth of 1.8% to 141.6 million was fueled by strong growth in the average order market.

Hina: and our entire fleet was four-wall profitable and yet.

Hina: We continue to look for improvement and want to ensure that we set appropriate.

Hina: Herdle rates on key metrics so that the store fleet continues to be additive to the companies results, both in terms of sales and profits.

Heena Agrawal: As we look at the fleet that's coming up. So we have about 15 stores coming up for these renewal by 2026, and the way we are evaluating it, we are looking at a higher threshold of profitability as the renewals come up for those sites, and we are evaluating all options whether it's remodel, relocate, or exit, so that as we look at our entire portfolio. You know, structurally we want to make sure that it's improving in profitability overall.

Speaker Change: and Dr. Rattu Dattit.

Speaker Change: As we look at the fleets that's coming up so we have about 15 stores coming up for least renewal by 2026.

Speaker Change: and the way we are evaluating it, we are looking at a higher threshold of profitability.

Speaker Change: as the renewals come up for their sights.

Speaker Change: and we are evaluating all options whether it is remodel, relocate or exit.

Heena Agrawal: The value driven by higher units per transaction, all months of the quarter were positive with June representing the strongest growth contributor. Shopper conversion increased slightly over the prior year and remains strong across both our direct and retail channels. Our women's business hosted strong quarter growth of 5.8% driven by strength in the first-layered business. Men's strength improved sequentially to almost flat year-over-year, driven by strength in Armachillo and the double-flex Dylan collection. From a channel perspective, both direct and retail channels saw improved sales versus trial quarter.

Speaker Change: So, that as we look at our entire portfolio structure, we want to make sure that it's improving in profitability overall.

Sam Sato: Perfect, and then also want to ask us for a margin, so it sounds like you're really seeing the benefits from the sourcing initiatives. Maybe a bit more color on how that unfolds, and sounds like there's a longer tail on those benefits. So kind of what that looks like over the next year. So, and then on the flip side, sounds like you're seeing consumers continue to gravitate, continuing to gravitate towards clearance.

Speaker Change: Perfect, and then I'll come on to ask out for a smart gen.

Speaker Change: So it sounds like, you know, you're really seeing the benefits from the sourcing initiative. Maybe a bit more color on how that unfolds and sound like there's a longer tail on those benefits, so kind of what that looks like over the next.

Speaker Change: And then on the flip side, it sounds like you're seeing consumers continue to gravitate, continue to gravitate towards clearance. Just more color on what you're seeing from a consumer lens, how you're seeing them shopping and what you're expecting from a emotional standpoint.

Sam Sato: Just want to call on what you're seeing from a consumer lens. You know how you're seeing them shopping and what you're expecting from a commercial standpoint. Yeah, you know we talked about the introduction of our product development and sourcing strategic initiative, and you know in a vertical operation like ours, that's one of the most critical and important strategic unlocks. To allow us to not only compete long term and improve our profitability, but frankly, it's about bringing to market high quality, high quality innovative products, importantly more frequently, increase our speed to market, meaning from ideation to actual, you know, on the floor so to speak.

Speaker Change: Yeah, you know, we talked about the introduction of our product development and sourcing strategic initiative, and you know, in a vertical operation like ours, that's one of the most critical and important strategic unlocks.

Heena Agrawal: Retail store sales declined 4.4% as traffic trends improved sequentially, declining 4% versus 7% in the trial quarter. Direct channel sales grew 5.6% a significant reversal from Q1, benefiting from double-digit growth in units per transaction. In addition, mobile penetration of site visits and sales continue to increase over last year. Moving to growth margin, for the second quarter, our growth margin expanded 90 basis points to 52.3% driven by improved product cost from our direct-to-factory sourcing initiative.

Speaker Change: to allow us to not only compete long-term and improve our profitability, but, frankly, it's about bringing to market high-quality, innovative products, importantly, more frequently.

Speaker Change: Increase our speed to market meaning from ideation to actual on the floor, so to speak.

Sam Sato: And obviously, at the same time leveraging our size and expertise to improve our profit margins. And, you know, as we have now over a handful of quarters started to really build out that team and bring in expertise to help us leverage our relationships. Our team has historically done a really great job within product development. I think this is the next level to that and you know based on our timelines, you know we're now starting to see the benefits of that and see it flow through. In terms of the consumer today, you know we're being cautious about, you know, our outlook as we move forward. At the same time, you know, we talked a lot about our philosophical approach to ensuring that our inventories remain clean and healthy.

Speaker Change: and obviously at the same time leveraging our size and expertise to improve our profit margins. And as we have...

Heena Agrawal: We have now sold through the older higher cost inventory and our growth margin year-to-date is 30 basis points higher than last year. Partially offsetting the improvement in product cost was a lower AUR driven by deeper promotions and a higher than planned mix of clearance sales this quarter. Moving to second quarter as GNA expenses, as GNA expenses increased 4.6% to 76.3 million at 53.9% of sales. This included a non-recording 2.4 million estimated sales tax expense for prior fiscal years.

Speaker Change: Now, over a handful of quarters, started to really build out that team and bring in the expertise to help us.

Speaker Change: Leverage our relationships, our team has historically done a really great job within product development.

Speaker Change: I think this is the next level to that and...

Speaker Change: You know, based on our timelines, you know, we're now starting to see the benefits of that and see it flow through.

Speaker Change: In terms of the consumer today, you know, we're being cautious about, you know, our outlook as we move forward at the same time.

Speaker Change: We've talked a lot about our philosophical approach to ensuring that our inventories remain clean and healthy.

Sam Sato: And you know our clearance inventories ticked up a little bit at the end of Q2, and we are swiftly taking action against that, and that impact we've contemplated within our guidance. And you know, at the end of the day, we don't want to be carrying. Pre you know past seasons clearance inventory into the next season certainly not into the next year and so we're going to be we're going to be really really focused and urgent about getting that in line. The great news is although it ticked up a bit. The quality and health of our inventories are in a really good place; nearly 90% of our current inventory is current season's goods. This is a moment in time we've got to address, and maybe not unlike other times we've had or will have. But we're going to stay focused on turning that inventory and focusing on new product innovation and bringing just great products and stories to market.

Heena Agrawal: Excluding the one-time sales tax expense adjusted as GNA increased by 1.3% to 73.9 million and leveraged by 20 basis points to last year at 52.2% of sales ahead of our expectations. The favorable leverage was mainly driven by efficiencies across logistics and our fulfillment center network. Partially offset by higher fixed costs and depreciation from foundational investments. For the quarter, advertising expenses declined slightly compared to last year, leveraging by 20 basis points to 8.3% of sales.

Speaker Change: and our clearance inventories picked up a little bit at the end of Q2 and we are swiftly taking action against that and that.

Speaker Change: Impact, we've contemplated within our guidance and, you know, at the end of the day, we don't want to be caring.

Speaker Change: Pre, you know, past seasons, clearance inventory into the next season, and certainly not into the next year. And so we're going to be really, really focused and urgent about getting that in line. The great news is, although it picked up a bit,

Speaker Change: The quality and health of our inventory is in a really good place, you know, nearly 90%.

Heena Agrawal: For the first half, advertising expenses as a percent of sales are in line with last year as we continue to invest behind our grants, support new product innovation and drive omnichannel sales. Variable or selling expenses which include outbound shipping costs as well as labor across our customer contact center, fulfillment centers and store fleets continue to improve leveraging by 120 basis points. The favorable leverage was driven by optimizing our outbound shipment network, new parcel agreements, and efficiencies across the fulfillment center network, particularly at Adaisville.

Speaker Change: of our current inventory is current seasons.

Speaker Change: Goods, and so, you know, this is a moment in time. We've got to address it and maybe not unlike, you know, other times we've had or will have, but we're going to stay focused on turning that inventory and focusing on new product innovation and

Speaker Change: and bringing just great, great products and stories to market.

Heena Agrawal: Yeah, and just to add on the gross margin piece, Janine, like we said in Q2, we delivered 90 basis points for the full year. We have line of sight to 150 basis points, net of the inventory clearance issue.

Janine Victor: And just to add on the gross margin piece, Janine, we, you know, like we said, and Q2, we delivered 90 basis points.

Speaker Change: For the full year, we have line of sites to 150 basis points met of the inventory clearance issue. And as we look ahead, this is a tailwind that is expected to continue for the next four to five years as we source the higher percentage of our products.

Heena Agrawal: And as we look ahead, this is a tailwind that is expected to continue for the next four to five years as we source the higher percentage of our products directly from factories.

Heena Agrawal: Fixed expenses are general and administrative expenses, excluding the sales tax contingency, increased 6.7% de-laveraging by 120 basis points, primarily from annualizing depreciation and fixed costs from strategic initiatives like the Adaisville Investment initiated in Q3 of 2023.

Heena Agrawal: And our goal is to get us back to an ultimately exceed the gross margins that we had pre-pandemic. Just in terms of a little bit more color on where gross margin is going. On the promotion piece, we're going to continue to be flexible and agile. Our approach is to stay competitive, make sure our brand has integrity without pricing. And that we are balancing both sales and margin. And so that's kind of our approach as we are looking at the second half, but we feel very good about our second half in terms of all the innovations coming to market that Sam mentioned.

Patreel: So directly from Patreel.

Patreel: And you know, Agrawal is to get us back to an ultimately exceed the gross margins that we had pre-pandemic.

Speaker Change: Just in terms of a little bit more colour on their juice margin is going.

Heena Agrawal: As mentioned earlier, we recognized two discrete expenses this quarter. The first was a 1.6 million restructuring expense from the exit of one of our legacy fulfillment centers. The second was a 2.4 million estimated sales tax expense recorded in SGNA. After reviewing the company's sales tax positions, it was determined that certain local sales taxes within one state had not been fully collected in the prior fiscal years, resulting in a contingency expense. Our Q2 adjusted net loss was 0.6 million or 2 cents per diluted share compared to a net loss of 2 million or 6 cents per diluted share last year.

Speaker Change: On the promotion piece, you know, we're going to continue to be flexible and agile.

Speaker Change: are a progesterate, make sure our brand has integrity with our pricing.

Speaker Change: and that we are balancing both trails and margin.

Eli: and so that's kind of our approach as we are looking at the second half. But we feel very good about our second half in terms of all the innovations coming to market that Sam mentioned and with Eli on board we are really excited about the discipline approach he's going to bring to the merchandising.

Sam Sato: And with Eli on board, we are really excited about the disciplined approach he's going to bring to the merchandising.

Janine Stichter: Perfect, that's a hopeful color, and thanks so much; I can pass that on. Thank you.

Speaker Change: Perfect, that's hope for color and thanks so much again, pass that on.

Jonathan Coppert: The next question is from Jonathan Coppert, Beard. Yeah, good morning. A couple of questions this morning, maybe first following up on the store topic. When you look at the retail stores, I'm curious what you make of the traffic declines that you're seeing.

Speaker Change: Thank you.

Speaker Change: The next question is from Jonathan Coppett, David Loretta.

Jonathan Coppett: Good morning, a couple questions this morning, maybe first, following up on the store topic. When you look at the retail stores, I'm curious, what you make of the traffic declines that you're seeing and given that the lower traffic, these still expect the store base.

Heena Agrawal: Adjusted EBITDA was positive 10.6 million in the second quarter and positive 12.4 million year-to-date. Inventory balance was up 7% or approximately 11.6 million with clearance inventory at 11% versus 7% last year and 89% in current products. Our capital expenditures for the first half were 8 million versus 34 million in the prior year, primarily used to invest in strategic digital capabilities as per our technology roadmap. As Sam mentioned, during the quarter, we paid off 11 million of outstanding debt ending the period with no debt on our line of credit.

Jonathan Coppert: And given the lower traffic, these still expect the store base, all the stores to be profitable this year. And if you were to consider closing some stores in the future, any sense of what impact that might have on your direct business in those markets?

Speaker Change: All the stores to be profitable this year, and if you were to consider closing some stores in the future, any sense of what impact that might have on your direct business in those markets.

Sam Sato: Yeah, Jonathan, a couple of things I'll say, as we've discussed in the past: traffic trends in the stores have been challenging. We saw the trends improved sequentially this last quarter. Having said that, we're starting to see where we're getting benefits from a multi-channel market strategy, although stores have declined. We're seeing improvements in our online business in those markets. It's importantly, we've started to maybe unlock some real local in-store events that are in fact driving traffic back to the stores, that it's not a price-driven event like this underwear trade-up event. I said in my prepare remarks, and I want to just emphasize this because it's really I think important, but gives us optimism around an event like that, is in the first one in April, we had a pretty good response from the female consumer that was actually participating in the trade-up event.

Speaker Change: Yeah, Jonathan, a couple things I'll say, you know, as we've discussed in the past, you know, traffic trends in the stores.

Speaker Change: have been challenging. You know, we saw the trends improved sequentially this last quarter.

Speaker Change: Um...

Speaker Change: Having said that, we're starting to see where we're getting...

Heena Agrawal: We had 9.8 million of cash and cash equivalence at the end of the quarter. Our balance sheet remains strong with liquidity of 210 million. Now, turning to our outlook for fiscal year 2024, we are reconforming our full-year top-line sales guidance of 640 million, which includes 60 basis points from the Costco order and approximately 150 basis points of growth from the 53rd week. Our adjusted EPS guidance is negative 22 cents, which excludes the impact of restructuring and the one-time sales tax expense.

Speaker Change: Benefits from a multi-channel market strategy, although...

Speaker Change: All those stores have declined, you know, we're seeing improvements in our online business and those markets importantly.

Speaker Change: You know, we've started to maybe unlock some real.

Speaker Change: Local In-Store events that are in fact driving traffic back to the stores that it's not a price driven event like this underwear trade up event.

Speaker Change: I said in my prepared remarks and I want to just emphasize this because it's really, I think, important, but gives us optimism around and event like that.

Speaker Change: is in the first one in April. We had a pretty good response from the female consumer that was actually participating in the tradeup of that and that number in terms of the proportion to total people coming to the stores.

Heena Agrawal: We are reaffirming our adjusted EBITDA guidance of 39 million for the full-year. We expect to continue to benefit from year-over-year growth margin expansion in the second half driven by lower product costs partially offset by higher clearance inventory. We are now projecting full-year growth margin expansion of 150 basis points. Our product sourcing and innovation efforts are expected to continue to reduce product cost and expand margins for the next four years as we increase the percentage of product sourced direct from factory.

Sam Sato: And that number in terms of the proportion to total people coming to the stores to trade up, the proportion of women's participating jumped dramatically. And so we think that we've now had a couple of those. We've had smaller tests and some other categories that are showing similar results, and so we believe we've unlocked some really, really valuable and relevant experiences for the consumer.

Speaker Change: to trade up the proportion of women's...

Speaker Change: Disappeating, jumped dramatically, and so we think that.

Speaker Change: We've now had a couple of those. We've had smaller tests in some other categories that are showing similar results. And so we believe we've unlocked some really, really valuable and relevant.

Sam Sato: As it relates to the profitability, and back to Hina's comments around our store portfolio strategy, we're looking at a combination of new locations, as well as rationalizing the current portfolio based on productivity and profitability. And as stores come up for renewal, we've got about 25% of the chain here in the next fall at year and a half. We're also looking beyond that and engaging our landlords in discussions where we believe we can make some meaningful improvements in the profitability. And in some cases where we just don't believe it's going to meet our thresholds, we're open and prepared to exit those locations.

Speaker Change: Experiences for the consumer. As it relates to the profitability and back to, you know, Heena's comments around our store portfolio strategy. You know, we're looking at a combination of new locations as well as rationalizing the current...

Heena Agrawal: We expect SGNA, excluding the sales tax contingency to be leveraged by approximately 80 basis points and improvement versus trial guidance as we realize additional savings from efficiencies in fixed expenses like services and contracts and benefits from our Sulfur Center Network Optimization Initiative, expected to begin late in Q4. 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 120 basis points driven by transportation savings from addition of carriers as of mid-April and continuing a digital efficiency.

Heena: Portfolio based on productivity and profitability and as stores come up for renewal, you know, we've got about 25% of the chain here in the next.

Heena: Fall at year and a half.

Heena: We're also looking beyond that and engaging our landlords and discussions where we believe we can.

Heena: Make some meaningful improvements in the profitability and in some cases where we just don't believe it's going to meet our thresholds, we're open and prepared to exit those locations. So our focus is really, really deep.

Sam Sato: So our focus is really, really deep on ensuring that the retail portfolio is a profitable contributor to the overall enterprise. At the same time, we recognize the importance of a multi-channel ecosystem and the benefits it provides the company from a consumer engagement and sales and transaction perspective.

Heena: on ensuring that the retail portfolio is a profitable contributor to the overall enterprise.

Heena Agrawal: Fixed expenses or general and administrative expenses are expected to be higher, de-laveraging by approximately 200 basis points, primarily from annualizing depreciation and fixed costs of strategic initiatives. With that, we are confirming our full year adjusted EBITDA guidance of 39 million. Our adjusted EPS guidance is minus 22 cents with estimated diluted shares of approximately 33 million and a tax rate of 23%. Our liquidity remains strong and our capital expenditure is on track to be reduced by more than half to approximately 25 million with the primary focus on our strategic technology roadmap.

Heena: At the same time, we recognize the importance of a multi-channel ecosystem and the benefits it provides the company from a consumer engagement and sales and transaction perspective.

Jonathan Coppert: Got it.

Jonathan Coppert: And then maybe to follow up on inventory, just to ask a little bit further, you know, the sequential dollar increase from the first to second quarter looks pretty substantial, maybe the largest that we've seen in the past for Duluth. So could you maybe give a little more color where there are any early receipts? Are there signs of a new categories aren't resonating?

Speaker Change: and then maybe to follow up on inventory, just to ask a little bit further, you know, this sequential dollar increase from the first to second quarter looks pretty substantial, maybe the largest.

Speaker Change: that we've seen in the past for Duluth, so can you maybe give a little more color where there are any early receipts or there are...

Jonathan Coppert: And maybe a broader question about sort of skew proliferation and how you avoid adding too much in terms of the overall skew count as you pursue some of these new categories?

Speaker Change: Sign some of the new categories aren't resonating and maybe a broader question about sort of skew proliferation and how you...

Heena Agrawal: In closing, as we build on a solid Q2, we are focused on managing our business prudently, maximizing return from our foundational investments and taking swift structural actions to improve our business model to unlock profitability and invest in growth.

Voida: of Voida, you know, adding too much in terms of the overall skew count as you pursue some of these new categories.

Sam Sato: Yeah, so in Q2, you know, we shared in Q1 coming out of, out of, being clear, coming out of Q4 sold a lot more units in a highly promotional environment. So we came out of Q4 in a much leaner inventory position than what we had projected when we were placing that spring season's orders. And so one of the areas that we sold through at a higher rate was our core inventory, which had an impact on our Q1 sales. As we ramped up heading into Q2, not only were we able to react to our core products, but the team did go back and react to some areas within the spring summer collection that they thought we were light on.

Speaker Change: Yeah, so in Q2, we share it in Q1 coming out of it.

Speaker Change: Out of, uh, let me be clear, coming out of Q4, sold a lot more units in a highly promotional environment, so we came out of Q4 in a much leaner inventory position than what we had projected when we were.

Operator: With that, we open the call for questions. We will begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. We'll pause momentarily to assemble our roster.

Speaker Change: Placing that spring season's borders and so.

Speaker Change: One of the areas that we saw through at a higher rate was our core inventory which

Speaker Change: which had an impact on our Q1 sales.

Janine Siktar: The first question comes from Janine Siktar at BTIG. Hi, good morning and congratulations on the progress. We want to start out with some questions around the store fleet.

Speaker Change: As we ramped up heading into Q2, not only were we able to react to our core products, but the team did go back and react to some.

Speaker Change: Area within the spring summer collection that they thought we were light on.

Sam Sato: Those orders weren't receded until April. And so candidly, it cut short our selling window, which impacted our sell-throughs and led to higher clearance inventories. And, as I said before, you know, we're going to address that here this quarter. We're going to continue to see sequential improvements in our inventory levels clearance, specifically as it relates to the penetration to the total. And largely I think the health of our inventory, as I said to Janine, nearly 90% is current season's stock. And so we feel good about where we are today, and we've got a little bit of this moment in time where inventories are moving.

Sam Sato: I guess first off, we'll left you here more about the two size tier planning for next year, what you looked for in terms of site selection. And then as you think about the 25% of the fleet that's up for renewal, maybe some parameters of how these stores look versus the rest of the fleet either in terms of performance or profitability, and how we should think about what the range of outcomes might look like for this portion of the fleet.

Speaker Change: Those borders weren't.

Speaker Change: Reseded until April, and so candidly it cut short our selling window, which impacted ourself through and led to.

Speaker Change: [inaudible]

Sam Sato: Hi, Janine. I'll maybe take the first part of your question, then I'll allow Hina to dive in a little more detail. So the two LLIs were excited for their locations. We haven't announced it publicly yet. We keep that pretty close to the vest, but as was stated in our prepare remarks, our primary criteria is obviously location and we look at adjacencies. It's the size of the opportunity within the market share for our target consumer.

Speaker Change: In our inventory levels, clearance specifically as it relates to the penetration to the total. And, you know, largely, I think the health of our inventory, as I said, to Janine.

Speaker Change: Nearly 90% is current seasons stock and so we feel good about where we are today and we've got a little bit of this moment in time where inventories are moving.

Heena Agrawal: And are you willing to share how much incremental markdown pressure? I know you've given the outlook on a net basis for the gross margin, but how much incremental discounting pressure are you assuming, or any detail there? Yeah, that's contemplated in that 50 basis points that we took back, you know, for the year-end guidance. Yeah, so Jonathan, just reiterating we had 200 basis out of cost and sourcing initiatives, and we've layered in 50 basis points to ensure we come out of clean and are able to take mitigating actions for clearance inventory in the second half.

Speaker Change: and you will need to share how much incremental mark down pressure. I know you've given the outlook on a net basis for the gross margin, but how much incremental discounting pressure are you assuming or any detail there?

Sam Sato: And then undoubtedly, we've got some financial criteria that we look at. We stated on our last call that in 2023, our entire fleet was four wall profitable and yet we continue to look for improvement and want to ensure that we set appropriate hurdle rates on key metrics so that the store fleet continues to be additive to the company's results, both in terms of sales and profits, as we look at the fleet that's coming up, so we have about 15 stores coming up for these renewal by 2026, and the way we are evaluating it, we are looking at a higher threshold of profitability as the renewals come up for those sites, and we are evaluating all options, whether it's remodel relocate or exit. So that as we look at our entire portfolio structurally, we want to make sure that it's improving in profitability overall.

Speaker Change: Yeah, that's contemplated in that 50 basis thing that we took back for the year and guidance.

Speaker Change: He has so Jonathan, just reiterating, we had to 100 basis.

Speaker Change: Sato's cost and sourcing initiatives and these layered and 50 basis points to

Speaker Change: We ensure we come out of, come out clean and are able to take mitigating actions for clearance inventory in the second half.

Jonathan Coppert: Okay, great.

Heena Agrawal: And then Hina, just one last one, if I could follow up. I know you don't guide quarterly specifically, but third quarter typically is your lowest profitability quarter. So I'm wondering if you're expecting to be... You're flat, you're positive on adjusted EBITDA or any other just directional color, as we think about modeling the quarters. Yeah, you know, I think, you know, from a top line perspective, the quarter is expected to follow the seasonality as in prior years. From a margin perspective, I would say, given the appearance inventory, we will see higher pressure in Q3 as we try to clean out of it sooner rather than later.

Jonathan Coppett: Okay, great. And then, Heena, just one last one, if I could follow up, I know you don't guide Gordorly specifically, but third quarter typically is your lowest profitability quarters. I'm wondering if you're expecting to be, you know...

Speaker Change: and you'll fly out there positive on adjusted EVIDda or any other just directional color as we think about modeling the quarters.

Heena: Yeah, you know, I think, you know, from a top line perspective, the quarter is expected to follow the seasonality as in prior years from a margin perspective, I would say given the clearance inventory, you will see higher pressure in Q3 as we try to clean out of it sooner rather than later.

Sam Sato: Perfect, and then I also want to ask about growth margin, so it sounds like you're really seeing the benefits from the sourcing initiatives, maybe a bit more color on how that unfolds and sounds like there's a longer tail on those benefits, so kind of what that looks like over the next year or so. And then on the flip side, it sounds like you're seeing consumers continue to gravitate towards clearance, just more color on what you're seeing from a consumer lens, how you're seeing them, shopping and what you're expecting from a emotional standpoint.

Jonathan Coppert: Okay, great.

Jonathan Coppert: Appreciate the color. Thanks again.

Dylan Carden: Thank you.

Speaker Change: Okay, great, appreciate the color, thanks again.

Dylan Carden: Our next question is from Dylan Carden, a William Blair. Thanks. I'm curious if you can provide any color on just a range of performance between the stories. And sort of what's the best way to think about, you know, the productivity to go all the way back to 2017 when you're really ramping the count, you know, it's more or less half since then. So what's, is that the entire fleet? Is that a factor of sort of an early pop from direct business? I guess in the ultimate sort of aim here is just to kind of get a sense of what the potential impact could be as you, you know, close or renovate.

Speaker Change: Thank you.

Speaker Change: Our next question is from Dylan Cardin and William Blair

Dylan Cardin: Thanks. I'm curious if you can provide any color on just the range of performance between the stories. And sort of what's the best way to think about the productivity to go all the way back to 2017 when you're really ramping in the count.

Sam Sato: Yeah, you know, we talked about the introduction of our product development and sourcing strategic initiative, and you know, in a vertical operation like ours, that's one of the most critical and important strategic unlocks to allow us to not only compete long term and improve our profitability. But frankly, it's about bringing to market high quality, innovative products, importantly, more frequently increase our speed to market meaning from ideation to actual, you know, on the floor, so to speak.

Speaker Change: You know, it's more or less have since then. So what's that, the entire fleet? Is that a factor of sort of an early pop from direct business? I guess, and the ultimate sort of fame here is just to kind of get a sense of what the potential impact could be.

Sam Sato: Yeah, so Dylan, maybe I can just give more of a, you know, how we are thinking about the store portfolio. The stores play a critical role as we think about our omnichannel strategy. Our customers that come to the stores and shop online, they on average have a higher transaction or higher order value. Plus they, they shop more than twice with more than twice the frequency compared to single channel. So stores remain a critical part of our overall omnichannel strategy. They play off each other. They also offer a lot of services like buy online, pick up in store, our returns, etc.

Speaker Change: as you, you know, close or renovate.

Speaker Change: Yeah, so David Loretta maybe I can just give more of a...

David Loretta: You know, how we are thinking about the store portfolio. The store is clear critical role as we think about our omnichannel strategy.

Speaker Change: I customers that come to the store.

Sam Sato: And obviously at the same time leveraging our size and expertise to improve our profit margins and, you know, as we have now over a handful of quarters started to really build out that team and bring in expertise to help us leverage our relationships. Our team has historically done a really great job within product development. I think this is the next level to that and, you know, based on our on our timelines, you know, we're now starting to see the benefits of that and see it flow through.

Speaker Change: and show up online.

Speaker Change: On average, have a higher transaction or higher order value. Plus, they shop more than twice with more than twice the frequency compared to single channels. So stores remain a critical part of our overall omnichannel strategy. They play off each other. They also offer a lot of services.

Sam Sato: So they are a critical component of offering that seamless consumer experience. In terms of profitability of the fleet, you know, like any fleet, there is a normal curve. So some stores are in the top 15 somewhere in the bottom.

Speaker Change: on like by online pick up in store, return, etc.

Speaker Change: So, they are in a critical component of offering that seamless consumer experience.

Speaker Change: In terms of profitability of the fleet, you know, like any fleet there is a normal curve, some stories are in the top 16, some are in the bottom and that's why we have a long approach. One is...

Sam Sato: And that's why we are; we have a three-pronged approach. One is to address one of the things that was asked earlier on store traffic. One wrong is making the rent awareness and store awareness for the entire fleet higher by having locally targeted efforts on marketing and experiential events. The other one is rationalizing our current fleet and holding it them to a higher standard of profitability as we come up for renewals naturally, whether it's three models exit or relocate. And then the third one is adding new sites to grain market share with our target consumer in the context of our omnichannel markets.

Sam Sato: In terms of the consumer today, you know, we're we're being cautious about, you know, our outlook as we move forward at the same time, you know, we've talked a lot about our philosophical approach to ensuring that our inventories remain clean and healthy. And, you know, our clearance inventories ticked up a little bit at the end of Q2 and we are, we are swiftly taking action against that and that impact we've contemplated within our guidance.

Speaker Change: You address one of the things that was asked earlier on store traffic. One strong is making the...

Speaker Change: Brand Awareness and Store Awareness for the entire fleet, hired by having locally targeted efforts on marketing and experiential events.

Speaker Change: The other one is rationalizing a current feat and holding it to a higher standard of profitability as we come up for a new, natural whether it's through remodels, exit or relocate. And then the third one is adding new sites to gain market share with our target consumer.

Sam Sato: And, you know, at the end of the day, we don't want to be carrying pre, you know, past seasons clearance inventory into the next season. And, certainly not into the next year and so we're going to be, we're going to be really, really focused and urgent about getting that in line. The great news is, although it ticked up a bit. The quality and health of our inventories in a really good place, nearly 90% of our current inventory is current season's goods, and so this is a moment in time we've got to address it and maybe not unlike other times we've had or will have, but we're going to stay focused on turning that inventory and focusing on new product innovation and bringing just great great products and stories to market.

Sam Sato: So that's kind of how I would look at the overall portfolio. The goal is really to grow that entire portfolio profitability.

Speaker Change: in the context of that omnichannel market, so that kind of how I would look at the overall portfolio, the goal is to grow that entire portfolio profitable.

Sam Sato: So I guess as you think about square footage growth over the next five years then, as these leases come through, between openings and rationalization, is the goal to kind of maintain a flat overall square footage at a more productive. We will give you more specifics on those as we get deeper into especially the renewal portfolio. Like we said earlier, we are on track to open two new stores in the back half of '25. And you know our goal is to maintain a healthy level of stores that are growing and profitable.

Speaker Change: Sato.

Speaker Change: I guess as you think about Square Footage, go over the next five years then as these leases come through.

Speaker Change: Between openings and rationalization, it's the gold economy, maintain a flat, overall square footage, and a more productive.

Label: Label, who's that sort of broad strokes that we're talking about here?

Speaker Change: We will give you more specifics on those as we get deeper into especially the renewal portfolio. Like we said earlier, we are on track to open two new stores in the back half of 25. And we, you know, our goal is to maintain a healthy level of stores that are growing and profitable.

Sam Sato: Yeah, and just to add on the gross margin piece, Janine, we, you know, like we said, and Q2 we delivered 90 basis points for the full year. We have line of sight to 150 basis points, net of the inventory clearance issue. And as we look, look ahead, this is a tailwind that is expected to continue for the next four to five years as we source the higher percentage of our products. From directly from factories.

Dylan Carden: Let me try another one. So if you're, it seems like you've got a better handle on sort of line of sight into a lot of really nice cost efficiencies here. I'm curious as you kind of roll those through, you know, when you might expect to kind of get back to a level of more consistent profitability. Is that something that you think kind of mentioned four years there on the sort of the gross margin side? Is this going to be a sort of relatively slow process, or do you think this model can reflect relatively quickly kind of the next year?

Speaker Change: Well, let me try another one. So, it seems like you've got a better handle on sort of line of sight until a lot of really nice.

Speaker Change: Cost of efficiencies here. I'm curious.

Speaker Change: as you kind of roll those through.

Speaker Change: You know, when you might expect to kind of get back to a level of more consistent profitability, is that something that you think, kind of mentioned four years there, on at least sort of the gross margin side, it's just going to be a sort of relatively slow process, or you think this model can flex relatively quickly.

Sam Sato: And, you know, our goal is to get us back to and ultimately exceed the gross margins that we had pre-pandemic. Just in terms of a little bit more color on where gross margin is going. On the promotion piece, you know, we're going to continue to be flexible and agile. Our approach is to stay competitive, make sure our brand has integrity without pricing, and that we are balancing both sales and margin. And so that's kind of our approach as we are looking at the second half.

Sam Sato: Yeah, I think Dylan, you know, he has brought some, some incredible rigor and insight into our going about both our benchmarking studies as well as then the application of those findings. You know, evident, you know, in part with the announcement we made to close one of our legacy fulfillment centers through the lens of the investment we made in a daresville and the efficiency gains we're getting out of that. And so I think that that's an example of where there's some real time benefits that we will continue to look for, as well as ensure that we have visibility to what the longer term implications are, that coupled with some of the benefits we're starting to see from some of these other initiatives like our product development and sourcing initiative.

Speaker Change: Kind of next year.

Speaker Change: Yeah, I think...

Speaker Change: Dylan, you know, Heena has brought some incredible rigor and insight into.

Speaker Change: We're going about both our benchmarking studies as well as the application of those findings. You know, evidence, you know, in part with, you know, the, the, the announcement we made to close.

Sam Sato: But we feel very good about our second half in terms of all the innovations coming to market that Sam mentioned. And with Eli on board, we are really excited about the discipline the approach he's going to bring to the merchandising. Perfect, that's hot for color. And thanks so much, I can have to add. Thank you.

Speaker Change: One of our legacy fulfillment centers.

Speaker Change: Through the lens of the investment we made in a daresville and...

Speaker Change: the efficiency gains we're getting out of that. And so I think that that's an example of where...

Jonathan Coppert: The next question is from Jonathan Coppert. Yeah, good morning. A couple questions this morning.

Speaker Change: There's some...

Speaker Change: Real-time benefits that we will continue to look for, as well as.

Sam Sato: Maybe first, following up on the store topic. When you look at the retail stores, I'm curious what you make of the traffic declines that you're seeing. And given the lower traffic, these still expect the store base. All the stores to be profitable this year. And if you were to consider closing some stores in the future, any sense of what impact that might have on your direct business in those markets? Yeah, Jonathan, a couple things I'll say, as we've discussed in the past, traffic trends in the stores have been challenging.

Speaker Change: Ensure that we have...

Speaker Change: Visibility to what the long-reterm implications are, that coupled with...

Speaker Change: Some of the benefits we're starting to see from some of these other initiatives like our product development and sourcing initiative. I think we're getting some benefits on the margin line we're getting some benefits.

Sam Sato: I think, you know, we're getting some benefits on the margin line. We're getting some benefits in the SG&A line. You know, this legacy fulfillment strategy, the capacity and optimization strategy. It's leading to, you know, Q4 benefits of this year, and then on an annual basis, a new baseline run rate of about a $5 million reduction in our SG&A line. And that's real money. And so, you know, we believe that that benefit is actually not coming at the cost of us doing more business or for flowing through greater profitability. So it's a combination of the different line items that are attached to our different strategic initiatives.

Speaker Change: in the SGA in A-Hine, you know, this legacy fulfillment strategy.

Speaker Change: Capacity and Optimization Strategy.

Speaker Change: It's leading to, you know, two four benefits of this year and then on an annual basis, a new baseline run rate of about a $5 million reduction in RSTNA line.

Sam Sato: We saw the trends improved sequentially this last quarter. Having said that, we're starting to see where we're getting benefits from a multi-channel market strategy, although stores have declined. We're seeing improvements in our online business in those markets. Importantly, we've started to maybe unlock some real local in-store events that are, in fact, driving traffic back to the stores. It's not a price-driven event like this, underwear trade-up event. I said in my prepare remarks and I want to just emphasize this because it's really, I think, important, but gives us optimism around an event like that.

Speaker Change: That's real money and so we believe that that benefit is actually not coming at the cost of us doing more business or flowing through greater profitability. So it's a combination of...

Speaker Change: The different line items that are attached to our different strategic initiatives.

Sam Sato: And I think this is an ongoing focus of ours. There's really no end in sight in terms of us continuing to look for ways to optimize our costs and get ourselves into a place where, you know, our investment strategies really are driving greater top line. And flow through.

Speaker Change: and I think this is an ongoing focus of ours, if there's really no.

Speaker Change: and Insight in terms of us continuing the work for ways to optimize our costs and get ourselves into a place where our investment strategies really are driving greater top line and flow through.

Dylan Carden: Very good.

Dylan Carden: And just I'd like to be sort of crystal the comment that you can get gross margins above pre-pandemic. Are you talking about getting back to, if not above, the 57% just so we're using real numbers? Yeah, I would just, I would say, directly our goal and what we're marching towards is getting gross margins at or better than pre-pandemic levels. Okay.

Speaker Change: Very good. And just as one of these sort of crystals, the comment that you can get gross margins above pre-pandemic. Are you talking about getting back to if not above the 57% to store using real numbers?

Sam Sato: In the first one in April, we had a pretty good response from the female consumer that was actually participating in the trade-up event. That number in terms of the proportion to total people coming to the stores to trade up the proportion of women's participating jumped dramatically. We think that we've now had a couple of those. We've had smaller tests and some other categories that are showing similar results and so we believe we've unlocked some really, really valuable and relevant experiences for the consumer.

Speaker Change: Yeah, I would just, I would say, directionally, our goal and what we're marching towards is getting gross margins at or better than pre-pandemic levels.

Dylan Carden: And then I had one more that's escaping the public. Oh, freight. And maybe I missed it.

Speaker Change: Okay, and then I had one more that escaped.

Heena Agrawal: But is there any contemplation of higher freight rates in the guide, or is that, given how you turn inventory, is that that's more of like a 2025 story that we can kind of wait for? Yeah, that's more of a 25 impact versus a 24 impact, but we've, yeah, we've contemplated the various headwinds and tailwinds in our guide. Excellent.

Lee Polly: Lee Polly.

Lee Polly: Oh, that's a freight, and maybe I missed it, but it's a very contemplation of higher freight rates in the guys, or is it that given how you turn into a story that's more of a 225 story that we can kind of wait for.

Sam Sato: As it relates to the profitability and back to, you know, Hina's comments around our store portfolio strategy, you know, we're looking at a combination of new locations as well as rationalizing the current portfolio based on productivity and profitability and as stores come up for renewal, you know, we've got about 25% of the chain here in the next call at year and a half. We're also looking beyond that and engaging our landlords and discussions where we believe we can make some meaningful improvements in the profitability and in some cases where we just don't believe it's going to meet our thresholds, you know, we're open and prepared to exit those locations.

Lee Polly: Yeah, that's more for 25, in fact.

Lee Polly: is a 24-in-past, but we have he's contemplated the various headwinds and tailwinds in our guide.

Dylan Carden: Thanks a lot. Excellent.

Dylan Carden: Thank you, Dylan.

Speaker Change: Action, thanks a lot.

Nitza McKee: This concludes the question-and-answer session and concludes the conference. Thank you for attending.

Dylan Cardin: Thank you, Dylan.

Speaker Change: This concludes the question in answer session and concludes the conference.

Nitza McKee: You may now disconnect the call.

Speaker Change: Thank you for attending, E-mail this can act the cons, the cons, the cons.

Sam Sato: So our focus is really, really deep on ensuring that the retail portfolio is a profitable contributor to the overall enterprise. At the same time, we recognize the importance of a multi-channel ecosystem and the benefits it provides the company from a consumer engagement and sales and transaction perspective.

Sam Sato: Got it, and then maybe to follow up on inventory just to ask a little bit further, you know, the sequential dollar increase from the first to second quarter looks pretty substantial, maybe the largest that we've seen in the past for Duluth. So could you maybe give a little more color where there are any early receipts? Are there signs of a new categories aren't resonating? And maybe a broader question about sort of skew proliferation and how you avoid, you know, adding too much in terms of the overall skew count as you pursue some of these new categories?

Sam Sato: Yeah, so in Q2, you know, we shared in Q1 coming out of, out of, being clear, coming out of Q4 sold a lot more units in a highly promotional environment, so we came out of Q4 in a much leaner inventory position than what we had projected when we were placing that spring season's orders. And so one of the areas that we sold through at a higher rate was our core inventory, which had an impact on our Q1 sales.

Sam Sato: As we wrapped up heading into Q2, not only were we able to react to our core products, but the team did go back and react to some areas within the spring summer collection that they thought we were light on. Those orders weren't receded until April. And so candidly, it cut short our selling window, which impacted our sell-throughs and led to higher clearance inventories. And as I said before, you know, we're going to address that here this quarter.

Sam Sato: We're going to continue to see sequential improvements in our inventory levels clearance specifically as it relates to the penetration to the total. And you know, largely, I think the health of our inventory, as I said to Janine, nearly 90% is current seasons stock. And so we feel good about where we are today, and we've got a little bit of this moment in time where inventories are moving. And are you willing to share how much incremental markdown pressure?

Sam Sato: Are you giving the outlook on a net basis for the gross margin, but how much incremental discounting pressure are you assuming, or any detail there? Yeah, that's contemplated in that 50 basis points that we took back, you know, for the year end guidance. Yeah, so Jonathan is just reiterating we had 200 basis out of cost and sourcing initiatives, and we layered in 50 basis points to ensure we come out of come out clean and are able to take mitigating actions. For clearance inventory in the second half. Okay, great.

Heena Agrawal: And then he just one last one, if I could follow up, I know you don't guide quarterly specifically, but third quarter typically is your lowest profitability quarters. So I'm wondering if you're expecting to be. You're flat, you're positive on adjusted EBITDA or any other just directional color as we think about modeling the quarters Yeah, you know I think you know from a top line perspective the quarter is expected to follow the seasonality as in prior years from a margin perspective I would say given the appearance inventory we will see higher pressure in Q3 as we try to clean out of it sooner rather than later Okay, great appreciate the color. Thanks again. Thank you.

Dylan Carden: Our next question is from Dylan Carden, a William Blair. Thanks. I'm curious if you can provide any color on just a range of performance between the stories.

Sam Sato: And sort of what's the best way to think about you know the productivity to go all the way back to 2017 when you're really ramping the count you know it's more or less have since then so what's is that the entire fleet is that a factor of sort of an early pop from direct business. I guess in the ultimate sort of aim here is just to kind of get a sense of what the potential impact could be as you you know close or renovate.

Sam Sato: Yeah, so Dylan maybe I can just give more of a you know how we are thinking about the store portfolio. The stores play a critical role as we think about our omnichannel strategy. Our customers that come to the stores and and shop online they on average have a higher transaction or higher order value. Plus they they shop more than twice with more than twice the frequency compared to single channel so stores remain a critical part of our overall omnichannel strategy.

Sam Sato: They play off each other they also offer a lot of services are like buy online pick up in store our returns etc so they are a critical component of offering that seamless consumer experience in terms of profitability of the fleet you know like any fleet. There is a normal curve so some stores are in the top 15 somewhere in the bottom and that's why we are we have a three-pronged approach one is to address one of the things that was asked earlier on store traffic.

Sam Sato: One wrong is making the rent awareness and store awareness for the entire fleet higher by having locally targeted efforts on marketing and experiential events. The other one is rationalizing a currency and holding it them to a higher standard of profitability as we come up for a new is naturally whether it's three models exit or relocate and then the third one is adding new sites to grain market share with our target consumer in the context of our omnichannel markets. So that's kind of how I would look at the overall portfolio the goal is really to grow that entire portfolio profitability.

Sam Sato: So I guess as you think about square footage growth over the next five years then as these leases come through between openings and rationalization is the goal to kind of maintain a flat overall square footage it a more productive. We will give you more specifics on those as we get deeper into especially the renewal portfolio. Like we said earlier, we are on track to open two new stores in the back half of 25 and you know our goal is to maintain a healthy level of stores that are growing and profitable.

Sam Sato: Let me try another one. So if your it seems like you've got a better handle on sort of line of sight into a lot of really nice cost efficiencies here. I'm curious as you kind of roll those through you know when you might expect to kind of get back to a level of more consistent profitability. Is that something that you think you kind of mentioned four years there on the sort of the gross margin side.

Sam Sato: It's just going to be a sort of relatively slow process or do you think this model can reflect relatively quickly kind of the next year. Yeah, I think Dylan you know he has brought some some incredible rigor and insight into how we're going about both our benchmarking studies as well as then the application of those findings. You know evident you know in part with you know the the announcement we made to close one of our legacy fulfillment centers through the lens of the investment we made in a daresville and the efficiency gains were getting out of that.

Sam Sato: And so I think that's an example of where there's some real time benefits that we will continue to look for as well as ensure that we we have a visibility to what the longer term implications are that coupled with some of the benefits we're starting to see from some of these other initiatives like our product development and sourcing initiative. I think you know we're getting some benefits on the margin line we're getting some benefits in the sg and a line.

Sam Sato: You know this this legacy fulfillment strategy the capacity and optimization strategy. It's leading to you know Q four benefits of this year and then on an annual basis a new baseline run rate of about a $5 million reduction in our sg and a line and that's real money and so you know we believe that that that benefit is is actually not not coming at the cost of us doing more business or for flowing through greater profitability so it's a combination of the different line items that are attached to our different strategic initiatives and I think this is an ongoing focus of ours.

Sam Sato: There's really no end in sight in terms of us continuing to look for ways to optimize our costs and get ourselves into a place where you know our investment strategies really are driving greater top line and flow through.

Sam Sato: Very good and just I'd like to be sort of crystal the comment that you can get gross margins above pre-pandemic are you talking about getting back to if not above the 57% just so we're using real numbers. Yeah, I would just, I would say, directly our goal and what we're marching towards is getting gross margins at or better than pre-pandemic levels. Okay.

Heena Agrawal: And then I had one more that's escaping the public. Oh, freight, maybe I missed it, but is there any contemplation of higher freight rates in the guide or is it that given how you turn inventory that that's more of like 2025 stories that we can kind of wait for? Yeah, that's more of a 25 impact. Of course, there's a 24 impact, but yeah, we've contemplated the various headwinds and tailwinds in our guide. Excellent, thanks a lot. Thank you, Dylan.

Operator: This concludes the question and answer session and concludes the conference. Thank you for attending.

Operator: You may now disconnect the call.