Q1 2026 Duluth Holdings Inc Earnings Call
Good day and welcome to the Duluth Holdings, Inc. First quarter 2025 conference call and webcast.
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Nitza McKee: I would now like to turn the conference call back to MS. Nitza Mckee.
Nitza McKee: The floor is yours ma'am.
Speaker Change: Thank you and welcome to today's call to discuss Duluth, Trading's first quarter financial results. Our earnings release, which was issued this morning is available on our Investor Relations website at IR, Dr. Duluth trading Dotcom under press releases I'm here today, with Stephanie Pugliese say, President and Chief Executive Officer and he.
H.: The anchor Ball's senior Vice President and Chief Financial Officer on today's call management will provide prepared remarks, and then open the call for questions.
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 forward looking statements by their nature involve estimates projections goals forecasts and assumptions and are subject to risks and uncertainty.
He used that could cause actual results or outcomes to differ materially from those expressed in the forward looking statements such risks and uncertainties include but are not limited to those that are described in our most recent annual report on Form 10-K, and other SEC filings as applicable.
Speaker Change: Forward looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events and with that I will turn the call over to Stephanie Pugliese, President and Chief Executive Officer Stephanie.
Stephanie Pugliese: Good morning, everyone and thank you for joining us today.
Stephanie Pugliese: First I want to thank Steve Schlecht, not only for his leadership, but for his unwavering commitment to the Duluth brand over many years his vision and passion have been a driving force behind this extraordinary company and I am truly honored to once again have his support as I returned to lead Duluth trading.
Stephanie Pugliese: I'm back at to list because of my belief in this brand and its potential.
Stephanie Pugliese: Our customers have a deep affection for Dallas, and they genuinely want us to succeed.
Stephanie Pugliese: What sets us apart in the marketplace is our unique blend of high quality solution based products infused with our brand attributes authentic humorous hardworking and humble.
Stephanie Pugliese: Our products and our brand evoke an emotional connection that is truly distinctive in todays crowded retail landscape.
Speaker Change: Returning to deliver has been really energizing I've been reconnecting with familiar faces who have a long standing commitment to this brand and continue to drive excellence, while also discovering new talent throughout the organization.
Speaker Change: This team gives me confidence as we build on our strengths and implement initiatives necessary to deliver sustainable profitable growth.
Speaker Change: I am leading with a sense of urgency clarifying direction and taking action, our operating model and processes need to be simplified quickly to restore financial health in the business.
Speaker Change: We will then position to list for longer term profitable growth.
Speaker Change: There are ultimately three key areas, we will focus on to drive our business forward.
Speaker Change: First brand awareness.
Speaker Change: Invigorating, our distinctive voice and storytelling capabilities that have historically differentiated to lose in the marketplace to drive customer acquisition and retention.
Speaker Change: Second solution based products and product innovation, our year round core product is foundational to our business enhanced by new innovative solutions.
Speaker Change: This quarter, we saw success in products like mens flex fire hose H D. Wrinkle fighter shirts, the introduction of women's noga error and new innovations in a cage G.
Speaker Change: We know that when we clearly communicate the solutions we offer we win.
Speaker Change: That is why going forward, we will drive to a more focused product assortment that resonates clearly with our customers.
Speaker Change: We will narrow our assortment breadth with at least a 20% reduction of Skus by spring 2026, while innovating in growth areas, including core men's and women's workwear.
Speaker Change: And adjacencies, such as first layer and outdoor.
Speaker Change: This will create productivity gains in the assortment and enhance our ability to be more efficient in inventory purchases and marketing activities.
Speaker Change: And third customer service spin.
Speaker Change: Specifically, leveraging our omni channel model balancing e-commerce, and physical retail to create long term value and meet customers, where they prefer to shop.
Speaker Change: Executing with excellence on our promise to deliver a great customer experience.
Speaker Change: These focus areas form the foundation upon which everything else will be built.
Speaker Change: But to be clear before we can fully execute these initiatives we must get back on track. We are taking decisive actions to get this great company and unique and powerful brand back on the path to profitability and growth.
Speaker Change: We have actions and expense savings initiatives to begin to right size the business and to protect against the potential top line headwinds, which will result in annualized savings of approximately $15 million of which at least 10 million of cost benefits will be realized in the current fiscal year.
Speaker Change: Year.
Speaker Change: These expense actions are designed to reduce complexity in the business and increase our focus on innovation and our brand enablers.
Speaker Change: We are also embracing a holistic approach to our overall expense structure.
Speaker Change: Which we know is higher than it needs to be.
Speaker Change: We are taking a hard look at processes systems and team structures across the organization with a goal of further reducing our expense base, while becoming more efficient and effective in everything that we do.
Speaker Change: These efforts are directly aligned with my philosophy to simplify our operations as we shift our focus and the majority of our time and energy to brand awareness solution based product and product innovation and exceptional customer service.
Speaker Change: This approach isn't about starting over it's about building on the progress made over the past few years in systems sourcing distribution and real estate strategy.
Speaker Change: Let me spend a moment on the work that was in flight when I arrived and that will continue.
Speaker Change: Our direct to factory sourcing initiative is yielding great results, which not only reduce our cost of goods, but enable us to better innovate and bring that innovation faster to market.
Speaker Change: We will continue to leverage the strategic initiatives as we adjust our product assortment and more clearly define our go to market strategy.
Speaker Change: We expect that overtime the flow through of margin improvement will be further enhanced by the resetting of promotional activity, which we started in Q1 and has shown some early signs of success.
Speaker Change: The optimization of our fulfillment network has yielded automation and cost per unit savings as well as faster click to delivery time.
Speaker Change: We have rationalized our fulfillment network, but there is more work to do here importantly, we have made progress on the backlog issues. We experienced over this past holiday season, as we continue on our path to enhance operational protocols and planning processes.
Speaker Change: And finally, we will continue to reinvigorate and optimize our real estate footprint.
Speaker Change: With nearly 25% of store leases up for renewal through the end of 2026, each renewal is undergoing rigorous evaluation for remodel relocation or closure.
Speaker Change: We are also looking at underperforming stores beyond near term lease expirations.
Speaker Change: We have closed one location this fiscal year and are on track to open two new stores in the fall in priority markets.
Speaker Change: We know that we need to leverage our investments as efficiently and effectively as possible.
Speaker Change: Go forward, we will be focused on building our brand awareness expanding our solution based product and product innovation pipeline.
Speaker Change: And elevating our Omnichannel service all with the goal of attracting new loyal Duluth brand customers and reactivating lapsed customers.
Speaker Change: While we have substantial work ahead I am confident in our path forward, our commitment to elevating and celebrating what sets Duluth apart in the marketplace, coupled with decisive actions to rightsize, our expense structure and sharpen our focus on brand and product enablers is our path to future success.
Speaker Change: With that I will turn it over to Hana for a review of our financial results for the first quarter and thoughts on our outlook for fiscal 2025.
Hana: Thanks, Stephanie and welcome back in.
Hana: In 2025 key priorities are to reset the emotion the store price integrity improve inventory management and strengthen operational execution I will provide an update on our first quarter progress in these areas as well as discuss the impact of status.
Hana: On mitigation strategies.
Hana: Sizing of our cost structure and the steps, we've taken to manage cash and liquidity amid macro economic uncertainty.
Hana: Today, we reported fourth quarter 2025, net sales of $102 7 million down 12% versus last year.
Hana: Quoted EPS loss is 45 and adjusted EPS loss is 30 twos that adjustments to EPS totaled $4 5 million, including a 4.1 million increase in our deferred tax valuation allowance and <unk> 4 million in net impairment expense.
Hana: <unk>.
Hana: Adjusted EBITDA for the quarter was minus three 8 million.
Hana: Starting with the top line, our Q1 net sales declined 12% and declined 10.2%, excluding the wholesale shipment shifts from Q1 to Q2 versus last year.
Hana: As part of resetting promotion, we reduced the number of days on promotion by 35% and reduced the desktop promotion from 25% to 20% on average.
Speaker Change: Shannon, let's say, excluding wholesale sell 14, 6% as that traffic declined with conversion being roughly flat, partially offset by higher <unk>.
Hana: Mobile sales penetration increased by 200 basis points and mobile conversion continued to trend upwards.
Hana: So these data store sales and profitability trends improved as we pulled back on promotions and retail sales declined two 6% as lower traffic was partially offset with improved Shoplifted version.
Hana: While we are continuing to fine tune and reduce the frequency of promotions. We are seeing success with shallower promotion driven by higher <unk> and improved retail sales trends and profitability.
Hana: Gross profit margin declined by 80 basis points to last year from greater clearance penetration and deeper discounting during February Big dam clearance event.
Hana: In March and April combined gross margin improved by over 300 basis points versus last year as we saw the benefit of reduced cost from our direct to factory sourcing strategy well data in hand by resetting the depth and frequency of promotion.
Hana: Reported SG&A spend was $65 7 million and adjusted SG&A was $65 2 million, which was $5 4 million lower than last year, but deleverage as a percent of sales by 290 basis points due to lower sales and higher shipping.
Hana: And fulfillment costs.
Hana: Advertising came in at nine 8% of sales leveraging by 50 basis points as we rebalanced, our upper and lower funnel spend.
Hana: Inventory was $176 1 million, increasing by $39 7 million or 29% versus last year compared to Q4, ending inventory, which was up 32% versus prior year.
Hana: The key drivers of the year on year increase were approximately half or 20 million of the increase wasn't core you're wrong.
Hana: Roughly a quarter are approximately $10 million is a combination of pack and hold for fall winter inventory and inventory for wholesale shipments that are moving from Q1 to Q2.
Hana: We ended the quarter with a current inventory mix of 91% and clear inventory mix of 9%. This compares to clear inventory makes up 7% at the end of Q1 last year and an improvement versus 10% at the beginning of this quarter.
Hana: We ended the quarter with gas and gas equivalents of $8 6 million and borrowings of $64 million on our credit facility versus $11 million last year. We are beginning to realize the benefit of rebalancing our inventory receipts to sales flat and expect our peak borrowing.
Hana: To be behind US our net liquidity was 45 million at the end of the quarter.
Hana: In late April 2025, we finalized a successful transition of our line of credit to an asset based lending agreement. This new agreement extend to 2030, providing a 100 million limit with improved borrowing rates and increased flexibility compared to our previous view.
Hana: Well I will contact which was set to expire in 2027.
Hana: Now turning to our outlook for fiscal year 2025, we are maintaining our fiscal year 'twenty to 'twenty five financial guidance, the adjusted EBITDA range of $20 million to $25 million since it does several factors, including but our ability to all.
Hana: Offset the current status rate with targeted price increases vendor negotiation and management of few Tennessee.
Hana: Second we are reducing expenses impart to protect from the topline headwinds as we continue to research promotions as well as the recognition of the current uncertain macroeconomic and customer environment.
Hana: Lastly, we are continuing to revitalize our store portfolio under which we closed one low performing stores in May 2025 renewed leases on stores that met on higher hurdle rate and are on track to open two new stores in the second half.
Hana: Yeah, Bob does not include additional status impact beyond the guidance, 30% on China and 10% on the rest of the world.
Hana: Elaborating on status. We currently anticipate approximately 14 million in additional dry dock costs from the 10% that is implemented in April 2025, odd exposure to China is minimal with less than 1% of Garanti Otis seeds impacted.
Hana: We will be implementing targeted price increases in select categories and items based on price elasticity and keep drive thresholds to recover the increase in cost. We are also partnering with vendors to share in the cost impact finally, given I've got an inventory position, especially.
Hana: Especially in year round goods, we are further managing the timing of future receipt of goods.
Hana: As we rightsize the organization and manage the revenue impact of price and promotional adjustments in a changing economic landscape, we've secured over $10 million in cost reduction for the current year as we better align our organizational expenses with the Sky ski applied.
Hana: Business.
Hana: As Stephanie mentioned, we will be undertaking additional measures to simplify the business reduce complexity and cost in multiple areas.
Hana: We are rationalizing our assortment and focusing on innovation and inventory encore mens and womens worked with and firstly and outdoor adjacencies.
Hana: We are on track to reduce our battle skus by more than 5% in fall of 2025 and by more than 20% in spring Summer 2026.
Hana: Also on track to reduce SKU counts in the none of that is hard goods portfolio by double digits.
Hana: I think in Florida 2025 next we are actively refining our store portfolio focusing on underperforming locations to improve overall productivity.
Hana: Finally, we are evaluating additional actions to optimize our fulfillment center network to reduce cost and complexity and improve service.
Hana: Now an update on our balance sheet and capital expenditures.
Hana: First and foremost, we expect inventory levels to normalize in the second half of the year with the rebalancing of sales and inventory receipts.
Hana: We anticipate and does the inventory to be down double digits compared to prior year as a result of the reduced and right sized receipts, we anticipate being back to our peak borrowing levels.
Hana: Next we have reduced our capital expenditure plan by $3 million, mainly in systems investments to approximately $17 million. We are continuing to fund store opening Manhattan, omni fulfillment software and regular maintenance.
Hana: Finally, we have successfully transitioned our revolving credit facility to an asset based lending facility with lower borrowing rates and higher flexibility and maintaining liquidity and access to cash.
Hana: To summarize we are cognizant that'd be at operating in an uncertain environment and are therefore keenly focused on managing all aspects of our business prudently, we are making progress as we reset promotions to restore price integrity enhance inventory management and strengthen.
Hana: Operational execution.
Hana: These efforts will enable us to fully realize the benefits of the progress on our strategic initiatives and structural enhancement overtime.
Stephanie Pugliese: Being agile in offsetting the impact of status, taking decisive action to rightsize, our expense structure and under Stephanie's leadership sharpening our focus on brand and product enablers with that we will now open up the call for questions.
Hana: Uh huh.
Hana: Thank you.
Hana: We will now begin the question answer session.
Hana: To ask a question you May press Star then one on their Touchtone phone, if there isn't really a speakerphone. Please pick up perhaps that before pressing the keys.
Hana: My question has been addressed me like to withdraw your question. Please press Star then two again that is star then one to ask a question at this time, we'll just pause momentarily to assemble our roster.
Hana: The first question will come from Janine Stichter of beauty I G. Please go ahead.
Janine Stichter: Hi, good morning, and welcome Stephanie Thank you.
Hana: <unk>.
Hana: I was hoping you could speak a bit more about one of the first things you mentioned around building brand awareness I think you said marketing leverage during the quarter, but how should we think about marketing going forward can we potentially see some of the savings that you're finding another areas reinvested back into marketing and just maybe some more color on broadly how you think about driving brand awareness.
Hana: Sure sure. So I think one of the biggest things that we're starting to evaluate and starting to see some initial success with is the.
Hana: Investment in the marketing funnel overall, particularly in the upper part of the funnel, which is driving brand awareness. As an example, just recently yesterday. We were featured on good morning America for father's day, so those those opportunities to get our name and our voice and our products quite frankly out a little bit.
Hana: Further than even some of the traditional marketing ways are places that we are looking to to utilize and invest in the team has started that work we started to see a little bit of the.
Hana: Of the progress that's being made we're doing more testing in second quarter as we look at driving not only awareness, but visits to both our website and our stores and ultimately phase. One is of that is reevaluating the marketing funnel to be able to create that awareness and then.
Hana: And as we continue to find savings and expense reductions in other areas of the business.
Hana: And see the return on the marketing investment improve that's where we'll start to ship those dollars, but we're just at the beginning of that phase.
Speaker Change: Great. That's helpful. And then maybe one more just around the promotional reduction you're seeing maybe speak a bit more about what you're seeing from the consumer as you pulled back on promotions I think you said and in March and April and May and then I'm trying to think about what kind of price increases you might be seeing and your expectation about how they can do.
Hana: Sure so.
Hana: What we saw as we kind of came through first quarter was a sequential improvement in our gross margin rate and really in the months of March and April was where we started to see the the beginning benefits. If you will of the promotional pull back.
Speaker Change: From a customer perspective, one of the things that we continue to look at is how we maximize customer retention and acquisition not only through our marketing up activities, but also through the promotional cadence that we have as Hany mentioned, we havent pulled back dramatically on promotions with.
Hana: Pulled back on some of the the length of time of promotions and to a certain extent the depth of promotions, but we'll continue to to balance that watch not only the the topline and gross margin results, but also the customer retention and acquisition results and continue to pull different levers.
Hana: Whether that is promotional activity things like free shipping and or upper to lower funnel marketing activities to maximize across both our financial results and customer file results. If you will in terms of the the pricing the increase in prices.
Hana: As we are mitigating some of the expected tariff implications with select price increases they are in areas, where we know that we have unique product in the market place that obviously, you can only get within our own channels and so we're selecting those those products.
Hana: That we feel like we have the the pricing elasticity to do so that said, we're being really cognizant of the fact of continuing to offer.
Hana: A good portion of our product assortment that is in value prices and particularly when you consider the innovation and the quality that we put behind our products. We believe that value equation will will help us as we ballantyne pricing in the future.
Speaker Change: Yeah, and just add on the promotion space.
Hana: I mean, we are seeing a lot of green shoots.
Hana: Especially as we reduce the depth of the offers that we.
Hana: We are seeing.
Hana: Positive trends and in conversion and higher full price sales and especially in our store channel. We are seeing better trends both in terms of topline and profitability. When it comes to frequency we are refining it and as we define the frequency we are seeing a better sequential trends as well.
Hana: Go from March to April to me.
Speaker Change: Perfect. Thanks, so much and basketball.
Hana: Thank you thank you Janine.
Hana: Okay.
Hana: Yes.
Hana: Okay.
Hana: Okay.
Hana: Yeah.
Hana: Okay.
Speaker Change: I'm not sure if we've lost the line we are having some difficulty hearing.
Hana: So I'm assuming that there are no more questions and just wanted to share some closing remarks for everyone. So in closing we're approaching our working phases.
Hana: First taking decisive actions to simplify the business reduce our expense structure and continue to optimize the investments we've made in infrastructure.
Hana: And then second we're focusing on the key areas of brand awareness solution based products and product innovation and customer service I will be conducting an in depth review of our brand and product portfolio as we look to invigorate the do the Duluth business overall and in the longer term capture the full potential of the brand.
Hana: As we move forward, our priority will be to execute with a simplified framework I'm confident that by clarifying our priorities and doubling down on what makes Duluth truly special which is our solution based products and customer centric philosophy that we can once again achieved profitable growth and deliver value to our shareholders over.
Hana: For the long term.
Hana: I'm thrilled to work alongside the talented team to write the next chapter for Duluth as I look forward to sharing more details on our progress on future calls, but for right now I'm focused on aligning our organization around these priorities to drive our sustainable results. Thank.
Hana: Thank you all for your continued interest and support and I look forward to updating you on our progress in the quarters ahead.
Hana: Thank you.
Hana: And we thank you for your time today also the conference call has now concluded at this time you may disconnect your lines.
Hana: Take care and ever Great day, everyone.
Hana: [music].