Release Date: December 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Duluth Holdings Inc (NASDAQ:DLTH) reported a 210 basis point expansion in gross margin, driven by improved product costs from direct-to-factory sourcing.
• The company saw a double-digit increase in digital traffic, particularly through mobile devices, which accounted for 71% of visits and 57% of sales.
• Duluth Holdings Inc (NASDAQ:DLTH) successfully completed phase two of its fulfillment network optimization, resulting in significant cost savings and improved efficiency.
• The company is on track to open two new stores in priority markets in the second half of 2025, enhancing its retail presence.
• Duluth Holdings Inc (NASDAQ:DLTH) has a strong liquidity position with $165 million at the end of the quarter, and expects to end the year with no debt and liquidity of over $200 million.

Negative Points

• Net sales declined by 8.1% in the third quarter, impacted by a highly promotional environment and unseasonably warm weather.
• Inventory levels increased at the end of the quarter, driven by early planned receipts and unsold fall/winter goods due to warmer weather.
• The company reported an adjusted net loss of $13.8 million or $0.41 per diluted share, compared to a net loss of $10.5 million or $0.32 per diluted share last year.
• SG&A expenses increased by 1.2% and deleveraged by 600 basis points due to a decline in sales and higher fixed costs.
• Duluth Holdings Inc (NASDAQ:DLTH) anticipates a full-year gross margin reduction of approximately 125 basis points due to higher promotional activity and efforts to clear seasonal inventory.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with DLTH.

Q: You mentioned 25% of the fleet comes due by 2026. Do you have a sense of what falls under your new threshold regarding potential closures? A: We have about 25% of our leases coming due. We've recalibrated our hurdle rates for profitability and are assessing each store as we approach renewal dates. We're considering renewing, closing, or relocating based on these assessments. - Unidentified_6

Q: What is the primary driver to get back above the line from an SG&A perspective? A: We're seeing progress with our Big Dam blueprint initiatives, particularly in product development and logistics. Our Adairsville fulfillment center has exceeded expectations, processing 64% more units than last year with a 73% lower variable CPU cost. Over the next few years, these initiatives will help align SG&A with our expectations. - Unidentified_6

Q: Is there a store productivity issue, and how does closing stores affect overall fleet productivity? A: We've established higher hurdle rates for lease renewals, which improves overall portfolio productivity. Our focus on omni-channel marketing in priority markets will also drive traffic to stores. - Unidentified_4

Q: Can you pack away unsold cool weather gear, or do you need to clearance it by year-end? A: We plan to mark down and sell through seasonal items unique to this year. However, core seasonal products like black down puffer jackets will be packed away for future seasons, avoiding unnecessary markdowns. - Unidentified_6

Q: How are you addressing the inventory increase at the end of the quarter? A: The inventory increase is due to in-transit goods, early receipt of core products, and unsold fall/winter items. We're taking actions to ensure seasonal carryover doesn't impact clearance levels next year. - Unidentified_6

For the complete transcript of the earnings call, please refer to the full earnings call transcript.