DULUTH HOLDINGS INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the financial statements and related notes of Duluth Holdings Inc. included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2026 (“2025 Form 10-K”). The Company’s fiscal year ends on the Sunday nearest to January 31 of the following year. Fiscal 2026 is a 52-week period and ends on January 31, 2027. Fiscal 2025 was a 52-week period and ended on February 1, 2026. The three months of fiscal 2026 and fiscal 2025 represent our 13-week periods ended August 2, 2026 and August 3, 2025, respectively. Unless the context indicates otherwise, the terms the “Company,” “Duluth,” “Duluth Trading,” “we,” “our,” or “us” are used to refer to Duluth Holdings Inc. Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. All statements other than statements of historical or current facts included in this Quarterly Report on Form 10-Q are forward-looking statements. Forward looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “could,” “design,” “estimate,” “expect,” “project,” “plan,” “potential,” “intend,” “believe,” “may,” “might,” “will,” “objective,” “should,” “would,” “can have,” “likely,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenue, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including the risks and uncertainties described under Part I, Item 1A “Risk Factors,” in our 2025 Form 10-K, and other SEC filings, which factors are incorporated by reference herein. These risks and uncertainties include, but are not limited to, the following: the impact of inflation and measures to control inflation on our results of operations; the prolonged effects of economic uncertainties on store and website traffic; disruptions to our distribution network, supply chains and operations; failure to effectively manage inventory levels; our ability to maintain and enhance a strong brand and sub-brand image; adapting to declines in consumer confidence, inflation and decreases in consumer spending; disruptions to our e-commerce platform; our ability to meet customer delivery time expectations; our ability to properly allocate inventory throughout our distribution network to fulfill customer demand; our failure to meet our debt covenant ratios; natural disasters, unusually adverse weather conditions, boycotts, prolonged public health crises, epidemics or pandemics and unanticipated events; generating adequate cash from our existing stores and direct sales to support our growth; the impact of changes in corporate tax regulations and sales tax; identifying and responding to new and changing customer preferences; the success of the locations in which our stores are located; effectively relying on sources for merchandise located in foreign markets; transportation delays and interruptions, including port congestion; our inability to timely and effectively obtain shipments of products from our suppliers and deliver merchandise to our customers; the inability to maintain the performance of our maturing store portfolio; our inability to deploy marketing tactics and commit adequate resources to support marketing in order to retain and attract new customers; our ability to successfully open new stores; effectively adapting to new challenges associated with our expansion into new geographic markets; competing effectively in an environment of intense competition or elevated promotions; our ability to adapt to significant changes in sales due to the seasonality of our business; price reductions or inventory shortages resulting from failure to purchase the appropriate amount of inventory in advance of the season in which it will be sold; the potential for further increases in price and lack of availability of raw materials; our dependence on third-party vendors to provide us with sufficient quantities of merchandise at acceptable prices; the susceptibility of the price and availability of our merchandise to international trade conditions including tariffs; failure of our vendors and their manufacturing sources to use acceptable labor or other practices; our dependence upon key executive management or our inability to hire or retain the talent required for our business; increases in costs of fuel or other energy, transportation or utility costs and in the costs of labor and employment; failure of our information technology systems to support our current and growing business, before and after our planned upgrades; disruptions in our supply chain and fulfillment centers; our inability to protect our trademarks or other intellectual property rights; infringement on the intellectual property of third parties; acts of war, terrorism or civil unrest; the impact of governmental laws and regulations and the outcomes of legal proceedings; changes in U.S. and non-U.S. laws affecting the importation and taxation of goods, including imposition of unilateral tariffs on imported goods; our ability to secure the personal and/or financial information of our customers and employees; failure to comply with data privacy regulations; our ability to comply with the security standards for the credit card industry; our failure to maintain adequate internal controls over our financial and management systems; acquisition, disposition, and development risks; and other factors that may be disclosed in our SEC filings or otherwise. 20 Table of Contents Moreover, we operate in an evolving environment, new risk factors and uncertainties emerge from time to time and it is not possible for management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements. We undertake no obligation to update or revise these forward-looking statements, except as required under the federal securities laws. Overview We are a lifestyle brand of men’s and women’s workwear, casual wear, outdoor apparel and accessories sold primarily through our own omnichannel platform. We offer products nationwide through our website and direct mail. In 2010, we initiated our omnichannel platform with the opening of our first store. Since then, we have expanded our retail presence, and as of August 2, 2026, we operated 63 retail stores and three outlet stores. We offer a comprehensive line of innovative, durable and functional products, such as our Longtail T ® shirts, Buck Naked ® underwear, Fire Hose ® work pants, and No-Yank ® Tank, which reflect our position as the Modern, Self-Reliant American Lifestyle brand. Our brand has a heritage in workwear that transcends tradesmen and appeals to a broad demographic for everyday and on-the-job use. From our heritage as a catalog for those working in the building trades, Duluth Trading has become a widely recognized brand and proprietary line of innovative and functional apparel and gear. Over the last decade, we have created strong brand awareness, built a loyal customer base and generated sales growth. We have done so by sticking to our roots of “there’s gotta be a better way” and through our relentless focus on providing our customers with quality, functional products. A summary of our financial results is as follows: • Net sales decreased by 7.8% over the prior year second quarter to $121.4 million, and net sales decreased by 6.2% in the first six months of the year to $220.0 million; • Net income of $18.4 million in fiscal 2026 second quarter compared to the prior year second quarter net income of $1.3 million, and net income in the first six months of fiscal 2026 of $8.4 million compared to a net loss in the first six months of fiscal 2025 of $14.0 million. Net income includes the impact of $16.3 million in tariff refunds for the three and six months ended August 2, 2026; and • Adjusted EBITDA increased to $27.0 million in fiscal 2026 second quarter compared to the prior year second quarter Adjusted EBITDA of $12.0 million, and Adjusted EBITDA in the first six months of fiscal 2026 of $29.7 million compared to $8.2 million in the first six months of fiscal 2025. Adjusted EBITDA includes the impact of $16.3 million in tariff refunds for the three and six months ended August 2, 2026. See the “Reconciliation of Net Income (Loss) to EBITDA and EBITDA to Adjusted EBITDA” section for a reconciliation of our net income (loss) to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S. GAAP financial measures. See also the information under the heading “Adjusted EBITDA” in the section “How We Assess the Performance of Our Business” for our definition of Adjusted EBITDA. Economic Conditions The macroeconomic environment is experiencing inflation, including rising transportation costs, and recessionary concerns and general uncertainty regarding the future economic environment and therefore we cannot predict the ultimate impact of these economic conditions on our operational and financial performance. Given the uncertainty, we cannot reasonably estimate store traffic patterns and the prolonged impact on overall consumer demand. However, we expect that our operations will continue to be impacted by these macroeconomic headwinds, which may increase our merchandise costs, affect merchandise availability, and impact our financial performance. 21 Table of Contents On February 20, 2026, the U.S. Supreme Court issued a ruling relating to tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”). Following the ruling, the U.S. Customs and Border Protection and other federal agencies issued additional guidance and took actions affecting the assessment, collection, refund, and/or protest of certain tariffs. In March 2026, the U.S. Court of International Trade issued an additional ruling stating that importers that have paid tariffs under IEEPA are due refunds. We submitted our refund request in the first quarter of 2026 for reimbursement in the amount of $12.5 million, which reflected the amount of IEEPA tariffs we determined were paid while such tariffs were in effect from February 2025 through February 2026. As of August 2, 2026, we collected tariff refunds of approximately $12.8 million, inclusive of an insignificant amount of interest. In addition, we recorded a receivable for additional refunds due from vendors from previously passed through tariff costs, and we have recorded an accrual for the reimbursement of certain vendors for tariff charges that we previously passed through to those vendors. Refer to the Results of Operations section for further discussion of the impact of refunds on our operations for the three and six months ended August 2, 2026. We are continuing to evaluate the impact of these developments on previously paid tariffs and related matters, including the potential for additional recovery. At this time, we cannot reasonably estimate the amount or timing of any further recovery, if any, or the ultimate impact of these developments on our condensed consolidated financial statements. How We Assess the Performance of Our Business In assessing the performance of our business, we consider a variety of financial and operating measures that affect our operating results. Net Sales Net sales reflect our sale of merchandise plus shipping and handling revenue collected from our customers, less returns and discounts. Direct-to-consumer sales are recognized upon shipment to a customer, while store sales are recognized at the point of sale. Gross Profit Gross profit is equal to our net sales less cost of goods sold. Gross profit as a percentage of our net sales is referred to as gross margin. Cost of goods sold includes the direct cost of purchased merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost and net realizable reserves; inbound freight; and freight from our fulfillment centers to our retail stores. The primary drivers of the costs of individual goods are raw material costs. Depreciation and amortization are excluded from gross profit. Shipping and handling revenue is also reflected in our gross profit and gross profit margin. Our gross profit may not be comparable to other retailers, as we do not include distribution network and store occupancy expenses in calculating gross profit, but instead we include them in selling, general and administrative expenses. Selling, General and Administrative Expenses Selling, general and administrative expenses include all operating costs not included in cost of goods sold. These expenses include all payroll and payroll-related expenses and occupancy expenses related to our stores and to our operations at our headquarters, including utilities, depreciation and amortization. They also include marketing expense, which primarily includes television, digital and social media advertising, print production, mailing and print advertising costs, as well as all logistics costs associated with shipping product to our customers, consulting and software expenses and professional services fees. Selling, general and administrative expenses as a percentage of net sales is usually higher in lower-volume quarters and lower in higher-volume quarters because a portion of the costs are relatively fixed. While we expect these expenses to increase as we continue to increase brand awareness and invest in infrastructure to support our business, we believe these expenses will decrease as a percentage of sales over time. Our shipping and handling expenses typically increase during the second half of the year due to additional surcharges during our peak selling season. Adjusted EBITDA We believe Adjusted EBITDA is a useful measure of operating performance, as it provides a clearer picture of operating results by excluding the effects of financing and investing activities by eliminating the effects of interest, taxes, and depreciation and amortization costs and eliminating expenses that are not reflective of underlying business performance. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business. 22 Table of Contents We define Adjusted EBITDA as consolidated net income (loss) before depreciation and amortization, and interest expense, including non-cash items, and other charges or benefits resulting from transactions or events that are highly variable, significant in size, and that we do not believe are indicative of ongoing or future business operations. We believe Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other items. This non-GAAP measure may not be comparable to similarly titled measures used by other companies. Results of Operations The following table summarizes our unaudited consolidated results of operations for the periods indicated, both in dollars and as a percentage of net sales. Three Months Ended 2026 % of Net Sales 2025 % of Net Sales Change % Change (in thousands) Net sales $ 121,389 100.0 % $ 131,716 100.0 % $ (10,327 ) (7.8 ) % Cost of goods sold (excluding depreciation and amortization) 33,028 27.2 % 59,697 45.3 % (26,669 ) (44.7 ) % Gross profit 88,361 72.8 % 72,019 54.7 % 16,342 22.7 % Selling, general and administrative expenses 69,515 57.3 % 68,767 52.2 % 748 1.1 % Restructuring expense — - % 850 0.6 % (850 ) (100.0 ) % Operating income (loss) 18,846 15.5 % 2,402 1.8 % 16,444 684.6 % Interest expense 768 0.6 % 1,469 1.1 % (701 ) (47.7 ) % Other income (loss), net 396 0.3 % (82 ) (0.1 ) % 478 582.9 % Income (loss) before income taxes 18,474 15.2 % 851 0.6 % 17,623 2,070.9 % Income tax expense (benefit) 61 0.1 % (442 ) (0.3 ) % 503 113.8 % Net income (loss) 18,413 15.2 % 1,293 1.0 % 17,120 1,324.1 % Less: Net income attributable to noncontrolling interest 51 - % 32 — % 19 59 % Net income (loss) attributable to controlling interest $ 18,362 15.1 % $ 1,261 1.0 % $ 17,101 1,356.1 % Six Months Ended 2026 % of Net Sales 2025 % of Net Sales Change % Change (in thousands) Net sales $ 219,983 100.0 % $ 234,420 100.0 % $ (14,437 ) (6.2 ) % Cost of goods sold (excluding depreciation and amortization) 74,988 34.1 % 109,046 46.5 % (34,058 ) (31.2 ) % Gross profit 144,995 65.9 % 125,374 53.5 % 19,621 15.6 % Selling, general and administrative expenses 131,317 59.7 % 133,925 57.1 % (2,608 ) (1.9 ) % Impairment of long-lived assets 2,709 1.2 % 549 0.2 % 2,160 393 % Restructuring expense 1,354 0.6 % 850 0.4 % 504 59.3 % Operating income (loss) 9,615 4.4 % (9,950 ) (4.2 ) % 19,565 196.6 % Interest expense 1,558 0.7 % 2,950 1.3 % (1,392 ) (47.2 ) % Other income (loss), net 489 0.2 % (243 ) (0.1 ) % 732 301.2 % Income (loss) before income taxes 8,546 3.9 % (13,143 ) (5.6 ) % 21,689 165.0 % Income tax expense (benefit) 181 0.1 % 828 0.4 % (647 ) (78.1 ) % Net income (loss) 8,365 3.8 % (13,971 ) (6.0 ) % 22,336 159.9 % Less: Net income attributable to noncontrolling interest 104 - % 61 — % 43 70 % Net income (loss) attributable to controlling interest $ 8,261 3.8 % $ (14,032 ) (6.0 ) % $ 22,293 158.9 % 23 Table of Contents Three Months Ended August 2, 2026, Compared to Three Months Ended August 3, 2025 Net Sales The decrease in net sales for the three months ended August 2, 2026 was primarily driven by a decline in direct-to-consumer net sales resulting from declines in web traffic and web conversion due to reduced promotional activity partially offset by higher average order values. Gross Profit The increase in gross profit and gross margin rate for the three months ended August 2, 2026 was primarily driven by a net reduction of cost of goods sold of $16.0 million related to refunds of previously incurred tariff charges as discussed in further detail above. The gross margin rate was also favorably impacted by an increase in average unit retail sales from reduced promotional activity coupled with an improvement in product costs from our direct to factory sourcing initiative. Excluding the impact of tariff refunds, gross margin was 59.6% for the three months ended August 2, 2026, compared to 54.7% for the three months ended August 3, 2025. Selling, General and Administrative Expenses The increase in selling, general and administrative expense and as a percentage of sales for the three months ended August 2, 2026 was mainly driven by an increase in advertising and shipping expenses, which was partially offset by leverage in variable expenses in our fulfillment centers and stores coupled with lower overhead expenses. Restructuring Expense The restructuring expenses incurred for the three months ended August 3, 2025 related to a reduction in force to right-size our expense structure. Interest Expense Interest expense decreased for the three months ended August 2, 2026 due to a lower average balance on our outstanding line of credit. Other Income (Loss), Net Net other income increased for the three months ended August 2, 2026 primarily due to interest received on the tariffs refunded as discussed in further detail above. Income Taxes Income tax expense increased for the three months ended August 2, 2026 primarily due to the net income generated during the period. Six Months Ended August 2, 2026, Compared to Six Months Ended August 3, 2025 Net Sales The decrease in net sales for the six months ended August 2, 2026 was primarily driven by a decline in direct-to-consumer net sales resulting from declines in web traffic and web conversion due to reduced promotional activity partially offset by higher average order values. Gross Profit The increase in gross profit and gross margin rate for the six months ended August 2, 2026 was primarily driven by a net reduction of cost of goods sold of $16.0 million related to refunds of previously incurred tariff charges as discussed in further detail above. Gross profit and gross margin rate were also favorably impacted by an increase in average unit retail sales from reduced promotional activity coupled with an improvement in product costs from our direct to factory sourcing initiative. Excluding the impact of tariff refunds, gross margin was 58.7% for the six months ended August 2, 2026, compared to 53.5% for the six months ended August 3, 2025. 24 Table of Contents Selling, General and Administrative Expenses The decrease in selling, general and administrative expense for the six months ended August 2, 2026 was mainly driven by leverage in variable expenses in our fulfillment centers and stores coupled with lower overhead expenses, which was partially offset by an increase in advertising expenses. Impairment of Long-Lived Assets The impairment charge recorded during the six months ended August 2, 2026 related to the closure of our Salt Lake City fulfillment center and corresponding leasehold improvements, which is discussed in further detail in Note 2 of our Notes to Condensed Consolidated Financial Statements. The impairment charge recorded during the six months ended August 3, 2025 related to certain software that was no longer utilized in our operations. Restructuring Expense The restructuring expenses incurred for the six months ended August 2, 2026 related to the closure of our Salt Lake City fulfillment center. The restructuring expenses incurred for the six months ended August 3, 2025 related to a reduction in force to right-size our expense structure. Refer to Note 13 of our Notes to Condensed Consolidated Financial Statements for further information on the restructuring expenses incurred. Interest Expense Interest expense decreased for the six months ended August 2, 2026 due to a lower average balance on our outstanding line of credit. Other Income (Loss), Net Net other income increased for the six months ended August 2, 2026 primarily due to interest received on the tariffs refunded as discussed in further detail above. Income Taxes Income tax expense decreased for the six months ended August 2, 2026 primarily due to the recognition of additional valuation allowance in the first quarter of 2025. Reconciliation of Net Income (Loss) to EBITDA and EBITDA to Adjusted EBITDA The following table presents reconciliations of net income (loss) to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S. GAAP financial measures, for the periods indicated below. See the above section titled “How We Assess the Performance of Our Business,” for our definition of Adjusted EBITDA. Three Months Ended Six Months Ended August 2, 2026 August 3, 2025 August 2, 2026 August 3, 2025 (in thousands) Net income (loss) $ 18,413 $ 1,293 $ 8,365 $ (13,971 ) Depreciation and amortization 5,644 6,545 11,422 13,294 Amortization of internal-use software hosting subscription implementation costs 1,088 1,111 2,196 2,240 Interest expense 768 1,469 1,558 2,950 Income tax expense (benefit) 61 (442 ) 181 828 EBITDA $ 25,974 $ 9,976 $ 23,722 $ 5,341 Long-term incentive expense 1,046 1,173 1,870 1,466 Impairment expense — — 2,709 549 Restructuring expense — 850 1,354 850 Adjusted EBITDA $ 27,020 $ 11,999 $ 29,655 $ 8,206 The increase in Adjusted EBITDA was primarily due to tariff refunds received in the second quarter of 2026 along with leverage across our cost of goods sold and operating expenses as discussed above in the “Results of Operations” section. 25 Table of Contents Liquidity and Capital Resources General Our business relies on cash from operating activities and a credit facility as our primary sources of liquidity. Our primary cash needs have been for inventory, marketing and advertising, payroll, store leases, and capital expenditures associated with infrastructure and information technology. The most significant components of our working capital are cash, inventory, accounts payable and other current liabilities. As of August 2, 2026, our net working capital was $85.7 million, including $26.8 million of cash and cash equivalents. In April 2025, we entered into a credit agreement, which was subsequently amended throughout 2025 and provides us with borrowings of up to $100.0 million that are available under an asset-based revolving senior credit facility with a $10.0 million sublimit for the issuance of standby letters of credit. Due to the seasonality of our business, a significant amount of cash from operating activities is generated during the fourth quarter of our fiscal year. During the first three quarters of our fiscal year, we typically are net users of cash in our operating activities through funding received on our line of credit as we acquire inventory in anticipation of our peak selling season, which typically occurs in the fourth quarter of our fiscal year. We also use cash in our investing activities for capital expenditures throughout all four quarters of our fiscal year. We believe that our cash flow from operating activities and the availability of cash under our credit facility will be sufficient to cover working capital requirements and anticipated capital expenditures for the foreseeable future. Cash Flow Analysis A summary of operating, investing and financing activities is shown in the following table. Six Months Ended August 2, 2026 August 3, 2025 (in thousands) Net cash provided by (used in) operating activities $ 15,455 $ (24,436 ) Net cash used in investing activities (2,377 ) (3,465 ) Net cash provided by (used in) financing activities (2,624 ) 30,304 Increase in cash and cash equivalents $ 10,454 $ 2,403 Operating Activities Operating activities consist primarily of net income (loss) adjusted for non-cash items that include depreciation and amortization, stock-based compensation and the effect of changes in operating assets and liabilities. The increase in cash provided by operating activities for the six months ended August 2, 2026 was primarily due to the tariff refunds received, increase in gross margin rate, lower net outflows on trade payables and accrued expenses, and a decrease in selling, general and administrative expenses as discussed in further detail above. Investing Activities Investing activities consist primarily of capital expenditures related to investments in infrastructure, retail stores and information technology. The decrease in cash used in investing activities was primarily driven by a decrease in purchases of property and equipment. Financing Activities Financing activities consist primarily of borrowings and payments related to our revolving line of credit as well as payments on finance lease obligations. The decrease in cash provided by financing activities for the six months ended August 2, 2026 was primarily due to lower proceeds from our line of credit as a result of lower use of cash in our operations. Contractual Obligations There have been no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the fiscal year ended February 1, 2026. 26 Table of Contents Off-Balance Sheet Arrangements We are not a party to any material off-balance sheet arrangements. Critical Accounting Policies and Critical Accounting Estimates The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the related disclosures of contingent assets and liabilities at the date of the financial statements. We evaluate our accounting policies, estimates, and judgments on an on-going basis. We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions and such differences could be material to the consolidated financial statements. As of the date of this filing, there were no significant changes to any of the critical accounting policies and estimates described in our 2025 Form 10-K. Recent Accounting Pronouncements See Note 14 “Recent Accounting Pronouncements,” of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1, of this quarterly report on Form 10-Q for information regarding recent accounting pronouncements.