What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-30 compared with 2024-05-31 · 76 added, 43 removed, 172 unchanged (41% of the section changed)

5 unchanged sentences

Fiscal 2023 was a 52-week period and ended on January 28, 2024.

The three months of fiscal 2024 and fiscal 2023 represent our 13-week periods ended April 28, 2024 and April 30, 2023, respectively.

The three months of fiscal 2024 and fiscal 2023 represent our 13-week periods ended July 28, 2024 and July 30, 2023, 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.

23 unchanged sentences

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 maturing store portfolio;

the inability to maintain the performance of a maturing store portfolio;

our inability to deploy marketing tactics to strengthen brand awareness and attract new customers in a cost effective manner;

28 unchanged sentences

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 April 28, 2024, we operated 62 retail stores and three outlet stores.

Since then, we have expanded our retail presence, and as of July 28, 2024, we operated 62 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 TM underwear, Fire Hose ® work pants, and No-Yank ® Tank, which reflect our position as the Modern, Self-Reliant American Lifestyle brand.

4 unchanged sentences

A summary of our financial results is as follows:

 Net sales decreased by 5.7% over the prior year first quarter to $116.7 million;

 Net loss of $7.9 million in fiscal 2024 first quarter compared to the prior year first quarter net loss of $3.9 million;

 Adjusted EBITDA decreased to $1.8 million in fiscal 2024 first quarter compared to the prior year first quarter Adjusted EBITDA of $5.3 million.

 Net sales increased by 1.8% over the prior year second quarter to $141.6 million, and net sales in the first six months of fiscal 2024 decreased by 1.7% over the first six months of the prior year to $258.3 million;

 Net loss of $3.7 million in fiscal 2024 second quarter compared to the prior year second quarter net loss of $2.0 million, and net loss in the first six months of fiscal 2024 of $11.6 million compared to a net loss in the first six months of fiscal 2023 of $5.9 million;

 Adjusted EBITDA increased to $10.6 million in fiscal 2024 second quarter compared to the prior year second quarter Adjusted EBITDA of $8.6 million, and adjusted EBITDA in the first six months of fiscal 2024 of $12.4 million compared to $13.8 million over the first six months of fiscal 2023.

See the “Reconciliation of Net Loss to EBITDA and EBITDA to Adjusted EBITDA” section for a reconciliation of our net loss to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S.

19 unchanged sentences

and freight from our distribution centers to our retail stores.

The primary drivers of the costs of individual goods are

raw material costs.

The primary drivers of the costs of individual goods are raw material costs.

Depreciation and amortization are excluded from gross profit.

9 unchanged sentences

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.

We define Adjusted EBITDA as consolidated net income before depreciation and amortization, interest expense and provision for income taxes adjusted for the impact of certain items, including non-cash and other items we do not consider representative of our ongoing operating performance.

We define Adjusted EBITDA as consolidated net income before depreciation and amortization, interest expense and provision for income taxes adjusted for the impact of certain items, including non-cash, restructuring expenses and other items we do not consider representative of our ongoing operating performance.

We believe Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other items.

We also use Adjusted EBITDA as one of the key financial metric in determining bonus compensation for our employees.

We also use Adjusted EBITDA as one of the key financial metrics in determining bonus compensation for our employees.

This non-GAAP measure may not be comparable to similarly titled measures used by other companies.

2 unchanged sentences

Three Months Ended

April 28, 2024

April 30, 2023

Six Months Ended

July 28, 2024

July 30, 2023

July 28, 2024

July 30, 2023

(in thousands)

1 unchanged sentence

Selling, general and administrative expenses

Restructuring expense

Operating loss

9 unchanged sentences

Selling, general and administrative expenses

Restructuring expense

Operating loss

5 unchanged sentences

Net loss attributable to controlling interest

Three Months Ended April 28, 2024, Compared to Three Months Ended April 30, 2023

Net sales decreased $7.1 million, or 5.7%, to $116.7 million in the three months ended April 28, 2024 compared to $123.8 million in the three months ended April 30, 2023 .

Net sales was impacted by challenging traffic and a lower in-stock position at the beginning of the quarter.

Store market net sales decreased $7.3 million, or 8.6%, to $78.1 million in the three months ended April 28, 2024 compared to $85.4 million in the three months ended April 30, 2023 .

Non-store market net sales decreased by $3.8 million, or 10.2%, to $33.6 million in the three months ended April 28, 2024 compared to $37.4 million in the three months ended April 30, 2023 .

Gross profit decreased $4.0 million, or 6.1%, to $61.6 million in the three months ended April 28, 2024 compared to $65.7 million in the three months ended April 30, 2023 .

As a percentage of net sales, gross margin decreased slightly to 52.8% of net sales in the three months ended April 28, 2024, compared to 53.0% of net sales in the three months ended April 30, 2023 .

While new product cost came in better than expected, we are seeing a delay in impact to gross margin rate as we sell through older, higher cost inventory.

Three Months Ended July 28, 2024, Compared to Three Months Ended July 30, 2023

Net sales increased $2.5 million, or 1.8%, to $141.6 million in the three months ended July 28, 2024 compared to $139.1 million in the three months ended July 30, 2023 .

The increase in net sales was primarily driven by higher site conversion compared to the prior year.

Store market net sales increased $0.4 million, or 0.5%, to $98.0 million in the three months ended July 28, 2024 compared to $97.6 million in the three months ended July 30, 2023 .

Non-store market net sales increased by $1.5 million, or 3.9%, to $42.1 million in the three months ended July 28, 2024 compared to $40.6 million in the three months ended July 30, 2023 .

Gross profit increased $2.5 million, or 3.5%, to $74.0 million in the three months ended July 28, 2024 compared to $71.5 million in the three months ended July 30, 2023 .

As a percentage of net sales, gross margin increased to 52.3% of net sales in the three months ended July 28, 2024, compared to 51.4% of net sales in the three months ended July 30, 2023 .

The increase in gross margin percentage was primarily driven by our sourcing initiative.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $0.4 million, or 0.6%, to $70.6 million in the three months ended April 28, 2024 compared to $70.2 million in the three months ended April 30, 2023 .

Selling, general and administrative expenses as a percentage of net sales increased to 60.5% in the three months ended April 28, 2024, compared to 56.7% in the three months ended April 30, 2023 .

The increase in selling, general and administrative expense was mainly driven by higher fixed costs and depreciation from foundational strategic investments, partially offset by efficiencies across logistics and the fulfillment center network.

Income tax benefit was $2.1 million in the three months ended April 28, 2024, compared to income tax benefit of $1.5 million in the three months ended April 30, 2023 .

The effective tax rate related to controlling interest for the three months ended April 28, 2024 and April 30, 2023 was 21% and 27%, respectively.

Selling, general and administrative expenses increased $3.4 million, or 4.6%, to $76.3 million in the three months ended July 28, 2024 compared to $72.9 million in the three months ended July 30, 2023 .

Selling, general and administrative expenses as a percentage of net sales increased to 53.9% in the three months ended July 28, 2024, compared to 52.4% in the three months ended July 30, 2023 .

The increase in selling, general and administrative expenses included a $2.4 million non-recurring estimated sales tax expense.

Excluding this non-recurring expense, selling, general and administrative expenses increased $1.0 million to $73.9 million, representing 52.2% of net sales.

The decrease in selling, general and administrative expense as a percentage of net sales, excluding the aforementioned non-recurring estimated sales tax expense accrual, was mainly driven by efficiencies across logistics and the fulfillment center network.

Income tax benefit was $1.0 million in the three months ended July 28, 2024, compared to income tax benefit of $0.2 million in the three months ended July 30, 2023 .

The effective tax rate related to controlling interest for the three months ended July 28, 2024 and July 30, 2023 was 21% and 9%, respectively.

Net Loss Attributable to Controlling Interest

Net loss attributable to controlling interest was $7.9 million, in the three months ended April 28, 2024 compared to net loss of $3.9 million in the three months ended April 30, 2023 , due to the factors discussed above.

Net loss attributable to controlling interest was $3.7 million, in the three months ended July 28, 2024 compared to net loss of $2.0 million in the three months ended July 30, 2023 .

In addition to the factors addressed above, the aforementioned $1.6 million in restructuring expense contributed to the net loss in the current period.

Six Months Ended July 30, 2023 Compared to Six Months Ended July 31, 2022

Net sales decreased $4.6 million, or 1.7%, to $258.3 million in the six months ended July 28, 2024 compared to $262.9 million in the six months ended July 30, 2023 .

Store market net sales decreased $6.9 million, or 3.8%, to $176.1 million in the six months ended July 28, 2024 compared to $183.0 million in the six months ended July 30, 2023 .

The decrease was driven by slower store traffic compared to the prior year.

Non-store market net sales decreased by $2.3 million, or 3.0%, to $75.7 million in the six months ended July 28, 2024 compared to $78.0 million in the six months ended July 30, 2023 .

Gross profit decreased $1.5 million, or 1.1%, to $135.6 million in the six months ended July 28, 2024 compared to $137.1 million in the six months ended July 30, 2023 .

As a percentage of net sales, gross margin increased to 52.5% of net sales in the six months ended July 28, 2024, compared to 52.2% of net sales in the six months ended July 30, 2023 .

The increase in gross margin rate was primarily driven by our sourcing initiatives.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $3.8 million, or 2.6%, to $146.9 million in the six months ended July 28, 2024 compared to $143.1 million in the six months ended July 30, 2023 .

Selling, general and administrative expenses as a percentage of net sales increased to 56.9% in the six months ended July 28, 2024, compared to 54.4% in the six months ended July 30, 2023 .

The increase in selling, general and administrative expenses included a $2.4 million non-recurring estimated sales tax expense.

Excluding this non-recurring expense, selling, general and administrative expenses increased $1.4 million to $144.5 million, representing 55.9% of net sales.

The increase in selling, general and administrative expense as a percentage of net sales, excluding the aforementioned non-recurring estimated sales tax expense accrual, was primarily due to higher fixed costs and depreciation from foundational strategic investments.

Income tax benefit was $3.1 million in the six months ended July 28, 2024, compared to income tax benefit of $1.7 million in the six months ended July 30, 2023 .

The effective tax rate related to controlling interest was 21% for the six months ended July 28, 2024 compared to 22% for the six months ended July 30, 2023 .

Net Loss Attributable to Controlling Interest

Net loss attributable to controlling interest was $11.6 million in the six months ended July 28, 2024 compared to net loss of $5.9 million in the six months ended July 30, 2023 .

In addition to the factors addressed above, the aforementioned $1.6 million in restructuring expense contributed to the net loss in the current period.

Reconciliation of Net Loss to EBITDA and EBITDA to Adjusted EBITDA

3 unchanged sentences

Three Months Ended

April 28, 2024

April 30, 2023

Six Months Ended

July 28, 2024

July 30, 2023

July 28, 2024

July 30, 2023

(in thousands)

5 unchanged sentences

Stock based compensation

Restructuring expense

Sales tax expense accrual

Adjusted EBITDA

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA decreased $3.4 million to $1.8 million in the three months ended April 28, 2024 compared to $5.3 million in the three months ended April 30, 2023 .

As a percentage of net sales, Adjusted EBITDA decreased to 1.6% of net sales in the three months April 28, 2024 compared to 4.3% of net sales in the three months ended April 30, 2023 .

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA increased $2.0 million to $10.6 million in the three months ended July 28, 2024 compared to $8.6 million in the three months ended July 30, 2023 .

As a percentage of net sales, Adjusted EBITDA increased to 7.5% of net sales in the three months July 28, 2024 compared to 6.2% of net sales in the three months ended July 30, 2023 .

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA decreased $1.4 million to $12.4 million in the six months ended July 28, 2024 compared to $13.8 million in the six months ended July 30, 2023 .

As a percentage of net sales, Adjusted EBITDA decreased to 4.8% of net sales in the six months July 28, 2024 compared to 5.3% of net sales in the six months ended July 30, 2023.

Liquidity and Capital Resources

2 unchanged sentences

The most significant components of our working capital are cash, inventory, accounts payable and other current liabilities.

At April 28, 2024, our net working capital was $75.9 million, including $6.8 million of cash and cash equivalents.

At July 28, 2024, our net working capital was $79.8 million, including $9.8 million of cash and cash equivalents.

We expect to spend approximately $25.0 million in fiscal 2024 on capital expenditures, inclusive of software hosting implementation costs, primarily due to investments in logistics optimization, including investments in the fulfillment network and information technology.

4 unchanged sentences

A summary of operating, investing and financing activities is shown in the following table.

Three Months Ended

April 28, 2024

April 30, 2023

Six Months Ended

July 28, 2024

July 30, 2023

(in thousands)

1 unchanged sentence

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash used in financing activities

Decrease in cash and cash equivalents

1 unchanged sentence

Operating activities consist primarily of net income adjusted for non-cash items that include depreciation and amortization, stock-based compensation and the effect of changes in operating assets and liabilities.

For the three months ended April 28, 2024, net cash used in operating activities was $33.7 million, which primarily consisted of cash used in operating assets and liabilities of $33.3 million and a $7.9 million net loss for the three months ended April 28, 2024 partially offset by depreciation of $8.3 million.

The cash used in operating assets and liabilities of $33.3 million was primarily due to a $10.7 million increase in inventory and $13.2 million decrease in trade accounts payable.

For the three months ended April 30, 2023 , net cash used in operating activities was $14.0 million, which primarily consisted of cash used in operating assets and liabilities of $17.1 million.

The cash used in operating assets and liabilities of $17.1 million was primarily due to a $21.1 million decrease in trade accounts payable partially offset by a $10.0 million decrease in inventory.

For the six months ended July 28, 2024, net cash used in operating activities was $17.1 million, which primarily consisted of cash used in operating assets and liabilities of $20.9 million and an $11.6 million net loss for the six months ended July 28, 2024 partially offset by depreciation of $16.3 million.

The cash used in operating assets and liabilities of $20.9 million

was primarily due to a $43.0 million increase in inventory, partially offset by a $26.6 million increase in trade accounts payable.

For the six months ended July 30, 2023, net cash used in operating activities was $1.2 million, which primarily consisted of cash used in operating assets and liabilities of $11.0 million and a $5.9 million net loss for the six months ended July 30, 2023 offset by depreciation of $14.9 million.

The cash used in operating assets and liabilities of $11.0 million was primarily due to a $7.3 million decrease in accrued expenses and $2.2 million increase in inventory.

Net Cash Used in Investing Activities

Investing activities consist primarily of capital expenditures for growth related to investments in infrastructure and information technology.

For the three months ended April 28, 2024 and April 30, 2023 , net cash used in investing activities was $1.5 million and $21.3 million, respectively.

Net Cash Provided by (Used in) Financing Activities

For the six months ended July 28, 2024 and July 30, 2023 , net cash used in investing activities was $3.1 million and $31.4 million, respectively.

Net Used in 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.

For the three months ended April 28, 2024, net cash provided by financing activities was $9.8 million, primarily consisting of $11.0 million in net borrowings under our revolving line of credit.

For the three months ended April 30, 2023 , net cash used in financing activities was $1.0 million, primarily consisting of payments on finance lease obligations.

For the six months ended July 28, 2024, net cash used in financing activities was $2.2 million and $1.8 million, respectively.

Contractual Obligations

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis