What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-12-06 compared with 2024-08-30 · 70 added, 67 removed, 181 unchanged (43% 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 July 28, 2024 and July 30, 2023, respectively.

The three months of fiscal 2024 and fiscal 2023 represent our 13-week periods ended October 27, 2024 and October 29, 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.

10 unchanged sentences

the prolonged effects of economic uncertainties on store and website traffic and 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;

36 unchanged sentences

and other factors that may be disclosed in our SEC filings or otherwise.

Moreover , we operate in an evolving environment, n ew 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.

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.

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

Since then, we have expanded our retail presence, and as of October 27, 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.

1 unchanged sentence

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 robust sales momentum.

Over the last decade, we have created strong brand awareness, built a loyal customer base and generated sales momentum.

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 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.

 Net sales decreased by 8.1% over the prior year third quarter to $127.1 million, and net sales in the first nine months of fiscal 2024 decreased by 3.9% over the first nine months of the prior year to $385.4 million;

 Net loss of $28.5 million in fiscal 2024 third quarter compared to the prior year third quarter net loss of $10.5 million, and net loss in the first nine months of fiscal 2024 of $40.1 million compared to a net loss in the first nine months of fiscal 2023 of $16.4 million;

 Adjusted EBITDA decreased to ($6.8) million in fiscal 2024 third quarter compared to the prior year third quarter Adjusted EBITDA of ($1.6) million, and adjusted EBITDA in the first nine months of fiscal 2024 of $5.7 million compared to $12.3 million over the first nine 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.

38 unchanged sentences

Three Months Ended

Six Months Ended

July 28, 2024

July 30, 2023

July 28, 2024

July 30, 2023

Nine Months Ended

October 27, 2024

October 29, 2023

October 27, 2024

October 29, 2023

(in thousands)

6 unchanged sentences

Loss before income taxes

Income tax benefit

Income tax expense (benefit)

Net income (loss) attributable to noncontrolling interest

9 unchanged sentences

Loss before income taxes

Income tax benefit

Income tax expense (benefit)

Net income (loss) attributable to noncontrolling interest

Net loss attributable to controlling interest

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.

Three Months Ended October 27, 2024 , Compared to Three Months Ended October 29, 2023

Net sales decreased $11.2 million, or 8.1%, to $127.1 million in the three months ended October 27, 2024 compared to $138.2 million in the three months ended October 29, 2023.

The decrease in net sales was primarily driven by lower web conversion and a decline in store traffic.

Store market net sales decreased $7.9 million, or 9.3%, to $88.7 million in the three months ended October 27, 2024 compared to $96.6 million in the three months ended October 29, 2023.

Non-store market net sales decreased by $3.7 million, or 9.8%, to $37.1 million in the three months ended October 27, 2024 compared to $40.8 million in the three months ended October 29, 2023.

Gross profit decreased $3.0 million, or 4.3%, to $66.4 million in the three months ended October 27, 2024 compared to $69.4 million in the three months ended October 29, 2023.

As a percentage of net sales, gross margin increased to 52.3% of net sales in the three months ended October 27, 2024, compared to 50.2% of net sales in the three months ended October 29, 2023.

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

Selling, General and Administrative Expenses

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.

Selling, general and administrative expenses increased $1.0 million, or 1.2%, to $82.9 million in the three months ended October 27, 2024 compared to $81.8 million in the three months ended October 29, 2023.

Selling, general and administrative expenses as a percentage of net sales increased to 65.2% in the three months ended October 27, 2024, compared to 59.2% in the three months ended October 29, 2023.

The increase in selling, general and administrative expense as a percentage of net sales was mainly driven by increased advertising spend, partially offset by optimization in our outbound shipping network.

Income tax expense was $4.7 million in the three months ended October 27, 2024, compared to income tax benefit of $3.1 million in the three months ended October 29, 2023.

The provision for third quarter of fiscal 2024 reflected the establishment of a valuation allowance of $10.1 million established against the net amount of deferred tax assets as well as pre-tax loss in the current year.

Net Loss Attributable to Controlling Interest

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 .

Net loss attributable to controlling interest was $28.5 million, in the three months ended October 27, 2024 compared to net loss of $10.5 million in the three months ended October 29, 2023.

In addition to the factors addressed above, $6.2 million in restructuring expense contributed to the net loss in the current period.

Nine Months Ended October 27, 2024 Compared to Nine Months Ended October 29, 2023

Net sales decreased $15.7 million, or 3.9%, to $385.4 million in the nine months ended October 27, 2024 compared to $401.1 million in the nine months ended October 29, 2023 .

Store market net sales decreased $14.8 million, or 5.3%, to $264.7 million in the nine months ended October 27, 2024 compared to $279.6 million in the nine months ended October 29, 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 .

Non-store market net sales decreased by $6.0 million, or 5.1%, to $112.8 million in the nine months ended October 27, 2024 compared to $118.8 million in the nine months ended October 29, 2023 .

Gross profit decreased $4.5 million, or 2.2%, to $202.0 million in the nine months ended October 27, 2024 compared to $206.5 million in the nine months ended October 29, 2023 .

As a percentage of net sales, gross margin increased to 52.4% of net sales in the nine months ended October 27, 2024, compared to 51.5% of net sales in the nine months ended October 29, 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 .

Selling, general and administrative expenses increased $4.8 million, or 2.1%, to $229.7 million in the nine months ended October 27, 2024 compared to $224.9 million in the nine months ended October 29, 2023 .

Selling, general and administrative expenses as a percentage of net sales increased to 59.6% in the nine months ended October 27, 2024, compared to 56.1% in the nine months ended October 29, 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 $2.4 million to $227.3 million, representing 59.0% 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 .

Income tax expense was $1.6 million in the nine months ended October 27, 2024, compared to income tax benefit of $4.8 million in the nine months ended October 29, 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.

Net loss attributable to controlling interest was $40.2 million in the nine months ended October 27, 2024 compared to net loss of $16.3 million in the nine months ended October 29, 2023 .

In addition to the factors addressed above, $7.7 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

Six Months Ended

July 28, 2024

July 30, 2023

July 28, 2024

July 30, 2023

Nine Months Ended

October 27, 2024

October 29, 2023

October 27, 2024

October 29, 2023

(in thousands)

3 unchanged sentences

Interest expense

Income tax benefit

Income tax expense (benefit)

Stock based compensation

2 unchanged sentences

Adjusted EBITDA

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.

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA decreased $5.2 million to ($6.8) million in the three months ended October 27, 2024 compared to ($1.6) million in the three months ended October 29, 2023 .

As a percentage of net sales, Adjusted EBITDA decreased to (5.3%) of net sales in the three months October 27, 2024 compared to (1.1%) of net sales in the three months ended October 29, 2023 .

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA decreased $6.6 million to $5.7 million in the nine months ended October 27, 2024 compared to $12.3 million in the nine months ended October 29, 2023 .

As a percentage of net sales, Adjusted EBITDA decreased to 1.5% of net sales in the nine months ended October 27, 2024 compared to 3.1% of net sales in the nine months ended October 29, 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 July 28, 2024, our net working capital was $79.8 million, including $9.8 million of cash and cash equivalents.

At October 27, 2024, our net working capital was $60.6 million, including $9.3 million of cash and cash equivalents.

We expect to spend approximately $23.0 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.

Six Months Ended

July 28, 2024

July 30, 2023

Nine Months Ended

October 27, 2024

October 29, 2023

(in thousands)

1 unchanged sentence

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by 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 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.

For the nine months ended October 27, 2024, net cash used in operating activities was $58.1 million, which primarily consisted of cash used in operating assets and liabilities of $47.3 million and a $40.1 million net loss for the nine months ended October 27, 2024 partially offset by depreciation of $24.7 million.

The cash used in operating assets and liabilities of $47.3 million was primarily due to a $105.7 million increase in inventory, partially offset by a $53.2 million increase in trade accounts payable.

The increase in inventory and trade accounts payable was primarily related to three main drivers.

The first was an increase in in-transit inventory as we moved from purchasing through an agent to buying directly from factories.

Another third was due to higher inventory receipts on core year-round products to mitigate low in-stock post Black Friday week.

Lastly, fall winter orders arrived on time but suffered delayed sales with the unusually warmer weather.

For the nine months ended October 29, 2023, net cash used in operating activities was $31.0 million, which primarily consisted of cash used in operating assets and liabilities of $36.6 million and a $16.4 million net loss for the nine months ended October 29, 2023 partially offset by depreciation of $23.4 million.

The cash used in operating assets and liabilities of $36.6 million was primarily due to a $19.0 million increase in inventory and $10.2 million decrease in trade accounts payable.

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 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

For the nine months ended October 27, 2024 and October 29, 2023, net cash used in investing activities was $5.7 million and $39.8 million, respectively.

Net Cash Provided by 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 six months ended July 28, 2024, net cash used in financing activities was $2.2 million and $1.8 million, respectively.

For the nine months ended October 27, 2024, net cash used in financing activities was $41.0 million and $33.5 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