DULUTH HOLDINGS INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm ( KPMG LLP , PCAOB ID No. 185 ) 38 Consolidated Balance Sheets as of February 2, 2025 and January 28, 202 4 41 Consolidated Statements of Operations for Fiscal Years Ended February 2, 2025 and January 28, 202 4 42 Consolidated Statements of Comprehensive Income for Fiscal Years Ended February 2, 2025 and January 28, 202 4 43 Consolidated Statements of Shareholders’ Equity for Fiscal Years Ended February 2, 2025 and January 28, 202 4 44 Consolidated Statements of Cash Flows for Fiscal Years Ended February 2, 2025 and January 28, 202 4 45 Notes to Consolidated Financial Statements 46 Schedule II Valuation and Qualifying Accounts 63 ‎ 37 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Duluth Holdings Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Duluth Holdings Inc. and subsidiaries (the Company) as of February 2, 2025 and January 28, 2024 , the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the years then ended, and the related notes and financial statement schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 2, 2025 and January 28, 2024, and the results of its operations and its cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Product return reserve As discussed in Note 5 to the consolidated financial statements, as of February 2, 2025 the Company recorded $4,568 thousand in reserves for product returns within accrued expenses and other current liabilities. Management estimates the product return reserve using its own historical sales and product return information. We identified the assessment of the product return reserve as a critical audit matter. A high degree of auditor judgement was required to assess whether the historical return rate used to estimate the reserve for product returns is indicative of future returns. The following are the primary procedures we performed to address this critical audit matter. We evaluated and tested the design and implementation of certain internal controls related to the product return reserve. This included controls related to determining the historical return rate used to estimate product returns. We assessed the Company’s ability to accurately estimate the product return rate by comparing prior period estimates to actual product return rates experienced. We analyzed the product return rate assumption by evaluating the consistency of the assumption with the trend of actual historical product return rates and by comparing the product return reserve to actual product returns received after the balance sheet date . 38 Table of Contents /s/ KPMG LLP We have served as the Company’s auditor since 2021. Milwaukee, Wisconsin March 21, 2025 ‎ 39 Table of Contents DULUTH HOLDINGS INC. Consolidated Balance Sheets (Amounts in thousands) February 2, 2025 January 28, 2024 ASSETS Current Assets: Cash and cash equivalents $ 3,335 $ 32,157 Receivables 3,970 5,955 Income taxes receivable — 617 Inventory, net 166,545 125,757 Prepaid expenses & other current assets 17,781 16,488 Total current assets 191,631 180,974 Property and equipment, net 111,560 132,718 Operating lease right-of-use assets 102,663 121,430 Finance lease right-of-use assets, net 32,957 40,315 Available-for-sale security 4,491 4,986 Other assets, net 9,140 9,020 Deferred tax assets — 1,767 Total assets $ 452,442 $ 491,210 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 73,882 $ 51,122 Accrued expenses and other current liabilities 35,684 34,111 Income tax payable 65 — Current portion of operating lease liabilities 15,534 16,401 Current portion of finance lease liabilities 2,541 3,149 Current maturities of TRI long-term debt 931 847 Total current liabilities 128,637 105,630 Operating lease liabilities, less current portion 89,222 106,413 Finance lease liabilities, less current portion 30,621 34,276 TRI long-term debt, less current maturities 24,283 25,141 Deferred tax liabilities — — Total liabilities 272,763 271,460 Shareholders' equity: Preferred stock, no par value; 10,000 shares authorized; no shares ‎ issued or outstanding as of February 2, 2025 and January 28, 2024 — — Common stock (Class A), no par value; 10,000 shares authorized; ‎ 3,364 shares issued and outstanding as of February 2, 2025 and ‎ January 28, 2024 — — Common stock (Class B), no par value; 200,000 shares authorized; ‎ 32,077 shares issued and 31,813 shares outstanding as of February 2, 2025 and ‎ 31,178 shares issued and 31,023 outstanding as of January 28, 2024 — — Treasury stock, at cost; 264 and 155 shares as of February 2, 2025 and ‎ January 28, 2024, respectively ( 2,332 ) ( 1,738 ) Capital stock 108,009 103,579 Retained earnings 77,721 121,392 Accumulated other comprehensive income ( 722 ) ( 427 ) Total shareholders' equity of Duluth Holdings Inc. 182,676 222,806 Noncontrolling interest ( 2,997 ) ( 3,056 ) Total shareholders' equity 179,679 219,750 Total liabilities and shareholders' equity $ 452,442 $ 491,210 The accompanying notes are an integral part of these consolidated financial statements. 40 Table of Contents DULUTH HOLDINGS INC. Consolidated Statements of Operations (Amounts in thousands, except per share figures) Fiscal Year Ended February 2, 2025 January 28, 2024 Net sales $ 626,629 $ 646,681 Cost of goods sold (excluding depreciation and amortization) 318,119 321,710 Gross profit 308,510 324,971 Selling, general and administrative expenses 337,623 334,540 Restructuring expense 7,748 — Operating loss ( 36,861 ) ( 9,569 ) Interest expense 4,554 4,156 Other income, net 173 923 Loss before income taxes ( 41,242 ) ( 12,802 ) Income tax expense (benefit) 2,370 ( 2,862 ) Net loss ( 43,612 ) ( 9,940 ) Less: Net income (loss) attributable to noncontrolling interest 59 ( 17 ) Net loss attributable to controlling interest $ ( 43,671 ) $ ( 9,923 ) Basic earnings per share (Class A and Class B): Weighted average shares of ‎ common stock outstanding 33,368 32,955 Net loss per share attributable ‎ to controlling interest $ ( 1.31 ) $ ( 0.30 ) Diluted earnings per share (Class A and Class B): Weighted average shares and ‎ equivalents outstanding 33,368 32,955 Net loss per share attributable ‎ to controlling interest $ ( 1.31 ) $ ( 0.30 ) The accompanying notes are an integral part of these consolidated financial statements. ‎ 41 Table of Contents DULUTH HOLDINGS INC. Consolidated Statements of Comprehensive Income (Amounts in thousands) Fiscal Year Ended February 2, 2025 January 28, 2024 Net loss $ ( 43,612 ) $ ( 9,940 ) Other comprehensive loss Securities available-for-sale: Unrealized security loss ( 296 ) ( 372 ) Income tax benefit ( 1 ) ( 93 ) Other comprehensive loss ( 295 ) ( 279 ) Comprehensive loss ( 43,907 ) ( 10,219 ) Comprehensive income (loss) attributable ‎ to noncontrolling interest 59 ( 17 ) Comprehensive loss attributable ‎ to controlling interest $ ( 43,966 ) $ ( 10,202 ) The accompanying notes are an integral part of these consolidated financial statements. ‎ 42 Table of Contents DULUTH HOLDINGS INC. Consolidated Statements of Shareholders’ Equity (Amounts in thousands) Accumulated Noncontrolling Capital stock other interest in Total Treasury Retained comprehensive variable interest shareholders' Shares Amount stock earnings loss entities equity Balance at January 29, 2023 33,443 $ 98,842 $ ( 1,459 ) $ 131,315 $ ( 148 ) $ ( 3,210 ) $ 225,340 Issuance of common stock 1,243 542 — — — — 542 Stock-based compensation — 4,195 — — — — 4,195 Restricted stock forfeitures ( 257 ) — — — — — — Restricted stock surrendered for taxes ( 42 ) — ( 279 ) — — — ( 279 ) Changes in the TRI Holdings, LLC Consolidation — — — — — 171 171 Other comprehensive loss — — — — ( 279 ) — ( 279 ) Net loss — — — ( 9,923 ) — ( 17 ) ( 9,940 ) Balance at January 28, 2024 34,387 $ 103,579 $ ( 1,738 ) $ 121,392 $ ( 427 ) $ ( 3,056 ) $ 219,750 Issuance of common stock 1,185 384 — — — — 384 Stock-based compensation — 4,046 — — — — 4,046 Restricted stock forfeitures ( 239 ) — — — — — — Restricted stock surrendered for taxes ( 156 ) — ( 594 ) — — — ( 594 ) Changes in the TRI Holdings, LLC Consolidation — — — — — — — Other comprehensive loss — — — — ( 295 ) — ( 295 ) Net (loss) income — — — ( 43,671 ) — 59 ( 43,612 ) Balance at February 2, 2025 35,177 $ 108,009 $ ( 2,332 ) $ 77,721 $ ( 722 ) $ ( 2,997 ) $ 179,679 The accompanying notes are an integral part of these consolidated financial statements. 43 Table of Contents DULUTH HOLDINGS INC. Consolidated Statements of Cash Flows (Amounts in thousands) Fiscal Year Ended February 2, 2025 January 28, 2024 Cash flows from operating activities: Net loss $ ( 43,612 ) $ ( 9,940 ) Adjustments to reconcile net income to net cash provided ‎ by operating activities: Depreciation and amortization 32,282 32,159 Stock-based compensation 4,046 4,195 Deferred income taxes 1,767 ( 2,335 ) Loss on disposal of property and equipment 473 130 Changes in operating assets and liabilities: Receivables 1,985 86 Income taxes receivable 617 ( 617 ) Inventory ( 40,788 ) 29,165 Prepaid expense & other assets 1,085 ( 1,675 ) Software hosting implementation costs, net ( 3,171 ) ( 216 ) Trade accounts payable 22,863 ( 5,449 ) Income taxes payable 65 ( 1,761 ) Accrued expenses and deferred rent obligations 2,059 ( 4,405 ) Other 473 58 Noncash lease impacts 2,939 ( 722 ) Net cash (used in) provided by operating activities ( 16,917 ) 38,673 Cash flows from investing activities: Purchases of property and equipment ( 8,329 ) ( 49,086 ) Principal receipts from available-for-sale security 200 181 Proceeds from disposal of PP&E — 16 Changes in the TRI Holdings, LLC Consolidation — 171 Net cash used in investing activities ( 8,129 ) ( 48,718 ) Cash flows from financing activities: Proceeds from line of credit 83,500 56,000 Payment on line of credit ( 83,500 ) ( 56,000 ) Payments on TRI long term debt ( 846 ) ( 767 ) Payments on finance lease obligations ( 2,721 ) ( 2,842 ) Shares withheld for tax payments on vested restricted stock ( 594 ) ( 279 ) Other 385 542 Net cash used in financing activities ( 3,776 ) ( 3,346 ) Decrease in cash and cash equivalents ( 28,822 ) ( 13,391 ) Cash and cash equivalents at beginning of period 32,157 45,548 Cash and cash equivalents at end of period $ 3,335 $ 32,157 Supplemental disclosure of cash flow information: Interest paid $ 4,554 $ 4,156 Income taxes paid $ 125 $ 2,026 Supplemental disclosure of non-cash information: Unpaid liability to acquire property and equipment $ 1,285 $ 1,874 The accompanying notes are an integral part of these consolidated financial statements. 44 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION Nature of Operations Duluth Holdings Inc. (“Duluth Trading” or the “Company”), a Wisconsin corporation, is a lifestyle brand of men’s and women’s casual wear, workwear and accessories sold primarily through the Company’s own omnichannel platform. The Company’s products are marketed under the Duluth Trading Company brand, with the majority of products being exclusively developed and sold as Duluth Trading branded merchandise. In 2010, the Company initiated its omnichannel platform with the opening of its first store. Since then, Duluth Trading has expanded its retail presence, and as of February 2, 2025, the Company operated 62 retail stores and three outlet stores. The Company identifies its operating segments according to how its business activities are managed and evaluated. The Company continues to grow its omnichannel distribution network which allows the consumer to interact with the Company through a consistent customer experience whether on the Company website or at Company stores. The Company has one reportable external segment, consistent with the Company’s omnichannel business approach. The Company’s revenues generated outside the United States were insignificant. The Company has two classes of authorized common stock: Class A common stock and Class B common stock. The rights of holders of Class A common stock and Class B common stock are identical, except for voting and conversion rights. Each share of Class A common stock is entitled to ten votes per share and is convertible at any time into one share of Class B common stock. Each share of Class B common stock is entitled to one vote per share. The Company’s Class B common stock trades on the NASDAQ Global Select Market under the symbol “DLTH.” Basis of Presentation The consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). All significant intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year ends on the Sunday nearest to January 31 of the following year. Fiscal 2024 and Fiscal 2023 ended on February 2, 2025 and January 28, 2024, respectively. Fiscal 2024 was a 53-week period and Fiscal 2023 was a 52-week period. Seasonality of Business The Company’s business is affected by the pattern of seasonality common to most retail apparel businesses. Historically, the Company has recognized a significant portion of its revenue and operating profit in the fourth fiscal quarter of each year as a result of increased sales during the holiday season. Revision of Prior Period Financial Information During fiscal 2024, management identified inaccuracies in the collection of local sales tax transactions within certain states. Accordingly, the Company has revised its consolidated financial statements and related notes to increase Accrued expenses by $ 3.2 million and Deferred tax assets by $ 0.8 million as of January 28, 2024, and to increase Selling, general and administrative expenses by $ 0.7 million and income tax benefit by $ 0.2 million for the year ended January 28, 2024. The cumulative errors related to periods prior to fiscal 2023 resulted in a decrease to Retained earnings by $ 2.4 million as of the beginning of fiscal 2023. The Company has determined that the errors were immaterial to all impacted periods and has corrected the impacted periods as an immaterial correction of an error. The Company also revised the fiscal 2024 quarterly consolidated financial statements to correct the impact of the errors on the respective periods. ‎ 45 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements consist of the accounts of Duluth Holdings Inc. and TRI Holdings, LLC (“TRI”) as a variable interest entity. See Note 6 “Variable Interest Entities” for further information. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company’s revenue primarily consists of the sale of apparel, footwear and hard goods. Revenue for merchandise that is shipped to our customers from our fulfillment centers and stores is recognized upon shipment following customer payment, which is when the customer obtains control of the product and has the ability to direct the use of the product, including, among other options, the ability to redirect the product to a different shipping destination. Store revenue is recognized at the point of sale. The Company provides the customer the right of return on the product and revenue is adjusted based on an estimate of the expected returns based on historical rates as well as events that may cause changes to historical rates. See Note 5 “Accrued Expense and Other Liabilities” for the Company’s product returns reserve. Shipping and processing revenue generated from customer orders are included as a component of net sales and shipping and processing expense, including handling expense, is included as a component of selling, general and administrative expenses. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses. A liability is recognized at the time a gift card is sold, and revenue is recognized at the time the gift card is redeemed for merchandise. See Note 8 “Revenue” for further information. Cost of Goods Sold and Selling, General and Administrative Expenses The following table illustrates the primary costs classified in cost of goods sold and selling, general and administrative expenses: Cost of Goods Sold Selling, General and Administrative Expenses · Direct cost of purchased merchandise · Payroll and payroll-related expenses · Inventory shrinkage and inventory adjustments due to obsolescence · Occupancy expenses related to stores and operations at the Company's headquarters, including utilities · Inbound freight · Depreciation and amortization · Freight from the Company's fulfillment centers to its stores · Marketing expenses including: digital, television, and social media advertising; catalog production and mailing; and print advertising costs · Logistical costs associated with shipping product to customers · Consulting and software expenses and professional services fees Advertising and Catalog Expenses The Company’s advertising and catalog expense primarily consists of web marketing programs, social media and radio and television advertisements, which are expensed as they are incurred. The Company’s direct-response advertising consists of producing, printing and mailing catalogs, which are expensed upon receipt by customers. Advertising and Catalog expenses were $ 67.5 million and $ 69.0 million for fiscal 2024 and fiscal 2023, respectively. ‎ 46 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements Shipping and Processing Shipping and processing revenue generated from customer orders has been classified as a component of net sales. Shipping and processing expense, including handling expense, has been classified as a component of selling, general and administrative expenses. The Company incurred shipping and processing expenses of $ 43.7 million and $ 47.2 million for fiscal 2024 and fiscal 2023, respectively. Income Taxes The Company accounts for income taxes and related accounts using the asset/liability method in accordance with ASC Topic 740, Income Taxes (“ASC 740”). Under ASC 740, the Company accrues income taxes payable or refundable and recognizes deferred tax assets and liabilities based on differences between U.S. GAAP and tax bases of assets and liabilities. The Company measures deferred tax assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse, and recognizes the effect of a change in enacted rates in the period of enactment. A valuation allowance is established if it is more likely than not that some portion or all of the deferred income tax asset will not be realized. The Company establishes assets and liabilities for uncertain tax positions taken or expected to be taken in income tax returns, using a more-likely-than-not recognition threshold. The Company recognizes penalties and interest related to uncertain tax positions as income tax expense. See Note 9 “Income Taxes,” of these Notes to Consolidated Financial Statements for further discussion. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. At various times during the year, the Company has certain cash balances deposited in financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk. Cash and Cash Equivalents The Company considers short-term investments with original maturities of three months or less when purchased to be cash equivalents. As of February 2, 2025, Cash and cash equivalents consisted of cash, amounts receivable from credit card issuers and money market funds. Amounts receivable from credit card issuers are typically converted to cash within 2 to 4 days of the original sales transaction and are considered to be cash equivalents. Significant Suppliers The Company’s principal supplier of inventory accounted for 43 % and 59 % of total inventory expenditures in fiscal 2024 and fiscal 2023, respectively. Inventories Inventory consists of finished goods stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out valuation method. The Company records an inventory reserve for the anticipated loss associated with selling inventories below cost. Inventory reserve for excess, obsolete items and shrinkage was $ 2.1 million and $ 1.4 million as of February 2, 2025 and January 28, 2024, respectively. 47 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements Property and Equipment Property and equipment consist of the following: February 2, 2025 January 28, 2024 (in thousands) Land and land improvements $ 4,486 $ 4,486 Leasehold improvements 57,732 56,850 Buildings 36,272 36,191 Vehicles 84 121 Warehouse equipment 65,592 66,481 Office equipment and furniture 54,542 54,294 Computer equipment 9,472 11,142 Software 39,952 39,923 268,132 269,488 Accumulated depreciation and amortization ( 159,450 ) ( 140,551 ) 108,682 128,937 Construction in progress 2,878 3,781 Property and equipment, net $ 111,560 $ 132,718 The Company recorded depreciation expense of $ 28.7 million and $ 28.0 million for fiscal 2024 and fiscal 2023, respectively. The Company expenses as incurred all routine repair and maintenance costs that do not extend the estimated useful life of the asset. Property and equipment are carried at cost and are generally depreciated using the straight-line method over the estimated useful lives. Leasehold improvements are depreciated over the shorter of the lease term or estimated useful life. Depreciable lives by major classification generally are as follows: Years Land improvements 15 Leasehold improvements 3 - 15 Buildings 39 Vehicles 5 Warehouse equipment 7 - 10 Office equipment and furniture 7 - 10 Computer equipment 3 - 5 Software 3 - 5 ‎ 48 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements Prepaid Expenses and Other Assets Prepaid expenses and other assets consist of the following: February 2, 2025 January 28, 2024 (in thousands) Prepaid expenses & other current assets Pending returns inventory, net $ 2,301 $ 2,778 Current software hosting implementation costs, net 3,749 3,353 Other prepaid expenses 11,731 10,357 Prepaid expenses & other current assets $ 17,781 $ 16,488 Other assets, net Goodwill $ — $ 402 Intangible assets, net 414 436 Non-current software hosting implementation costs 7,498 6,705 Other assets, net 1,228 1,477 Other assets, net $ 9,140 $ 9,020 Software Hosting Implementation Costs Software hosting implementation costs includes costs of implementation activities of certain cloud computing arrangements in accordance with Accounting Standards Update No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) . Amortization expense was $ 5.3 million and $ 5.0 million for fiscal 2024 and fiscal 2023, respectively. Accumulated amortization was $ 12.4 million and $ 10.4 million for fiscal 2024 and fiscal 2023, respectively. See Note 12 “Recent Accounting Pronouncements” for more information. Goodwill Goodwill represents the excess of purchase price over the fair value of net assets acquired. ASC Topic 350, Intangibles-Goodwill and Other , requires that goodwill be tested for impairment annually, or more often if an event or circumstance indicates that an impairment loss may have been incurred. The Company’s management uses its judgment in assessing whether goodwill may have become impaired between annual impairment tests. Indicators such as unexpected adverse business conditions, economic factors, competitive activities, loss of key personnel and acts by governments may signal that an asset has become impaired. Management performed its annual qualitative assessment of goodwill as of December 31, 2024 and 2023, which included assessing factors such as macroeconomic conditions, industry and market considerations, cost factors and overall financial performance. The next step after the qualitative assessment failed was estimating the fair value of the reporting unit, which management used the market valuation approach. Through the annual assessment, management determined the carrying amount of the Goodwill exceeded its value. Thus, the Company recognized a full impairment for the year ended February 2, 2025. Intangible Assets and Other Assets Intangible assets and other assets include loan origination fees and trade names which are amortized over their estimated useful lives ranging from three years to fifteen years . Other assets also primarily include security deposits required by certain of the Company’s lease agreements and prepaid expenses. Amortization expense was $ 0.2 million for fiscal 2024 and fiscal 2023. Accumulated amortization was $ 1.2 million and $ 1.0 million as of February 2, 2025 and January 28, 2024, respectively. 49 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements Scheduled future amortization of amortizable other assets is as follows as of February 2, 2025: Fiscal year (in thousands) 2025 $ 157 2026 80 2027 22 2028 2 2029 2 Thereafter 4 $ 267 Impairment of Long-Lived Assets The Company’s long-lived assets are reviewed for impairment during the fourth quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and the carrying value of the asset or group of assets. Such analyses necessarily involve judgment. For fiscal 2024, management identified a triggering event for two stores within the annual impairment test. Management determined expected undiscounted cash flows were greater than the carrying value and therefore, no impairment was recorded. Store Pre-opening Costs Store pre-opening costs are expensed as incurred and are included in selling, general and administrative expenses. Stock-Based Compensation In connection with the IPO, the Company adopted the 2015 Equity Incentive Plan of Duluth Holdings Inc. There are awards outstanding under the 2015 plan, but we do not grant new awards under the plan. We have adopted the 2024 Equity Incentive Plan of Duluth Holdings Inc. (“2024 Plan”), which provides compensation alternatives such as stock options, shares, restricted stock, restricted stock units, deferred stock and performance share units, using or based on the Company’s Class B common stock. The Company accounts for its stock-based compensation plan in accordance with ASC Topic 718, Stock Compensation , which requires the Company to measure all share-based payments at grant date fair value and recognize the cost over the requisite service period of the award. Restricted stock issued to board members generally vests over a period of one year . Restricted stock issued to key employees and executives typically vests over a period of three years to four years based on the terms for each individual award. The fair value of the restricted stock is determined based on the market value of the Company’s Class B common stock on the grant date. Restricted stock forfeitures are recognized as incurred. Total stock compensation expense associated with restricted stock recognized by the Company was $ 4.0 million and $ 4.2 million for fiscal 2024 and fiscal 2023, respectively, and is included in Selling, general and administrative expenses on the Consolidated Statements of Operations. 50 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements The following is a summary of the activity in the Company’s unvested restricted stock during the years ended February 2, 2025 and January 28, 2024: Weighted average grant date fair value Shares per share Outstanding at January 29, 2023 618,772 $ 12.05 Granted 1,168,316 6.51 Vested ( 164,116 ) 12.22 Forfeited ( 255,702 ) 5.73 Outstanding at January 28, 2024 1,367,270 $ 8.77 Granted 1,099,121 4.62 Vested ( 540,722 ) 8.98 Forfeited ( 239,402 ) 6.67 Outstanding at February 2, 2025 1,686,267 $ 6.02 At February 2, 2025, the Company had unrecognized compensation expense of $ 5.8 million related to the restricted stock awards, which is expected to be recognized over a weighted average period of 2.5 years. Treasury Stock Treasury stock consists of shares withheld in lieu of tax payments when restricted stock vests using the treasury cost method and is classified in the Consolidated Balance Sheets as a reduction to shareholders’ equity. Taxes Collected from Customers The Company presents all non-income government-assessed taxes (sales, use and value-added taxes) collected from its customers and remitted to governmental agencies on a net basis (excluded from revenue) in its consolidated financial statements. Other Comprehensive Income Other comprehensive income or loss represents the change in equity from non-shareholder or non-member transactions, which is not included in the statements of earnings but is reported as a separate component of shareholders’ equity. For fiscal 2024 and fiscal 2023, other comprehensive income consists of changes in unrealized gains and losses on the Company’s available-for-sale security, net of taxes. Fair Value Measurements ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) , defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., an exit price). The exit price is based on the amount that the holder of the asset or liability would receive or need to pay in an actual transaction (or in a hypothetical transaction if an actual transaction does not exist) at the measurement date. ASC 820 describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last unobservable, as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. ‎ 51 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements The Company’s assets and liabilities measured at fair value are categorized as Level 1 or Level 3 instruments. The fair value of the Company’s money market account is obtained from real-time quotes for transactions in active exchange markets involving identical assets (Level 1). The fair value of the Company’s available-for-sale security was valued based on a discounted cash flow method (Level 3), which incorporates the U.S. Treasury yield curve, credit information and an estimate of future cash flows. During fiscal 2024, certain changes in the inputs did impact the fair value of the available-for-sale security. The calculated fair value is based on estimates that are subjective in nature and involve uncertainties and matters of significant judgement and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The amortized cost and fair value of the Company’s money market account and available-for-sale security along with the corresponding amount of gross unrealized gains and losses recognized in accumulated other comprehensive income are as follows. February 2, 2025 Cost or Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value (in thousands) Level 1 security: Money market funds $ — $ — $ — $ — Level 3 security: Corporate trust $ 5,356 $ — $ ( 865 ) $ 4,491 January 28, 2024 Cost or Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value (in thousands) Level 1 security: Money market funds $ 28,396 $ — $ — $ 28,396 Level 3 security: Corporate trust $ 5,556 $ — $ ( 570 ) $ 4,986 The Company does not intend to sell the available-for-sale-security in the near term and does not believe that it will be required to sell the security. The Company reviews its security on a quarterly basis to monitor its exposure to other-than-temporary impairment. No other-than-temporary impairment was recorded in the Consolidated Statements of Operations in fiscal 2024 or fiscal 2023 . The following table presents the future receipts related to the Company’s available-for-sale security by contractual maturity as of February 2, 2025. Amortized Estimated Cost Fair Value (in thousands) Within one year $ 219 $ 157 After one year through five years 1,438 1,123 After five years through ten years 2,142 1,827 After ten years 1,557 1,384 Total $ 5,356 $ 4,491 The carrying values and fair values of other financial instruments in the Consolidated Balance Sheets are as follows: February 2, 2025 January 28, 2024 52 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value TRI Long-term debt, including short-term portion $ 25,214 $ 21,225 $ 25,988 $ 23,554 The above long-term debt, including the short-term portion is attributable to the consolidation of TRI in accordance with ASC Topic 810, Consolidation . The fair value was also based on a discounted cash flow method (Level 3) based on credit information and an estimate of future cash flows. 3. LEASES Based on the criteria set forth in ASC Topic 842, Leases (“ASC 842”), the Company recognizes ROU assets and lease liabilities related to leases on the Company’s Consolidated Balance Sheets. The Company determines if an arrangement is, or contains, a lease at inception. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities reflect the obligation to make lease payments arising from the lease. At any given time during the lease term, the lease liability represents the present value of the remaining lease payments and the ROU asset is measured at the amount of the lease liability, adjusted for pre-paid rent, unamortized initial direct costs and the remaining balance of lease incentives received. Both the lease ROU asset and liability are reduced to zero at the end of the lease. The Company leases retail space under non-cancelable lease agreements, which expire on various dates through 2041. Substantially all of these arrangements are store leases. Store leases generally have initial lease terms ranging from five years to fifteen years with renewal options and rent escalation provisions. At the commencement of a lease, the Company includes only the initial lease term as the option to extend is not reasonably certain. The Company does not record leases with a lease term of 12 months or less on the Company’s Consolidated Balance Sheets. When calculating the lease liability on a discounted basis, the Company applies its estimated discount rate. The Company bases this discount rate on a collateralized interest rate as well as publicly available data for instruments with similar characteristics. In addition to rent payments, leases for retail space contain payments for real estate taxes, insurance costs, common area maintenance, and utilities that are not fixed. The Company accounts for these costs as variable lease expenses and does not include such costs as a lease component. The expense components of the Company’s leases reflected on the Company’s Consolidated Statement of Operations were as follows: Consolidated Statement of Operations February 2, 2025 January 28, 2024 (in thousands) Finance lease expense Amortization of right-of-use ‎ assets Selling, general and administrative expenses $ 3,097 $ 3,361 Interest on lease liabilities Interest expense 1,564 1,709 Total finance lease expense $ 4,661 $ 5,070 Operating lease expense Selling, general and administrative expenses $ 22,255 $ 20,267 Amortization of build-to-suit leases capital contribution Selling, general and administrative expenses 1,284 1,284 Variable lease expense Selling, general and administrative expenses 11,961 10,927 Total lease expense $ 40,161 $ 37,548 ‎ 53 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements Other information related to leases were as follows: February 2, 2025 January 28, 2024 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Financing cash flows from finance leases $ 2,721 $ 2,842 Operating cash flows from finance leases $ 1,564 $ 1,709 Operating cash flows from operating leases $ 21,030 $ 20,842 Right-of-use assets obtained in exchange for lease liabilities: Operating leases $ 4,748 $ 5,468 Weighted-average remaining lease term (in years): Finance leases 10 10 Operating leases 7 7 Weighted-average discount rate: Finance leases 4.5 % 4.5 % Operating leases 4.4 % 4.2 % Future minimum lease payments under the non-cancellable leases are as follows as of February 2, 2025 : Finance Operating Fiscal year Leases Leases (in thousands) 2025 $ 3,971 $ 19,720 2026 3,993 19,419 2027 3,993 18,179 2028 4,017 16,384 2029 4,217 13,898 Thereafter 20,997 33,297 Total future minimum lease payments $ 41,188 $ 120,897 Less - Discount 8,026 16,141 Lease liability $ 33,162 $ 104,756 Total rent expense under non-cancellable leases was $ 21.9 million and $ 21.8 million for fiscal 2024 and fiscal 2023, respectively. 54 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements 4. DEBT AND CREDIT AGREEMENT Debt consists of the following: February 2, 2025 January 28, 2024 (in thousands) TRI Senior Secured Note $ 21,714 $ 22,488 TRI Note 3,500 3,500 $ 25,214 $ 25,988 Less: current maturities 931 847 TRI Long-term debt $ 24,283 $ 25,141 TRI Holdings, LLC TRI entered into a senior secured note (“TRI Senior Secured Note”) with an original balance of $ 26.7 million. The TRI Senior Secured Note is scheduled to mature on October 15, 2038 and requires installment payments with an interest rate of 4.95 %. See Note 6 “Variable Interest Entities” for further information. TRI entered into a promissory note (“TRI Note”) with an original balance of $ 3.5 million. The TRI Note is scheduled to mature in November 2038 and requires annual interest payments at a rate of 3.05 %, with a final balloon payment due in November 2038. While the above notes are consolidated in accordance with ASC Topic 810, Consolidation , the Company is not the guarantor nor the obligor of these notes. Future principal maturities of all TRI debt, excluding unamortized financing fees of $ 1.0 million associated with the TRI debt are as follows as of February 2, 2025: Fiscal year (in thousands) 2025 $ 931 2026 1,020 2027 1,114 2028 1,214 2029 1,320 Thereafter 21,155 $ 26,754 Credit Agreement On May 14, 2021, the Company terminated its prior credit agreement, and entered into a credit agreement (the “Credit Agreement”), which was treated as a modification for accounting purposes. The Credit Agreement originally matured on May 14, 2026 and provided for borrowings of up to $ 150.0 million that were available under a revolving senior credit facility, with a $ 5.0 million sublimit for issuance of standby letters of credit, as well as a $ 10.0 million sublimit for swing line loans. At the Company’s option, the interest rate applicable to the revolving senior credit facility was a floating rate equal to: (i) the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus the applicable rate of 1.25 % to 2.00 % determined based on the Company’s rent adjusted leverage ratio, or (ii) the base rate plus the applicable rate of 0.25 % to 1.00 % based on the Company’s rent adjusted leverage ratio. The Credit Agreement is secured by essentially all Company assets and requires the Company to maintain compliance with certain financial and non-financial covenants, including a maximum rent adjusted leverage ratio and a minimum fixed charge coverage ratio as defined in the Credit Agreement. On July 8, 2022, the Company entered into the First Amendment to the Credit Agreement (the “First Amendment”), which was treated as a modification for accounting purposes. The First Amendment amends the Credit Agreement in order to (i) increase the revolving commitment from $ 150.0 million to $ 200.0 million; (ii) extend the maturity date from May 14, 2026 to July 8, 2027 ; (iii) amend the pricing index to replace BSBY with the Term Secured Overnight Financing Rate; and (iv) reduce the commitment fee in some instances. 55 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements On January 31, 2025, the Company entered into the Second Amendment to the Credit Agreement (the “Second Amendment”), which was treated as an extinguishment for accounting purposes. The Second Amendment amends the Credit Agreement in order to (i) decrease the revolving commitment from $ 200.0 million to $ 100.0 million (ii) revise the definition of “Applicable Rate” to provide for pricing terms in the event of a Rent Adjusted Leverage Ratio greater than or equal to 3.50 :1.0; (iii) limit the exceptions to the prohibition on restricted payments to (a) making dividends or distributions by any subsidiary to the Company, and (b) the acquisition of equity interests in satisfaction of tax withholding obligations associated with restricted stock or awards under employee incentive plans; and (iv) provide that the Maximum Rent Adjusted Leverage Ratio and the Minimum Fixed Charge Coverage Ratio will be measured commencing on the fiscal quarter ending May 2, 2021 and measured quarterly thereafter as of the last day of each fiscal quarter of the Company (other than for the fiscal quarter ending February 2, 2025). 5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following: February 2, 2025 January 28, 2024 (in thousands) Salaries and benefits $ 3,897 $ 2,692 Deferred revenue 9,783 9,579 Freight 2,495 4,001 Product returns 4,568 5,541 Unpaid purchases of property & equipment 1,264 765 Accrued advertising 929 1,129 Other 12,748 10,404 Total accrued expenses and other current liabilities $ 35,684 $ 34,111 6. VARIABLE INTEREST ENTITIES Based upon the criteria set forth in ASC 810, Consolidation , the Company consolidates variable interest entities (“VIEs”) in which it has a controlling financial interest and is therefore deemed the primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance; and (b) the obligation to absorb the VIE losses and the right to receive benefits that are significant to the VIE. The Company has determined that it was the primary beneficiary of one VIE as of February 2, 2025 and January 28, 2024. The Company leases the Company’s headquarters in Mt. Horeb, Wisconsin from TRI. In conjunction with the lease, the Company originally invested $ 6.3 million in a trust that loaned funds to TRI for the construction of the Company’s headquarters. TRI is a Wisconsin limited liability company whose primary purpose and activity is to own this real property. The Company considers itself the primary beneficiary for TRI as the Company has both the power to direct the activities that most significantly impact the entity’s economic performance and is expected to receive benefits that are significant to TRI. As the Company is the primary beneficiary, it consolidates TRI and the lease is eliminated in consolidation. The Company does not consolidate the trust as the Company is not the primary beneficiary. ‎ 56 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements The Consolidated Balance Sheets include the following amounts as a result of the consolidation of TRI as of February 2, 2025 and January 28, 2024. February 2, 2025 January 28, 2024 (in thousands) Cash $ 11 $ 17 Property and equipment, net 22,321 22,941 Total assets $ 22,332 $ 22,958 Other current liabilities $ 115 $ 26 Current maturities of TRI long-term debt 931 847 TRI long-term debt 24,283 25,141 Noncontrolling interest in VIE ( 2,997 ) ( 3,056 ) Total liabilities and shareholders' equity $ 22,332 $ 22,958 While the Balance Sheet is consolidated in accordance with ASC Topic 810, Consolidation , the Company is not the guarantor nor the obligor of the TRI debt. 7. EARNINGS PER SHARE Earnings per share is computed under the provisions of ASC 260 , Earnings Per Share . Basic earnings per share is based on the weighted average number of common shares outstanding for the period. Diluted earnings per share is based on the weighted average number of common shares plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding restricted stock and are considered only for dilutive earnings per share. The reconciliation of the numerator and denominator of the basic and diluted earnings per share calculation is as follows: Fiscal Year Ended February 2, 2025 January 28, 2024 (in thousands, except per share data) Numerator - net (loss) income attributable to controlling interest $ ( 43,671 ) $ ( 9,923 ) Denominator - weighted average shares (Class A and Class B) Basic 33,368 32,955 Dilutive shares — — Diluted 33,368 32,955 Earnings per share (Class A and Class B) Basic $ ( 1.31 ) $ ( 0.30 ) Diluted $ ( 1.31 ) $ ( 0.30 ) The computation of diluted loss per share excluded 0.1 million shares of unvested restricted stock for the fiscal year ended February 2, 2025 , respectively, because their inclusion would be anti-dilutive due to a net loss. 8. REVENUE The Company’s revenue primarily consists of the sale of apparel, footwear and hard goods. Revenue for merchandise that is shipped to our customers from our fulfillment centers and stores is recognized upon shipment. Store revenue is recognized at the point of sale, net of returns, and excludes taxes. Shipping and processing revenue generated from customer orders are included as a component of net sales and shipping and processing expense, including handling expense, is included as a component of selling, general and administrative expenses. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses. Sales disaggregated based upon sales channel is presented below. February 2, 2025 January 28, 2024 (in thousands) Direct-to-consumer $ 419,860 $ 425,562 57 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements Stores 206,769 221,119 $ 626,629 $ 646,681 Contract Assets and Liabilities The Company’s contract assets primarily consist of the right of return for amounts of inventory to be returned that are expected to be resold and are recorded in Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets. The Company’s contract liabilities primarily consist of gift card liabilities and are recorded upon issuance in Accrued expenses and other current liabilities under deferred revenue (see Note 5 “Accrued Expenses and Other Current Liabilities”) on the Company’s Consolidated Balance Sheets. Upon issuance of a gift card, a liability is established for its cash value. Contract assets and liabilities on the Company’s Consolidated Balance Sheets are presented in the following table: February 2, 2025 January 28, 2024 (in thousands) Contract assets $ 2,301 $ 2,778 Contract liabilities $ 9,782 $ 9,579 Revenue from gift cards is recognized when the gift card is redeemed by the customer for merchandise, or as gift card breakage, an estimate of gift cards which will not be redeemed. The Company does not record breakage revenue when escheat liability to the relevant jurisdictions exists. Gift card breakage is recorded within Net sales on the Company’s Consolidated Statement of Operations. The following table provides the reconciliation of the contract liability related to gift cards: February 2, 2025 January 28, 2024 (in thousands) Balance as of Beginning of Period $ 9,579 $ 10,249 Gift cards sold 18,975 18,116 Gift cards redeemed ( 17,173 ) ( 16,940 ) Gift card breakage ( 1,599 ) ( 1,846 ) Balance as of End of Period $ 9,782 $ 9,579 9. INCOME TAXES The components of income tax expense were as follows: Fiscal Year Ended February 2, 2025 January 28, 2024 (in thousands) Current: Federal $ 1 $ ( 638 ) State 426 230 427 ( 408 ) Deferred: Federal 136 ( 1,879 ) State 1,807 ( 575 ) 1,943 ( 2,454 ) Total income tax expense $ 2,370 $ ( 2,862 ) The tax effects of unrealized gains and losses on securities are components of other comprehensive income and therefore excluded from deferred tax expense. 58 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements The Company regularly assesses the realizability of deferred tax assets and under the asset and liability method prescribed under ASC 740, Income Taxes , the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The realizability of deferred tax assets is assessed throughout the year and a valuation allowance is recorded, if necessary, to reduce net deferred tax assets to the amount more likely than not to be realized. The Company considers all available evidence, both positive and negative, to determine the realizability of deferred tax assets and includes historical information about results of operations for the current and preceding years as well as more subjective information about future years. In conducting this assessment, a significant piece of objective negative evidence evaluated by management was a cumulative loss over the most recent 36-month period ended October 27, 2024, which was not outweighed by available positive evidence and which limited the Company’s ability to give weight to projections of future growth for purposes of this assessment. Accordingly, as of February 2, 2025, a valuation allowance of $ 11.8 million was provided against the net amount of deferred tax assets. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. The reconciliation of income tax expense to the amount computed at the federal statutory rate was as follows: Fiscal Year Ended February 2, 2025 January 28, 2024 (in thousands) Federal taxes at statutory rate $ ( 8,672 ) 21.0 % $ ( 2,683 ) 21.0 % State and local income taxes, net of federal benefit ( 1,333 ) 3.2 % ( 409 ) 3.2 % Stock compensation price difference 638 ( 1.6 ) % 150 ( 1.2 ) % Research and development tax credits ( 120 ) 0.3 % ( 283 ) 2.4 % Nondeductible compensation ( 160 ) 0.4 % 384 ( 3.2 ) % Adjustments to uncertain tax positions ( 4 ) — % ( 164 ) 1.4 % Valuation allowance 11,773 ( 28.5 ) % — — % Other 248 ( 0.6 ) % 143 ( 1.2 ) % Total income tax expense $ 2,370 ( 5.8 ) % $ ( 2,862 ) 22.4 % Deferred income taxes reflect the net tax effects of temporary differences between U.S. GAAP and tax bases of assets and liabilities. Significant components of deferred tax assets and liabilities were as follows: February 2, 2025 January 28, 2024 (in thousands) Deferred tax assets: Returns allowance $ 1,153 $ 1,402 Uniform inventory capitalization 4,361 3,637 Goodwill and intangibles 29 — Unrealized loss on investment 218 144 Federal and state credit 414 426 Lease liability 46,412 52,642 Accruals 1,355 389 Stock-based compensation 433 491 Advance payments 411 687 Business Interest limitation 475 127 Sales tax accrual 931 757 Unrecognized tax benefits 8 3 Charitable contributions 280 181 Research and development 1,790 1,723 Federal and state NOL 7,519 5,183 Gross deferred tax assets 65,789 67,792 Valuation allowance ( 11,847 ) — Total deferred tax assets 53,942 67,792 59 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements Deferred tax liabilities: Property and equipment 8,002 12,641 Prepaid expenses 970 949 Right-of-use asset 44,928 52,006 Goodwill and intangibles — 71 Inventory reserve 42 358 Total deferred tax liabilities 53,942 66,025 Net deferred tax assets (liabilities) $ — $ 1,767 As of February 2, 2025, we had state net operating losses (“NOL”) of approximately $ 23.2 million, with deferred tax assets of $ 1.2 million related to these state NOLs. These state net operating loss carryforwards expire at various periods beginning in 2029. The federal NOL is approximately $ 30.1 million, with deferred tax asset of $ 6.3 million related to the federal NOL. Uncertain Tax Positions A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: February 2, 2025 January 28, 2024 (in thousands) Balance beginning of year $ 119 $ 287 Additions for tax positions in prior years 19 ( 74 ) Additions for tax positions in current year 14 37 Statute of limitations ( 38 ) ( 131 ) Balance at end of year $ 114 $ 119 If recognized, $ 0.1 million of the Company’s unrecognized tax benefits as of February 2, 2025, would affect the Company’s effective tax rate. The Company does not anticipate that there will be a material change in the balance of the unrecognized tax benefits in the next 12 months. Any interest and penalties related to uncertain tax positions are recorded in income tax expense. There were no material amounts recorded as tax expense for interest or penalties for the years ended February 2, 2025 or January 28, 2024. The Company files income tax returns in the United States federal jurisdiction and in various state jurisdictions. Federal tax returns for tax years 2021 through 2023 , and state tax returns for tax years 2020 through 2023 , are open for examination. 10. RETIREMENT PLAN The Company has a contributory 401(k) profit sharing plan (the “Plan”) which covers all employees who have attained age 21 and who have met minimum service requirements. The Company makes quarterly non-discretionary “safe harbor” matching contributions to the Plan equal to 100 % of the basic contribution made by each participant on the first 3 % of his or her compensation plus 50 % of the basic contribution made by each participant on the next 2 % of his or her compensation. As of January 1, 2025, the Company updated the non-discretionary “safe harbor” matching contributions to the Plan to 100 % of the basic contribution made by each participant on the first 1 % of his or her compensation plus 50 % of the basic contribution made by each participant on the next 5 % of his or her compensation. The Company is also permitted to make discretionary profit sharing contributions to the Plan. There were no profit sharing contributions for the plan year ended December 31, 2024. The Company’s total expenses under the Plan were $ 2.3 million and $ 2.2 million for fiscal 2024 and fiscal 2023, respectively. 11. COMMITMENTS AND CONTINGENCIES From time to time, the Company becomes involved in lawsuits and other claims arising from its ordinary course of business. Because of the uncertainties related to the incurrence, amount and range of loss on any pending litigation or claim, management is currently unable to predict the ultimate outcome of any litigation or claim, determine whether a liability has been incurred or make an estimate of the reasonably possible liability that could result from an unfavorable outcome. 60 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements Management believes, after considering a number of factors and the nature of any outstanding litigation or claims, that the outcome will not have a material effect upon the Company’s results of operations, financial condition or cash flows. However, because of the unpredictable nature of these matters, the Company cannot provide any assurances regarding the outcome of any litigation or claim to which it is a party or the impact on it of an adverse ruling in such matters. 12. SEGMENT REPORTING As of February 2, 2025 and January 28, 2024, we had one reportable segment. The Company’s operating segment is based on how the Chief Operating Decision Maker (“CODM”) makes decisions about allocating resources and assessing performance. Our CODM is our Chief Executive Officer and the CODM receives discrete financial information for the Company’s gross margin and a summarized comprehensive statement of income monthly that categorizes selling, general and administrative expenses into four line items with remaining expenses and expenditures for long-lived assets being consolidated as an omnichannel business. The following table summarizes the Company’s gross margin and selling, general and administrative expenses. Fiscal Year Ended February 2, 2025 January 28, 2024 (53 weeks) (52 weeks) (in thousands) Net sales $ 626,629 $ 646,681 Cost of goods sold 318,119 321,710 Gross margin 308,510 324,971 Less: Outbound shipping expenses 43,664 47,185 Advertising expenses 67,518 69,049 Variable expenses 56,055 58,049 Overhead expenses 178,134 160,257 Total selling, general and administrative 345,371 334,540 Operating loss $ ( 36,861 ) $ ( 9,569 ) 13. RECENT ACCOUNTING PRONOUNCEMENTS Recently Adopted Accounting Pronouncements Intangibles – Goodwill and Other – Internal-use Software On February 3, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) (“ASU 2018-15”) which provides additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the new internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. The new internal-use software guidance requires that certain costs incurred during the application development stage be capitalized and other costs incurred during the preliminary project and post-implementation stages be expensed as they are incurred. The Company adopted ASU 2018-15 using the prospective method. In fiscal 2024 and 2023, $ 11.2 million and $ 10.1 million of capitalized costs associated with implementation activities, net of amortization are classified within Prepaid expenses & other current assets on the Company’s Consolidated Balance Sheets, respectively, and $ 5.3 million and $ 5.0 million of related amortization costs are included in Selling, general and administrative expenses on the Company’s Consolidated Statement of Operations, respectively. Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments 61 Table of Contents DULUTH HOLDINGS INC. Notes to Consolidated Financial Statements In June 2016, the FASB issued Accounting Standards Update No. 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” (“ASU 2016-13”), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, which include trade and other receivables, loans and held-to-maturity debt securities, to record an allowance for credit risk based on expected losses rather than incurred losses, otherwise known as “CECL”. In addition, this guidance changes the recognition for credit losses on available-for-sale debt securities, which can occur as a result of market and credit risk and requires additional disclosures. On November 15, 2019, the FASB issued ASU No. 2019-10 “Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815, and Leases (Topic 842),” (“ASU 2019-10”), which provides a framework to stagger effective dates for future major accounting standards and amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities. ASU 2019-10 amends the effective dates for ASU 2016-13 for smaller reporting companies with fiscal years beginning after December 15, 2022, and interim periods within those years. The Company adopted ASU 2016-13 on January 30, 2023, the first day of the Company’s first quarter for the fiscal year ending January 28, 2024, the Company’s fiscal year 2023. ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements. Segment Reporting – Improvements to Reportable Segment Disclosures In November 2023, the FASB issued ASU No. 2023-07, “ Segment Reporting: Improvements to Reportable Segment Disclosures.” This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The new guidance is effective for public companies with annual periods beginning after December 15, 2023, and interim periods within annual period beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2023-07 on January 29, 2024, the first day of the Company’s first quarter for the fiscal year ending February 2, 2025, the Company’s fiscal year 2024. Recent Accounting Pronouncements Not Yet Adopted Income Taxes – Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU No. 2023-09, “ Income Taxes: Improvements to Income Tax Disclosures .” This ASU improves the transparency of income tax disclosures by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii) income taxes paid disaggregated by jurisdiction. This new guidance will be effective for annual periods beginning after December 15, 2024, and early adoption is permitted. Management is currently evaluating the effects adoption of this guidance will have on its consolidated financial statements. 62 Table of Contents DULUTH HOLDINGS INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS For the Years Ended February 2, 2025 and January 28, 2024 (Amounts in thousands) Charged to Charged to Beginning Cost and Other Ending Balance Expenses Accounts Deductions Balance Inventory reserve Year ended February 2, 2025 $ 1,361 $ 774 $ — $ — $ 2,135 Year ended January 28, 2024 1,837 $ — $ — $ ( 476 ) $ 1,361 Product returns reserve Year ended February 2, 2025 $ 5,541 $ — $ — $ ( 973 ) $ 4,568 Year ended January 28, 2024 5,168 $ 373 $ — $ — $ 5,541 See accompanying Report of Independent Registered Public Accounting Firm. ‎ 63 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None .