DULUTH HOLDINGS INC. Q4 FY2024 earnings call

• Order Fulfillment Challenge: Fourth quarter results were short of expectations due to processing delays at the legacy Belleville fulfillment center. After Black Friday weekend surge, orders were routed to Belleville with lower capacity, causing backlog. Enhanced operational protocols and planning processes have been implemented.
• Product Development and Sourcing: Shift to direct-to-factory sourcing is reducing product costs and enabling more frequent introduction of innovative products. The Adairsville fulfillment center processes over 60% of total volume at a lower cost per unit, improving click-to-delivery times.
• Logistics and Fulfillment: State-of-the-art Adairsville center is key to optimization, processing over 60% of volume at a 66% lower cost per unit than legacy facilities. Completed closure of Dubuque facility, generating $5 million annual cost savings.
• Mobile-First Strategy: Mobile accounts for nearly 70% of site visits and 58% of digital sales, with conversion rates above industry averages. Will invest in enhancing mobile experience and extending to desktop and retail stores.
• Retail Store Portfolio: Revitalizing retail stores with higher productivity hurdle rates; evaluating 25% of stores for remodel, relocation, or exit. On track to open two new stores in second half of 2025.
• Technology Roadmap: Building foundational platforms for data and e-commerce; 2025 plans include product information platform, mobile site redesign, and warehouse management system implementation.
• Product Innovations: New products across brands, e.g., Duluth Men's expanding Armachillo cooling technology, AKHG's wanderwear bottoms, women's Hero Heirloom collection expansion, etc.
• Marketing: New media agency providing fresh thinking, holiday campaign successful with aided awareness up 9 points, overall visits up 2%, first-time visits up 19%.

Fourth Quarter 2024: Net sales declined 1.8% to $241 million. Direct channel sales were flat with increased mobile penetration, while retail store sales decreased 6.9% due to traffic decline. Adjusted EBITDA for the quarter was approximately $9 million. Full Year 2024: Net sales were $627 million and adjusted EBITDA was $15 million. Direct channel sales contribution: Direct channel sales were flat, with mobile now accounting for nearly 70% of site visits and 58% of digital sales. Retail store sales contribution: Retail store sales declined 6.9%, affected by lower foot traffic.

• Full year 2025 net sales guidance is between $570 million and $595 million, considering macroeconomic factors, promotional strategy adjustments, store closures and openings, and Costco order expansion.
• Anticipate approximately 300 basis points of gross margin expansion due to increased direct sourcing, less frequent and targeted promotions, and improved inventory control.
• SG&A is projected to deleverage by up to 200 basis points, offset by overhead deleverage and lower sales, with planned capital expenditures of approximately $20 million for store openings and systems infrastructure.

• Order Fulfillment Delays: Processing delays at legacy Belleville fulfillment center led to order backlog in fourth quarter, impacting top line growth.
• Macroeconomic Uncertainty: Consumer and macroeconomic factors could affect sales and financial performance as outlined in guidance.