DULUTH HOLDINGS INC. Q1 FY2025 earnings call

• Stephanie Pugliese returned to lead Duluth, emphasizing focus on brand awareness, solution-based products, and customer service. - An expense savings initiative aims for $15 million in annual savings, with $10 million realized in FY2025. - Direct-to-factory sourcing reduces costs and enables faster innovation. - Fulfillment network optimization provides automation and cost per unit savings. - Real estate footprint is being optimized, with 1 store closed and 2 new stores set to open in fall. - Promotions are reset with 35% fewer days on promotion and 25% to 20% reduced depth, showing improved gross margin in March-April.

In the first quarter of 2025, Duluth Holdings Inc. reported net sales of $102.7 million, a 12% decline from the previous year. Excluding the wholesale shipment shift, net sales declined 10.2%. Direct channel sales (excluding wholesale) fell 14.6%, while retail store sales declined 2.6% but showed improved profitability. Gross profit margin rate decreased by 80 basis points in Q1 due to greater clearance penetration and deeper discounting, but improved by over 300 basis points in March and April. SG&A spend was $65.7 million, with adjusted SG&A at $65.2 million, a $5.4 million decrease year-over-year but deleveraged as a percent of sales. Inventory stood at $176.1 million, a 29% increase from the prior year, with 91% current inventory and 9% clearance inventory.

• Maintains FY2025 financial guidance with adjusted EBITDA range of $20 million to $25 million. - Targets price increases to offset tariff impacts, with select categories and items seeing increases. - Aims to reduce apparel SKUs by over 20% by spring 2026 and non-apparel hardgoods SKUs by double digits. - Inventory levels expected to normalize in H2 2025, with end-of-year inventory down double digits. - Capital expenditures reduced by $3 million to ~$17 million, focusing on store openings and software investments.

• Macro-economic uncertainty impacting customer spending. - Tariff impacts on product costs, requiring careful management of price increases. - Operational challenges in inventory management and optimizing the store portfolio.

Q: Could you speak more about building brand awareness and potential reinvestment of savings into marketing?

A: Stephanie mentioned evaluating investment in the marketing funnel, particularly the upper part to drive brand awareness, with examples like being featured on Good Morning America. Savings will be reinvested as return on marketing investment improves.

Q: Could you speak more about promotional reduction and consumer response?

A: Stephanie and Heena noted that pulling back on promotion length and depth has led to sequential improvement in gross margin, better retail sales trends, and positive conversion. Pricing increases are targeted at products with pricing elasticity to offset tariff impacts while maintaining value offerings.