Duluth Holdings Inc. Q2 FY2025 earnings call

• Promotional reset: Reduced promotional depth to elevate full-price sales, increase average unit retail, and drive profitability. Shifted focus to higher quality sales and will test pricing initiatives in the second half.
• Cost control: On track to realize $10 million in cost savings in fiscal 2025, with SG&A spend down $5.2 million compared to last year.
• Tariff mitigation: Implemented targeted product retail increases, buy more and save discounts on key programs, and worked with manufacturing base and SG&A to offset margin impact.
• Inventory management: 12% reduction in Q2 ending inventory due to rightsizing inventory receipts; expecting better cash use, stronger inventory turns, and improved margins with future SKU and style count reductions.
• Product highlights: Duluth men's bottoms drove higher profitability; women's Mother's Day Print collection was successful; new product lines like Artisan Hemp and Chick-Nic shirts well received; AKHG grew over 10%.
• Marketing efforts: Successful Father's Day campaign and launch of Big Dam van mobile retail experience.
• Retail portfolio: Store sales grew 5%; closed 1 underperforming store, renewed leases on 2, and set to open 2 new stores.

Second quarter 2025 net sales were $131.7 million, down 7%. Gross margin expanded by 240 basis points to 54.7%. Adjusted EBITDA increased by $1.5 million to $12 million, which is 9.1% of sales. Retail store sales grew 5.3% year-on-year. Duluth men's sales declined 8%, women's declined 11.3%, while AKHG grew by 11.4%. Inventory at the end of the quarter was $148.1 million, a decrease of 12% compared to the prior year.

• Maintained fiscal 2025 adjusted EBITDA guidance of $20 million to $25 million. Factors include mitigating tariff impact via price actions and vendor negotiations, reducing expenses, and integrating planning processes.
• Anticipated tariff impact on current year is approximately $15 million, with price increases implemented in late July and early August meeting sales expectations.
• Project inventory levels to normalize in the second half of 2025 with year-end inventory expected to decrease double digits from prior year. Capital expenditures planned at approximately $17 million for the year, including funding for new stores and software.

• Tariffs: Impact on margins expected to be stronger in the second half of the year.
• Macroeconomic uncertainty: Potential impact on sales and profitability.
• Inventory management challenges: Slower-than-expected sell-throughs of spring/summer merchandise in the past.

Q: Share more on specific metrics for promotional pullback and confidence in maintaining discipline in fall and holiday season.

A: Primary metric is gross margin dollars; profitability is the objective. Confidence comes from success in pulling back promotional depth so far this year with positive results in first two quarters.

Q: Color on gross margin rate expansion, especially in Q4.

A: Price increases in July and August are meeting sales expectations. Mitigating tariff impact via pricing, vendor negotiations, and inventory receipt timing. SG&A cost reductions also help. Back half gross margin expects to meet requirements with ongoing efforts.

Q: SG&A cost savings achieved in Q2 and ramp going forward.

A: $10 million cost savings primarily from headcount and controllable expenses; about 1/3 achieved in Q2, confident of reaching $10 million by year-end.

Q: Reestablishing margin targets and long-term profitability.

A: Balance of 2025 focuses on managing expenses and resetting price integrity. 2026 plans include 20% SKU reduction to rationalize assortment and create stronger margin profile through SKU productivity, promotional cadence, and inventory management.