News Release

BELLEVILLE, Wisc., April 07, 2016 (GLOBE NEWSWIRE) -- Duluth Holdings Inc. (dba, Duluth Trading Company) (“Duluth Trading” or the “Company”) (NASDAQ:DLTH), a lifestyle brand of men’s and women’s casual wear, workwear and accessories, today announced its financial results for the fiscal fourth quarter and year ended January 31, 2016. 

Highlights for the Fourth Quarter Ended January 31, 2016

• Net sales increased 27.5% to $140.4 million compared to $110.1 million in the prior-year fourth quarter
• Gross margin increased 40 basis points (bps) to 56.1% compared to 55.7% in the prior-year fourth quarter
• Adjusted EBITDA¹ increased 35.3% to $20.1 million compared to $14.9 million a year ago
• GAAP net income was $17.5 million, or $0.58 per diluted share, compared to $13.9 million, or $0.58 per diluted share in the prior-year fourth quarter
• Pro forma net income was $11.3 million, or $0.37 per diluted share, compared to $8.3 million, or $0.35 per diluted share in the prior-year fourth quarter
• During the quarter, the Company opened a retail store in Sioux Falls, South Dakota, and now operates a total of 7 retail stores and 2 outlet stores

¹ See Reconciliation of GAAP net income to EBITDA and EBITDA to Adjusted EBITDA in the accompanying financial tables.

Highlights for the Fiscal Year ended January 31, 2016

• Net sales increased 31.2% to $304.2 million compared to $231.9 million in the prior year
• Gross margin increased 50 bps to 57.0% compared to 56.5% a year ago
• Adjusted EBITDA¹ increased 27.5% to $34.0 million compared to $26.7 million a year ago
• GAAP net income was $27.4 million, or $1.06 per diluted share, compared to $23.6 million, or $0.99 per diluted share in the prior year
• Pro forma net income was $17.3 million, or $0.66 per diluted share, compared to $14.2 million, or $0.59 per diluted share in the prior year
• During fiscal 2015, the Company opened 2 retail stores and 1 outlet store

¹ See Reconciliation of GAAP net income to EBITDA and EBITDA to Adjusted EBITDA in the accompanying financial tables.

“Fiscal 2015 was a milestone year for Duluth Trading. We became a publicly traded company, made great strides in increasing our brand awareness through highly successful marketing campaigns and opened three new stores bringing our total store count to nine.  We also made strategic investments in our infrastructure to better serve our customers and position our business for growth and scale,” said Stephanie Pugliese, Chief Executive Officer of Duluth Trading.

“We are especially proud of our financial performance despite the unusually warm weather and a highly promotional retail environment during the fourth quarter. Our fourth quarter net sales were up nearly 28% and we expanded our gross margin rate by 40 basis points.  The strong performance in both our direct and retail segments contributed to another record quarter and year of increased net sales.

“Looking forward to fiscal 2016, we believe that the strong brand awareness and momentum generated in fiscal 2015 will pave the way to another successful year.  We are on track to open four to five new stores, and we will continue to make strategic investments in infrastructure and information technology to support our growth. Our focus for fiscal 2016 will be continuing to build our brand awareness, accelerating retail expansion, selectively broadening assortments in certain men’s product categories, and growing our women’s business.”

Operating Results for the Fourth Quarter Ended January 31, 2016

Net sales increased 27.5% to $140.4 million, compared to $110.1 million in the same period a year ago. The net sales increase was driven by 24.6% growth in direct net sales and 57.0% growth in retail net sales, with growth achieved across the vast majority of product categories. The direct net sales gains were largely attributable to strong customer response to Duluth Trading’s innovative products as well as successful marketing efforts, which drove greater traffic to the Company’s website and sales through its call center. The increase in retail net sales was primarily attributable to the opening of two new retail stores and one outlet store during fiscal 2015, coupled with growth in comparable store sales.

Gross profit increased 28.5% to $78.8 million, or 56.1% of net sales, compared to $61.3 million, or 55.7% of net sales, in the corresponding prior-year period. The increase in gross profit was primarily due to increased net sales, coupled with improved gross margins.  The improved gross margins were due to product mix and lower product costs.

Selling, general and administrative expenses increased 26.5% to $59.8 million, compared to $47.3 million in the same period a year ago, reflecting higher net sales and support for the growth of our business.   As a percentage of net sales, advertising and marketing costs decreased 20 basis points to 20.1%, compared to 20.3% in the corresponding prior-year period. As a percentage of net sales, selling expense increased 10 basis points to 14.0%, compared to 13.9% in the corresponding prior-year period, primarily due to an increase in distribution labor and customer service, driven by higher third party logistics (“3PL”) utilization during the peak holiday season, which was partially offset by a decrease in shipping expense, as a result of favorable shipping rates coupled with being closer to our customers due to our regional 3PLs. As a percentage of net sales, general and administrative expenses decreased 20 basis points to 8.5% from 8.7% in the same period a year ago, primarily reflecting operating leverage on higher sales.

Income tax expense was $1.3 million, which was comprised of $1.2 million for a one-time deferred tax expense recognized upon the conversion of the Company to a “C” corporation and $0.1 million of expense related to activity during the portion of fiscal 2015 that the Company was a “C” corporation (November 25, 2015 through January 31, 2016).

Adjusted EBITDA was $20.1 million, or 14.3% of net sales, compared to $14.9 million, or 13.5% of net sales, in the prior-year period.  Duluth Trading defines Adjusted EBITDA as consolidated net income (loss) before depreciation and amortization, interest expense and provision for income taxes adjusted for the impact of certain items, including non-cash and other items.

GAAP net income was $17.5 million, or $0.58 per diluted share, compared to $13.9 million, or $0.58 per diluted share, in the prior-year period. Pro forma net income was $11.3 million, or $0.37 per diluted share, compared to $8.3 million, or $0.35 per diluted share, in the prior-year period.

The pro forma net income gives effect to the conversion of the Company to a “C” corporation, which was effective November 25, 2015. Prior to such conversion, the Company was an “S” corporation and generally not subject to income taxes. The pro forma net income, therefore, includes an adjustment for income tax expense on the income attributable to controlling interest as if the Company had been a “C” corporation as of February 4, 2013 at an assumed combined federal, state and local effective tax rate of 40%, which approximates the calculated statutory rate for each period.

Balance Sheet and Liquidity

The Company ended the quarter with a cash balance of approximately $37.9 million, with working capital of $73.7 million, and no borrowings on its $40.0 million revolving line of credit. Inventory increased 33.7% to $55.3 million, compared to $41.4 million at the end of fiscal 2014. Ending inventory increased at a slightly higher rate than sales growth during fiscal 2015 primarily due to the fully stocked inventory levels necessary to meet demand for the fall and winter selling seasons.

Fiscal 2016 Outlook and Long-Term Financial Targets

• Net sales in the range of $370.0 million to $380.0 million
• Adjusted EBITDA¹ in the range of $40.0 million to $42.5 million
• GAAP EPS in the range of $0.66 to $0.70 per diluted share
• Capital expenditures of $24.0 to $25.0 million²
• Four to five new retail store openings, adding 45,000 to 55,000 additional selling square footage

¹ See Reconciliation of GAAP net income to EBITDA and EBITDA to Adjusted EBITDA in the accompanying financial tables.

² Fiscal 2016 capital expenditures include the Company’s plan to open four to five retail stores coupled with the expansion of our distribution center at the Company’s Belleville location and information technology investments.

The Company also reaffirmed its long-term financial targets of approximately 20% net sales growth, 25% adjusted EBITDA growth and 25% net income growth.

Conference Call Information

A conference call and audio webcast with analysts and investors will be held on Thursday, April 7, 2016 at 4:30 pm Eastern Time, to discuss the results and answer questions.

• Live conference call: 866-777-2509 (domestic) or 412-317-5413 (international)
  
• Conference call replay available through April 21, 2016: 877-344-7529 (domestic) or 412-317-0088 (international)
  
• Replay access code: 10082222
  
• Live and archived webcast: ir.duluthtrading.com
  

The Company is enabling investors to pre-register for the earnings conference call so that they can expedite their entry into the call and avoid the need to wait for a live operator. In order to pre-register for the call, investors can visit http://dpregister.com/10082222 and enter in their contact information. Investors will then be issued a personalized phone number and pin to dial into the live conference call. Individuals can pre-register any time prior to the start of the conference call on April 7^th.

About Duluth Trading

Duluth Trading is a rapidly growing lifestyle brand for the Modern, Self-Reliant American.   Based in Belleville, Wisconsin, we offer high quality, solution-based casual wear, workwear and accessories for men and women who lead a hands-on lifestyle and who value a job well-done. We provide our customers an engaging and entertaining experience.  Our marketing incorporates humor and storytelling that conveys the uniqueness of our products in a distinctive, fun way, and our products are sold exclusively through our content-rich website, catalogs, and “store like no other” retail locations. We are committed to outstanding customer service backed by our “No Bull Guarantee” - if it’s not right, we’ll fix it. Visit our website at www.duluthtrading.com 

Non-GAAP Measurements

Management believes that non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods. Within this release, including the tables attached hereto, reference is made to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).  See attached Table “Reconciliation of GAAP Net Income to EBITDA and EBITDA to Adjusted EBITDA,” for a reconciliation of GAAP Net Income to EBITDA and EBITDA to Adjusted EBITDA for the three months and fiscal year ended January 31, 2016, versus the three months and fiscal year ended February 1, 2015.  Adjusted EBITDA is a metric used by management and frequently used by the financial community, which provides insight into an organization’s operating trends and facilitates comparisons between peer companies, since interest, taxes, depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA excludes certain items that are unusual in nature or not comparable from period to period.  The Company provides this information to investors to assist in comparisons of past, present and future operating results and to assist in highlighting the results of on-going operations.  While the Company’s management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace the Company’s GAAP financial results and should be read in conjunction with those GAAP results.

Forward-Looking Statements

This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts included in this press release, including statements concerning Duluth Trading's plans, objectives, goals, beliefs, business strategies, future events, business conditions, its results of operations, financial position and its business outlook, business trends and certain other information herein are forward-looking statements, including Duluth Trading’s ability to execute on its growth strategies and statements under the heading “Fiscal 2016 Outlook and Long-Term Financial Targets.” You can identify forward-looking statements by the use of words such as “may,” ”might,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “believe,” “estimate,” “project,” “target,” “predict,” “intend,” “future,” “budget,” “goals,” “potential,” “continue,” “design,” “objective,” “would” and other similar expressions. The forward-looking statements are not historical facts, and are based upon Duluth Trading's current expectations, beliefs, estimates, and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond Duluth Trading's control. Duluth Trading's expectations, beliefs and projections are expressed in good faith, and Duluth Trading believes there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs, estimates, and projections will be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the forward-looking statements, including, among others, the risks, uncertainties, and factors set forth under “Risk Factors” in the Company’s Quarterly Report on Form 10-Q filed with the SEC on December 17, 2015. Forward-looking statements speak only as of the date the statements are made. Duluth Trading assumes no obligation to update forward-looking statements to reflect actual results, subsequent events or circumstances or other changes affecting forward-looking information except to the extent required by applicable securities laws.

(Tables Follow)

Note 1: The unaudited pro forma net income information gives effect to the conversion of the Company to a “C” corporation on November 25, 2015. Prior to such conversion, the Company was an “S” corporation and generally not subject to income taxes. The pro forma net income, therefore, includes an adjustment for income tax expense on the income attributable to controlling interest as if the Company had been a “C” corporation as of February 4, 2013 at an assumed combined federal, state and local effective tax rate of 40%, which approximates the calculated statutory rate for each period. No pro forma income tax expense was calculated on the income attributable to noncontrolling interest because this entity did not convert to a “C” corporation. The unaudited pro forma basic and diluted net income per share Class A and Class B common stock is computed using the unaudited pro forma net income, as discussed above.

Investor Contacts:
Julie MacMedan (310) 622-8242
Paige Hart (310) 622-8244
Financial Profiles, Inc.
Duluth@finprofiles.com

Duluth Trading Company