20190505 Q1 10-Q DLTH

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________





 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended May 5, 2019



OR





 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from             to              



Commission File Number 001-37641

_________________________________________ 

DULUTH HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 _________________________________________





 

Wisconsin

39-1564801

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)



 

201 East Front Street

Mount Horeb, Wisconsin

 

53572

(Address of principal executive offices)

(Zip Code)









(608) 424-1544

(Registrant’s telephone number, including area code)



_________________________________________



Securities registered pursuant to Section 12(b) of the Act:





 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class B Common Stock, No Par Value

DLTH

NASDAQ Global Select Market



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  



Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company



 

Emerging growth company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  



The number of shares outstanding of the Registrant’s Class A common stock, no par value, as of June 10, 2019, was 3,364,200.

The number of shares outstanding of the Registrant’s Class B common stock, no par value, as of June 10, 2019, was 29,360,357.

 

 

 


 

DULUTH HOLDINGS INC.

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTER ENDED May 5, 2019

INDEX





 

 



 

 



Part I—Financial Information

Page

Item 1.

Financial Statements



Condensed Consolidated Balance Sheets as of May 5, 2019 and February 3, 2019 (Unaudited)



Condensed Consolidated Statements of Operations for the three months ended May 5, 2019 and April 29, 2018 (Unaudited)



Condensed Consolidated Statements of Comprehensive Income for the three months ended May 5, 2019 and April 29, 2018 (Unaudited)



Condensed Consolidated Statement of Shareholders’ Equity for the three months ended May 5, 2019 (Unaudited)



Condensed Consolidated Statement of Shareholders’ Equity for the three months ended April 29, 2018 (Unaudited)



Condensed Consolidated Statements of Cash Flows for the three months ended May 5, 2019 and April 29, 2018 (Unaudited)



Notes to Condensed Consolidated Financial Statements (Unaudited)

10 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26 

Item 4.

Controls and Procedures

26 



Part II—Other Information

 

Item 1.

Legal Proceedings

27 

Item 1A.

Risk Factors

27 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27 

Item 6.

Exhibits

28 



 

 

Signatures

 

29 



 

2

 


 

Table of Contents

 

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements

DULUTH HOLDINGS INC.

Condensed Consolidated Balance Sheets - Assets

(Unaudited)

(Amounts in thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

May 5, 2019

 

February 3, 2019

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash

 

$

992 

 

$

731 

Accounts receivable

 

 

359 

 

 

28 

Other receivables

 

 

8,292 

 

 

4,611 

Inventory, less reserve for excess and obsolete items
of $2,574 and $2,420, respectively

 

 

104,289 

 

 

97,685 

Prepaid expenses & other current assets

 

 

11,977 

 

 

12,640 

Prepaid catalog costs

 

 

202 

 

 

2,503 

Total current assets

 

 

126,111 

 

 

118,198 

Property and equipment, net

 

 

136,652 

 

 

167,109 

Operating lease right-of-use assets

 

 

134,956 

 

 

Finance lease right-of-use assets

 

 

10,610 

 

 

Restricted cash

 

 

1,578 

 

 

2,354 

Available-for-sale security

 

 

6,267 

 

 

6,295 

Goodwill

 

 

402 

 

 

402 

Other assets, net

 

 

2,354 

 

 

2,401 

Total assets

 

$

418,930 

 

$

296,759 







The accompanying notes are an integral part of these condensed consolidated financial statements.

3

 


 

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DULUTH HOLDINGS INC

Condensed Consolidated Balance Sheets – Liabilities and Equity

(Unaudited)

(Amounts in thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

May 5, 2019

 

February 3, 2019

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Trade accounts payable

 

$

26,710 

 

$

25,363 

Accrued expenses and other current liabilities

 

 

25,080 

 

 

26,530 

Income taxes payable

 

 

 

 

218 

Current portion of operating lease liabilities

 

 

10,103 

 

 

Current portion of finance lease liabilities

 

 

315 

 

 

Current maturities of long-term debt

 

 

510 

 

 

500 

Total current liabilities

 

 

62,718 

 

 

52,611 

Long-term debt, less current maturities

 

 

29,576 

 

 

29,737 

Finance lease obligations under build-to-suit leases

 

 

 

 

23,034 

Operating lease liabilities, less current maturities

 

 

118,475 

 

 

Finance lease liabilities, less current maturities

 

 

8,670 

 

 

Long-term line of credit

 

 

39,240 

 

 

16,542 

Deferred tax liabilities

 

 

9,420 

 

 

9,722 

Deferred rent obligations, less current maturities

 

 

 

 

5,003 

Total liabilities

 

 

268,099 

 

 

136,649 

Commitments and contingencies

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Preferred stock, no par value; 10,000 shares authorized; no shares
   issued or outstanding as of May 5, 2019 and February 3, 2019

 

 

 —

 

 

Common stock (Class A), no par value; 10,000 shares authorized;
   3,364 shares issued and outstanding as of May 5, 2019 and February 3, 2019

 

 

 —

 

 

Common stock (Class B), no par value; 200,000 shares authorized;
   29,358 shares issued and 29,339 shares outstanding as of May 5, 2019 and
  29,215 shares issued and 29,210 shares outstanding as of February 3, 2019

 

 

 —

 

 

Treasury stock, at cost; 19 and 5 shares as of May 5, 2019 and
   February 3, 2019, respectively

 

 

(369)

 

 

(92)

Capital stock

 

 

90,416 

 

 

89,849 

Retained earnings

 

 

61,096 

 

 

70,592 

Total shareholders' equity of Duluth Holdings Inc.

 

 

151,143 

 

 

160,349 

Noncontrolling interest

 

 

(312)

 

 

(239)

Total shareholders' equity

 

 

150,831 

 

 

160,110 

Total liabilities and shareholders' equity

 

$

418,930 

 

$

296,759 





The accompanying notes are an integral part of these condensed consolidated financial statements.

4

 


 

Table of Contents

 

DULUTH HOLDINGS INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except per share figures)

 









 

 

 

 

 

 



 

Three Months Ended



 

May 5, 2019

 

April 29, 2018

Net sales

 

$

114,244 

 

$

100,207 

Cost of goods sold (excluding depreciation and amortization)

 

 

53,326 

 

 

44,267 

Gross profit

 

 

60,918 

 

 

55,940 

Selling, general and administrative expenses

 

 

70,609 

 

 

56,197 

Operating loss

 

 

(9,691)

 

 

(257)

Interest expense

 

 

841 

 

 

821 

Other income, net

 

 

204 

 

 

163 

Loss before income taxes

 

 

(10,328)

 

 

(915)

Income tax benefit

 

 

(2,683)

 

 

(232)

Net loss

 

 

(7,645)

 

 

(683)

Less: Net (loss) income attributable to noncontrolling interest

 

 

(73)

 

 

Net loss attributable to controlling interest

 

$

(7,572)

 

$

(691)

Basic loss per share (Class A and Class B):

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

32,281 

 

 

32,046 

Net loss per share attributable to controlling interest

 

$

(0.23)

 

$

(0.02)

Diluted loss per share (Class A and Class B):

 

 

 

 

 

 

Weighted average shares and equivalents outstanding

 

 

32,281 

 

 

32,046 

Net loss per share attributable to controlling interest

 

$

(0.23)

 

$

(0.02)





The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 


 

Table of Contents

 

DULUTH HOLDINGS INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands)







 

 

 

 

 

 



 

Three Months Ended



 

May 5, 2019

 

April 29, 2018

Net loss

 

$

(7,645)

 

$

(683)

Other comprehensive income

 

 

 

 

Comprehensive loss

 

 

(7,645)

 

 

(683)

Comprehensive (loss) income attributable to noncontrolling interest

 

 

(73)

 

 

Comprehensive loss attributable to controlling interest

 

$

(7,572)

 

$

(691)





The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 


 

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DULUTH HOLDINGS INC.

Condensed Consolidated Statement of Shareholders’ Equity

(Unaudited)

(Amounts in thousands)

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended May 5, 2019



 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling

 

 

 



 

Capital stock

 

 

 

 

interest in

 

Total



 

 

 

Treasury

 

Retained

 

variable interest

 

shareholders'



 

Shares

 

Amount

 

stock

 

earnings

 

entity

 

equity

Balance at February 3, 2019

 

32,574 

 

$

89,849 

 

$

(92)

 

$

70,592 

 

$

(239)

 

$

160,110 

Cumulative effect from
adoption of ASC 842

 

 

 

 

 

 

 

(1,924)

 

 

 

 

(1,924)

Balance at February 4, 2019

 

32,574 

 

 

89,849 

 

 

(92)

 

 

68,668 

 

 

(239)

 

 

158,186 

Issuance of common stock

 

149 

 

 

134 

 

 

 

 

 

 

 

 

134 

Stock-based compensation

 

 

 

433 

 

 

 

 

 

 

 

 

433 

Restricted stock forfeitures

 

(6)

 

 

 

 

 

 

 

 

 

 

Restricted stock surrendered for taxes

 

(15)

 

 

 

 

(277)

 

 

 

 

 

 

(277)

Net loss

 

 

 

 

 

 

 

(7,572)

 

 

(73)

 

 

(7,645)

Balance at May 5, 2019

 

32,703 

 

$

90,416 

 

$

(369)

 

$

61,096 

 

$

(312)

 

$

150,831 





The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7

 


 

Table of Contents

 

DULUTH HOLDINGS INC.

Condensed Consolidated Statement of Shareholders’ Equity

(Unaudited)

(Amounts in thousands)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended April 29, 2018



 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling

 

 

 



 

Capital stock

 

 

 

 

interest in

 

Total



 

 

 

Treasury

 

Retained

 

variable interest

 

shareholders'



 

Shares

 

Amount

 

stock

 

earnings

 

entity

 

equity

Balance at January 28, 2018

 

32,462 

 

$

88,043 

 

$

(57)

 

$

48,084 

 

$

3,279 

 

$

139,349 

Cumulative effect from
adoption of ASC 606

 

 

 

 

 

 

 

(648)

 

 

 

 

(648)

Balance at January 29, 2018

 

32,462 

 

$

88,043 

 

$

(57)

 

$

47,436 

 

$

3,279 

 

$

138,701 

Issuance of common stock

 

106 

 

 

 

 

 

 

 

 

 

 

Restricted stock surrendered for taxes

 

(2)

 

 

 

 

(35)

 

 

 

 

 

 

(35)

Stock-based compensation

 

 

 

409 

 

 

 

 

 

 

 

 

409 

Net (loss) income

 

 

 

 

 

 

 

(691)

 

 

 

 

(683)

Balance at April 29, 2018

 

32,566 

 

$

88,452 

 

$

(92)

 

$

46,745 

 

$

3,287 

 

$

138,392 





The accompanying notes are an integral part of these condensed consolidated financial statements.

8

 


 

Table of Contents

 

DULUTH HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)







 

 

 

 

 

 



 

Three Months Ended



 

 

 

 

 

 



 

May 5, 2019

 

April 29, 2018

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(7,645)

 

$

(683)

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

4,392 

 

 

2,309 

Stock based compensation

 

 

474 

 

 

409 

Deferred income taxes

 

 

(302)

 

 

40 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(331)

 

 

22 

Other receivables

 

 

(3,681)

 

 

(308)

Inventory

 

 

(6,604)

 

 

(10,363)

Prepaid expense & other current assets

 

 

2,577 

 

 

(1,527)

Deferred catalog costs

 

 

2,301 

 

 

(814)

Trade accounts payable

 

 

1,221 

 

 

(1,441)

Income taxes payable

 

 

(218)

 

 

(421)

Accrued expenses and deferred rent obligations

 

 

(5,295)

 

 

1,790 

Net cash used in operating activities

 

 

(13,111)

 

 

(10,987)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(8,015)

 

 

(14,000)

Capital contributions towards build-to-suit stores

 

 

(1,788)

 

 

Principal receipts from available-for-sale security

 

 

28 

 

 

Change in other assets

 

 

13 

 

 

43 

Net cash used in investing activities

 

 

(9,762)

 

 

(13,957)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from line of credit

 

 

70,172 

 

 

37,464 

Payments on line of credit

 

 

(47,474)

 

 

(16,214)

Payments on long term debt

 

 

(119)

 

 

(19)

Payments on finance lease obligations

 

 

(37)

 

 

(1)

Change in bank overdrafts

 

 

 

 

478 

Proceeds from finance lease obligations

 

 

 

 

266 

Shares withheld for tax payments on vested restricted shares

 

 

(277)

 

 

(35)

Other

 

 

93 

 

 

24 

Net cash provided by financing activities

 

 

22,358 

 

 

21,963 

Decrease in cash and restricted cash

 

 

(515)

 

 

(2,981)

Cash and restricted cash at beginning of period

 

 

3,085 

 

 

7,083 

Cash and restricted cash at end of period

 

$

2,570 

 

$

4,102 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Interest paid

 

$

986 

 

$

737 

Income taxes paid

 

$

2,179 

 

$

149 

Supplemental disclosure of non-cash information:

 

 

 

 

 

 

Property and equipment acquired under build-to-suit leases

 

$

 

$

7,331 

Unpaid liability to acquire property and equipment

 

$

846 

 

$

2,507 





The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 

1.    NATURE OF OPERATIONS AND BASIS OF PRESENTATION

A.    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 exclusively through the Company’s own direct and retail channels. The direct segment, consisting of the Company’s website and catalogs, offers products nationwide. In 2010, the Company added retail to its omni-channel platform with the opening of its first store. Since then, Duluth Trading has expanded its retail presence, and as of May 5, 2019, the Company operated 48 retail stores and three outlet stores. The Company’s products are marketed under the Duluth Trading brand, with the majority of products being exclusively developed and sold as Duluth Trading branded merchandise.

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.”

B.    Basis of Presentation

The condensed consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). The Company consolidates TRI Holdings, LLC (“TRI”) as a variable interest entity (see Note 6 “Variable Interest Entity” for further information). All intercompany balances and transactions have been eliminated.

The Company’s fiscal year ends on the Sunday nearest to January 31 of the following year. Fiscal 2019 is a 52-week period and ends on February 2, 2020. Fiscal 2018 was a 53-week period and ended on February 3, 2019. The three months of fiscal 2019 and fiscal 2018 represent the Company’s 13-week periods ended May 5, 2019 and April 29, 2018, respectively.

The accompanying condensed consolidated financial statements as of and for the three months ended May 5, 2019 and April 29, 2018 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations as of and for the three months ended May 5, 2019 and April 29, 2018. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the fiscal year ended February 3, 2019.

C.    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.

D.    Restricted Cash

The Company’s restricted cash is held in escrow accounts and is used to pay a portion of the construction loans entered into by third party landlords (the “Landlords”) in connection with the Company’s retail store leases. The restricted cash is disbursed based on the escrow agreements entered into by and among the Landlords, the Company and the escrow agent.



F.    Significant Accounting Policies

Except as disclosed below, there have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended February 3, 2019.

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DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Recently Adopted Accounting Pronouncements

On February 4, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”) and related amendments. ASC 842 requires lessees to (i) recognize a right-of-use asset and a lease liability that is initially measured at the present value of the remaining lease payments, on the consolidated balance sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease related cash payments within operating and financing activities.

The Company adopted ASC 842 utilizing the optional transition method, which allows guidance to be initially applied at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings. The Company elected the package of practical expedients, which allows the Company to forgo reassessing prior conclusions on lease definition, classification and initial direct costs related to existing leases as of the adoption date. The Company elected not to recognize short-term leases on the consolidated balance sheets and all non-lease components, such as common area maintenance, were excluded.

The Company’s existing lease arrangements consist of both operating leases and build-to-suit leases. Under ASC 842, the Company is still required to evaluate whether it is deemed to be the owner of the leased property for accounting purposes during the store construction period, however, the prescriptive rules under ASC 840 have been removed. The Company evaluated its existing build-to-suit leases as of the adoption date and determined that the Company is not the owner of the leased premises during the construction period, which resulted in the derecognition of its build-to-suit assets and liabilities that were previously reported on the Company’s consolidated balance sheets. As of February 4, 2019, substantially all of the previous build-to-suit leases are classified as operating leases.

The impact of the adoption was a $121.8 million right-of-use asset (“ROU asset”) with an offsetting $115.5 million lease liability, which is net of $4.9 million of previously recognized straight-line operating lease adjustments on existing leases and $11.2 million of unamortized initial direct costs. The lease liabilities at February 4, 2019 reflect remaining lease payments discounted using an incremental borrowing rate based on the remaining lease term (the “Discount”), as an implicit rate was not readily determinable for any of the Company’s existing leases. See Note 2 “Leases,” for further information.



2.    LEASES

Effective February 4, 2019, the Company adopted ASC 842, which resulted in a recognition of 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 2036. Substantially all of these arrangements are store leases. Store leases generally have initial lease terms ranging from five to fifteen years with renewal options and rent escalation provisions. 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. The Company bases this Discount 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 payments and does not include such costs as a lease component.

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DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The expense components of the Company’s leases reflected on the Company’s consolidated statement of operations were as follows:







 

 

 

 

 



 

 

 

 

Three Months Ended



 

Consolidated Statement of Operations

 

 

May 5, 2019

(in thousands)

 

 

 

 

 

Finance lease

 

 

 

 

 

  Amortization of right-of-use assets

 

Selling, general and administrative expenses

 

$

78 

  Interest on lease liabilities

 

Interest expense

 

 

59 

Total finance lease expense

 

 

 

$

137 

Operating lease expense

 

Selling, general and administrative expenses

 

$

3,678 

Amortization of build-to-suit leases capital contribution

 

Selling, general and administrative expenses

 

 

214 

Variable lease expense

 

Selling, general and administrative expenses

 

 

1,612 

Total lease expense

 

 

 

$

5,641 

Other information related to leases were as follows:







 

 

 



 

 

Three Months Ended



 

 

May 5, 2019

(in thousands)

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

  Financing cash flows from finance leases

 

 

40 

  Operating cash flows from finance leases

 

 

59 

  Operating cash flows from operating leases

 

 

3,408 



 

 

 

Right-of-use assets obtained in exchange for lease liabilities:

 

 

 

  Finance leases

 

 

3,985 

  Operating leases

 

 

24,992 



 

 

 

Weighted-average remaining lease term (in years):

 

 

 

  Finance leases

 

 

16 

  Operating leases

 

 

11 



 

 

 

Weighted-average discount rate:

 

 

 

  Finance leases

 

 

4.5% 

  Operating leases

 

 

4.3% 

Future minimum lease payments under the non-cancellable leases are as follows as of May 5, 2019:







 

 

 

 

 

 

Fiscal year

 

 

Finance

 

 

Operating

(in thousands)

 

 

 

 

 

 

2019 (remainder of fiscal year)

 

$

533 

 

$

11,446 

2020

 

 

710 

 

 

15,015 

2021

 

 

710 

 

 

14,169 

2022

 

 

710 

 

 

14,295 

2023

 

 

732 

 

 

14,461 

Thereafter

 

 

9,450 

 

 

95,321 

Total future minimum lease payments

 

$

12,845 

 

$

164,707 

Less – Discount

 

 

3,860 

 

 

36,129 

Lease liability

 

$

8,985 

 

$

128,578 

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DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Prior to the adoption of ASC 842, the minimum lease payments under non-cancellable operating leases were as follows as of February 3, 2019:







 

 

 

 

 

 

 

 

 



 

Operating Leases

 

 

 



 

Related

 

 

 

 

Fiscal year

 

party

 

Other

 

Total

(in thousands)

 

 

 

 

 

 

 

 

 

2019

 

$

147 

 

$

15,598 

 

$

15,745 

2020

 

 

144 

 

 

16,013 

 

 

16,157 

2021

 

 

147 

 

 

15,327 

 

 

15,474 

2022

 

 

149 

 

 

15,444 

 

 

15,593 

2023

 

 

136 

 

 

15,648 

 

 

15,784 

Thereafter

 

 

 

 

112,098 

 

 

112,098 

Total future minimum lease payments

 

$

723 

 

$

190,128 

 

$

190,851 





3.    DEBT AND LINE OF CREDIT

Debt consists of the following:





 

 

 

 

 

 



 

May 5, 2019

 

February 3, 2019

(in thousands)

 

 

 

 

TRI Senior Secured Note

 

$

26,586 

 

$

26,705 

TRI Note

 

 

3,500 

 

 

3,500 

Capital lease obligations

 

 

 

 

32 



 

$

30,086 

 

$

30,237 

Less: current maturities

 

 

510 

 

 

500 

Long-term debt

 

$

29,576 

 

$

29,737 



 

 

 

 

 

 

Line of credit

 

$

39,240 

 

$

16,542 

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.

Line of Credit

On May 17, 2018, the Company entered into a credit agreement (the “Credit Agreement”) which provides for borrowing availability of up to $80.0 million in revolving credit (the “Revolver”), and borrowing availability of up to $50.0 million in a delayed draw term loan (“DDTL”), for a total credit facility of $130.0 million. The $80.0 million revolving credit matures on May 17, 2023. The $50.0 million DDTL is available to draw upon in differing amounts through May 17, 2020, and matures on May 17, 2023. 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. At the Company’s option, the interest rate applicable to the Revolver or DDTL will be a floating rate equal to: (i) the base rate plus a margin of 25 to 100 basis points (“bps”), based upon the Company’s rent adjusted leverage ratio, or (ii) a fixed rate for a one-, two-, three- or six-month interest period equal to LIBOR for such interest period plus a margin of 125 to 200 bps, based upon the Company’s rent adjusted leverage ratio (effective rate of 4.0% at May 5, 2019). In addition, outstanding balances under the DDTL require quarterly principal payments with a final balloon payment at maturity.

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DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 

As of May 5, 2019 and for the three months then ended, the Company was in compliance with all financial and non-financial covenants for all debts discussed above.

4.    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:







 

 

 

 

 

 



 

May 5, 2019

 

February 3, 2019

(in thousands)

 

 

 

 

Salaries and benefits

 

$

3,469 

 

$

2,328 

Deferred revenue

 

 

7,330 

 

 

10,485 

Freight

 

 

2,514 

 

 

4,141 

Product returns

 

 

911 

 

 

2,088 

Catalog costs

 

 

82 

 

 

503 

Unpaid purchases of property & equipment

 

 

846 

 

 

433 

Accrued advertising

 

 

5,652 

 

 

389 

Other

 

 

4,276 

 

 

6,163 

Total accrued expenses and other current liabilities

 

$

25,080 

 

$

26,530 





5.    INVESTMENT

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.

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. As of May 5, 2019, the carrying value of the Company’s available-for-sale security approximates its fair value.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

May 5, 2019

 

 

February 3, 2019



 

Cost or

 

Gross

 

Gross

 

 

 

 

 



 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

 

 

Estimated



 

Cost  

 

Gains

 

Losses

 

Fair Value

 

 

Fair Value

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 3 security:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate trust

 

$

6,267 

 

$

 

$

 

$

6,267 

 

 

$

6,295 

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DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following table presents future principal receipts related to the Company’s available-for-sale security by contractual maturity as of May 5, 2019. Cost and estimated fair value are equal.





 

 

 

 



 

 

Estimated



 

 

Fair Value

(in thousands)

 

 

 

Within one year

 

 

$

120 

After one year through five years

 

 

 

844 

After five years through ten years

 

 

 

1,349 

After ten years

 

 

 

3,954 

Total

 

 

$

6,267 





6.    VARIABLE INTEREST ENTITY

Based upon the criteria set forth in ASC 810, Consolidation, the Company has determined that it was the primary beneficiary of one variable interest entity (“VIE”) as of May 5, 2019 and February 3, 2019, as the Company absorbs significant economics of the entity and has the power to direct the activities that are considered most significant to the entity.

The Company leases the Company’s headquarters in Mt. Horeb, Wisconsin from TRI. In conjunction with the lease, the Company invested $6.3 million in a trust (see Note 5  “Investment” for further information) 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.

The condensed consolidated balance sheets include the following amounts as a result of the consolidation of TRI as of May 5, 2019 and February 3, 2019:





 

 

 

 

 

 



 

May 5, 2019

 

February 3, 2019

(in thousands)

 

 

 

 

 

 

Cash

 

$

454 

 

$

434 

Property and equipment, net

 

 

27,657 

 

 

28,146 

Other assets, net

 

 

1,757 

 

 

1,454 

Total assets

 

$

29,868 

 

$

30,034 



 

 

 

 

 

 

Other current liabilities

 

$

604 

 

$

68 

Long-term debt

 

 

29,576 

 

 

30,205 

Noncontrolling interest in VIE

 

 

(312)

 

 

(239)

Total liabilities and shareholders' equity

 

$

29,868 

 

$

30,034 





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DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 

7.    EARNINGS (LOSS) PER SHARE

Earnings (loss) per share is computed under the provisions of ASC 260, Earnings Per Share. Basic earnings (loss) per share is based on the weighted average number of common shares outstanding for the period. Diluted earnings (loss) 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. The reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share calculation is as follows:





 

 

 

 

 

 



 

Three Months Ended



 

May 5, 2019

 

April 29, 2018

(in thousands, except per share data)

 

 

 

 

 

 

Numerator - net loss attributable
   to controlling interest

 

$

(7,572)

 

$

(691)

Denominator - weighted average shares
   (Class A and Class B)

 

 

 

 

 

 

Basic

 

 

32,281 

 

 

32,046 

Dilutive shares

 

 

 

 

Diluted

 

 

32,281 

 

 

32,046 

Loss per share (Class A and Class B)

 

 

 

 

 

 

Basic

 

$

(0.23)

 

$

(0.02)

Diluted

 

$

(0.23)

 

$

(0.02)

The computation of diluted earnings (loss) per share for the three months ended May 5, 2019 and April 29, 2018, excluded 0.3 million and 0.4 million shares of unvested restricted stock, respectively, because their inclusion would be anti-dilutive due to a net loss.





8.    STOCK-BASED COMPENSATION

The Company accounts for its stock-based compensation plan in accordance with ASC 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.

Total stock compensation expense associated with restricted stock recognized by the Company was $0.4 million for the three months ended May 5, 2019 and April 29, 2018. The Company’s total stock compensation expense is included in selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.

A summary of the activity in the Company’s unvested restricted stock during the three months ended May 5, 2019 is as follows:





 

 

 

 

 

 



 

 

 

 

Weighted



 

 

 

 

average



 

 

 

 

fair value



 

 

Shares

 

per share

Outstanding at February 3, 2019

 

 

321,657 

 

$

14.29 

Granted

 

 

141,805 

 

 

18.10 

Vested

 

 

(42,662)

 

 

19.19 

Forfeited

 

 

(5,682)

 

 

18.71 

Outstanding at May 5, 2019

 

 

415,118 

 

$

15.03 

At May 5, 2019, the Company had unrecognized compensation expense of $4.5 million related to the restricted stock awards, which is expected to be recognized over a weighted average period of 3.0 years.





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DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 

9.    PROPERTY AND EQUIPMENT

Property and equipment consist of the following:





 

 

 

 

 

 



 

May 5, 2019

 

February 3, 2019

(in thousands)

 

 

 

 

 

 

Land and land improvements

 

$

4,486 

 

$

4,486 

Leasehold improvements

 

 

37,118 

 

 

32,765 

Buildings

 

 

36,475 

 

 

71,469 

Vehicles

 

 

161 

 

 

161 

Warehouse equipment

 

 

13,058 

 

 

13,051 

Office equipment and furniture

 

 

39,732 

 

 

36,473 

Computer equipment

 

 

5,828 

 

 

5,072 

Software

 

 

25,370 

 

 

24,939 



 

 

162,228 

 

 

188,416 

Accumulated depreciation and amortization

 

 

(37,900)

 

 

(34,203)



 

 

124,328 

 

 

154,213 

Construction in progress

 

 

12,324 

 

 

12,896 

Property and equipment, net

 

$

136,652 

 

$

167,109 











10.    SEGMENT REPORTING

The Company has two operating segments, which are also its reportable segments: direct and retail. The direct segment includes net sales from the Company’s website and catalogs. The retail segment includes net sales from the Company’s retail and outlet stores. These two operating segments are components of the Company for which separate financial information is available and for which operating results are evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources and in assessing performance of the segments.

Income tax expense, and corporate expenses, which include but are not limited to: human resources, legal, finance, information technology, design and other corporate-related expenses are included in the Company’s direct segment. Interest expense, depreciation and amortization, and property and equipment expenditures, are recognized in each segment. Advertising expenses are generally included in the Company’s direct segment, except for specific store advertising, which is included in the Company’s retail segment.

Net sales outside of the United States were insignificant. Variable allocations of assets are not made for segment reporting. The Company does not have any assets outside of the United States.

Segment information is presented in the following table:





 

 

 

 

 

 



 

Three Months Ended



 

May 5, 2019

 

April 29, 2018

(in thousands)

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

Direct

 

$

65,701 

 

$

66,212 

Retail

 

 

48,543 

 

 

33,995 

Total net sales

 

$

114,244 

 

$

100,207 

Operating (loss) income

 

 

 

 

 

 

Direct

 

$

(12,266)

 

$

(2,128)

Retail

 

 

2,575 

 

 

1,871 

Total operating loss

 

 

(9,691)

 

 

(257)

Interest expense

 

 

841 

 

 

821 

Other income, net

 

 

204 

 

 

163 

Loss before income taxes

 

$

(10,328)

 

$

(915)

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DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Net sales by business is presented in the following table:





 

 

 

 

 

 



 

Three Months Ended



 

May 5, 2019

 

April 29, 2018

(in thousands)

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

Men's

 

$

75,800 

 

$

67,919 

Women's

 

 

32,173 

 

 

27,161 

Hard goods/other

 

 

6,271 

 

 

5,127 

Total net sales

 

$

114,244 

 

$

100,207 

Segment total assets is presented in the following table:





 

 

 

 

 

 



 

May 5, 2019

 

February 3, 2019

(in thousands)

 

 

 

 

 

 

Direct

 

$

193,106 

 

$

182,883 

Retail

 

 

225,824 

 

 

113,876 

Total assets at period end

 

$

418,930 

 

$

296,759 





11.    INCOME TAXES

The provision for income taxes for the interim period is based on an estimate of the annual effective tax rate adjusted to reflect the impact of discrete items. Management judgment is required in projecting ordinary income to estimate the Company’s annual effective tax rate. The effective tax rate related to controlling interest was 26% and 25% for the three months ended May 5, 2019 and April 29, 2018, respectively. The income from TRI was excluded from the calculation of the Company’s effective tax rate, as TRI is a limited liability company and not subject to income taxes.

12.    RECENT ACCOUNTING PRONOUNCEMENTS

During the three months ended May 5, 2019, there have been no new recent accounting pronouncements that are of significance, or potential significance, to the Company.



13.    SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date which these condensed consolidated financial statements were available to be issued and has determined that it does not have any material subsequent events to disclose in these condensed consolidated financial statements.



 

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the financial statements and related notes of Duluth Holdings Inc. included in Item 1of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2019 (“2018 Form 10-K”).

The three months of fiscal 2019 and fiscal 2018 represent our 13-week periods ended May 5, 2019 and April 29, 2018, respectively.

Unless the context indicates otherwise, the terms the “Company,” “Duluth,” “Duluth Trading,” “we,” “our,” or “us” are used to refer to Duluth Holdings Inc.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. All statements other than statements of historical or current facts included in this Quarterly Report on Form 10-Q are forward-looking statements. Forward looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “could,” “estimate,” “expect,” “project,” “plan,” “potential,” “intend,” “believe,” “may,” “might,” “will,” “objective,” “should,” “would,” “can have,” “likely,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenue, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described under Part I, Item 1A “Risk Factors,” in our 2018 Form 10-K and other SEC filings, which factors are incorporated by reference herein. These risks and uncertainties include, but are not limited to, the following: our ability to maintain and enhance a strong brand image; our ability to successfully open new stores; effectively adapting to new challenges associated with our expansion into new geographic markets; generating adequate cash from our existing stores to support our growth; the inability to maintain the performance of a maturing store portfolio; the impact of changes in corporate tax regulations; identifying and responding to new and changing customer preferences; the success of the locations in which our stores are located; our ability to attract and retain customers in the various retail venues and locations in which our stores are located; competing effectively in an environment of intense competition; our ability to adapt to significant changes in sales due to the seasonality of our business; price reductions or inventory shortages resulting from failure to purchase the appropriate amount of inventory in advance of the season in which it will be sold; increases in costs of fuel or other energy, transportation or utility costs and in the costs of labor and employment; failure of our information technology systems to support our current and growing business, before and after our planned upgrades; and other factors that may be disclose in our SEC filings or otherwise. Moreover, we operate in an evolving environment, new risk factors and uncertainties emerge from time to time and it is not possible for management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements.

We undertake no obligation to update or revise these forward-looking statements, except as required under the federal securities laws.

Overview

We are a rapidly growing lifestyle brand of men’s and women’s casual wear, workwear and accessories sold exclusively through our own direct and retail channels. The direct segment, consisting of our website and catalogs, offers products nationwide and represented 57.5% and 66.1% of our consolidated net sales for the three months ended May 5, 2019 and April 29, 2018, respectively. In 2010, we added retail to our omni-channel platform with the opening of our first store. Since then, we have expanded our retail presence, and as of May 5, 2019, we operated 48 retail stores and three outlet stores. Net sales for our retail segment represented 42.5% and 33.9% of our consolidated net sales for the three months ended May 5, 2019 and April 29, 2018, respectively.

We offer a comprehensive line of innovative, durable and functional products, such as our Longtail T® shirts, Buck NakedTM underwear, Fire Hose® work pants, and No-Yank® Tank, which reflect our position as the Modern, Self-Reliant American Lifestyle brand. Our brand has a heritage in workwear that transcends tradesmen and appeals to a broad demographic for everyday and on-the-job use.

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From our heritage as a catalog for those working in the building trades, Duluth Trading has become a widely recognized brand and proprietary line of innovative and functional apparel and gear. Over the last decade, we have created strong brand awareness, built a loyal customer base and generated robust sales momentum. We have done so by sticking to our roots of “there’s gotta be a better way” and through our relentless focus on providing our customers with quality, functional products.

A summary of our financial results is as follows:

·

Net sales have increased year-over-year for 37 consecutive quarters through May 5, 2019;

·

Net sales in fiscal 2019 first quarter increased by 14.0% over the prior year first quarter to $114.2 million;

·

Net loss of $7.6 million in fiscal 2019 first quarter compared to the prior year first quarter net loss of $0.7 million;

·

Adjusted EBITDA of $(4.4) million in fiscal 2019 first quarter compared to the prior year first quarter Adjusted EBITDA of $2.6 million;

·

We opened five new stores in fiscal 2019 first quarter, adding approximately 78,000 of gross square footage; and

·

Our retail stores have achieved and are expected to continue to achieve an average payback of less than two years.

See “Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA” section for a reconciliation of our net income to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S. GAAP financial measures. See also the information under the heading “Adjusted EBITDA” in the section “How We Assess the Performance of Our Business” for our definition of Adjusted EBITDA.

Our business is seasonal, and as a result, our net sales fluctuate from quarter to quarter, which often affects the comparability of our results between quarters. Net sales are historically higher in the fourth quarter of our fiscal year due to the holiday selling season.

We are pursuing several strategies to continue our growth, including building brand awareness to continue customer acquisition, continuing retail expansion, selectively broadening assortments in certain men’s product categories and growing our women’s business.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of financial and operating measures that affect our operating results.

Net Sales

Net sales reflect our sale of merchandise plus shipping and handling revenue collected from our customers, less returns and discounts. Direct sales are recognized upon shipment of the product and retail sales are recognized at the point of sale. We also use net sales as one of the key financial metrics in determining our annual bonus compensation for our employees.

Gross Profit

Gross profit is equal to our net sales less cost of goods sold. Gross profit as a percentage of our net sales is referred to as gross margin. Cost of goods sold includes the direct cost of purchased merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost and net realizable reserves; inbound freight; and freight from our distribution centers to our retail stores. The primary drivers of the costs of individual goods are raw material costs. Depreciation and amortization are excluded from gross profit. We expect gross profit to increase to the extent that we successfully grow our net sales. Given the size of our direct segment sales relative to our total net sales, shipping and handling revenue has had a significant impact on our gross profit and gross profit margin. Historically, this revenue has partially offset shipping and handling expense included in selling, general and administrative expenses. We have experienced declines in shipping and handling revenues, and this trend is expected to continue. Declines in shipping and handling revenues may have a material adverse effect on our gross profit and gross profit margin, as well as Adjusted EBITDA to the extent there are not commensurate declines, or if there are increases, in our shipping and handling expense. Our gross profit may not be comparable to other retailers, as we do not include distribution network and store occupancy expenses in calculating gross profit, but instead we include them in selling, general and administrative expenses.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses include all operating costs not included in cost of goods sold. These expenses include all payroll and payroll-related expenses and occupancy expenses related to our stores and to our operations at our headquarters, including utilities, depreciation and amortization. They also include marketing expense, which primarily includes television advertising, catalog production, mailing and print advertising costs, as well as all logistics costs associated with shipping product to our customers, consulting and software expenses and professional services fees. Selling, general and administrative expenses as a percentage of net sales is usually higher in lower-volume quarters and lower in higher-volume quarters because a portion of the costs are relatively fixed.

Our historical sales growth has been accompanied by increased selling, general and administrative expenses. The most significant components of these increases are advertising, marketing, rent/occupancy and payroll costs. While we expect these expenses to increase as we continue to open new stores, increase brand awareness and grow our organization to support our growing business, we believe these expenses will decrease as a percentage of sales over time.

Adjusted EBITDA

We believe Adjusted EBITDA is a useful measure of operating performance, as it provides a clearer picture of operating results by excluding the effects of financing and investing activities by eliminating the effects of interest and depreciation costs and eliminating expenses that are not reflective of underlying business performance. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business.

We define 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 we do not consider representative of our ongoing operating performance. We believe Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other items.

 

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Results of Operations

The following table summarizes our unaudited consolidated results of operations for the periods indicated, both in dollars and as a percentage of net sales.





 

 

 

 

 

 

 



 

Three Months Ended

 



 

May 5, 2019

 

April 29, 2018

 

(in thousands)

 

 

 

 

 

 

 

Direct net sales

 

$

65,701 

 

$

66,212 

 

Retail net sales

 

 

48,543 

 

 

33,995 

 

Net sales

 

 

114,244 

 

 

100,207 

 

Cost of goods sold (excluding depreciation

  and amortization)

 

 

53,326 

 

 

44,267 

 

Gross profit

 

 

60,918 

 

 

55,940 

 

Selling, general and administrative expenses

 

 

70,609 

 

 

56,197 

 

Operating loss

 

 

(9,691)

 

 

(257)

 

Interest expense

 

 

841 

 

 

821 

 

Other income, net

 

 

204 

 

 

163 

 

Loss before income taxes

 

 

(10,328)

 

 

(915)

 

Income tax benefit

 

 

(2,683)

 

 

(232)

 

Net loss

 

 

(7,645)

 

 

(683)

 

Less: Net (loss) income attributable to

   noncontrolling interest

 

 

(73)

 

 

 

Net loss attributable to controlling interest

 

$

(7,572)

 

$

(691)

 

Percentage of Net sales:

 

 

 

 

 

 

 

Direct net sales

 

 

57.5 

%

 

66.1 

%

Retail net sales

 

 

42.5 

%

 

33.9 

%

Net sales

 

 

100.0 

%

 

100.0 

%

Cost of goods sold (excluding depreciation

  and amortization)

 

 

46.7 

%

 

44.2 

%

Gross profit

 

 

53.3 

%

 

55.8 

%

Selling, general and administrative expenses

 

 

61.8 

%

 

56.1 

%

Operating loss

 

 

(8.5)

%

 

(0.3)

%

Interest expense

 

 

0.7 

%

 

0.8 

%

Other income, net

 

 

0.2 

%

 

0.2 

%

Loss before income taxes

 

 

(9.0)

%

 

(0.9)

%

Income tax benefit

 

 

(2.3)

%

 

(0.2)

%

Net loss

 

 

(6.7)

%

 

(0.7)

%

Less: Net (loss) income attributable to

   noncontrolling interest

 

 

(0.1)

%

 

 -

%

Net loss attributable to controlling interest

 

 

(6.6)

%

 

(0.7)

%



Three Months Ended May 5, 2019 Compared to Three Months Ended April 29, 2018

Net Sales

Net sales increased $14.0 million, or 14.0%, to $114.2 million in the three months ended May 5, 2019 compared to $100.2 million in the three months ended April 29, 2018, driven by an increase in the retail segment of $14.5 million, or 42.8%, partially offset by a decrease in the direct segment of $0.5 million, or 0.8%, with gains across virtually all product categories and in both our men’s and women’s business.  The decrease in the direct segment net sales has continued into the first five weeks of the second quarter. Our website visits increased 14% in the three months ended May 5, 2019 compared to the three months ended April 29, 2018. The increase in retail net sales was driven by new stores with 51 stores as of May 5, 2019 compared to 33 stores as of April 29, 2018, partially offset by existing stores.

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Gross Profit

Gross profit increased $5.0 million, or 8.9%, to $60.9 million in the three months ended May 5, 2019 compared to $55.9 million in the three months ended April 29, 2018. As a percentage of net sales, gross margin decreased 250 basis points to 53.3% of net sales in the three months ended May 5, 2019, compared to 55.8% of net sales in the three months ended April 29, 2018. The decrease in gross margin rate was primarily attributable to a decrease in product margins due to product mix on recent clearance activity, coupled with a slight decrease in shipping revenues.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $14.4 million, or 25.6%, to $70.6 million in the three months ended May 5, 2019 compared to $56.2 million in the three months ended April 29, 2018. Selling, general and administrative expenses as a percentage of net sales increased 570 basis points to 61.8% in the three months ended May 5, 2019, compared to 56.1% in the three months ended April 29, 2018. The increase in selling, general and administrative expenses was attributable to an increase of $2.5 million in advertising and marketing costs, $2.9 million in selling expenses and $9.0 million in general and administrative expenses.

As a percentage of net sales, advertising and marketing costs decreased 50 basis points to 21.1% in the three months ended May 5, 2019, compared to 21.6% in the three months ended April 29, 2018. The 50 basis point decrease in advertising and marketing costs as a percentage of net sales was primarily attributable to advertising leverage gained from a higher mix of retail sales.

As a percentage of net sales, selling expenses increased 50 basis points to 16.6% in the three months ended May 5, 2019, compared to 16.1% in the three months ended April 29, 2018, primarily due to an increase in customer service due to our growth in retail, partially offset by a decrease in shipping expenses due to leverage from an increase in the proportion of retail net sales.

As a percentage of net sales, general and administrative expenses increased 570 basis points to 24.1% in the three months ended May 5, 2019, compared to 18.4% in the three months ended April 29, 2018. The 570 basis point increase was primarily attributable to an increase in occupancy and equipment cost due to growth in the number of retail stores, an increase in depreciation expense due to investments in technology and corporate facilities, and an increase in personnel cost due to an increase in headcount to support the growth of the business.

Income Tax Benefit

Income tax benefit was $2.7 million in the three months ended May 5, 2019, compared to $0.2 million in the three months ended April 29, 2018. Our effective tax rate related to controlling interest was 26% and 25% for the three months ended May 5, 2019, and April 29, 2018, respectively.

Net Loss

Net loss was $7.6 million, in the three months ended May 5, 2019 compared to $0.7 million in the three months ended April 29, 2018, primarily due to the factors discussed above.

Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA

The following table presents reconciliations of net income to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S. GAAP financial measures, for the periods indicated below. See the above section titled “How We Assess the Performance of Our Business,” for our definition of Adjusted EBITDA.







 

 

 

 

 

 



 

Three Months Ended



 

May 5, 2019

 

April 29, 2018

(in thousands)

 

 

 

 

 

 

Net loss

 

$

(7,645)

 

$

(683)

Depreciation and amortization

 

 

4,392 

 

 

2,309 

Interest expense

 

 

841 

 

 

821 

Amortization of build-to-suit leases capital contribution

 

 

214 

 

 

Income tax benefit

 

 

(2,683)

 

 

(232)

EBITDA

 

$

(4,881)

 

$

2,215 

Stock based compensation

 

 

474 

 

 

409 

Adjusted EBITDA

 

$

(4,407)

 

$

2,624 

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As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA decreased $7.0 million to $(4.4) million in the three months ended May 5, 2019 compared to $2.6 million in the three months ended April 29, 2018. As a percentage of net sales, Adjusted EBITDA decreased 650 basis points to (3.9)% of net sales in the three months ended May 5, 2019 compared to 2.6% of net sales in the three months ended April 29, 2018.



Liquidity and Capital Resources

General

Our business relies on cash from operating activities and a credit facility as our primary sources of liquidity. On May 17, 2018, we entered into a new credit facility which provides for borrowings of up to $80.0 million on a revolving line of credit and an additional $50.0 million in a delayed draw term loan. The $80.0 million revolving line of credit matures on May 17, 2023 and we have the option to draw in various amounts on the $50.0 million term loan through May 17, 2020, with a maturity on May 17, 2023. Our primary cash needs have been for inventory, marketing and advertising, payroll, store leases, capital expenditures associated with opening new stores, infrastructure and information technology. The most significant components of our working capital are cash, inventory, accounts payable and other current liabilities.

We expect to spend approximately $40.0 million to $45.0 million in fiscal 2019 on capital expenditures, including a total of approximately $30.0 million to $32.0 million for new retail store expansion and remodels. We expect capital expenditures of approximately $2.0 million and starting inventory of $0.5 million to open a new store. At May 5, 2019, our net working capital was $63.4 million, including $1.0 million of cash. Due to the seasonality of our business, a significant amount of cash from operating activities is generated during the fourth quarter of our fiscal year. During the first three quarters of our fiscal year, we typically are net users of cash in our operating activities as we acquire inventory in anticipation of our peak selling season, which occurs in the fourth quarter of our fiscal year. We also use cash in our investing activities for capital expenditures throughout all four quarters of our fiscal year.

We believe that our cash flow from operating activities and the availability of cash under our revolving line of credit will be sufficient to cover working capital requirements and anticipated capital expenditures and for funding our growth strategy for the foreseeable future.

Cash Flow Analysis

A summary of operating, investing and financing activities is shown in the following table.





 

 

 

 

 

 



 

Three Months Ended



 

May 5, 2019

 

April 29, 2018

(in thousands)

 

 

 

 

 

 

Net cash used in operating activities

 

$

(13,111)

 

$

(10,987)

Net cash used in investing activities

 

 

(9,762)

 

 

(13,957)

Net cash provided by financing activities

 

 

22,358 

 

 

21,963 

Decrease in cash and restricted cash

 

$

(515)

 

$

(2,981)

Net Cash used in Operating Activities

Operating activities consist primarily of net income adjusted for non-cash items that include depreciation and amortization, stock-based compensation and the effect of changes in assets and liabilities.

While our cash flows from operations for the three months ended May 5, 2019 is negative, primarily driven by the seasonal nature of our business, we expect cash flows from operations for the full year fiscal 2019 to be positive from normal operating performance and seasonal reductions in working capital during the fourth quarter of our fiscal year, which is consistent with previous full fiscal years.

For three months ended May 5, 2019, net cash used in operating activities was $13.1 million, which primarily consisted of net loss of $7.6 million, non-cash depreciation and amortization of $4.4 million and stock based compensation of $0.5 million, offset by cash used in operating assets and liabilities of $10.0 million. The cash used in operating assets and liabilities of $10.0 million primarily consisted of a $6.6 million increase in inventory, primarily due to the increase in the number of retail stores,  a $5.3 million decrease in accrued expenses and deferred rent obligations and a $2.6 million increase in prepaid expense and other current assets due to the adoption of the new lease accounting standard, a $2.3 million decrease in deferred catalog

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costs due to a shift in timing of early spring catalogs, and a  $1.2 million increase in trade accounts payable due to timing of payments.

For the three months ended April 29, 2018, net cash used in operating activities was $11.0 million, which primarily consisted of net loss of $0.7 million, non-cash depreciation and amortization of $2.3 million and stock based compensation of $0.4 million, offset by cash used in operating assets and liabilities of $13.1 million. The cash used in operating assets and liabilities of $13.1 million primarily consisted of a $10.4 million increase in inventory, primarily due to the increase in the number of our retail stores, a $1.5 million increase in prepaid expenses and other current assets due to growth and adoption of the revenue standard as a result of the increase in estimated expected inventory returns, and a  $1.4 million decrease in trade accounts payable primarily due to timing of payments.

Net Cash Used in Investing Activities

Investing activities consist primarily of capital expenditures for growth related to new store openings, information technology and enhancements for our distribution and corporate facilities.

For the three months ended May 5, 2019, net cash used in investing activities was $9.8 million and was primarily driven by capital expenditures of $8.0 million for new retail stores and retail store build-out, as well as investments in information technology, and $1.8 million of capital contributions towards our build-to-suit stores.

For the three months ended April 29, 2018, net cash used in investing activities was $14.0 million, which was also primarily driven by capital expenditures of $14.0 million for new retail stores and retail store build-out, as well as investments in information technology.

Net Cash Provided by Financing Activities

Financing activities consist primarily of borrowings and payments related to our revolving line of credit and other long-term debts, as well as distributions to holders of the noncontrolling interest in our variable interest entity TRI Holdings, LLC (“TRI”), proceeds from finance lease obligations and capital contributions to TRI.

For the three months ended May 5, 2019, net cash provided by financing activities was $22.4 million, primarily consisting of proceeds of $22.7 million, net from our revolving line of credit to fund working capital.

For the three months ended April 29, 2018, net cash provided by financing activities was $22.0 million, primarily consisting of proceeds of $21.3 million, net from our revolving line of credit to fund working capital and capital expenditures, $0.5 million in change in bank overdraft and $0.3 million from finance lease obligations in connection with our build-to-suit lease transactions.

Line of Credit

On May 17, 2018, we entered into a new credit agreement and subsequently terminated our Amended and Restated Agreement. The outstanding balance of $27.5 million under the Amended and Restated Agreement was paid off with borrowings under the new credit agreement. The credit agreement is secured by essentially all Company assets and requires that we maintain compliance with certain financial and non-financial covenants, including a trailing twelve month maximum rent adjusted leverage ratio and minimum fixed charge coverage ratio. See Note 3 “Debt and Line of Credit,” for further information.

As of May 5, 2019 and for the three months then ended, the Company was in compliance with all financial and non-financial covenants for all debts discussed above and expects to be in compliance for the remainder of fiscal 2019.

Contractual Obligations

There have been no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the fiscal year ended February 3, 2019.

Off-Balance Sheet Arrangements

We are not a party to any material off-balance sheet arrangements.

Critical Accounting Policies and Critical Accounting Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the related disclosures of

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contingent assets and liabilities at the date of the financial statements. We evaluate our accounting policies, estimates, and judgments on an on-going basis. We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions and such differences could be material to the consolidated financial statements.

As of the date of this filing, there were no significant changes to any of the critical accounting policies and estimates described in our 2018 Form 10-K, except as discussed below.

Recently Adopted Accounting Pronouncements

On February 4, 2019, we adopted authoritative guidance related to leases using the optional transition method and elected the package of practical expedients. As such, the comparative prior period information has not been restated and continues to be reported under the accounting standards in effect for those periods. Beginning with the first quarter of fiscal 2019, our financial results reflect adoption of the standard.

See Note 1 “Nature of Operations and Basis of Presentation,” of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1, of this quarterly report on Form 10-Q for further information regarding recently adopted accounting pronouncements.

Recent Accounting Pronouncements

See Note 12 “Recent Accounting Pronouncements,” of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1, of this quarterly report on Form 10-Q for information regarding recent accounting pronouncements.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in the market risks described in our 2018 Form 10-K. See Note 3 “Debt and Line of Credit,” of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1, of this quarterly report on Form 10-Q, for disclosure on our interest rate related to our line of credit.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Section 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires management of an issuer subject to the Exchange Act to evaluate, with the participation of the issuer’s principal executive and principal financial officers, or persons performing similar functions, the effectiveness of the issuer’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of each fiscal quarter. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of May 5, 2019, as a result of the material weakness in our internal control over financial reporting discussed below and in the Company’s Annual Report on Form 10-K, for the year ended February 3, 2019, our disclosure controls and procedures were not effective.

Material Weakness

As disclosed in our 2018 Form 10-K, management concluded that a material weakness existed in our internal control over financial reporting. Specifically we determined that due to the lack of sufficient resources throughout the year, we did not design and implement effective internal control activities to timely detect and resolve issues resulting from converting to a new order management system, nor did we consistently execute certain account reconciliations and analyses timely during fiscal 2018.

Management has developed certain remediation steps to address the material weakness discussed above and to improve internal control over financial reporting. The Company is taking steps to correctly allocate resources as needed and to further automate and enhance the reconciliation process. The material weakness will not be considered remediated until applicable remedial controls operate for a sufficient period of time and management has concluded that these controls are operating effectively.

Management has concluded that, notwithstanding the material weakness described above, the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the date, and for the periods presented, in conformity with U.S. GAAP.

26

 


 

Table of Contents

Changes in Internal Control Over Financial Reporting

We implemented the new lease accounting standard as of February 4, 2019. As a result, we implemented changes to our processes and internal control over financial reporting to ensure compliance with the new accounting and disclosure rules. There were no other changes in our internal control over financial reporting (as defined in Rule 13a-15(d) and 15d-15(d) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.



PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.

Item 1A.   Risk Factors

We operate in a rapidly changing environment that involves a number of risks that may have a material adverse effect on our business, financial condition and results of operations. For a detailed discussion of the risks that affect our business, please refer to the section entitled “Risk Factors” in our 2018 Form 10-K or other SEC filings. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

We did not sell any equity securities during the quarter ended May 5, 2019, which were not registered under the Securities Act.

The following table contains information of shares acquired from employees in lieu of amounts required to satisfy minimum tax withholding requirements upon the vesting of the employees’ restricted stock during the quarter ended May 5, 2019.







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

Total number

 

Approximate dollar



 

 

 

 

 

 

of shares purchased

 

value of shares that



 

Total number

 

 

 

 

as part of publicly

 

may yet to be



 

of shares

 

Average price

 

announced plans

 

purchased under the

Period

 

purchased

 

paid per share

 

or programs

 

plans or programs

February 4 - March 3, 2019

 

 

$

 

 

$

March 4 - April 7, 2019

 

12,380 

 

 

22.28 

 

 

 

April 8 - May 5, 2019

 

2,143 

 

 

17.08 

 

 

 

Total

 

14,523 

 

$

22.55 

 

 

$



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Table of Contents

Item 6.    Exhibits

EXHIBIT INDEX



 

Exhibit No.

 

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as amended.*

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended.*

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS

XBRL Instance Document**

101.SCH

XBRL Taxonomy Extension Schema Document**

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document**

101.DEF

XBRL Taxonomy Extension Definition Document**

101.LAB

XBRL Taxonomy Extension Label Linkbase Document**

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document**







 

*

Filed herewith

**

In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”

28

 


 

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





 

 

Date: June 14, 2019

 



DULUTH HOLDINGS INC.
(Registrant)



 

/s/ DAVID LORETTA



 

David Loretta



 

Senior Vice President and Chief Financial Officer



 

(On behalf of the Registrant as Principal Financial Officer and Principal Accounting Officer)



29

 


20190505 EX 311 DLTH CEO

Exhibit 31.1

CERTIFICATIONS

I, Stephanie L. Pugliese, Chief Executive Officer, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Duluth Holdings Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 14, 2019 







/s/ Stephanie L. Pugliese

Stephanie L. Pugliese

Chief Executive Officer




20190505 EX 312 DLTH CFO

Exhibit 31.2

CERTIFICATIONS

I, David Loretta, Chief Financial Officer, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Duluth Holdings Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 14, 2019 







/s/ David Loretta

David Loretta

Chief Financial Officer




20190505 EX 321 DLTH CEO

Exhibit 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Duluth Holdings Inc. (the “Company”) for the quarterly period ended May 5, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephanie L. Pugliese, as Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.







 



 



 /s/ Stephanie L. Pugliese

Name:

Stephanie L. Pugliese

Title:

Chief Executive Officer

Date:

June 14, 2019



This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section. This certification shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.


20190505 EX 322 DLTH CFO

Exhibit 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Duluth Holdings Inc. (the “Company”) for the  quarterly period ended May 5, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Loretta, as Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.







 



 /s/ David Loretta

Name:

David Loretta

Title:

Chief Financial Officer

Date:

June 14, 2019



This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section. This certification shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.