News Release
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Highlights for the Second Quarter Ended
- Net sales increased 12.6% to
$137.4 million compared to$122.0 million in the prior-year second quarter - Direct-to-consumer net sales increased 66.9% and retail store net sales decreased 40.4% as stores re-opened throughout the first half of the quarter
- Gross margin decreased to 52.8% compared to 53.1% in the prior-year second quarter
- Operating income increased to
$9.8 million compared to operating income of$3.7 million in the prior-year second quarter - Net income increased to
$5.9 million , or$0.18 per diluted share, compared to net income of$1.9 million , or$0.06 per diluted share, in the prior-year second quarter - Adjusted EBITDA1 increased 75.3% to
$16.8 million compared to$9.6 million in the prior-year second quarter - As of
June 15, 2020 , we have re-opened all of our 62 retail stores in some capacity
1See Reconciliation of net income (loss) to EBITDA and EBITDA to Adjusted EBITDA in the accompanying financial tables.
Management Commentary
“The real success story of the second quarter is the strength of the Duluth Trading brand and our ecommerce channel. Net sales grew 13% to
“Our solid second quarter results can be attributed to several factors. First, our spring and summer product assortments had widespread appeal to both men and women whether staying at home or venturing outdoors. Second, the technology and infrastructure investments that we made well before the pandemic were critical in meeting the sudden shift in consumer shopping trends. Our enhanced website and mobile capabilities allowed us to easily accommodate the surge in demand. Third, our shift to more digital marketing versus traditional media spend generated a 130% lift in new buyer growth in our direct channel. Finally, the omnichannel model continued to validate our commitment even in the face of lower store traffic. Our thesis that having a store in a market builds overall brand awareness once again proved out in the second quarter. Direct sales growth in store markets outpaced that of non-store markets by 21 percentage points.”
“As we move into the fall and holiday seasons, we are doing everything in our control to keep the momentum going. I am confident that our team has the talent, agility and conviction to meet the challenges ahead,” concluded Schlecht.
Operating Results for the Second Quarter Ended
Net sales increased 12.6%, to
Net sales in non-store markets increased
Men’s business net sales increased 15.3% driven by growth in men’s underwear, Alaskan Hardgear and apparel newness. Women’s business net sales increased 9.6% driven by the summer solved collection, comfortable basics and plus line apparel.
Gross profit increased 11.8%, to
Selling, general and administrative expenses increased 2.6% to
The increase in selling, general and administrative expense was due to increased shipping costs to support website sales, higher retail overhead costs driven by new store growth and increased depreciation expense associated with investments in technology, partially offset by reduced catalog spend and national TV advertising.
Balance Sheet and Liquidity
The Company ended the quarter with a cash balance of
Fiscal 2020 Outlook
Given the unpredictability of the effects of the COVID-19 pandemic on, among other things, consumer behavior, store traffic, store operations, production capabilities, timing of deliveries, our people, economic activity and the market generally in the coming weeks and months, the Company is unable to provide specific earnings guidance at this time.
In response to expected impacts to sales plans, the Company has reduced its planned capital spend levels from the beginning of the fiscal year by 50% to approximately
The following table recaps the Company’s fiscal 2020 stores opened as well as signed new store leases and the anticipated opening timeframes, which reflects the Company’s plan to reduce fiscal 2020 store openings to four.
| Gross | ||||
| Location | Timing | Square Footage | ||
| Opened |
16,828 | |||
| Opened |
20,388 | |||
| Opened |
10,000 | |||
| Q3 Fiscal 2020 | 11,441 | |||
| Fiscal 2021 | 11,441 |
Conference Call Information
A conference call and audio webcast with analysts and investors will be held on
- Live conference call: 844-875-6915 (domestic) or 412-317-6711 (international)
- Conference call replay available through
September 17, 2020 : 877-344-7529 (domestic) or 412-317-0088 (international) - Replay access code: 10147470
- Live and archived webcast: ir.duluthtrading.com
Investors can pre-register for the earnings conference call to expedite their entry into the call and avoid waiting for a live operator. To pre-register for the call, please visit http://dpregister.com/10147470 and enter your contact information. You will then be issued a personalized phone number and pin to dial into the live conference call. Investors can pre-register any time prior to the start of the conference call.
About Duluth Trading
Duluth Trading is a growing lifestyle brand for the Modern, Self-Reliant American. Based in
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 Net Loss to EBITDA and EBITDA to Adjusted EBITDA,” for a reconciliation of net loss to EBITDA and EBITDA to Adjusted EBITDA for the three and six months ended
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 statements regarding Duluth Trading’s ability to execute on its growth strategies, and statements under the heading “Fiscal 2020 Outlook.” 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,” “forecasted,” “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 Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the
Investor Contacts:
Duluth@finprofiles.com
(Tables Follow)
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 19,005 | $ | 2,189 | ||||
| Receivables | 2,095 | 1,470 | ||||||
| Income taxes receivable | 3,780 | — | ||||||
| Inventory, net | 167,584 | 147,849 | ||||||
| Prepaid expenses & other current assets | 9,075 | 9,503 | ||||||
| Prepaid catalog costs | 254 | 1,181 | ||||||
| Total current assets | 201,793 | 162,192 | ||||||
| Property and equipment, net | 136,448 | 137,071 | ||||||
| Operating lease right-of-use assets | 114,211 | 120,431 | ||||||
| Finance lease right-of-use assets, net | 45,920 | 46,677 | ||||||
| Restricted cash | 163 | 51 | ||||||
| Available-for-sale security | 6,004 | 6,432 | ||||||
| Other assets, net | 1,644 | 1,196 | ||||||
| Total assets | $ | 506,183 | $ | 474,050 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | 40,141 | $ | 33,053 | ||||
| Accrued expenses and other current liabilities | 28,816 | 29,464 | ||||||
| Income taxes payable | — | 3,427 | ||||||
| Current portion of operating lease liabilities | 10,411 | 10,674 | ||||||
| Current portion of finance lease liabilities | 1,664 | 1,600 | ||||||
| Current portion of Duluth long-term debt | 2,500 | 1,000 | ||||||
| Current maturities of TRI long-term debt1 | 589 | 557 | ||||||
| Total current liabilities | 84,121 | 79,775 | ||||||
| Operating lease liabilities, less current maturities | 101,506 | 106,120 | ||||||
| Finance lease liabilities, less current maturities | 36,934 | 37,434 | ||||||
| Duluth long-term debt, less current maturities | 77,000 | 38,332 | ||||||
| TRI long-term debt, less current maturities1 | 27,512 | 27,778 | ||||||
| Deferred tax liabilities | 11,710 | 8,505 | ||||||
| Total liabilities | 338,783 | 297,944 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders' equity: | ||||||||
| (581 | ) | (407 | ) | |||||
| Capital stock | 91,921 | 90,902 | ||||||
| Retained earnings | 78,395 | 87,589 | ||||||
| Accumulated other comprehensive income, net | (82 | ) | 188 | |||||
| Total shareholders' equity of |
169,653 | 178,272 | ||||||
| Noncontrolling interest | (2,253 | ) | (2,166 | ) | ||||
| Total shareholders' equity | 167,400 | 176,106 | ||||||
| Total liabilities and shareholders' equity | $ | 506,183 | $ | 474,050 | ||||
1 Represents debt of the variable interest entity,
DULUTH HOLDING INC.
Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except per share figures)
| Three Months Ended | Six Months Ended | |||||||||||||||
| Net sales | $ | 137,375 | $ | 121,963 | $ | 247,292 | $ | 236,207 | ||||||||
| Cost of goods sold (excluding depreciation and amortization) | 64,903 | 57,159 | 122,488 | 110,485 | ||||||||||||
| Gross profit | 72,472 | 64,804 | 124,804 | 125,722 | ||||||||||||
| Selling, general and administrative expenses | 62,680 | 61,069 | 133,986 | 132,091 | ||||||||||||
| Operating income (loss) | 9,792 | 3,735 | (9,182 | ) | (6,369 | ) | ||||||||||
| Interest expense | 1,778 | 1,203 | 3,128 | 1,631 | ||||||||||||
| Other (loss) income, net | (250 | ) | (8 | ) | (191 | ) | 196 | |||||||||
| Income (loss) before income taxes | 7,764 | 2,524 | (12,501 | ) | (7,804 | ) | ||||||||||
| Income tax expense (benefit) | 1,866 | 678 | (3,220 | ) | (2,005 | ) | ||||||||||
| Net income (loss) | 5,898 | 1,846 | (9,281 | ) | (5,799 | ) | ||||||||||
| Less: Net loss attributable to noncontrolling interest | (43 | ) | (90 | ) | (87 | ) | (163 | ) | ||||||||
| Net income (loss) attributable to controlling interest | $ | 5,941 | $ | 1,936 | $ | (9,194 | ) | $ | (5,636 | ) | ||||||
| Basic earnings (loss) per share (Class A and Class B): | ||||||||||||||||
| Weighted average shares of common stock outstanding | 32,445 | 32,288 | 32,408 | 32,253 | ||||||||||||
| Net income (loss) per share attributable to controlling interest | $ | 0.18 | $ | 0.06 | $ | (0.28 | ) | $ | (0.17 | ) | ||||||
| Diluted earnings (loss) per share (Class A and Class B): | ||||||||||||||||
| Weighted average shares and equivalents outstanding | 32,445 | 32,399 | 32,408 | 32,253 | ||||||||||||
| Net income (loss) per share attributable to controlling interest | $ | 0.18 | $ | 0.06 | $ | (0.28 | ) | $ | (0.17 | ) | ||||||
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
| Six Months Ended | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (9,281 | ) | $ | (5,799 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 13,292 | 9,405 | ||||||
| Stock based compensation | 881 | 1,029 | ||||||
| Deferred income taxes | 3,300 | (694 | ) | |||||
| Loss on disposal of property and equipment | 321 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | (625 | ) | 606 | |||||
| Income taxes receivable | (3,780 | ) | (2,331 | ) | ||||
| Inventory | (19,735 | ) | (17,164 | ) | ||||
| Prepaid expense & other current assets | 2,594 | 1,508 | ||||||
| Deferred catalog costs | 927 | 1,935 | ||||||
| Trade accounts payable | 3,360 | 10,766 | ||||||
| Income taxes payable | (3,427 | ) | (218 | ) | ||||
| Accrued expenses and deferred rent obligations | (1,556 | ) | (7,088 | ) | ||||
| Noncash lease impacts | 927 | — | ||||||
| Net cash used in operating activities | (12,802 | ) | (8,045 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (8,842 | ) | (13,773 | ) | ||||
| Capital contributions towards build-to-suit stores | (357 | ) | (3,013 | ) | ||||
| Principal receipts from available-for-sale security | 64 | 56 | ||||||
| Change in other assets | — | 17 | ||||||
| Net cash used in investing activities | (9,135 | ) | (16,713 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from line of credit | 52,484 | 104,871 | ||||||
| Payments on line of credit | (41,816 | ) | (76,413 | ) | ||||
| Proceeds from delayed draw term loan | 30,000 | — | ||||||
| Payments on delayed draw term loan | (500 | ) | — | |||||
| Payments on TRI long term debt | (234 | ) | (240 | ) | ||||
| Payments on finance lease obligations | (793 | ) | (273 | ) | ||||
| Shares withheld for tax payments on vested restricted shares | (174 | ) | (313 | ) | ||||
| Other | (102 | ) | 197 | |||||
| Net cash provided by financing activities | 38,865 | 27,829 | ||||||
| Increase in cash, cash equivalents and restricted cash | 16,928 | 3,071 | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | 2,240 | 3,085 | ||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 19,168 | $ | 6,156 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid | $ | 3,151 | $ | 1,712 | ||||
| Income taxes paid | $ | 40 | $ | 562 | ||||
| Supplemental disclosure of non-cash information: | ||||||||
| Unpaid liability to acquire property and equipment | $ | 2,451 | $ | 509 | ||||
Reconciliation of Net Income (Loss) to EBITDA and EBITDA to Adjusted EBITDA
(Unaudited)
(Amounts in thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
| Net income (loss) | $ | 5,898 | $ | 1,846 | $ | (9,281 | ) | $ | (5,799 | ) | ||||||
| Depreciation and amortization | 6,603 | 5,013 | 13,292 | 9,405 | ||||||||||||
| Interest expense | 1,778 | 1,203 | 3,128 | 1,631 | ||||||||||||
| Amortization of build-to-suit operating leases capital contribution | 198 | 265 | 397 | 479 | ||||||||||||
| Income tax expense (benefit) | 1,866 | 678 | (3,220 | ) | (2,005 | ) | ||||||||||
| EBITDA | $ | 16,343 | $ | 9,005 | $ | 4,316 | $ | 3,711 | ||||||||
| Stock based compensation | 418 | 555 | 881 | 1,029 | ||||||||||||
| Adjusted EBITDA | $ | 16,761 | $ | 9,560 | $ | 5,197 | $ | 4,740 | ||||||||
Source: Duluth Trading Company