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Duluth Holdings Inc. Announces Second Quarter 2021 Financial Results

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MOUNT HOREB, Wis., Sept. 02, 2021 (GLOBE NEWSWIRE) -- Duluth Holdings Inc. (dba, Duluth Trading Company) (“Duluth Trading” or the “Company”) (NASDAQ: DLTH), a growing lifestyle brand of men’s and women’s workwear, casual wear, outdoor apparel and accessories, today announced its financial results for the fiscal second quarter ended August 1, 2021.

Highlights for the Second Quarter Ended August 1, 2021

  • Net sales increased 8.6% to $149.1 million compared to $137.4 million in the second quarter of 2020 and increased 22.3% when compared to the same period in 2019

  • Gross margin improved 180 basis points to 54.6% compared to 52.8% in the prior year second quarter

  • Operating income increased 33.7%, or $3.3 million, to $13.1 million compared to $9.8 million in the prior year second quarter

  • Net income was $9.0 million, or $0.27 per diluted share, compared to net income of $5.9 million, or $0.18 per diluted share in the prior year second quarter

  • Adjusted EBITDA1 increased 29.0% to $21.6 million compared to $16.8 million in the prior year second quarter

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

Management Commentary

Our solid performance this quarter reflects the strong relationships we have with our customers and the underlying strength of our business. Our initiatives continue to deliver the planned results, and we’re excited to build upon them,” said Sam Sato, Chief Executive Officer of Duluth Trading.

“My first one hundred days in the role of CEO were busy, productive, and incredibly energizing after meeting personally with most of our team members. I am very impressed with the depth of talent, level of commitment and excitement this team brings day in and day out. With our senior leaders, we continued our comprehensive review of our current operations, logistics networks, marketing and technology capabilities, and our unique brands and products. Following our deep dive analysis, we formulated our ‘Big Dam Blueprint’, which we believe will unlock our full potential for long-term, sustainable growth that serves all of our stakeholders.”

Big Dam Blueprint

  1. Begin with a digital-first mindset that integrates technology into all areas of the business, fundamentally changing how we operate and deliver value to customers.

  2. Intensify efforts to optimize Duluth Trading’s owned DTC channels by increasing focus and investments in our direct channel as our primary growth vehicle. We are conducting strategic research that will inform decisions on future stores regarding new locations and market share potential, size and layout.

  3. Evolve the Company’s multi-brand platform as a new pathway to grow the business. Create unique brand positions, across men’s and women’s, for Duluth, 40Grit, Alaskan Hardgear, Buck Naked, and Best Made to address customer needs for various occasions including work, outdoor recreation, casual lifestyle, and first layer. Invest in the evolution of the Duluth Trading platform to enable the integration of new brands, expand our offerings, and broaden our customer base.

  4. Carefully test and learn to unlock long-term growth potential. Explore new opportunities to engage current and potential customers through products, services and touchpoints that they expect and value.

  5. Increase and, in some areas, accelerate investments to future proof the business. Areas under analysis include greater automation across the logistics network; technology that will improve operations, generate positive impact and sustainable returns; support growth through multiple brands and seamlessly integrate new brands into the portfolio, and attract the talent, skillsets and expertise needed to scale the business.

Sato continued, “We believe our Big Dam Blueprint is sound and necessary to continue to strengthen our relationship with the customer, lead as a competitive force, and meet our long-term growth objectives by the end of 2025, which are to achieve at least $1 billion in sales; high-single to low-double digit operating margins; generate positive free cash flow; and maintain balance sheet flexibility. Our blueprint provides a clear path to ongoing and sustainable profitability and sales growth and our entire team is very excited about the opportunities ahead of us.”

Operating Results for the Second Quarter Ended August 1, 2021

Net sales increased 8.6% to $149.1 million, compared to $137.4 million in the same period a year ago and increased 22.3% versus the second quarter of 2019. Retail store net sales increased by 73.6% to $63.9 million, a significant increase over last year’s second quarter when store traffic was adversely affected by the pandemic. For a more normalized comparison, retail store sales were up 3.5% compared with the second quarter of 2019. Direct-to-consumer net sales decreased by 15.2% to $85.2 million compared to the second quarter last year when consumers were under stay at-home orders and online shopping surged. For a more normalized comparison, direct-to-consumer sales increased 41.5% compared to the second quarter of fiscal 2019.

Net sales in store markets increased 19.8% to $107.1 million, compared to $89.4 million in the same period a year ago. The increase was driven by a continued ramp up in store traffic as compared to the prior year. Net sales in non-store markets decreased 12.7 %, to $40.7 million, compared to heavy volume, extended free shipping offers, due to higher promotions and digital prospecting during that period.

Men’s apparel net sales increased 6.5% driven by growth in knits and woven shirts. Women’s apparel net sales growth outpaced men’s for the quarter, increasing 10.0% driven by strength in woven shirts, bottoms, and footwear.

Gross profit increased 12.4% to $81.4 million, or 54.6% of net sales, compared to $72.5 million, or 52.8% of net sales, in the corresponding prior year period. The increase in gross profit was driven by a higher mix of full price sales, as well as improved gross margins particularly within the Women’s division.

Selling, general and administrative expenses increased 9.0% to $68.3 million, compared to $62.7 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses slightly increased to 45.8%, compared to 45.6% in the corresponding prior year period.

The increase in selling, general and administrative expense was primarily due to adding back temporary expense reductions taken during the pandemic coupled with annual base salary merit increases, the addition of fixed costs from the three stores opened in the back half of 2020, and higher depreciation expense.

The effective tax rate related to controlling interest was 25% compared to 24% in the corresponding prior year period.

Balance Sheet and Liquidity

The Company ended the quarter with a cash balance of approximately $18.9 million, net working capital of $84.2 million, and no outstanding balance on its $150.0 million revolving senior credit facility.

On May 14, 2021, the Company terminated its Credit Agreement, dated as of May 17, 2018, as amended, and entered into a new credit agreement (the “New Credit Agreement”). The New Credit Agreement matures on May 14, 2026 and provides for borrowings of up to $150.0 million that are available under a revolving senior credit facility, with a $5.0 million sublimit for issuance of standby letters of credit, as well as a $10.0 million sublimit for swing line loans. At the Company’s option, the interest rate applicable to the Revolver will be a floating rate equal to: (i) the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus the applicable rate of 1.25% to 2.00% determined based on the Company’s rent adjusted leverage ratio, or (ii) the base rate plus the applicable rate of 0.25% to 1.00% based on the Company’s rent adjusted leverage ratio. The New 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 New Credit Agreement.

Fiscal 2021 Outlook

The Company updated its fiscal 2021 outlook as follows:

  • Net sales in the range of $700 million to $715 million

  • Adjusted EBITDA in the range of $70 million to $72 million1

  • EPS in the range of $0.71 to $0.76 per diluted share

  • Capital expenditures, inclusive of software hosting implementation costs, of approximately $18 million

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

Conference Call Information

A conference call and audio webcast with analysts and investors will be held on Thursday, September 2, 2021 at 9:30 am Eastern Time, to discuss the results and answer questions.

  • Live conference call: 844-875-6915 (domestic) or 412-317-6711 (international)

  • Conference call replay available through September 9, 2021: 877-344-7529 (domestic) or 412-317-0088 (international)

  • Replay access code: 10159273

  • 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/10159273 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 Mount Horeb, Wisconsin, we offer high quality, solution-based casual wear, workwear and accessories for men and women who lead a hands-on lifestyle and who value a job well-done. We provide our customers an engaging and entertaining experience. Our marketing incorporates humor and storytelling that conveys the uniqueness of our products in a distinctive, fun way, and are available through our content-rich website, catalogs, and “store like no other” retail locations. We are committed to outstanding customer service backed by our “No Bull Guarantee” - if it’s not right, we’ll fix it. Visit our website at http://www.duluthtrading.com.

Non-GAAP Measurements

Management believes that non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods. Within this release, including the tables attached hereto, reference is made to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). See attached Table “Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA,” for a reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA for the three and six months ended August 1, 2021, versus the three and six months ended August 2, 2020.

Adjusted EBITDA is a metric used by management and frequently used by the financial community, which provides insight into an organization’s operating trends and facilitates comparisons between peer companies, since interest, taxes, depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA excludes certain items that are unusual in nature or not comparable from period to period.

The Company provides this information to investors to assist in comparisons of past, present and future operating results and to assist in highlighting the results of on-going operations. While the Company’s management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace the Company’s GAAP financial results and should be read in conjunction with those GAAP results.

Forward-Looking Statements

This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts included in this press release, including statements concerning Duluth Trading's plans, objectives, goals, beliefs, business strategies, future events, business conditions, its results of operations, financial position and its business outlook, business trends and certain other information herein, including statements under the heading “Fiscal 2021 Outlook” are forward-looking statements. 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 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC on March 26, 2021 and other factors as may be periodically described in Duluth Trading’s subsequent filings with the SEC. These risks and uncertainties include, but are not limited to, the following: the prolonged effects of the COVID-19 on store traffic and disruptions to our distribution network, supply chains and operations; our ability to maintain and enhance a strong brand image; effectively adapting to new challenges associated with our expansion into new geographic markets; generating adequate cash from our existing stores to support our growth; effectively relying on sources for merchandise located in foreign markets; transportation delays and interruptions, including port congestion; inability to timely and effectively obtain shipments of products from our suppliers and deliver merchandise to our customers; 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 or global market constraints; 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 disclosed in our SEC filings or otherwise. Forward-looking statements speak only as of the date the statements are made. Duluth Trading assumes no obligation to update forward-looking statements to reflect actual results, subsequent events or circumstances or other changes affecting forward-looking information except to the extent required by applicable securities laws.

Investor Contacts:
Donni Case (310) 622-8224
Margaret Boyce (310) 622-8247
Financial Profiles, Inc.
Duluth@finprofiles.com

DULUTH HOLDINGS INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)

August 1, 2021

January 31, 2021

ASSETS

Current Assets:

Cash and cash equivalents

$

18,921

$

47,221

Receivables

2,912

2,270

Inventory, net

134,887

149,052

Prepaid expenses & other current assets

13,090

10,203

Prepaid catalog costs

39

1,014

Total current assets

169,849

209,760

Property and equipment, net

117,571

124,237

Operating lease right-of-use assets

112,131

117,490

Finance lease right-of-use assets, net

51,598

53,468

Available-for-sale security

6,729

6,111

Other assets, net

5,280

4,511

Total assets

$

463,158

$

515,577

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Trade accounts payable

$

37,717

$

33,647

Accrued expenses and other current liabilities

32,687

37,686

Income taxes payable

587

7,579

Current portion of operating lease liabilities

11,378

11,050

Current portion of finance lease liabilities

2,657

2,629

Current portion of Duluth long-term debt

2,500

Current maturities of TRI long-term debt1

658

623

Total current liabilities

85,684

95,714

Operating lease liabilities, less current maturities

98,950

104,287

Finance lease liabilities, less current maturities

41,633

43,299

Duluth long-term debt, less current maturities

45,750

TRI long-term debt, less current maturities1

26,928

27,229

Deferred tax liabilities

8,061

8,200

Total liabilities

261,256

324,479

Commitments and contingencies

Shareholders' equity:

Treasury stock

(991

)

(628

)

Capital stock

94,080

92,875

Retained earnings

110,703

101,166

Accumulated other comprehensive income, net

564

48

Total shareholders' equity of Duluth Holdings Inc.

204,356

193,461

Noncontrolling interest

(2,454

)

(2,363

)

Total shareholders' equity

201,902

191,098

Total liabilities and shareholders' equity

$

463,158

$

515,577

1Represents debt of the variable interest entity, TRI Holdings, LLC, that is consolidated in accordance with ASC 810, Consolidation. Duluth Trading Company is not the guarantor nor the obligor of this debt.


DULUTH HOLDING INC.
Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except per share figures)

Three Months Ended

Six Months Ended

August 1, 2021

August 2, 2020

August 1, 2021

August 2, 2020

Net sales

$

149,127

$

137,375

$

282,546

$

247,292

Cost of goods sold (excluding depreciation and amortization)

67,701

64,903

134,577

122,488

Gross profit

81,426

72,472

147,969

124,804

Selling, general and administrative expenses

68,339

62,680

132,987

133,986

Operating income (loss)

13,087

9,792

14,982

(9,182

)

Interest expense

1,182

1,778

2,490

3,128

Other income (loss), net

56

(250

)

72

(191

)

Income (loss) before income taxes

11,961

7,764

12,564

(12,501

)

Income tax expense (benefit)

3,014

1,866

3,119

(3,220

)

Net income (loss)

8,947

5,898

9,445

(9,281

)

Less: Net loss attributable to noncontrolling interest

(45

)

(43

)

(91

)

(87

)

Net income (loss) attributable to controlling interest

$

8,992

$

5,941

$

9,536

$

(9,194

)

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

Weighted average shares of common stock outstanding

32,624

32,445

32,582

32,408

Net income (loss) per share attributable to controlling interest

$

0.28

$

0.18

$

0.29

$

(0.28

)

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

Weighted average shares and equivalents outstanding

32,813

32,445

32,786

32,408

Net income (loss) per share attributable to controlling interest

$

0.27

$

0.18

$

0.29

$

(0.28

)


DULUTH HOLDINGS INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)

Six Months Ended

August 1, 2021

August 2, 2020

Cash flows from operating activities:

Net income (loss)

$

9,445

$

(9,281

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

14,516

13,292

Stock based compensation

1,007

881

Deferred income taxes

(312

)

3,300

Loss on disposal of property and equipment

67

321

Changes in operating assets and liabilities:

Receivables

(642

)

(625

)

Income taxes receivable

(3,780

)

Inventory

14,165

(19,735

)

Prepaid expense & other current assets

(1,332

)

2,594

Software hosting implementation costs, net

(1,220

)

Deferred catalog costs

975

927

Trade accounts payable

2,889

3,360

Income taxes payable

(6,992

)

(3,427

)

Accrued expenses and deferred rent obligations

(4,908

)

(1,556

)

Other assets

(1,035

)

Noncash lease impacts

(111

)

927

Net cash provided by (used in) operating activities

26,512

(12,802

)

Cash flows from investing activities:

Purchases of property and equipment

(4,984

)

(8,842

)

Capital contributions towards build-to-suit stores

(357

)

Principal receipts from available-for-sale security

71

64

Proceeds from disposals

55

Net cash used in investing activities

(4,858

)

(9,135

)

Cash flows from financing activities:

Proceeds from line of credit

5,000

52,484

Payments on line of credit

(5,000

)

(41,816

)

Proceeds from delayed draw term loan

30,000

Payments on delayed draw term loan

(48,250

)

(500

)

Payments on TRI long term debt

(303

)

(234

)

Payments on finance lease obligations

(1,237

)

(793

)

Payments of tax withholding on vested restricted shares

(363

)

(174

)

Other

199

(102

)

Net cash (used in) provided by financing activities

(49,954

)

38,865

(Decrease) increase in cash, cash equivalents

(28,300

)

16,928

Cash, cash equivalents and restricted cash at beginning of period

47,221

2,240

Cash, cash equivalents and restricted cash at end of period

$

18,921

$

19,168

Supplemental disclosure of cash flow information:

Interest paid

$

2,519

$

3,151

Income taxes paid

$

10,461

$

40

Supplemental disclosure of non-cash information:

Unpaid liability to acquire property and equipment

$

2,052

$

2,451


DULUTH HOLDINGS INC.
Reconciliation of Net Income (Loss) to EBITDA and EBITDA to Adjusted EBITDA
For the Fiscal Quarter Ended August 1, 2021
(Unaudited)
(Amounts in thousands)

Three Months Ended

Six Months Ended

August 1, 2021

August 2, 2020

August 1, 2021

August 2, 2020

(in thousands)

Net income (loss)

$

8,947

$

5,898

$

9,445

$

(9,281

)

Depreciation and amortization

7,242

6,603

14,516

13,292

Amortization of internal-use software hosting subscription implementation costs

405

774

Interest expense

1,182

1,778

2,490

3,128

Amortization of build-to-suit operating leases capital contribution

198

198

397

397

Income tax expense (benefit)

3,014

1,866

3,119

(3,220

)

EBITDA

$

20,988

$

16,343

$

30,741

$

4,316

Stock based compensation

637

418

1,007

881

Adjusted EBITDA

$

21,625

$

16,761

$

31,748

$

5,197


DULUTH HOLDINGS INC.
Reconciliation of Forecasted Net Income to Forecasted EBITDA and Forecasted EBITDA to Forecasted Adjusted EBITDA
For the Fiscal Year Ended January 30, 2022
(Unaudited)
(Amounts in thousands)

Low

High

Forecasted

Net income

$

23,500

$

25,000

Depreciation and amortization

28,200

28,200

Amortization of internal-use software hosting subscription implementation costs

2,200

2,500

Interest expense

5,000

4,700

Amortization of build-to-suit operating leases capital contributions

800

800

Income tax expense

8,100

8,600

EBITDA

$

67,800

$

69,800

Stock based compensation

2,200

2,200

Adjusted EBITDA

$

70,000

$

72,000