U.S. Markets open in 8 hrs 19 mins

Edited Transcript of DLTH earnings conference call or presentation 6-Dec-18 2:30pm GMT

Q3 2018 Duluth Holdings Inc Earnings Call

Belleville Dec 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Duluth Holdings Inc earnings conference call or presentation Thursday, December 6, 2018 at 2:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David Loretta

Duluth Holdings Inc. - Senior VP & CFO

* Stephanie L. Pugliese

Duluth Holdings Inc. - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Dylan Douglas Carden

William Blair & Company L.L.C., Research Division - Analyst

* James Vincent Duffy

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Jonathan Robert Komp

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Moira Conlon

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome to the Duluth Holdings Third Quarter 2018 Earnings Conference Call. (Operator Instructions) Please also note, today's event is being recorded.

At this time, I'd like to turn the conference call over to Moira Conlon, Investor Relations for Duluth Holdings. Please go ahead.

--------------------------------------------------------------------------------

Moira Conlon, [2]

--------------------------------------------------------------------------------

Thank you, Jamie, and welcome to today's call to discuss Duluth Holdings' Third Quarter 2018 Financial Results. Our earnings release, which we issued this morning, is available on our Investor Relations website at ir.duluthtrading.com under Press Releases.

I am here today with Stephanie Pugliese, Chief Executive Officer; and Dave Loretta, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we will open the call up to your questions.

Before we begin, I would like to remind you that comments on today's call will include forward-looking statements, which can be identified by the use of words such as estimate, anticipate, expect and similar phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Please refer to our SEC filings for additional information.

And with that, I would now like to turn the call over to Stephanie. Stephanie, please go ahead.

--------------------------------------------------------------------------------

Stephanie L. Pugliese, Duluth Holdings Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Moira, and welcome, everyone, to our third quarter 2018 conference call. Throughout the year, we have continued to execute on key initiatives that prepare us for our peak selling season and position us to reach our goal of $1 billion in revenue over the next several years. In a few minutes, I will talk more about how those efforts are fortifying our omnichannel presence and enhancing our customers' experience.

But first, I'm pleased to report that our team delivered a strong third quarter, achieved through our focus on innovative, new and core product; increasing brand awareness through new product marketing; and enhancing the customer experience in all channels.

Net sales increased 27% to $107 million, which marks our 35th consecutive quarter of increased net sales year-over-year. Retail sales for the quarter had a 58% growth rate, largely driven by new stores opened in 2017 and 2018. And we opened 4 new stores this quarter that are now ready for holiday shoppers. Direct sales grew 10.5%. This number includes the 4 percentage point impact of revenue recognition. Absent that adjustment, our direct growth rate grew at 6.5% year-over-year and improved over the first and second quarter growth rate. We are on track to meet an annualized direct growth rate in the mid-single digits. We saw strong results across all categories in our men's and women's division, with men's growing 25% year-over-year and women's growing 35%.

Gross profit margin of 57.1% was 50 basis points over last year, driven primarily by less reliance on promotional activity this quarter. Core year-round product and seasonal category performed very well, and we ended the quarter in a clean inventory position, reflecting ongoing efforts to improve turn while maintaining a 95% or higher fulfillment rate in direct.

While we achieved our goals for the quarter, the team also worked through some challenges. The transition to our new e-commerce platform in August went very well, but there was an expected period of adjustment where we saw a slowdown of direct growth and some increased expenses to monitor and fine-tune the software. We have slower transition than expected when we upgraded our retail replenishment software and implemented new technology in our Belleville distribution center. This caused a temporary slowdown in inventory being replenished to existing stores and a delay in our seasonal update for late fall product.

Lastly, we improved more labor costs in our call center as we continue to refine the order management system while maintaining our customer service standard. All of these challenges were identified and improved throughout the quarter and into November. We expect to get those expenses back in line for the fourth quarter.

And as we enter this all-important peak season, we have increased our ability to reach new customers and serve our existing customers better than ever before. We have successfully completed our store expansion plans for the year with the addition of 7 new stores opened in the second half of the year. We have achieved our stated goal of 15 stores for fiscal 2018, and all are meeting or exceeding our initial expectations. Overall, this year was our most ambitious effort to geographically expand the Duluth Trading store experience to customers across the country. We now have 46 stores in 24 states and 37 markets. And we are coast to coast from Portland, Oregon to Portland, Maine. To this achievement, we owe a great deal to the tireless work of Al Dittrich who built an incredible retail store team from scratch. Now that he has his leadership team in place, we had promoted Al to Chief Operating Officer, overseeing all Duluth operations.

As we've stated before, our omnichannel strategy is at the core of successfully growing our market penetration and can be measured through the combination of retail and direct sales. While our current established store market base is small, we continue to see positive leading indicators that the strategy is working. We bring new high-value customers to the brand, we increased our overall market penetration immediately, and our direct channel continues to grow at more than double the growth rate of non-store markets.

In addition to building our store base and investing in brand awareness through our marketing effort, we've successfully implemented several major initiatives to build a strong and scalable infrastructure and to support our omnichannel model growth. To date, we have improved our e-commerce and mobile experience to further develop our ability to personalize content and improve product visibility. We have deployed buy online, pick up in-store in 7 retail locations. We are seeing a quick adoption rate by customers, and we plan to roll this out to more locations in 2019. In addition, Ship In Store went live in those stated 7 locations, and we will be expanding this initiative to stores with advantageous locations and background capacity. We have upgraded our POS system across all stores, and we now have the ability to issue electronic gift cards in time for the holiday season.

Finally, as I mentioned a moment ago, we have completed the upgrade to our distribution centers to create more efficiencies in direct shipping and retail replenishment. We can't thank our team enough for their tremendous and coordinated effort to have these enhanced capabilities in place for our peak selling season. That said, nothing excites customers like innovative product introduction. This quarter, we launched several new products, including Flexpedition and Agiloft Outerwear. We also introduced our Plus Size line for women through our receptive audience. We are bringing in new customers. Almost 1/4 of women who purchased Plus Sizes are new to the brand. And our repeat rate was strong with 10% of consumers repurchasing since the launch. We plan to grow this line substantially in 2019.

Now I will conclude my remarks with what we see ahead for the holiday season. First, as I've already mentioned, we have a stronger, more capable infrastructure than ever before. We have some new and exciting product launches, including new outerwear and an extended Alaskan Hardgear collection for men. Every year, we're getting smarter about our advertising investments across TV, catalog and digital that we believe will help us stand out from the noisy crowd this holiday season. Our stores are in strong inventory position. With our new systems in place, we are stocking based on sales forecasts, not back selling as in prior years.

We have ramped up our staffing at the distribution centers to avoid bottleneck. And recognizing that customers have been buying closer to Christmas each year, we believe that having a larger network to reach customers, including almost 15 stores, will allow us to capitalize on the latest sales opportunity. We know that we still have a lot to accomplish, and we will be monitoring and reacting to customer demand throughout this quarter. We are reiterating our sales and EPS guidance for the year and look forward to a successful holiday season.

With that, I will turn the call over to Dave to discuss our financials and operations in more detail.

--------------------------------------------------------------------------------

David Loretta, Duluth Holdings Inc. - Senior VP & CFO [4]

--------------------------------------------------------------------------------

Thank you, Stephanie, and good morning. Today, we reported third quarter net sales of $106.7 million, an increase of 27% compared to $83.7 million last year. Net sales growth was driven by both our retail and direct segments, with retail sales increasing 58% to $46.9 million and direct sales increasing 10.5% to $59.8 million. The adoption of the new revenue recognition standard added 3.9 percentage points to the direct growth rate. Within the direct sales, shipping revenues were $1.6 million in the quarter, down 13% from the same period last year.

During the quarter, we opened a total of 4 new stores, adding approximately 79,000 gross square feet to our retail footprint. In November, we opened additional 3 stores. Of the 7 stores we've opened in the second half of 2018, 6 are in new retail market markets for us. Our growth strategy of converting direct-to-customer markets to omnichannel markets with physical stores continues to gain traction. After stores have been opened for a year, we see a higher direct sales growth in customers in that market than markets without stores. And those where we have had a store presence for more than 2 years, direct sales are growing 2 to 3x greater than markets without a store.

Turning back to the financial results. Our third quarter gross profit was $61 million or 57.1% of net sales compared to $47.4 million or 56.6% in net sales last year. Excluding the impact of lower shipping revenues in the quarter, gross profit increased 80 basis points as a result of fewer promotions, more full-priced selling and improved margins in our women's line, which has become a bigger component of our business.

Selling, general and administrative expenses increased 32% to $63.5 million compared to $48 million last year. This included an increase of $4.9 million in advertising and marketing expenses, $4.1 million in selling expenses and $6.2 million in general and administrative expenses. As a percentage of net sales, SG&A expenses increased 210 basis points to 59.5% compared to 57.4% last year. This is comprised of 20 basis points increase in advertising and marketing costs, 70 basis points of higher selling expenses and 120 basis points of higher general and administrative expenses.

Within the advertising and marketing, the 20 basis point increase was primarily due to 3 items. First, higher spend in women's television advertising for an earlier start to the fall and winter season and to support the women's Plus Size launch. Second, a shift of creative marketing expenses from the second quarter to the third quarter. And third, the impact of recognizing certain catalog costs in the third quarter versus the fourth quarter last year due to the revenue recognition adoption.

Within selling expenses, the 70 basis point increase was largely due to the higher retail selling costs from additional stores and also the impact of a temporary decline in productivity at our distribution and call centers while adopting the new system. As a partial offset to this, we continue to realize leverage in shipping expenses as retail sales increase proportionally.

Within general and administrative expenses, 120 basis point increase was due to the additional staff, consulting and depreciation costs related to the new order management and e-commerce platforms. In addition, higher retail fixed costs from our larger store base contributed to the increase in G&A expenses. Included in SG&A were new store preopening expenses of $2.2 million compared to $2.7 million last year. For the quarter, we reported a net loss of $3.2 million or $0.10 per diluted share compared to a net loss of $800,000 or $0.03 per diluted share last year. We ended the second quarter with a cash balance of $2.5 million, net working capital of $85 million and $65 million outstanding on our revolving line of credit.

In terms of working capital, we made significant improvements in managing inventory. While sales increased 27% in the third quarter, inventory was only up 1.5% compared to last year. These improvements reflect the enhanced flexibility we built into our supply chain through vendor relationships. Additionally, our outlet inventories have improved by focusing on selling clearance products through the web and throughout the stores rather than just with the outlet stores. We feel good about our inventory position as we head into the holiday season in terms of both quantities and location. Also, we expect to benefit -- realize benefits ongoing from our inventory planning systems that will lead to higher turns and positive free cash flow. We are reaffirming our 2018 outlook for net sales of $555 million to $575 million, with the retail segment accounting for up to 40% of total net sales, consistent with our plans. We opened 15 stores this year and expect our direct segment to grow in the mid-single digits.

Our full year guidance also assumes the following: a gross margin rate flat-to-down 20 basis points with last year; a 50 to 80 basis point increase in SG&A expenses as a percentage of net sales, reflecting the increased selling and overhead expenses related to our retail expansion and investments in technology, infrastructure and people, which will be partially offset by leverage in advertising; and new store preopening expenses of $6.5 million to $7 million compared to $7.5 million in 2017.

We expect 2018 earnings per diluted shares to be between $0.79 and $0.84. This assumes a full year diluted share counts of 32.4 million shares and a tax rate of 26%. We now expect adjusted EBITDA to be between $53 million and $56 million, primarily due to higher depreciation and interest expense related to the stores and the treatment of our new corporate office building as a capitalized lease. These increases were offset by anticipated savings in marketing and overhead expenses.

In closing, we are excited about the progress we've made in the first 9 months of the year. We have a strong foundation in place for the holiday selling season and are on track to meet our full year financial guidance.

With that, I'll open the call to questions. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question today comes from Jonathan Komp from Baird.

--------------------------------------------------------------------------------

Jonathan Robert Komp, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [2]

--------------------------------------------------------------------------------

Maybe just a couple of questions on the direct business to start. Just first on the accounting change, could you just give a little more detail on what that is and any future impacts that we should think about?

--------------------------------------------------------------------------------

David Loretta, Duluth Holdings Inc. - Senior VP & CFO [3]

--------------------------------------------------------------------------------

Sure, Jon. The impact relates to the timing of our shipped orders with our recognition of a shipped order being booked as a sale at the time that we shipped the order out the doors. Where in the past, it was based on our estimation as to when customers would actually receive the order in their hands. And under the new revenue recognition standard, there's the ability for us to determine where the transition and control of that order is. And so the impact of this means, in the past, we would defer ship sales at the end of the period into that next fiscal quarter, whereas now, we recognize those shipped sales within the quarter that we actually ship the package out the door. So because this quarter, if you think about at the end of October, our sales are at really their peak period relative to the end of any other quarter, it had bigger impacts within the third quarter. And then the other adjustment is the same effect at the front end of the quarter. At a full year basis, the impact relates to just about 2 percentage points in terms of year-to-date direct sales growth. And for the full year, we expect it to have a nominal increase at the back end of the fourth quarter because at the end of January, sales were simply at a lower level compared to the end of the third quarter. So won't be nearly the same level of impacts that we have this period.

--------------------------------------------------------------------------------

Jonathan Robert Komp, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [4]

--------------------------------------------------------------------------------

Okay. And then a broader question on the direct business, the underlying growth rate accelerated a little bit in the quarter and it sounded like there is some volatility [back] in the systems within the quarter. So maybe if you could share a little more color on kind of your confidence and their trajectory. And then, obviously, for the fourth quarter, I think we can apply something up roughly mid-single digits for that segment. So any color you had on drivers into the fourth quarter and how things are shaping up would be helpful.

--------------------------------------------------------------------------------

Stephanie L. Pugliese, Duluth Holdings Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Sure. So in terms of third quarter and what happened in direct, we saw -- I'll start with the system. We saw a slowdown in direct in the first several weeks of August. And that was an expected slowdown, Jon, in a couple of things. Number one, we expected that we would need, as we transition to the ECP, some time to refine some of the pathways for the customers to refine some of the inbound links to make sure that everything was optimized. The other thing that happened in August as it relates to the transition to the ECP was that we purposefully pulled back on some of our digital marketing, some of our heavier promotional activity via e-mail because we wanted to make sure that the system was working very smoothly for our customers before we built up large traffic volume position, if you will, in terms of advertising or promotion. So that was part of the direct growth profit in third quarter where as we got deeper into the quarter, though, we actually had a strong beginning to October. So we have this planned lull in August. September was okay. Quite frankly, it was more of a transitional time for us. Beginning of October was very good for us. And so we felt -- we feel like the direct business overall was where we expected for the third quarter. As we entered into fourth quarter, we had a very strong holiday weekend, the Black Friday through Cyber Monday. Obviously, as I mentioned in my notes, we also see that customers are shopping later and later as it comes into the Christmas time period. We are shipping 3 days longer or later into the Christmas time period this year than we did last year so we're anticipating that. And we're watching the business and reacting every single day. As with any fourth quarter, it's highly competitive. There are different kind of shopping patterns as people are, and we have an extra week in between Thanksgiving and Christmas and people are shopping later, et cetera. And so we're watching the fourth quarter business as we always do very, very closely. One other thing that I just want to add, when we talk about our systems and very specifically, I feel very, very good about the systems that we put in place. We have had minimal customer disruption with any of our systems. We have had improvement in speed, for example, in our desktop through our mobile sites. It has cost us a little bit more money than we expected to in fine-tuning and refining some of the systems. Some of the costs incurred, for example, were that our customer care representative, the screens that they're looking at are taking a little bit longer to load than we expected. And rather than try to rush our customer care through a transaction with our customers, we're allowing them to take the time needed to service our customers well but it has -- it did cost us extra money in the quarter, and that was part of the additional expenses that I mentioned in my prepared remarks.

--------------------------------------------------------------------------------

Jonathan Robert Komp, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [6]

--------------------------------------------------------------------------------

That's very helpful. And if I could maybe just the last one, following up a bit, Stephanie. In terms of the omnichannel capabilities you're beginning to roll out to some of those systems, I'd be curious just as you look at some of the initial earnings, maybe what you think could be most incremental, especially the next year as you expand the reach of some of those?

--------------------------------------------------------------------------------

Stephanie L. Pugliese, Duluth Holdings Inc. - President, CEO & Director [7]

--------------------------------------------------------------------------------

Yes. We're particularly excited about the buy online, pick up in store functionality that we have in the 7 stores right now. We do plan to continue to roll that out through first quarter and then throughout the year. The -- that kind of goes hand-in-hand with the ship from store initiative that we have because when we set up a back room for one, it's already set up to be able to handle the other initiatives that we have. So we'll continue to roll both of those out through the stores as we go through 2019. Another thing that I mentioned that I'm actually quite excited for, and I think we're going to learn a lot over the next several weeks, is with all of the new systems that we've put in place, and I mentioned this in my comments earlier, we have the ability now to issue e-gift cards, which is something that we weren't able to do with our old system. We've already seen a nice pickup on that from our customers, and that's growing every single week. I think it will be very interesting and positive for us to see what happens in those last few days, in particular, before Christmas when customers are looking for that last-minute gift. And one of the functionalities that we have seen or that we have added to that is an ability to deliver that e-mail e-gift card to a customer at a future date in time. So it will give our customers a lot of flexibility around gift-giving.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Our next question comes from Dylan Carden from William Blair.

--------------------------------------------------------------------------------

Dylan Douglas Carden, William Blair & Company L.L.C., Research Division - Analyst [9]

--------------------------------------------------------------------------------

Curious on the retail side. By my measure, it looks like sort of store productivity sales per store, sales per square foot was down, call it, sort of mid-single digits. But in the prepared remarks, if I heard you right, there was maybe some disruption from the new systems as far as sort of store inventory delivery. I guess, can you kind of speak to that and whether or not that might have influenced that metric? And then more broadly on inventory management, you're doing a nice job here kind of controlling that. Can you just expand upon some of the tools you're using that allow you to do that?

--------------------------------------------------------------------------------

Stephanie L. Pugliese, Duluth Holdings Inc. - President, CEO & Director [10]

--------------------------------------------------------------------------------

Sure. I'll -- let me talk first about the inventory system that we've implemented because that flows through to what happened in the quarter and some of the remarks we've made and to answer your question, Dylan, about what happened in the stores, too, over third quarter. So we have, most recently, implemented Phase 1 of our inventory and assortment planning system, which for this particular time frame allows us to pre-inventory stores. In other words, in the past, we would replenish stores based on what they sold the week prior. So we could be 1 to 2 weeks behind in having the inventory there and available for our customers. Today, with the system that we've put in place, we have the ability to replenish stores based on a sales forecast. So we are looking forward 2 to 4 weeks, anticipating the needs for the stores and inventorying them in advance of those weeks. We think that's going to be a really big win for us long term. The next phase of that system, as an example, will give us additional abilities to localize assortments for our stores which, obviously, as we continue to expand our geographic footprint is going to be very important. So this is a system that we're really happy that we've taken a step forward and having for our stores and for our inventory team. The -- what happened in third quarter was that we had a time frame where we were transitioning our distribution center, specifically Belleville, because that's the distribution center that we replenished all of our stores from. We're transitioning that distribution center with a more automated pick-pack conveyor system. That automation went very well for us. The return to high-yield productivity was slower than we expected. So the transition to get the team up and running on that new process, that new system, is a little slower than we expected. We have incurred some additional costs on that. We also, because of that slowdown, missed our original plan for the fall, the late fall transition of goods, things like lined pants, base layers, heavier-weight flannel by about a week to 10 days in the stores. We know that, that cost us some level of demand. We don't have a really accurate and good way of quantifying that but we know, particularly as it got later into October, that -- and the weather turns, that we had some missed demand on that. And then the last thing that I would just mention is as we started then implementing the system to look forward, we obviously created a large flow of inventory into the stores, which, again, was a little bit of a bubble of lower productivity, cost us a little bit more money. I'm really very happy though to report that as of early to mid-November, stores were through that kind of overflow of inventory, if you will. They were in great stock position as we enter the Thanksgiving weekend. And they've been in much, much better stock position than they were last year certainly. The inventory overall that's up 1.5% is really a result of our teams working very hard to work with our vendors to flow our inventory better, to rightsize some of longest weeks of supply program. And as we've reached larger and larger scale with some of our core programs, for example, that allows us to flow the inventory more frequently, stay in fulfillment position for our customers and in future.

--------------------------------------------------------------------------------

Dylan Douglas Carden, William Blair & Company L.L.C., Research Division - Analyst [11]

--------------------------------------------------------------------------------

Excellent. And then last one here, just maybe a little bit more gross margin pressure now than expected modestly albeit, any comments on that, Dave, as per the new guidance?

--------------------------------------------------------------------------------

David Loretta, Duluth Holdings Inc. - Senior VP & CFO [12]

--------------------------------------------------------------------------------

Yes. Slightly more pressure that we're anticipating in the fourth quarter. Not that we've set plans to become more promotional, but that is one of the elements that becomes a bit out of our control as we get through the competitive pricing period. So in the interest of being cautious, wanted to provide an outlook on that note, but do see that we've offset it with SG&A and largely in the marketing side.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

And our next question comes from Jim Duffy from Stifel.

--------------------------------------------------------------------------------

James Vincent Duffy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [14]

--------------------------------------------------------------------------------

Couple of questions for me. I understand some of the complications relate to the systems implementation and inventory flow. I'm curious with the new web platform, have you seen any quantifiable benefits to traffic conversion? Any metrics you can share on benefits you've seen from the new web platform development implementation?

--------------------------------------------------------------------------------

Stephanie L. Pugliese, Duluth Holdings Inc. - President, CEO & Director [15]

--------------------------------------------------------------------------------

Yes. On the immediate front, Jim, we saw a significant improvement, anywhere from 30% to 40% increase in site speed, particularly on our mobile site. And we know that that's kind of one of the first entry points to creating a good customer experience, allowing people to get through their shopping process faster and ultimately convert at a higher rate. We have also seen significant traffic increases year-over-year. We were more than 20% up -- we're 25% up actually in traffic to the website in third quarter, which is a really nice increase. We have not yet gained significant increases in conversion overall. Some of that, though, has to do with the fact that our traffic has increased so significantly and we know that some of that traffic is processing traffic in these potential customers. So that's a longer-term proposition as they continue to come back to us and get more comfortable with the brand. The other piece of conversion is that as with almost every retailer out there right now, our mobile traffic has increased at a faster rate than desktop and tablet, and that traffic does convert at a lower rate. So our mix is continuing to evolve as well. We have seen, over the past couple of months, improvement in conversion but we know that that's a longer-term proposition, and we'll continue to work on that and fine-tuning and improving on that as well. Some of that will also be informed by our marketing studies that we've shared that we're working on in prior calls.

--------------------------------------------------------------------------------

David Loretta, Duluth Holdings Inc. - Senior VP & CFO [16]

--------------------------------------------------------------------------------

Yes. Jim, I guess, I'd also add that one of the core elements of being on the new platform is simply having a stability where peak volumes really come into play and I know we probably ran it in a couple other cases in some website that had troubles with where some of the volumes are. Black Friday, Cyber Monday weekend volumes were significantly higher to us last year, and we didn't realize or see any impacts to the customer in that regard. So we're pleased with that as an initial outcome.

--------------------------------------------------------------------------------

James Vincent Duffy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [17]

--------------------------------------------------------------------------------

Great. And I recognized it's early and only in 7 stores, but is there any statistics you can share on the uptake of buy online, pick up in-store? And any impact you're seeing there on retail productivity?

--------------------------------------------------------------------------------

Stephanie L. Pugliese, Duluth Holdings Inc. - President, CEO & Director [18]

--------------------------------------------------------------------------------

We have -- what we've seen so far, and you're right Jim, that it's quite early. But we have seen an increased number of the buy online, pick up in-store orders every single week to the stores. Right now, we are seeing a little over 100 buy online, pick up in-store orders per store per week which is, as I said, ramping up. We feel really good about that from the standpoint not only of bringing traffic into the store, but also we know from past initiatives with ship to store that about 1/4 of those customers come in and purchase something else while they're there and they tend to double their initial order in terms of the value that quarter of the people that are buying. So we expect that [both this] as we continue to roll that out will be not only a traffic driver but an incremental revenue driver for the customers coming in. The other thing that we've seen is, and we were out and about to 6 of our stores just last week and talking to them about the buy online pick up store -- in-store initiative. One of the things that we found is that customers are using that function as a trip assurance, so they want to make sure that what they're -- what they want is in the store and they're willing to purchase it upfront to have it ready for them. So as we continue to roll out and give visibility -- more visibility, I should say, to in-store inventory by location, we think that's going to be a big win for us. So that's 2019 for us.

--------------------------------------------------------------------------------

James Vincent Duffy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [19]

--------------------------------------------------------------------------------

Got it. And then on the inventory, clearly very tight. Is it where you guys want it to be? Or are there some areas of the assortment where you're lighter than you would like to be to capture anticipated demand?

--------------------------------------------------------------------------------

Stephanie L. Pugliese, Duluth Holdings Inc. - President, CEO & Director [20]

--------------------------------------------------------------------------------

I would say, overall, it's where we wanted to be. The one place that we are a little bit light on inventory, quite frankly, is in some of our older leather goods, lined pants, base layers. And that's not necessarily a function of tightening up the inventory as much as it is. We've had several really warm falls and winters the past couple of years. Now we've gotten some nice cold weather, and the customer demand is a little bit higher than we anticipated, but that's the one place.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the conference call back over to Stephanie Pugliese for any closing remarks.

--------------------------------------------------------------------------------

Stephanie L. Pugliese, Duluth Holdings Inc. - President, CEO & Director [22]

--------------------------------------------------------------------------------

Thank you all for participating in today's conference call. On behalf of all of us at Duluth, we wish you and your families a wonderful and safe holiday season, and we'll see you in a few months.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

Ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.