Duluth Holdings Earnings Call: Mixed Outlook Amid Strategic Moves

Duluth Holdings Inc. ((DLTH)) has held its Q1 earnings call. Read on for the main highlights of the call.

Duluth Holdings Inc. recently held its earnings call, revealing a mixed sentiment among its stakeholders. While the company has embarked on strategic initiatives such as cost reductions and improved lending terms, these positives were overshadowed by significant declines in net sales and gross profit margin, along with increased inventory levels. Despite efforts to address these challenges, Duluth Holdings’ current financial performance remains under pressure.

Successful Transition to Asset-Based Lending

Duluth Holdings Inc. has successfully transitioned its line of credit to an asset-based lending agreement, which extends to 2030 with a $100 million limit. This move has resulted in improved borrowing rates and increased flexibility, providing the company with a more robust financial framework to support its operations and growth initiatives.

Cost Reduction Initiative

In an effort to streamline operations, Duluth has implemented an expense savings initiative expected to yield annualized savings of approximately $15 million. The company anticipates realizing $10 million of these cost benefits within the current fiscal year, which is a significant step towards improving its financial health.

Mobile Sales Growth

Duluth Holdings has reported a positive trend in mobile sales, with penetration increasing by 200 basis points. The upward trend in mobile conversion is a promising sign of the company’s ability to adapt to changing consumer behaviors and leverage digital channels for growth.

Store Portfolio Optimization

The company is actively optimizing its store portfolio by closing one low-performing store, renewing leases on stores that meet higher hurdle rates, and planning to open two new stores in the second half of the year. This strategy aims to enhance the profitability and efficiency of its retail operations.

Decline in Net Sales

Duluth Holdings reported a 12% decline in net sales for the first quarter of 2025, amounting to $102.7 million. This decline highlights the challenges the company faces in maintaining its sales momentum amid a competitive retail environment.

Reported EPS Loss

The company experienced a reported EPS loss of $0.45 for the quarter, with an adjusted EPS loss of $0.32. These figures reflect the financial pressures Duluth Holdings is currently navigating.

Increased Inventory Levels

Inventory levels saw a significant increase of $39.7 million or 29% compared to the previous year. This rise was driven by core year-round products and shifts in wholesale inventory, presenting a challenge in inventory management.

Gross Profit Margin Decline

The gross profit margin rate declined by 80 basis points due to greater clearance penetration and deeper discounting during February’s Big Dam clearance event. This decline underscores the impact of promotional activities on profitability.

Forward-Looking Guidance

Despite the challenges faced in the first quarter of fiscal year 2025, Duluth Holdings has maintained its fiscal year guidance with an adjusted EBITDA range of $20 million to $25 million. The company plans to focus on reducing SKUs, managing tariffs with targeted price increases, and revitalizing its store portfolio. Additionally, the transition to an asset-based lending agreement is expected to provide financial flexibility and support future growth.

In conclusion, Duluth Holdings Inc.’s earnings call presented a mixed outlook, with strategic initiatives offering some optimism amid financial challenges. The company is taking steps to address declines in net sales and gross profit margin, while also focusing on cost reductions and mobile sales growth. As Duluth Holdings navigates these hurdles, its forward-looking guidance suggests a commitment to stabilizing and improving its financial performance.