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Duluth Holdings Inc. Announces First Quarter Fiscal 2019 Financial Results

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MOUNT HOREB, Wis., June 13, 2019 (GLOBE NEWSWIRE) -- Duluth Holdings Inc. (dba, Duluth Trading Company) ("Duluth Trading" or the "Company") (NASDAQ:DLTH), a lifestyle brand of men's and women's casual wear, workwear and accessories, today announced its financial results for the fiscal first quarter ended May 5, 2019.

Highlights for the First Quarter Ended May 5, 2019

  • Net sales increased 14.0% to $114.2 million compared to $100.2 million in the prior-year first quarter
  • Gross margin decreased 250 basis points to 53.3% compared to 55.8% in the prior-year first quarter
  • Operating loss of $9.7 million compared to operating loss of $0.3 million in the prior-year first quarter
  • Net loss of $7.6 million, or $0.23 per diluted share, compared to net loss of $0.7 million, or $0.02 per diluted share, in the prior-year first quarter
  • Adjusted EBITDA1 of $(4.4) million compared to $2.6 million in the prior-year first quarter
  • The Company opened five retail stores in Friendswood, TX; Katy, TX; Wichita, KS; Spokane Valley, WA; and Jacksonville, FL, totaling approximately 78,000 gross square feet
  • 37th consecutive quarter of increased net sales year-over-year
1See Reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA in the accompanying financial tables.


Management Commentary

"We achieved our 37th consecutive quarter of increased net sales year-over-year. Our 14% top-line growth was driven by new stores, ongoing expansion of the women's business, and new product introductions, with direct sales in established omnichannel store markets continuing to outpace that of non-store markets," said Stephanie Pugliese, Chief Executive Officer of Duluth Trading. "From a market perspective, the softer demand trends we experienced at the end of the fourth quarter persisted through May. In response, our entire Duluth team is focused on the areas of improvement that are in our control. They include better product selection with deeper inventory in new styles, driving higher traffic to our stores and website through more targeted spend in marketing, and refining our investments to improve productivity. We are executing on these areas and expect to see improving results in the back half of the year."

Operating Results for the First Quarter Ended May 5, 2019

Net sales increased 14.0% to $114.2 million, compared to $100.2 million in the same period a year ago. The net sales increase was driven by a 42.8% growth in retail net sales, offset by a 0.8% decline in direct net sales, with increases in both the men's and women's businesses. The decrease in direct net sales has continued into the first five weeks of the second quarter. The increase in retail net sales was driven by new stores with 51 stores in the first quarter of 2019 as compared to 33 stores in the same period a year ago, partially offset by existing stores.

Gross profit increased 8.9% to $60.9 million, or 53.3% of net sales, compared to $55.9 million, or 55.8% of net sales, in the corresponding prior-year period. The 250-basis point decrease in gross margin 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 increased 25.6% to $70.6 million, compared to $56.2 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses increased 570 basis points to 61.8%, compared to 56.1% in the corresponding prior-year period. As a percentage of net sales, advertising and marketing costs decreased 50 basis points to 21.1%, compared to 21.6% in the corresponding prior-year period, primarily due to advertising leverage gained from a higher mix of retail sales as a percentage of net sales. As a percentage of net sales, selling expenses increased 50 basis points to 16.6%, compared to 16.1% in the corresponding prior-year period, primarily due to an increase in customer service expense as a result of the 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%, compared to 18.4% in the corresponding prior-year period, primarily due 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.

Balance Sheet and Liquidity

The Company ended the quarter with a cash balance of $1.0 million, net working capital of $63.4 million, and $39.2 million outstanding on its $130.0 million revolving line of credit.

Fiscal 2019 Outlook

The Company reaffirmed its fiscal 2019 outlook as follows:

  • Net sales in the range of $645.0 million to $655.0 million
  • Adjusted EBITDA1 in the range of $60.0 million to $64.0 million
  • EPS in the range of $0.74 to $0.80 per diluted share
  • Capital expenditures of $40.0 million to $45.0 million2
  • 15 new store openings, adding 230,000 to 240,000 of additional gross square footage
1See Reconciliation of forecasted net income to forecasted EBITDA and forecasted EBITDA to forecasted Adjusted EBITDA in the accompanying financial tables.
 
2Fiscal 2019 capital expenditures primarily include the opening of 15 retail stores, investments in technology and infrastructure improvements.


The table below recaps the Company's fiscal 2019 stores opened and signed new store leases and the anticipated opening timeframe.

         
        Gross
Location   Timing   Square Footage
Friendswood, TX   Opened March 7, 2019   16,026
Katy, TX   Opened March 8, 2019   16,000
Wichita, KS   Opened March 21, 2019   15,385
Spokane Valley, WA   Opened April 11, 2019   15,656
Jacksonville, FL   Opened May 2, 2019   14,557
Rogers, AR   Opened May 16, 2019   15,656
Danbury, CT   Opened May 23, 2019   9,792
Madison, AL   Opened June 6, 2019   15,656
Kennesaw, GA   Q2 Fiscal 2019   19,620
Round Rock, TX   Q3 Fiscal 2019   15,536
Sandy, UT   Q3 Fiscal 2019   15,602
Hoover, AL   Q3 Fiscal 2019   15,656
Knoxville, TN   Q4 Fiscal 2019   15,385

Conference Call Information

A conference call and audio webcast with analysts and investors will be held on Thursday, June 13, 2019 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 June 27, 2019: 877-344-7529 (domestic) or 412-317-0088 (international)
  • Replay access code: 10132045
  • 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/10132045 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 rapidly 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 our products are sold exclusively 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 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 months ended May 5, 2019, versus the three months ended April 29, 2018. See also attached Table "Reconciliation of Forecasted Net Income to Forecasted EBITDA and Forecasted EBITDA to Forecasted Adjusted EBITDA," for a reconciliation of forecasted net income to forecasted EBITDA and forecasted EBITDA to forecasted adjusted EBITDA for the fiscal year ending February 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 are forward-looking statements, including statements regarding Duluth Trading's ability to execute on its growth strategies, statements under the heading "Fiscal 2019 Outlook" and the forecasted results of operations in the Table "Reconciliation of Forecasted Net Income to Forecasted EBITDA and Forecasted EBITDA to Forecasted Adjusted EBITDA." 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 April 19, 2019, 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: 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 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)

             
    May 5, 2019   February 3, 2019
             
ASSETS            
Current Assets:            
Cash   $ 992     $ 731  
Accounts receivable     359       28  
Other receivables     8,292       4,611  
Inventory, net     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  
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 line of credit     39,240       16,542  
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        
Deferred rent obligations, less current maturities           5,003  
Deferred tax liabilities     9,420       9,722  
Long-term debt, less current maturities     29,576       29,737  
Total liabilities     268,099       136,649  
Commitments and contingencies            
Shareholders' equity:            
Treasury stock     (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  


DULUTH HOLDING INC.

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 )     8  
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 )


DULUTH HOLDINGS INC.

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  


DULUTH HOLDINGS INC.

Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA
(Unaudited)
(Amounts in thousands)

             
    Three Months Ended
    May 5, 2019   April 29, 2018
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  


DULUTH HOLDINGS INC.

Segment Information
(Unaudited)
(Amounts in thousands)

             
    Three Months Ended
    May 5, 2019   April 29, 2018
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 )


DULUTH HOLDINGS INC.

Net Sales by Business
(Unaudited)
(Amounts in thousands)

             
    Three Months Ended
    May 5, 2019   April 29, 2018
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


DULUTH HOLDINGS INC.

Reconciliation of Forecasted Net Income to Forecasted EBITDA and Forecasted EBITDA to Forecasted Adjusted EBITDA
For the Fiscal Year Ending February 2, 2020
(Unaudited)
(Amounts in thousands)

             
    Low   High
Forecasted            
Net income   $ 24,000   $ 26,000
Depreciation and amortization     20,325     21,400
Interest expense     3,700     3,500
Amortization of build-to-suit leases capital contribution     900     1,200
Income tax expense     8,875     9,600
EBITDA   $ 57,800   $ 61,700
Stock based compensation     2,200     2,300
Adjusted EBITDA   $ 60,000   $ 64,000

 

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