Duluth Holdings Inc. Announces Fourth Quarter and Fiscal 2018 Financial Results
MOUNT HOREB, Wis., April 04, 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 fourth quarter and fiscal year ended February 3, 2019 and its financial guidance for fiscal year 2019.
Highlights for the Fourth Quarter Ended February 3, 2019 (14 weeks compared to 13 weeks last year)
- Net sales increased 15.0% to $250.5 million compared to $217.8 million in the prior-year fourth quarter, includes $7.7 million of net sales from 53rd week
- Gross margin decreased 90 basis points to 52.4% compared to 53.3% in the prior-year fourth quarter
- Operating income increased 2.6% to $30.3 million, or 12.1% of net sales, compared to $29.5 million, or 13.6% of net sales in the prior-year fourth quarter
- Net income was $20.8 million, or $0.64 per diluted share, compared to $19.5 million, or $0.60 per diluted share in the prior-year fourth quarter
- Adjusted EBITDA1 increased 8.8% to $35.3 million compared to $32.4 million in the prior-year fourth quarter
- The Company opened three new retail stores in Oklahoma City, OK; South Portland, ME and Cary, NC, totaling approximately 40,000 gross square feet
- 36th 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.
Highlights for the Fiscal Year Ended February 3, 2019 (53 weeks compared to 52 weeks last year)
- Net sales increased 20.5% to $568.1 million compared to $471.4 million in the prior year, includes $7.7 million of net sales from 53rd week
- Gross margin decreased 80 bps to 54.6% compared to 55.4% in the prior year
- Operating income increased 0.8% to $37.4 million, or 6.6% of net sales, compared to $37.1 million, or 7.9% of net sales in the prior year
- Net income was $23.3 million, or $0.72 per diluted share, compared to $23.4 million, or $0.72 per diluted share in the prior year
- Adjusted EBITDA1 increased 12.1% to $52.0 million compared to $46.4 million in the prior year
- The Company opened 15 retail stores, totaling approximately 250,000 gross square feet, and ended the year with a total of 46 stores
1See Reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA in the accompanying financial tables.
Management Commentary
“We began 2018 with several objectives including revenue growth and implementation of key infrastructure improvements that will support continued expansion of the Duluth Trading brand. While we achieved solid growth in 2018 and marked our 36th consecutive quarter of increased net sales year-over-year, we faced some challenges in the fourth quarter that pressured our full year results,” said Stephanie Pugliese, Chief Executive Officer of Duluth Trading.
“I am pleased to report that our team executed well and we finished 2018 with a number of accomplishments, including:
- An increase of nearly $100 million in total revenue;
- A 50% expansion of our store base, with 15 new locations;
- Continued double digit growth in our active customer base;
- Market share growth in both new and established store markets;
- Successful implementation of large-scale infrastructure improvements including a new order management system and an ecommerce platform, as well as an upgrade to our distribution center in Belleville, Wisconsin; and
- The launch of customer-facing omni programs such as Buy-Online-Pickup-In-Store and e-gift cards.
Looking ahead to 2019, we will continue to expand and refine our omnichannel model with the addition of 15 stores and more holistic efforts to engage customers across channels. We will optimize the investments that we made this year by refining processes at our distribution center, the functionality of the order management systems and ecommerce platform, and our inventory planning system to improve productivity and results. We will also continue to build our women’s business, Alaskan Hardgear and men’s base layers, which are significant and proven drivers of growth.”
Operating Results for the Fourth Quarter Ended February 3, 2019 (14 weeks compared to 13 weeks last year)
Net sales increased 15.0% to $250.5 million, compared to $217.8 million in the same period a year ago. The increase was driven by a 5.4% growth in direct net sales and a 38.9% growth in retail net sales, with growth in virtually all product categories and in both men’s and women’s business. The inclusion of the 53rd week in fiscal 2018 resulted in an additional $7.7 million of net sales. The increase in retail net sales was attributable to the opening of 15 new retail stores during fiscal 2018.
Gross profit increased 13.1% to $131.3 million, or 52.4% of net sales, compared to $116.0 million, or 53.3% of net sales, in the corresponding prior-year period. The 90 basis point decrease in gross margin was primarily due to the continued decline in shipping revenues and an increase in freight cost related to transporting inventory to our retail stores due to geographic expansion.
Selling, general and administrative expenses increased 16.7% to $100.9 million, compared to $86.5 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses increased 60 basis points to 40.3%, compared to 39.7% in the corresponding prior-year period. As a percentage of net sales, advertising and marketing costs decreased 200 basis points to 14.4% compared to 16.4% in the corresponding prior-year period, primarily due to a planned decrease in catalog spend coupled with a shift in catalog delivery in-home dates from late January into February 2019 and advertising leverage gained from a higher mix of retail net sales. As a percentage of net sales, selling expenses increased 190 basis points to 16.0%, compared to 14.1% in the corresponding prior-year period, primarily due to an increase in customer service expense related to retail store growth, and an increase in shipping expense and distribution labor. As a percentage of net sales, general and administrative expenses increased 70 basis points to 9.9% compared to 9.2% in the corresponding prior-year period, primarily due to an increase in depreciation as a result of more stores and investments in technology and infrastructure.
Balance Sheet and Liquidity
The Company ended the quarter with a cash balance of approximately $0.7 million, with net working capital of $64.7 million, and $16.5 million outstanding on its $130.0 million line of credit.
Fiscal 2019 Outlook
- 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, net of proceeds from finance lease obligations, 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 Company’s plan to open 15 retail stores, investments in technology and infrastructure improvements.
The table below recaps the Company’s fiscal 2018 stores and signed new store leases for fiscal 2019 along with the opening timeframe.
| FISCAL 2018 STORES | FISCAL 2019 STORES as of April 4, 2019 | |||||||
| Gross | Gross | |||||||
| Location | Square Footage | Location | Timing | Square Footage | ||||
| Anchorage, AK | 25,409 | Friendswood, TX | Opened March 7, 2019 | 16,026 | ||||
| West Fargo, ND | 14,557 | Katy, TX | Opened March 8, 2019 | 16,000 | ||||
| Colorado Springs, CO | 12,410 | Wichita, KS | Opened March 21, 2019 | 15,385 | ||||
| Lubbock, TX | 15,536 | Spokane Valley, WA | Q1 Fiscal 2019 | 15,656 | ||||
| Denton, TX | 14,557 | Jacksonville, FL | Q1 Fiscal 2019 | 14,557 | ||||
| Portland, OR | 19,075 | Rogers, AR | Q2 Fiscal 2019 | 15,656 | ||||
| Columbus, OH | 14,749 | Danbury, CT | Q2 Fiscal 2019 | 9,792 | ||||
| Arlington, TX | 15,536 | Madison, AL | Q2 Fiscal 2019 | 15,656 | ||||
| Golden, CO | 20,415 | Kennesaw, GA | Q2 Fiscal 2019 | 19,685 | ||||
| Ramsey, NJ | 13,300 | Round Rock, TX | Q3 Fiscal 2019 | 15,536 | ||||
| Canton, OH | 14,557 | Sandy, UT | Q3 Fiscal 2019 | 15,602 | ||||
| Greensboro, NC | 30,508 | Hoover, AL | Q3 Fiscal 2019 | 15,656 | ||||
| Oklahoma City, OK | 15,536 | |||||||
| South Portland, ME | 12,964 | |||||||
| Cary, NC | 11,164 | |||||||
Conference Call Information
A conference call and audio webcast with analysts and investors will be held on Thursday, April 4, 2019 at 4:30 pm 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 April 18, 2019: 877-344-7529 (domestic) or 412-317-0088 (international)
- Replay access code: 10129478
- 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/10129478 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 and fiscal year ended February 3, 2019, versus the three months and fiscal year ended January 28, 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 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 March 21, 2018, and other factors as may be periodically described in Duluth Trading’s subsequent filings with the SEC. 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) 622-8224Michael Wilson (310) 622-8240Financial Profiles, Inc.[email protected]
(Tables Follow)
DULUTH HOLDINGS INC.Condensed Consolidated Balance Sheets(Unaudited) (Amounts in thousands)
| February 3, 2019 | January 28, 2018 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 731 | $ | 2,865 | ||||
| Accounts receivable | 28 | 52 | ||||||
| Other receivables | 4,611 | 273 | ||||||
| Inventory, net | 97,176 | 89,548 | ||||||
| Prepaid expenses & other current assets | 12,640 | 7,642 | ||||||
| Prepaid catalog costs | 2,503 | 1,446 | ||||||
| Total current assets | 117,689 | 101,826 | ||||||
| Property and equipment, net | 167,109 | 109,705 | ||||||
| Restricted cash | 2,354 | 4,218 | ||||||
| Available-for-sale security | — | 6,323 | ||||||
| Goodwill | 402 | 402 | ||||||
| Other assets, net | 2,401 | 628 | ||||||
| Total assets | $ | 289,955 | $ | 223,102 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | 24,854 | $ | 17,320 | ||||
| Accrued expenses and other current liabilities | 26,330 | 25,261 | ||||||
| Income taxes payable | 218 | 7,631 | ||||||
| Current maturities of long-term debt | 1,620 | 84 | ||||||
| Total current liabilities | 53,022 | 50,296 | ||||||
| Finance lease obligations under build-to-suit leases | 23,034 | 26,578 | ||||||
| Long-term debt, less current maturities | 22,322 | 1,424 | ||||||
| Long-term line of credit | 16,542 | — | ||||||
| Deferred tax liabilities | 9,775 | 2,100 | ||||||
| Deferred rent obligations, less current maturities | 5,003 | 3,355 | ||||||
| Total liabilities | 129,698 | 83,753 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders' equity: | ||||||||
| Treasury stock | (92 | ) | (57 | ) | ||||
| Capital stock | 89,849 | 88,043 | ||||||
| Retained earnings | 70,739 | 48,084 | ||||||
| Total shareholders' equity of Duluth Holdings Inc. | 160,496 | 136,070 | ||||||
| Noncontrolling interest | (239 | ) | 3,279 | |||||
| Total shareholders' equity | 160,257 | 139,349 | ||||||
| Total liabilities and shareholders' equity | $ | 289,955 | $ | 223,102 | ||||
DULUTH HOLDING INC.Consolidated Statements of Operations(Unaudited)(Amounts in thousands, except per share figures)
| Three Months Ended | Fiscal Year Ended | ||||||||||||
| February 3, 2019 | January 28, 2018 | February 3, 2019 | January 28, 2018 | ||||||||||
| Net sales | $ | 250,541 | $ | 217,805 | $ | 568,102 | $ | 471,447 | |||||
| Cost of goods sold (excluding depreciation and amortization) | 119,290 | 101,779 | 257,700 | 210,428 | |||||||||
| Gross profit | 131,251 | 116,026 | 310,402 | 261,019 | |||||||||
| Selling, general and administrative expenses | 100,946 | 86,480 | 273,021 | 223,947 | |||||||||
| Operating income | 30,305 | 29,546 | 37,381 | 37,072 | |||||||||
| Interest expense | 2,311 | 789 | 5,949 | 1,988 | |||||||||
| Other income, net | 215 | 246 | 383 | 421 | |||||||||
| Income before income taxes | 28,209 | 29,003 | 31,815 | 35,505 | |||||||||
| Income tax expense | 7,590 | 9,398 | 8,503 | 11,878 | |||||||||
| Net income | 20,619 | 19,605 | 23,312 | 23,627 | |||||||||
| Less: Net (loss) income attributable to noncontrolling interest | (148 | ) | 77 | 9 | 276 | ||||||||
| Net income attributable to controlling interest | $ | 20,767 | $ | 19,528 | $ | 23,303 | $ | 23,351 | |||||
| Basic earnings per share (Class A and Class B): | |||||||||||||
| Weighted average shares of common stock outstanding | 32,130 | 31,901 | 32,086 | 31,853 | |||||||||
| Net income per share attributable to controlling interest | $ | 0.65 | $ | 0.61 | $ | 0.73 | $ | 0.73 | |||||
| Diluted earnings per share (Class A and Class B): | |||||||||||||
| Weighted average shares and equivalents outstanding | 32,344 | 32,311 | 32,317 | 32,285 | |||||||||
| Net income per share attributable to controlling interest | $ | 0.64 | $ | 0.60 | $ | 0.72 | $ | 0.72 | |||||
DULUTH HOLDINGS INC.Consolidated Statements of Cash Flows(Unaudited)(Amounts in thousands)
| Fiscal Year Ended | ||||||||
| February 3, 2019 | January 28, 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 23,312 | $ | 23,627 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 12,594 | 7,330 | ||||||
| Stock-based compensation | 1,668 | 1,597 | ||||||
| Deferred income taxes | 8,052 | 533 | ||||||
| Loss on disposal of property and equipment | 162 | 2 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 9 | (7 | ) | |||||
| Other receivables | (4,338 | ) | 76 | |||||
| Inventory | (10,504 | ) | (17,553 | ) | ||||
| Prepaid expense & other current assets | (5,618 | ) | (2,320 | ) | ||||
| Prepaid catalog costs | (3,261 | ) | 419 | |||||
| Trade accounts payable | 9,773 | 6,363 | ||||||
| Income taxes payable | (7,562 | ) | 2,406 | |||||
| Accrued expenses and deferred rent obligations | 6,808 | 7,395 | ||||||
| Net cash provided by operating activities | 31,095 | 29,868 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (53,036 | ) | (46,464 | ) | ||||
| Purchase of available-for-sale security | — | (6,323 | ) | |||||
| Principal receipts from available-for-sale security | 28 | — | ||||||
| Change in other assets | (438 | ) | (235 | ) | ||||
| Consolidation of TRI Holdings, LLC | 217 | — | ||||||
| Deconsolidation of Schlecht Retail Ventures LLC | (506 | ) | — | |||||
| Net cash used in investing activities | (53,735 | ) | (53,022 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from line of credit | 130,086 | 88,898 | ||||||
| Payments on line of credit | (113,544 | ) | (88,898 | ) | ||||
| Proceeds from long term debt | — | 800 | ||||||
| Payments on long term debt | (416 | ) | (54 | ) | ||||
| Distributions to holders of noncontrolling interest in variable interest entities | — | (400 | ) | |||||
| Proceeds from finance lease obligations | 2,281 | 3,949 | ||||||
| Payments on finance lease obligations under build-to-suit leases | — | (321 | ) | |||||
| Shares withheld for tax payments on vested restricted stock | (35 | ) | (57 | ) | ||||
| Capital contributions to variable interest entities | — | 794 | ||||||
| Other | 270 | 49 | ||||||
| Net cash provided by financing activities | 18,642 | 4,760 | ||||||
| Decrease in cash and restricted cash | (3,998 | ) | (18,394 | ) | ||||
| Cash and restricted cash at beginning of period | 7,083 | 25,477 | ||||||
| Cash and restricted cash at end of period | $ | 3,085 | $ | 7,083 | ||||
DULUTH HOLDINGS INC.Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA(Unaudited)(Amounts in thousands)
| Three Months Ended | Fiscal Year Ended | ||||||||||||
| February 3, 2019 | January 28, 2018 | February 3, 2019 | January 28, 2018 | ||||||||||
| Net income | $ | 20,619 | $ | 19,605 | $ | 23,312 | $ | 23,627 | |||||
| Depreciation and amortization | 4,407 | 2,226 | 12,594 | 7,330 | |||||||||
| Interest expense | 2,311 | 789 | 5,949 | 1,988 | |||||||||
| Income tax expense | 7,590 | 9,398 | 8,503 | 11,878 | |||||||||
| EBITDA | $ | 34,927 | $ | 32,018 | $ | 50,358 | $ | 44,823 | |||||
| Stock based compensation | 363 | 411 | 1,668 | 1,597 | |||||||||
| Adjusted EBITDA | $ | 35,290 | $ | 32,429 | $ | 52,026 | $ | 46,420 | |||||
DULUTH HOLDINGS INC.Segment Information(Unaudited)(Amounts in thousands)
| Three Months Ended | Fiscal Year Ended | ||||||||||||
| February 3, 2019 | January 28, 2018 | February 3, 2019 | January 28, 2018 | ||||||||||
| Net sales | |||||||||||||
| Direct | $ | 163,766 | $ | 155,352 | $ | 350,638 | $ | 330,940 | |||||
| Retail | 86,775 | 62,453 | 217,464 | 140,507 | |||||||||
| Total net sales | $ | 250,541 | $ | 217,805 | $ | 568,102 | $ | 471,447 | |||||
| Operating income (loss) | |||||||||||||
| Direct | $ | 9,181 | $ | 13,017 | $ | (181 | ) | $ | 13,247 | ||||
| Retail | 21,124 | 16,529 | 37,562 | 23,825 | |||||||||
| Total operating income | 30,305 | 29,546 | 37,381 | 37,072 | |||||||||
| Interest expense | 2,311 | 789 | 5,949 | 1,988 | |||||||||
| Other income, net | 215 | 246 | 383 | 421 | |||||||||
| Income before income taxes | $ | 28,209 | $ | 29,003 | $ | 31,815 | $ | 35,505 | |||||
DULUTH HOLDINGS INC.Net Sales by Business(Unaudited)(Amounts in thousands)
| Three Months Ended | Fiscal Year Ended | ||||||||||||
| February 3, 2019 | January 28, 2018 | February 3, 2019 | January 28, 2018 | ||||||||||
| Net sales | |||||||||||||
| Men's | $ | 179,394 | $ | 156,844 | $ | 395,536 | $ | 333,536 | |||||
| Women's | 56,000 | 46,912 | 141,244 | 110,343 | |||||||||
| Hard goods/other | 15,147 | 14,049 | 31,322 | 27,568 | |||||||||
| Total net sales | $ | 250,541 | $ | 217,805 | $ | 568,102 | $ | 471,447 | |||||
DULUTH HOLDINGS INC.Reconciliation of Forecasted Net Income to Forecasted EBITDA and Forecasted EBITDA to Forecasted Adjusted EBITDAFor the Fiscal Year Ending February 2, 2020(Unaudited)(Amounts in thousands)
| Low | High | |||||
| Forecasted | ||||||
| Net income | $ | 24,000 | $ | 26,000 | ||
| Depreciation and amortization | 21,225 | 22,600 | ||||
| Interest expense | 3,700 | 3,500 | ||||
| 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 | ||
