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CST: 15/10/2019 03:06:58   

Duluth Holdings Inc. Announces Fourth Quarter and Fiscal 2018 Financial Results

193 Days ago

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 million
  • 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) 622-8224
Michael Wilson (310) 622-8240
Financial Profiles, Inc.
Duluth@finprofiles.com 

(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 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     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
             

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