Part I—Financial Information This section presents Duluth Holdings Inc.'s unaudited condensed consolidated financial statements and detailed notes for the periods ended August 4, 2019, and February 3, 2019 - The financial statements are condensed and unaudited, prepared according to SEC rules and U.S. GAAP, and should be read in conjunction with the prior annual report[25](index=25&type=chunk) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This item presents the core unaudited condensed consolidated financial statements, providing a snapshot of the company's financial health and performance - The notes are an integral part of these condensed consolidated financial statements, providing context and additional detail for understanding the financial position and performance[5](index=5&type=chunk)[7](index=7&type=chunk)[10](index=10&type=chunk) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (Amounts in thousands) | Metric | August 4, 2019 | February 3, 2019 | Change (vs Feb 3, 2019) | | :--------------------------- | :------------- | :--------------- | :---------------------- | | Total Assets | $434,095 | $295,305 | +$138,790 | | Total Liabilities | $280,795 | $135,195 | +$145,600 | | Total Shareholders' Equity | $153,300 | $160,110 | -$6,810 | | Cash | $3,468 | $731 | +$2,737 | | Inventory | $114,849 | $97,685 | +$17,164 | | Operating Lease ROU Assets | $115,053 | — | +$115,053 | | Operating Lease Liabilities | $101,173 | — | +$101,173 | | Long-term line of credit | $45,000 | $16,542 | +$28,458 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (Amounts in thousands, except per share figures) | Metric | Three Months Ended Aug 4, 2019 | Three Months Ended Jul 29, 2018 | Six Months Ended Aug 4, 2019 | Six Months Ended Jul 29, 2018 | | :----------------------------------------- | :----------------------------- | :------------------------------ | :--------------------------- | :---------------------------- | | Net Sales | $121,963 | $110,653 | $236,207 | $210,860 | | Gross Profit | $64,804 | $62,240 | $125,722 | $118,180 | | Operating Income (Loss) | $3,735 | $9,896 | $(6,369) | $9,639 | | Net Income (Loss) attributable to controlling interest | $1,936 | $6,377 | $(5,636) | $5,686 | | Basic EPS | $0.06 | $0.20 | $(0.17) | $0.18 | | Diluted EPS | $0.06 | $0.20 | $(0.17) | $0.18 | [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income (Amounts in thousands) | Metric | Three Months Ended Aug 4, 2019 | Three Months Ended Jul 29, 2018 | Six Months Ended Aug 4, 2019 | Six Months Ended Jul 29, 2018 | | :----------------------------------------- | :----------------------------- | :------------------------------ | :--------------------------- | :---------------------------- | | Net Income (Loss) | $1,846 | $6,452 | $(5,799) | $5,769 | | Other comprehensive income | — | — | — | — | | Comprehensive income (loss) attributable to controlling interest | $1,936 | $6,377 | $(5,636) | $5,686 | [Condensed Consolidated Statement of Shareholders' Equity (August 4, 2019)](index=8&type=section&id=Condensed%20Consolidated%20Statement%20of%20Shareholders'%20Equity%20(August%204%2C%202019)) Condensed Consolidated Statement of Shareholders' Equity (Six Months Ended August 4, 2019) (Amounts in thousands) | Metric | February 3, 2019 Balance | Cumulative effect from adoption of ASC 842 | Issuance of common stock | Stock-based compensation | Restricted stock activity | Net loss | August 4, 2019 Balance | | :----------------------------------- | :----------------------- | :----------------------------------------- | :----------------------- | :----------------------- | :------------------------ | :------- | :--------------------- | | Capital stock | $89,849 | — | $134 | $946 | — | — | $91,075 | | Treasury stock | $(92) | — | — | — | $(313) | — | $(405) | | Retained earnings | $70,592 | $(1,924) | — | — | — | $(7,572) | $63,032 | | Noncontrolling interest | $(239) | — | — | — | — | $(163) | $(402) | | Total shareholders' equity | $160,110 | $(1,924) | $134 | $946 | $(313) | $(7,645) | $153,300 | [Condensed Consolidated Statement of Shareholders' Equity (July 29, 2018)](index=9&type=section&id=Condensed%20Consolidated%20Statement%20of%20Shareholders'%20Equity%20(July%2029%2C%202018)) Condensed Consolidated Statement of Shareholders' Equity (Six Months Ended July 29, 2018) (Amounts in thousands) | Metric | January 28, 2018 Balance | Cumulative effect from adoption of ASC 606 | Issuance of common stock | Stock-based compensation | Restricted stock activity | Net (loss) income | July 29, 2018 Balance | | :----------------------------------- | :----------------------- | :----------------------------------------- | :----------------------- | :----------------------- | :------------------------ | :---------------- | :-------------------- | | Capital stock | $88,043 | — | — | $858 | — | — | $88,901 | | Treasury stock | $(57) | — | — | — | $(35) | — | $(92) | | Retained earnings | $48,084 | $(648) | — | — | — | $5,686 | $53,122 | | Noncontrolling interest | $3,279 | — | — | — | — | $83 | $3,362 | | Total shareholders' equity | $139,349 | $(648) | — | $858 | $(35) | $5,769 | $145,293 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Amounts in thousands) | Metric | Six Months Ended Aug 4, 2019 | Six Months Ended Jul 29, 2018 | | :-------------------------------------- | :--------------------------- | :---------------------------- | | Net cash used in operating activities | $(8,045) | $(12,585) | | Net cash used in investing activities | $(16,713) | $(27,325) | | Net cash provided by financing activities | $27,829 | $36,404 | | Increase (decrease) in cash and restricted cash | $3,071 | $(3,506) | | Cash and restricted cash at end of period | $6,156 | $3,577 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the financial statements, covering operations, accounting policies, and specific line items [1. Nature of Operations and Basis of Presentation](index=11&type=section&id=1.%20NATURE%20OF%20OPERATIONS%20AND%20BASIS%20OF%20PRESENTATION) - Duluth Holdings Inc. is an omni-channel retailer of men's and women's apparel and accessories, operating **52 retail stores and three outlet stores** as of August 4, 2019[21](index=21&type=chunk) - The company's business is seasonal, with a significant portion of revenue and operating profit recognized in the fourth fiscal quarter due to the holiday season[26](index=26&type=chunk) - The company has two classes of common stock (Class A and Class B) with identical rights except for voting (Class A has ten votes per share, Class B has one)[22](index=22&type=chunk) [2. Leases](index=13&type=section&id=2.%20LEASES) - Adopted ASC 842 on February 4, 2019, recognizing a **$121.8 million ROU asset** and **$115.5 million lease liability**, net of adjustments[31](index=31&type=chunk)[34](index=34&type=chunk) Lease Expense Components (Amounts in thousands) | Expense Type | Three Months Ended Aug 4, 2019 | Six Months Ended Aug 4, 2019 | | :----------------------------------------- | :----------------------------- | :--------------------------- | | Total finance lease expense | $923 | $1,060 | | Operating lease expense | $3,481 | $7,159 | | Amortization of capital contribution build-to-suit leases | $265 | $479 | | Variable lease expense | $2,040 | $3,652 | | Total lease expense | $6,709 | $12,350 | Future Minimum Lease Payments (Amounts in thousands) | Fiscal Year (remainder) | Finance Lease | Operating Lease | | :---------------------- | :------------ | :-------------- | | 2019 | $1,135 | $7,082 | | 2020 | $2,269 | $13,994 | | 2021 | $2,269 | $13,365 | | 2022 | $2,269 | $13,586 | | 2023 | $2,291 | $13,772 | | Thereafter | $27,877 | $77,325 | | Total | $38,110 | $139,124 | [3. Debt and Line of Credit](index=16&type=section&id=3.%20DEBT%20AND%20LINE%20OF%20CREDIT) Debt and Line of Credit (Amounts in thousands) | Debt Type | August 4, 2019 | February 3, 2019 | | :---------------------------- | :------------- | :--------------- | | TRI Senior Secured Note | $25,041 | $25,251 | | TRI Note | $3,500 | $3,500 | | Capital lease obligations | — | $32 | | Total Debt (before maturities)| $28,541 | $28,783 | | Long-term debt | $28,016 | $28,283 | | Line of credit | $45,000 | $16,542 | - The company has a **$130.0 million credit facility**, comprising an **$80.0 million revolving credit** and a **$50.0 million delayed draw term loan**, both maturing on May 17, 2023[48](index=48&type=chunk) - As of August 4, 2019, the company was in compliance with all financial and non-financial covenants for its debts[49](index=49&type=chunk) [4. Accrued Expenses and Other Current Liabilities](index=17&type=section&id=4.%20ACCRUED%20EXPENSES%20AND%20OTHER%20CURRENT%20LIABILITIES) Accrued Expenses and Other Current Liabilities (Amounts in thousands) | Category | August 4, 2019 | February 3, 2019 | | :------------------------------------- | :------------- | :--------------- | | Salaries and benefits | $2,365 | $2,328 | | Deferred revenue | $6,861 | $8,493 | | Freight | $998 | $4,141 | | Product returns | $2,001 | $2,088 | | Catalog costs | $3 | $503 | | Unpaid purchases of property & equipment | $509 | $433 | | Accrued advertising | $5,596 | $389 | | Other | $5,360 | $8,155 | | Total | $23,693 | $26,530 | [5. Investment](index=17&type=section&id=5.%20INVESTMENT) - The company's available-for-sale security is valued using a Level 3 discounted cash flow method, incorporating U.S. Treasury yield curve, credit information, and estimated future cash flows[54](index=54&type=chunk) Available-for-Sale Security (Amounts in thousands) | Metric | August 4, 2019 | February 3, 2019 | | :----------------------------------- | :------------- | :--------------- | | Corporate trust (Fair Value) | $6,239 | $6,295 | Future Principal Receipts of Available-for-Sale Security (Amounts in thousands) | Maturity Period | Estimated Fair Value | | :------------------------------- | :------------------- | | Within one year | $124 | | After one year through five years| $866 | | After five years through ten years | $1,378 | | After ten years | $3,871 | | Total | $6,239 | [6. Variable Interest Entity](index=18&type=section&id=6.%20VARIABLE%20INTEREST%20ENTITY) - The company consolidates TRI Holdings, LLC (TRI) as a variable interest entity (VIE) because it is considered the primary beneficiary, having the power to direct activities and receive significant benefits[57](index=57&type=chunk)[58](index=58&type=chunk) Consolidated Amounts from TRI (Amounts in thousands) | Metric | August 4, 2019 | February 3, 2019 | | :----------------------------------- | :------------- | :--------------- | | Total Assets | $28,260 | $28,580 | | Total Liabilities and Shareholders' Equity | $28,260 | $28,580 | | Long-term debt | $28,541 | $28,751 | [7. Earnings (Loss) Per Share](index=20&type=section&id=7.%20EARNINGS%20(LOSS)%20PER%20SHARE) Earnings (Loss) Per Share (Amounts in thousands, except per share data) | Metric | Three Months Ended Aug 4, 2019 | Three Months Ended Jul 29, 2018 | Six Months Ended Aug 4, 2019 | Six Months Ended Jul 29, 2018 | | :----------------------------------------- | :----------------------------- | :------------------------------ | :--------------------------- | :---------------------------- | | Net income (loss) attributable to controlling interest | $1,936 | $6,377 | $(5,636) | $5,686 | | Basic EPS | $0.06 | $0.20 | $(0.17) | $0.18 | | Diluted EPS | $0.06 | $0.20 | $(0.17) | $0.18 | - **0.2 million shares** of unvested restricted stock were excluded from diluted EPS for the six months ended August 4, 2019, as their inclusion would be anti-dilutive due to a net loss[61](index=61&type=chunk) [8. Stock-Based Compensation](index=20&type=section&id=8.%20STOCK-BASED%20COMPENSATION) - Total stock compensation expense recognized was **$0.5 million** for the three months and **$0.9 million** for the six months ended August 4, 2019 (and July 29, 2018)[63](index=63&type=chunk) Unvested Restricted Stock Activity (Six Months Ended August 4, 2019) | Activity | Shares | Weighted average fair value per share | | :---------------------------- | :-------- | :------------------------------------ | | Outstanding at February 3, 2019 | 321,657 | $14.29 | | Granted | 165,190 | $17.73 | | Vested | (61,262) | $18.86 | | Forfeited | (7,858) | $19.23 | | Outstanding at August 4, 2019 | 417,727 | $14.89 | - Unrecognized compensation expense related to restricted stock awards was **$4.3 million** as of August 4, 2019, expected to be recognized over a weighted average period of **2.9 years**[63](index=63&type=chunk) [9. Property and Equipment](index=21&type=section&id=9.%20PROPERTY%20AND%20EQUIPMENT) Property and Equipment, Net (Amounts in thousands) | Category | August 4, 2019 | February 3, 2019 | | :-------------------------------- | :------------- | :--------------- | | Land and land improvements | $4,486 | $4,486 | | Leasehold improvements | $40,161 | $32,765 | | Buildings | $36,486 | $71,469 | | Warehouse equipment | $13,155 | $13,051 | | Office equipment and furniture | $43,879 | $36,473 | | Computer equipment | $6,194 | $5,072 | | Software | $25,669 | $24,939 | | Total (gross) | $170,191 | $188,416 | | Accumulated depreciation and amortization | $(43,526) | $(34,203) | | Construction in progress | $9,762 | $12,896 | | Property and equipment, net | $136,427 | $167,109 | [10. Segment Reporting](index=21&type=section&id=10.%20SEGMENT%20REPORTING) - The company operates in two reportable segments: direct (website and catalogs) and retail (stores)[66](index=66&type=chunk) Net Sales by Segment (Amounts in thousands) | Segment | Three Months Ended Aug 4, 2019 | Three Months Ended Jul 29, 2018 | Six Months Ended Aug 4, 2019 | Six Months Ended Jul 29, 2018 | | :------ | :----------------------------- | :------------------------------ | :--------------------------- | :---------------------------- | | Direct | $60,267 | $60,833 | $125,968 | $127,045 | | Retail | $61,696 | $49,820 | $110,239 | $83,815 | | Total | $121,963 | $110,653 | $236,207 | $210,860 | Operating Income (Loss) by Segment (Amounts in thousands) | Segment | Three Months Ended Aug 4, 2019 | Three Months Ended Jul 29, 2018 | Six Months Ended Aug 4, 2019 | Six Months Ended Jul 29, 2018 | | :------ | :----------------------------- | :------------------------------ | :--------------------------- | :---------------------------- | | Direct | $(4,146) | $1,123 | $(16,825) | $(1,005) | | Retail | $7,881 | $8,773 | $10,456 | $10,644 | | Total | $3,735 | $9,896 | $(6,369) | $9,639 | Net Sales by Business (Amounts in thousands) | Business | Three Months Ended Aug 4, 2019 | Three Months Ended Jul 29, 2018 | Six Months Ended Aug 4, 2019 | Six Months Ended Jul 29, 2018 | | :------------- | :----------------------------- | :------------------------------ | :--------------------------- | :---------------------------- | | Men's | $80,090 | $75,434 | $155,890 | $143,354 | | Women's | $35,742 | $29,625 | $67,915 | $56,785 | | Hard goods/other | $6,131 | $5,594 | $12,402 | $10,721 | | Total | $121,963 | $110,653 | $236,207 | $210,860 | [11. Contract Assets and Liabilities](index=22&type=section&id=11.%20CONTRACT%20ASSETS%20AND%20LIABILITIES) - Contract assets primarily consist of the right of return for inventory expected to be resold, recorded in Prepaid expenses and other current assets[72](index=72&type=chunk) - Contract liabilities primarily consist of gift card liabilities, recorded under deferred revenue in accrued expenses and other current liabilities[72](index=72&type=chunk) Contract Assets and Liabilities (Amounts in thousands) | Metric | August 4, 2019 | February 3, 2019 | | :--------------------- | :------------- | :--------------- | | Contract assets | $777 | $895 | | Contract liabilities | $6,930 | $8,508 | [12. Income Taxes](index=22&type=section&id=12.%20INCOME%20TAXES) - The effective tax rate related to controlling interest was **26%** for both the three and six months ended August 4, 2019, and July 29, 2018[74](index=74&type=chunk) - Income from TRI, a limited liability company, is excluded from the effective tax rate calculation as it is not subject to income taxes[74](index=74&type=chunk) [13. Recent Accounting Pronouncements](index=22&type=section&id=13.%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) - No new significant accounting pronouncements during the six months ended August 4, 2019[75](index=75&type=chunk) [14. Subsequent Events](index=23&type=section&id=14.%20SUBSEQUENT%20EVENTS) - No material subsequent events to disclose through the date of financial statement issuance[77](index=77&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, and liquidity for the reported periods - The discussion should be read in conjunction with the financial statements and notes in Item 1 and the prior annual report on Form 10-K[79](index=79&type=chunk) - The company is a growing lifestyle brand of men's and women's casual wear, workwear, and accessories, sold exclusively through its omni-channel platform (direct and retail)[81](index=81&type=chunk) [Forward-Looking Statements](index=24&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements about future financial condition, results of operations, plans, and strategies, identifiable by words like "anticipate," "expect," and "will"[80](index=80&type=chunk) - All forward-looking statements are subject to risks and uncertainties, including those detailed in the company's 2018 Form 10-K, and the company does not commit to updating them[80](index=80&type=chunk) [Overview](index=24&type=section&id=Overview) - Net sales have increased year-over-year for **38 consecutive quarters** through August 4, 2019[85](index=85&type=chunk) Key Financial Highlights (Amounts in millions) | Metric | Q2 FY2019 (3 months ended Aug 4, 2019) | Q2 FY2018 (3 months ended Jul 29, 2018) | H1 FY2019 (6 months ended Aug 4, 2019) | H1 FY2018 (6 months ended Jul 29, 2018) | | :----------------------------------- | :------------------------------------- | :-------------------------------------- | :------------------------------------- | :-------------------------------------- | | Net Sales | $122.0 million (+10.2% YoY) | $110.7 million | $236.2 million (+12.0% YoY) | $210.9 million | | Net Income (Loss) | $1.9 million | $6.4 million | $(5.6) million | $5.7 million | | Adjusted EBITDA | $9.6 million | $13.1 million | $4.7 million (-69.9% YoY) | $15.7 million | - The company opened **four new stores** in Q2 FY2019, adding approximately **61,000 gross square footage**, with retail stores achieving an average payback of less than two years[85](index=85&type=chunk) - Capital outlays are expected to moderate in 2020, with store expansion square footage decreasing by **30% to 40%** compared to the last three years, to focus on driving greater returns and operating earnings[86](index=86&type=chunk) [How We Assess the Performance of Our Business](index=26&type=section&id=How%20We%20Assess%20the%20Performance%20of%20Our%20Business) - Net sales include merchandise sales plus shipping and handling revenue, less returns and discounts, and are a key metric for annual bonus compensation[91](index=91&type=chunk) - Gross profit is net sales less cost of goods sold, with gross margin impacted by product margins, promotions, clearance activity, and shipping and handling revenues[93](index=93&type=chunk) - Selling, general and administrative expenses include payroll, occupancy, marketing, logistics, and professional services, and are expected to decrease as a percentage of sales over time despite absolute increases[94](index=94&type=chunk)[95](index=95&type=chunk) - Adjusted EBITDA is a non-U.S. GAAP measure used to assess operating performance by excluding depreciation, amortization, interest, taxes, and certain non-cash/non-recurring items[96](index=96&type=chunk)[97](index=97&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Consolidated Results of Operations (Percentage of Net Sales) | Metric | Three Months Ended Aug 4, 2019 | Three Months Ended Jul 29, 2018 | Six Months Ended Aug 4, 2019 | Six Months Ended Jul 29, 2018 | | :----------------------------------------- | :----------------------------- | :------------------------------ | :--------------------------- | :---------------------------- | | Direct net sales % | 49.4% | 55.0% | 53.3% | 60.3% | | Retail net sales % | 50.6% | 45.0% | 46.7% | 39.7% | | Gross margin % | 53.1% | 56.2% | 53.2% | 56.0% | | Selling, general and administrative expenses % | 50.1% | 47.3% | 55.9% | 51.5% | | Operating income (loss) % | 3.1% | 8.9% | (2.7)% | 4.6% | | Net income (loss) attributable to controlling interest % | 1.6% | 5.8% | (2.4)% | 2.7% | [Three Months Ended August 4, 2019 Compared to Three Months Ended July 29, 2018](index=28&type=section&id=Three%20Months%20Ended%20August%204%2C%202019%20Compared%20to%20Three%20Months%20Ended%20July%2029%2C%202018) - Net sales increased by **$11.3 million (10.2%)** to **$122.0 million**, primarily due to an **$11.9 million (23.8%) increase** in the retail segment, driven by new store openings (55 stores vs. 39 stores)[101](index=101&type=chunk) - Gross margin decreased by **310 basis points** to **53.1% of net sales**, mainly due to additional global promotions and recent clearance activity[103](index=103&type=chunk) - Selling, general and administrative expenses increased by **$8.7 million (16.7%)** to **$61.1 million**, rising to **50.1% of net sales**, driven by increased occupancy, depreciation, and personnel costs[104](index=104&type=chunk)[107](index=107&type=chunk) - Net income decreased from **$6.4 million** to **$1.9 million**[109](index=109&type=chunk) [Six Months Ended August 4, 2019 Compared to Six Months Ended July 29, 2018](index=29&type=section&id=Six%20Months%20Ended%20August%204%2C%202019%20Compared%20to%20Six%20Months%20Ended%20July%2029%2C%202018) - Net sales increased by **$25.3 million (12.0%)** to **$236.2 million**, driven by a **$26.4 million (31.5%) increase** in the retail segment[110](index=110&type=chunk) - Gross margin decreased by **280 basis points** to **53.2% of net sales**, primarily due to increased clearance and discounts, and a slight decrease in shipping revenues[111](index=111&type=chunk) - Selling, general and administrative expenses increased by **$23.6 million (21.7%)** to **$132.1 million**, rising to **55.9% of net sales**, mainly due to higher occupancy, depreciation, and personnel costs[116](index=116&type=chunk)[119](index=119&type=chunk) - The company reported a net loss of **$5.6 million**, compared to a net income of **$5.7 million** in the prior year period[121](index=121&type=chunk) [Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA](index=31&type=section&id=Reconciliation%20of%20Net%20Income%20to%20EBITDA%20and%20EBITDA%20to%20Adjusted%20EBITDA) Reconciliation of Net Income to EBITDA and Adjusted EBITDA (Amounts in thousands) | Metric | Three Months Ended Aug 4, 2019 | Three Months Ended Jul 29, 2018 | Six Months Ended Aug 4, 2019 | Six Months Ended Jul 29, 2018 | | :----------------------------------- | :----------------------------- | :------------------------------ | :--------------------------- | :---------------------------- | | Net income (loss) | $1,846 | $6,452 | $(5,799) | $5,769 | | Depreciation and amortization | $5,013 | $2,760 | $9,405 | $5,069 | | Interest expense | $1,203 | $1,234 | $1,631 | $2,055 | | Income tax expense (benefit) | $678 | $2,212 | $(2,005) | $1,980 | | EBITDA | $9,005 | $12,658 | $3,711 | $14,873 | | Stock based compensation | $555 | $449 | $1,029 | $858 | | Adjusted EBITDA | $9,560 | $13,107 | $4,740 | $15,731 | - Adjusted EBITDA decreased by **$3.5 million** to **$9.6 million (7.8% of net sales)** for the three months ended August 4, 2019, and by **$11.0 million** to **$4.7 million (2.0% of net sales)** for the six months ended August 4, 2019, compared to prior year periods[123](index=123&type=chunk)[126](index=126&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary liquidity sources are cash from operating activities and a **$130.0 million credit facility** (revolving line of credit and delayed draw term loan)[127](index=127&type=chunk) - Expected capital expenditures for fiscal 2019 are **$38.0 million to $42.0 million**, with **$30.0 million to $32.0 million** allocated for new retail store expansion and remodels[128](index=128&type=chunk) - Net working capital was **$66.1 million** at August 4, 2019, including **$3.5 million cash**[128](index=128&type=chunk) - Despite negative operating cash flow in the first three quarters due to seasonality and inventory build-up, the company expects positive cash flows from operations for the full fiscal year 2019[128](index=128&type=chunk)[133](index=133&type=chunk) [General](index=33&type=section&id=General) - The company's primary cash needs are for inventory, marketing and advertising, payroll, store leases, and capital expenditures for new stores, infrastructure, and information technology[127](index=127&type=chunk) - Due to seasonality, a significant portion of cash from operating activities is generated in the fourth fiscal quarter, with the first three quarters typically being net users of cash for inventory acquisition and capital expenditures[128](index=128&type=chunk) [Cash Flow Analysis](index=33&type=section&id=Cash%20Flow%20Analysis) Summary of Cash Flow Activities (Amounts in thousands) | Activity | Six Months Ended Aug 4, 2019 | Six Months Ended Jul 29, 2018 | | :---------------------------------------- | :--------------------------- | :---------------------------- | | Net cash used in operating activities | $(8,045) | $(12,585) | | Net cash used in investing activities | $(16,713) | $(27,325) | | Net cash provided by financing activities | $27,829 | $36,404 | | Increase (decrease) in cash and restricted cash | $3,071 | $(3,506) | - Net cash used in operating activities for the six months ended August 4, 2019, was **$8.0 million**, primarily due to a net loss and a **$17.2 million increase** in inventory[134](index=134&type=chunk) - Net cash used in investing activities was **$16.7 million**, driven by **$13.8 million** in capital expenditures for new retail stores and IT, and **$3.0 million** in capital contributions for build-to-suit stores[138](index=138&type=chunk) - Net cash provided by financing activities was **$27.8 million**, mainly from **$28.5 million (net) proceeds** from the revolving line of credit to fund working capital[141](index=141&type=chunk) [Line of Credit](index=35&type=section&id=Line%20of%20Credit) - The credit agreement provides for **$80.0 million** in revolving credit and **$50.0 million** in a delayed draw term loan, both maturing on May 17, 2023[143](index=143&type=chunk) - The credit agreement is secured by essentially all company assets and requires compliance with financial and non-financial covenants, including leverage and fixed charge coverage ratios[143](index=143&type=chunk) - The company was in compliance with all covenants as of August 4, 2019, and expects to remain so for the rest of fiscal 2019[144](index=144&type=chunk) [Contractual Obligations](index=35&type=section&id=Contractual%20Obligations) - No significant changes to contractual obligations since the fiscal year ended February 3, 2019[145](index=145&type=chunk) [Off-Balance Sheet Arrangements](index=35&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company is not a party to any material off-balance sheet arrangements[146](index=146&type=chunk) [Critical Accounting Policies and Critical Accounting Estimates](index=35&type=section&id=Critical%20Accounting%20Policies%20and%20Critical%20Accounting%20Estimates) - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, which are evaluated on an ongoing basis[147](index=147&type=chunk) - No significant changes to critical accounting policies and estimates since the 2018 Form 10-K, except for the adoption of new lease accounting guidance (ASC 842)[149](index=149&type=chunk)[150](index=150&type=chunk) [Recently Adopted Accounting Pronouncements](index=37&type=section&id=Recently%20Adopted%20Accounting%20Pronouncements) - The company adopted ASC 842, Leases, on February 4, 2019, using the optional transition method, which means prior period information was not restated[150](index=150&type=chunk) [Recent Accounting Pronouncements](index=37&type=section&id=Recent%20Accounting%20Pronouncements) - Refers to Note 13 for information on recent accounting pronouncements, which indicates no new significant pronouncements during the period[152](index=152&type=chunk)[75](index=75&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item reports no significant changes in market risks since the 2018 Form 10-K, with details on interest rate risk in Note 3 - No significant changes in market risks since the 2018 Form 10-K[153](index=153&type=chunk) - Information on interest rate risk related to the line of credit is provided in Note 3, "Debt and Line of Credit"[153](index=153&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) This item reports ineffective disclosure controls and procedures due to a material weakness, though financial statements are deemed fairly presented - Disclosure controls and procedures were not effective as of August 4, 2019, due to a material weakness in internal control over financial reporting[154](index=154&type=chunk) - Management concluded that, despite the material weakness, the consolidated financial statements fairly present the company's financial position, results of operations, and cash flows in conformity with U.S. GAAP[157](index=157&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=37&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - The CEO and CFO concluded that disclosure controls and procedures were not effective as of August 4, 2019, due to a material weakness[154](index=154&type=chunk) [Material Weakness](index=37&type=section&id=Material%20Weakness) - A material weakness existed due to insufficient resources to timely detect and resolve issues from a new order management system conversion and inconsistent execution of account reconciliations[155](index=155&type=chunk) - Remediation steps include correctly allocating resources and enhancing the reconciliation process, but the weakness is not yet remediated[156](index=156&type=chunk) [Changes in Internal Control Over Financial Reporting](index=37&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - No other material changes in internal control over financial reporting occurred during the period[158](index=158&type=chunk) Part II—Other Information This section covers other required disclosures, including legal proceedings, risk factors, unregistered equity sales, and filed exhibits [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company is not party to any legal proceedings that would materially adversely affect its business, financial condition, operating results, or cash flows - The company is not currently party to any legal proceedings that would have a material adverse effect on its business, financial condition, operating results, or cash flows[160](index=160&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This item refers to the 2018 Form 10-K for risk factors, noting no material changes to previously disclosed risks - No material changes to risk factors previously disclosed in the 2018 Form 10-K[161](index=161&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not sell any unregistered equity securities during the quarter ended August 4, 2019 - No unregistered equity securities were sold during the quarter ended August 4, 2019[162](index=162&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This item provides an index of exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL documents - The exhibit index includes certifications from the CEO and CFO, as well as XBRL instance and taxonomy documents[164](index=164&type=chunk) [Signatures](index=41&type=section&id=Signatures) This section contains the official signatures of the registrant's authorized officers, certifying the report - The report is signed by David Loretta, Senior Vice President and Chief Financial Officer, and Michael Murphy, Corporate Controller, on behalf of Duluth Holdings Inc[167](index=167&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________ FORM 10-Q _________________________________________ ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 5, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37641 _________________________________________ DULUTH HOL ...

Duluth Holdings Inc. (NASDAQ:DLTH) Q1 2019 Earnings Conference Call June 13, 2019 9:30 AM ET Â Company Participants Stephanie Pugliese - President, Chief Executive Officer Dave Loretta - Executive Vice President, Chief Financial Officer Donni Case - Investor Relations Conference Call Participants John Morris - DA Davidson Jonathan Komp - Robert W. Baird Jim Duffy - Stifel Operator Good morning everyone and welcome to the Duluth Holdings fiscal year 2019 earnings conference call. All participants will be in ...

Financial Performance - Net sales for fiscal 2018 increased by 20.5% year-over-year to $568.1 million[246] - Net income for fiscal 2018 was flat at $23.2 million compared to the prior year[246] - Adjusted EBITDA for fiscal 2018 increased by 11.6% to $51.8 million[246] - Net sales increased by $96.7 million, or 20.5%, to $568.1 million in fiscal 2018 compared to $471.4 million in fiscal 2017, driven by a $77.0 million increase in retail net sales[260] - Gross profit rose by $49.4 million, or 18.9%, to $310.4 million in fiscal 2018, with a gross margin of 54.6%, down from 55.4% in fiscal 2017[261] - Selling, general and administrative expenses increased by $49.3 million, or 22.0%, to $273.2 million in fiscal 2018, representing 48.1% of net sales[262] - Net income was $23.2 million in fiscal 2018, slightly down from $23.4 million in fiscal 2017[272] - For the fiscal year ended February 3, 2019, net sales increased to $568.1 million, up 21% from $471.4 million in the previous year[358] - Gross profit for the same period was $310.4 million, representing a gross margin of approximately 54.6%[358] - Operating income was reported at $37.2 million, slightly up from $37.1 million in the prior year[358] - Net income attributable to controlling interest was $23.2 million, compared to $23.4 million in the previous year, reflecting a decrease of 0.8%[358] Retail Segment Performance - The direct segment accounted for 61.7% of consolidated net sales in fiscal 2018, down from 70.2% in fiscal 2017[243] - Retail segment net sales represented 38.3% of consolidated net sales in fiscal 2018, up from 29.8% in fiscal 2017[243] - Retail segment operating income increased by $13.7 million, or 57.7%, to $37.5 million in fiscal 2018, with an operating income margin of 17.3%[269] - The company operated 46 stores in fiscal 2018 compared to 31 stores in fiscal 2017, contributing to the increase in retail net sales[260] - The company opened 15 retail stores in fiscal 2018, adding approximately 250,000 gross square feet[243] - The company anticipates opening 15 new stores in fiscal 2019[294] Debt and Assets - Total assets increased to $296.8 million in fiscal 2018 from $223.1 million in fiscal 2017[246] - Total debt rose to $46.8 million in fiscal 2018 from $1.5 million in fiscal 2017[246] - As of February 3, 2019, the company had total contractual cash obligations of $237.63 million, including $16.54 million in revolving line of credit and $190.85 million in operating leases[314] - The company’s total debt obligations as of February 3, 2019, amounted to $30.24 million, with $27.07 million maturing in 2024 and after[314] - Total liabilities rose to $136.6 million, compared to $83.8 million in the prior year, indicating a significant increase in leverage[356] - Total debt as of February 3, 2019, is $30.237 million, a significant increase from $1.508 million in January 28, 2018[430] Cash Flow and Investments - Net cash provided by operating activities was $31.1 million for fiscal 2018, consisting of net income of $23.2 million and non-cash depreciation and amortization of $12.6 million[298] - Net cash used in investing activities was $53.7 million for fiscal 2018, primarily driven by capital expenditures of $53.0 million[303] - Net cash provided by financing activities was $18.6 million for fiscal 2018, including borrowings of $130.1 million on the revolving line of credit[307] - The company expects to spend approximately $40.0 million to $45.0 million in fiscal 2019 on capital expenditures, including $30.0 million to $32.0 million for new retail store expansion[294] Tax and Compliance - Income tax expense decreased to $8.4 million in fiscal 2018 from $11.9 million in fiscal 2017, with an effective tax rate of 26.7%[271] - The effective tax rate related to controlling interest decreased to 33.7% in fiscal 2017 from 38.9% in fiscal 2016[286] - The company was in compliance with all financial and non-financial covenants as of the fiscal year ended February 3, 2019[312] Inventory and Assets Management - The company’s inventories are stated at the lower of cost and net realizable value, with significant estimates used in inventory valuation including obsolescence and shrinkage[321] - Inventory increased to $97.7 million, up from $89.5 million, reflecting a 9.5% rise year-over-year[356] - The principal supplier accounted for 52%, 50%, and 51% of total inventory expenditures in fiscal 2018, 2017, and 2016, respectively[389] Stock and Compensation - The number of Class B common stock available for future issuance under the 2015 Plan was 2,949,658 shares as of February 4, 2019[406] - Total stock compensation expense related to restricted stock was $1.6 million for fiscal 2018, consistent with fiscal 2017, and $1.2 million for fiscal 2016[408] - As of February 3, 2019, the company had unrecognized compensation expense of $2.5 million related to restricted stock awards, expected to be recognized over a weighted average period of 2.2 years[410] Accounting Changes - The company recognized revenue from direct sales upon shipment of the product for fiscal 2018, a change from prior periods where revenue was recognized upon customer receipt[317] - The company expects to adopt ASU 2016-02 on February 4, 2019, which will result in an increase in assets and liabilities due to the recording of right-of-use assets and corresponding lease liabilities[339] - The company's net sales for the year ended February 3, 2019, were reported at $568.1 million, with adjustments due to ASC 606 resulting in a net sales figure of $565.2 million[429] - The gross profit for the same period was $310.4 million, adjusted to $309.5 million after ASC 606[429] - The total liabilities reported were $136.6 million, adjusted to $139.6 million without ASC 606[429]

Duluth Holdings Inc. (NASDAQ:DLTH) Q4 2018 Earnings Conference Call April 4, 2019 4:30 PM ET Company Participants Donni Case - IR Stephanie Pugliese - CEO Dave Loretta - CFO Conference Call Participants John Morris - D.A. Davidson Jonathan Komp - Robert W. Baird Jim Duffy - Stifel Nicolaus Dylan Carden - William Blair Operator Good afternoon, and welcome to the Duluth Holdings' Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's p ...