Duluth (DLTH) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Duluth Holdings Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, with detailed notes on accounting policies, leases, debt, and segment performance for the periods ended November 3, 2019, and October 28, 2018 Condensed Consolidated Balance Sheets The balance sheets show a significant increase in total assets and liabilities as of November 3, 2019, compared to February 3, 2019, primarily driven by the adoption of ASC 842, which led to the recognition of right-of-use assets and corresponding lease liabilities | Metric (in thousands) | November 3, 2019 | February 3, 2019 | | :-------------------- | :--------------- | :--------------- | | Total Assets | $518,117 | $295,305 | | Total Liabilities | $365,139 | $135,195 | | Total Shareholders' Equity | $152,978 | $160,110 | - Current assets increased significantly from $118,198 thousand to $204,263 thousand, largely due to an increase in inventory from $97,685 thousand to $183,115 thousand[6] - The adoption of ASC 842 resulted in the recognition of operating lease right-of-use assets ($119,323 thousand) and finance lease right-of-use assets ($45,313 thousand) as of November 3, 2019, which were not present on February 3, 2019[6] Condensed Consolidated Statements of Operations For the three months ended November 3, 2019, the company reported net income, a significant improvement from a net loss in the prior year period, driven by increased net sales and improved operating income. However, for the nine-month period, the company recorded a net loss, contrasting with net income in the prior year, primarily due to higher selling, general, and administrative expenses Key Financial Highlights (in thousands, except per share figures) | Metric | 3 Months Ended Nov 3, 2019 | 3 Months Ended Oct 28, 2018 | 9 Months Ended Nov 3, 2019 | 9 Months Ended Oct 28, 2018 | | :-------------------------------------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Net Sales | $119,768 | $106,701 | $355,975 | $317,561 | | Gross Profit | $65,365 | $60,971 | $191,087 | $179,151 | | Operating Income (Loss) | $1,328 | $(2,563) | $(5,041) | $7,076 | | Net Income (Loss) attributable to controlling interest | $182 | $(3,150) | $(5,453) | $2,536 | | Basic EPS attributable to controlling interest | $0.01 | $(0.10) | $(0.17) | $0.08 | - Net sales increased by 12.2% for the three months and 12.1% for the nine months ended November 3, 2019, compared to the respective prior year periods[13] - Gross profit margin decreased to 54.6% for the three months and 53.7% for the nine months ended November 3, 2019, from 57.1% and 56.4% in the prior year periods, respectively[13] Condensed Consolidated Statements of Comprehensive Income The company reported comprehensive income attributable to controlling interest of $396 thousand for the three months ended November 3, 2019, a significant improvement from a loss in the prior year, primarily due to net income and unrealized security gains. For the nine-month period, however, it reported a comprehensive loss Comprehensive Income (Loss) (in thousands) | Metric | 3 Months Ended Nov 3, 2019 | 3 Months Ended Oct 28, 2018 | 9 Months Ended Nov 3, 2019 | 9 Months Ended Oct 28, 2018 | | :-------------------------------------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Net Income (Loss) | $89 | $(3,076) | $(5,709) | $2,693 | | Other comprehensive income | $214 | $0 | $214 | $0 | | Comprehensive Income (Loss) attributable to controlling interest | $396 | $(3,150) | $(5,239) | $2,536 | - Unrealized security gains of $289 thousand were recognized during the three and nine months ended November 3, 2019, contributing to other comprehensive income[15] Condensed Consolidated Statement of Shareholders' Equity Total shareholders' equity decreased from $160.1 million at February 3, 2019, to $153.0 million at November 3, 2019, influenced by a cumulative effect adjustment from ASC 842 adoption, net loss, and stock-based compensation activities Shareholders' Equity (in thousands) | Metric | November 3, 2019 | February 3, 2019 | | :-------------------- | :--------------- | :--------------- | | Total Shareholders' Equity | $152,978 | $160,110 | | Capital Stock | $90,451 | $89,849 | | Retained Earnings | $63,214 | $70,592 | | Accumulated other comprehensive income | $214 | $0 | - The adoption of ASC 842 resulted in a cumulative-effect adjustment of $(1,924) thousand to retained earnings at February 4, 2019[17] - Net loss for the nine months ended November 3, 2019, reduced retained earnings by $(7,572) thousand[17] Condensed Consolidated Statements of Cash Flows For the nine months ended November 3, 2019, the company experienced a significant increase in cash used in operating activities, primarily due to inventory build-up. Investing activities also used cash for capital expenditures, while financing activities provided substantial cash through line of credit and term loan proceeds Cash Flow Summary (in thousands) | Activity | 9 Months Ended Nov 3, 2019 | 9 Months Ended Oct 28, 2018 | | :-------------------------------- | :------------------------- | :-------------------------- | | Net cash used in operating activities | $(47,624) | $(23,502) | | Net cash used in investing activities | $(24,541) | $(46,317) | | Net cash provided by financing activities | $73,043 | $65,929 | | Increase (decrease) in cash and restricted cash | $878 | $(3,890) | - The increase in cash used in operating activities was primarily driven by an $85.4 million increase in inventory for the peak season and new retail stores[22] - Financing activities were significantly boosted by $225.1 million in proceeds from the line of credit and $20.0 million from a delayed draw term loan[22] Notes to Condensed Consolidated Financial Statements (Unaudited) These notes provide detailed explanations and breakdowns of the company's financial statements, covering its operations, significant accounting policies, the impact of new accounting standards (ASC 842), debt structure, segment performance, and other critical financial information 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION Duluth Holdings Inc. operates as a lifestyle brand of men's and women's apparel through direct and retail channels, adopted ASC 842 on February 4, 2019, and experiences seasonal business with significant fourth-quarter revenue - Duluth Trading is a lifestyle brand of men's and women's casual wear, workwear, and accessories, sold exclusively through its direct (website and catalogs) and retail channels (55 retail stores and 3 outlet stores as of November 3, 2019)[24] - The company adopted ASC 842 (Leases) on February 4, 2019, recognizing a $121.8 million right-of-use asset and a $115.5 million lease liability, with a cumulative-effect adjustment to retained earnings[34][37] - The business is seasonal, with a significant portion of revenue and operating profit historically recognized in the fourth fiscal quarter due to the holiday season[29] 2. LEASES Following ASC 842 adoption, the company recognized ROU assets and lease liabilities for non-cancelable retail leases, with finance leases having a 15-year weighted-average term and operating leases a 10-year term Lease Expense Components (in thousands) | Expense Type | 3 Months Ended Nov 3, 2019 | 9 Months Ended Nov 3, 2019 | | :-------------------------------- | :------------------------- | :------------------------- | | Selling, general and administrative expenses | $542 | $1,168 | | Interest expense | $368 | $802 | | Total lease expense | $910 | $1,970 | Lease Metrics as of November 3, 2019 | Metric | Finance Leases | Operating Leases | | :-------------------------------- | :------------- | :--------------- | | Weighted-average remaining lease term (years) | 15 | 10 | | Weighted-average discount rate | 4.5% | 4.3% | Future Minimum Lease Payments (in thousands) as of November 3, 2019 | Fiscal Year | Finance | Operating | | :------------ | :------ | :-------- | | 2019 (remainder) | $823 | $3,775 | | 2020 | $3,342 | $14,745 | | 2021 | $3,342 | $14,193 | | 2022 | $3,342 | $14,391 | | 2023 | $3,363 | $14,579 | | Thereafter | $41,078 | $81,286 | | Total future minimum lease payments | $55,290 | $142,969 | | Less – Discount | $15,523 | $28,321 | | Lease liability | $39,767 | $114,648 | 3. DEBT AND LINE OF CREDIT The company's debt includes TRI Senior Secured Note and TRI Note, alongside a credit agreement providing an $80.0 million revolving credit facility and a $50.0 million delayed draw term loan, with all covenants in compliance as of November 3, 2019 Debt and Line of Credit (in thousands) | Debt Type | November 3, 2019 | February 3, 2019 | | :-------------------------- | :--------------- | :--------------- | | TRI Senior Secured Note | $24,921 | $25,251 | | TRI Note | $3,500 | $3,500 | | Long-term debt, net of current maturities | $27,880 | $28,283 | | Line of credit | $70,470 | $16,542 | | Delayed draw term loan | $20,000 | $0 | - The Credit Agreement provides for an $80.0 million revolving credit facility and a $50.0 million delayed draw term loan, maturing on May 17, 2023[50] - As of November 3, 2019, the Company was in compliance with all financial and non-financial covenants for all debts[51] 4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities totaled $27.8 million as of November 3, 2019, with significant components including deferred revenue, freight, product returns, and accrued advertising Accrued Expenses and Other Current Liabilities (in thousands) | Category | November 3, 2019 | February 3, 2019 | | :-------------------------------- | :--------------- | :--------------- | | Salaries and benefits | $3,685 | $2,328 | | Deferred revenue | $6,947 | $8,493 | | Freight | $2,947 | $4,141 | | Product returns | $2,997 | $2,088 | | Accrued advertising | $4,374 | $389 | | Other | $6,094 | $8,155 | | Total | $27,750 | $26,530 | 5. INVESTMENT The company's available-for-sale security, a corporate trust, was valued at $6.5 million using a discounted cash flow method (Level 3 fair value) as of November 3, 2019, reflecting an unrealized gain Available-for-Sale Security (in thousands) as of November 3, 2019 | Metric | Cost or Amortized Cost | Gross Unrealized Gains | Estimated Fair Value | | :-------------------- | :--------------------- | :--------------------- | :------------------- | | Corporate trust | $6,210 | $289 | $6,499 | - The fair value of the available-for-sale security is determined using a Level 3 discounted cash flow method[56] 6. VARIABLE INTEREST ENTITY The company consolidates TRI Holdings, LLC (TRI) as a variable interest entity, being its primary beneficiary, and includes TRI's assets and liabilities in its condensed consolidated balance sheets Impact of TRI Consolidation on Balance Sheet (in thousands) | Category | November 3, 2019 | February 3, 2019 | | :-------------------------- | :--------------- | :--------------- | | Total Assets | $28,074 | $28,580 | | Total Liabilities and Shareholders' Equity | $28,074 | $28,580 | | Long-term debt | $28,421 | $28,751 | | Noncontrolling interest in VIE | $(495) | $(239) | - The Company leases its headquarters from TRI and invested $6.3 million in a trust that loaned funds to TRI for construction[61] 7. EARNINGS (LOSS) PER SHARE Basic and diluted EPS for the three months ended November 3, 2019, were $0.01, a significant improvement from a loss of $(0.10) in the prior year, while the nine-month period showed a loss of $(0.17) Earnings (Loss) Per Share (Class A and Class B) | Metric | 3 Months Ended Nov 3, 2019 | 3 Months Ended Oct 28, 2018 | 9 Months Ended Nov 3, 2019 | 9 Months Ended Oct 28, 2018 | | :-------------------------------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Basic EPS | $0.01 | $(0.10) | $(0.17) | $0.08 | | Diluted EPS | $0.01 | $(0.10) | $(0.17) | $0.08 | - The computation of diluted EPS excluded 0.1 million shares of unvested restricted stock for the three months ended November 3, 2019, and 55.6 thousand shares for the nine months ended November 3, 2019, due to their anti-dilutive effect[64] 8. STOCK-BASED COMPENSATION Stock-based compensation expense was a benefit of $(0.8) million for the three months and an expense of $0.2 million for the nine months ended November 3, 2019, with $2.3 million in unrecognized expense remaining Stock Compensation Expense (Benefit) (in thousands) | Period | 3 Months Ended Nov 3, 2019 | 9 Months Ended Nov 3, 2019 | 3 Months Ended Oct 28, 2018 | 9 Months Ended Oct 28, 2018 | | :-------------------- | :------------------------- | :------------------------- | :-------------------------- | :-------------------------- | | Stock Compensation Expense (Benefit) | $(800) | $200 | $400 | $1,300 | Unvested Restricted Stock Activity (9 Months Ended Nov 3, 2019) | Activity | Shares | Weighted average fair value per share | | :-------------------- | :----- | :------------------------------------ | | Outstanding at Feb 3, 2019 | 321,657 | $14.29 | | Granted | 165,730 | $17.70 | | Vested | (61,647) | $18.90 | | Forfeited | (232,145) | $12.63 | | Outstanding at Nov 3, 2019 | 193,595 | $17.74 | - Unrecognized compensation expense of $2.3 million is expected to be recognized over a weighted average period of 2.8 years[68] 9. PROPERTY AND EQUIPMENT Net property and equipment decreased to $139.1 million as of November 3, 2019, from $167.1 million at February 3, 2019, primarily due to changes in buildings and leasehold improvements Property and Equipment, Net (in thousands) | Category | November 3, 2019 | February 3, 2019 | | :-------------------------- | :--------------- | :--------------- | | Land and land improvements | $4,486 | $4,486 | | Leasehold improvements | $41,111 | $32,765 | | Buildings | $37,151 | $71,469 | | Warehouse equipment | $13,798 | $13,051 | | Office equipment and furniture | $45,638 | $36,473 | | Computer equipment | $6,835 | $5,072 | | Software | $26,189 | $24,939 | | Construction in progress | $11,660 | $12,896 | | Total Property and equipment, net | $139,134 | $167,109 | 10. SEGMENT REPORTING The company operates in direct and retail segments; for the three months ended November 3, 2019, retail net sales grew 24.1%, while direct net sales grew 2.9%, with retail operating income remaining positive Segment Net Sales (in thousands) | Segment | 3 Months Ended Nov 3, 2019 | 3 Months Ended Oct 28, 2018 | 9 Months Ended Nov 3, 2019 | 9 Months Ended Oct 28, 2018 | | :-------------------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Direct Net Sales | $61,581 | $59,827 | $187,549 | $186,872 | | Retail Net Sales | $58,187 | $46,874 | $168,426 | $130,689 | | Total Net Sales | $119,768 | $106,701 | $355,975 | $317,561 | Segment Operating Income (Loss) (in thousands) | Segment | 3 Months Ended Nov 3, 2019 | 3 Months Ended Oct 28, 2018 | 9 Months Ended Nov 3, 2019 | 9 Months Ended Oct 28, 2018 | | :-------------------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Direct Operating Income (Loss) | $(5,229) | $(8,357) | $(22,054) | $(9,362) | | Retail Operating Income (Loss) | $6,557 | $5,794 | $17,013 | $16,438 | | Total Operating Income (Loss) | $1,328 | $(2,563) | $(5,041) | $7,076 | - Retail segment net sales increased by 24.1% for the three months and 28.9% for the nine months ended November 3, 2019, driven by new store openings[74] 11. CONTRACT ASSETS AND LIABILITIES Contract assets increased to $1.3 million, while contract liabilities decreased to $7.0 million as of November 3, 2019, with $7.0 million revenue recognized from beginning contract liabilities for the nine months Contract Assets and Liabilities (in thousands) | Category | November 3, 2019 | February 3, 2019 | | :-------------------- | :--------------- | :--------------- | | Contract assets | $1,345 | $895 | | Contract liabilities | $6,963 | $8,508 | - Revenue recognized from the beginning contract liability balance was $1.9 million for the three months and $7.0 million for the nine months ended November 3, 2019[76] 12. INCOME TAXES The effective tax rate for controlling interest was 29% for the nine months ended November 3, 2019, benefiting from discrete stock compensation items, compared to 27% in the prior year - The effective tax rate for controlling interest was 29% for the nine months ended November 3, 2019, and 25% for the three months ended November 3, 2019[78] - The effective tax rate for controlling interest was 27% for the nine months ended October 28, 2018, and 25% for the three months ended October 28, 2018[78] 13. RECENT ACCOUNTING PRONOUNCEMENTS No new significant accounting pronouncements impacted the company during the nine months ended November 3, 2019 - No significant new accounting pronouncements during the nine months ended November 3, 2019[79] 14. SUBSEQUENT EVENTS No material subsequent events require disclosure after evaluating through the financial statement issuance date - No material subsequent events to disclose[80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance indicators, strategic initiatives, liquidity, capital resources, and critical accounting policies for the periods ended November 3, 2019, against prior periods Overview Duluth Holdings Inc. is a growing lifestyle apparel brand with 39 consecutive quarters of net sales growth, planning to moderate capital outlays in 2020 to focus on returns and positive free cash flow - Net sales have increased year-over-year for 39 consecutive quarters through November 3, 2019[88] Key Financial Highlights (in millions) | Metric | Fiscal 2019 Q3 | Fiscal 2019 9 Months | | :-------------------- | :------------- | :------------------- | | Net Sales | $119.8 | $356.0 | | Net Income (Loss) | $0.2 | $(5.5) | | Adjusted EBITDA | $7.3 | $12.0 | - The company opened three new stores in fiscal 2019 Q3, adding approximately 47,000 gross square footage, with retail stores achieving an average payback of less than two years[88] - Capital outlays are expected to moderate in 2020, with plans to expand square footage by 30% to 40% less than the last 3 years, focusing on driving greater returns and positive free cash flow[89] How We Assess the Performance of Our Business The company evaluates performance using Net Sales, Gross Profit, SG&A Expenses, and Adjusted EBITDA, considering Adjusted EBITDA a useful non-GAAP measure for operating performance - Net sales include merchandise sales plus shipping and handling revenue, less returns and discounts, recognized upon shipment for direct sales and at point of sale for retail sales[94] - Gross profit is net sales less cost of goods sold, with gross margin potentially impacted by declines in shipping and handling revenues[96] - Selling, general and administrative expenses include payroll, occupancy, marketing, logistics, and professional services, expected to decrease as a percentage of sales over time despite absolute increases[97][98] - Adjusted EBITDA is defined as consolidated net income (loss) before depreciation, amortization, interest, and income taxes, adjusted for certain non-cash and other items not representative of ongoing operating performance[100] Results of Operations This section details the company's financial performance for the three and nine months ended November 3, 2019, analyzing changes in net sales, gross profit, selling, general and administrative expenses, and net income (loss) compared to prior periods Three Months Ended November 3, 2019 Compared to Three Months Ended October 28, 2018 Net sales increased by 12.2% to $119.8 million, driven by 24.1% retail growth; gross margin decreased by 250 basis points, but SG&A as a percentage of net sales decreased by 600 basis points, leading to $0.2 million net income Three Months Financial Performance (in thousands, except percentages) | Metric | Nov 3, 2019 | Oct 28, 2018 | Change ($) | Change (%) | | :-------------------------------- | :---------- | :----------- | :--------- | :--------- | | Net Sales | $119,768 | $106,701 | $13,067 | 12.2% | | Direct Net Sales | $61,581 | $59,827 | $1,754 | 2.9% | | Retail Net Sales | $58,187 | $46,874 | $11,313 | 24.1% | | Gross Profit | $65,365 | $60,971 | $4,394 | 7.2% | | Gross Margin % | 54.6% | 57.1% | -2.5% | -250 bps | | SG&A Expenses | $64,037 | $63,534 | $503 | 0.8% | | SG&A % of Net Sales | 53.5% | 59.5% | -6.0% | -600 bps | | Net Income (Loss) attributable to controlling interest | $182 | $(3,150) | $3,332 | N/A | - The decrease in gross margin rate was primarily due to additional global promotions and recent clearance activity[106] - Advertising and marketing costs as a percentage of net sales decreased by 440 basis points due to lower catalog circulation and advertising leverage from higher retail sales mix[110] Nine Months Ended November 3, 2019 Compared to Nine Months Ended October 28, 2018 Net sales increased by 12.1% to $356.0 million, with retail sales up 28.9%; gross margin decreased by 270 basis points, and SG&A as a percentage of net sales increased by 90 basis points, resulting in a $5.5 million net loss Nine Months Financial Performance (in thousands, except percentages) | Metric | Nov 3, 2019 | Oct 28, 2018 | Change ($) | Change (%) | | :-------------------------------- | :---------- | :----------- | :--------- | :--------- | | Net Sales | $355,975 | $317,561 | $38,414 | 12.1% | | Direct Net Sales | $187,549 | $186,872 | $677 | 0.4% | | Retail Net Sales | $168,426 | $130,689 | $37,737 | 28.9% | | Gross Profit | $191,087 | $179,151 | $11,936 | 6.7% | | Gross Margin % | 53.7% | 56.4% | -2.7% | -270 bps | | SG&A Expenses | $196,128 | $172,075 | $24,053 | 14.0% | | SG&A % of Net Sales | 55.1% | 54.2% | 0.9% | 90 bps | | Net Income (Loss) attributable to controlling interest | $(5,453) | $2,536 | $(7,989) | N/A | - General and administrative expenses as a percentage of net sales increased by 310 basis points, primarily due to increased occupancy and equipment costs from retail store growth and higher depreciation from technology and corporate facility investments[119] - Advertising and marketing costs as a percentage of net sales decreased by 200 basis points, attributed to lower catalog circulation and advertising leverage from a higher retail sales mix[121] Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA Adjusted EBITDA for the three months ended November 3, 2019, significantly increased to $7.3 million (6.1% of net sales), but for the nine-month period, it decreased to $12.0 million (3.4% of net sales) Adjusted EBITDA Reconciliation (in thousands) | Metric | 3 Months Ended Nov 3, 2019 | 3 Months Ended Oct 28, 2018 | 9 Months Ended Nov 3, 2019 | 9 Months Ended Oct 28, 2018 | | :-------------------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Net income (loss) | $89 | $(3,076) | $(5,709) | $2,693 | | EBITDA | $8,009 | $558 | $11,720 | $15,431 | | Stock based compensation | $(747) | $447 | $282 | $1,305 | | Adjusted EBITDA | $7,262 | $1,005 | $12,002 | $16,736 | - Adjusted EBITDA as a percentage of net sales increased by 520 basis points to 6.1% for the three months ended November 3, 2019[125] - Adjusted EBITDA as a percentage of net sales decreased by 190 basis points to 3.4% for the nine months ended November 3, 2019[127] Liquidity and Capital Resources The company relies on operating cash and a credit facility for liquidity, with primary cash needs for inventory, marketing, leases, and capital expenditures, reporting $108.7 million net working capital General Primary liquidity sources are cash from operations and a $130.0 million credit facility, with $38.0 million in planned fiscal 2019 capital expenditures, and net working capital of $108.7 million - Primary liquidity sources are cash from operating activities and a credit facility of up to $130.0 million (including an $80.0 million revolver and $50.0 million DDTL)[128] - Expected capital expenditures for fiscal 2019 are approximately $38.0 million, with $30.0 million to $32.0 million allocated for new retail store expansion and remodels[129] - Net working capital was $108.7 million at November 3, 2019, including $2.2 million of cash[129] Cash Flow Analysis For the nine months ended November 3, 2019, net cash used in operating activities increased to $47.6 million due to inventory, while financing activities provided $73.0 million from credit and term loan proceeds Cash Flow Summary (in thousands) | Activity | 9 Months Ended Nov 3, 2019 | 9 Months Ended Oct 28, 2018 | | :-------------------------------- | :------------------------- | :-------------------------- | | Net cash used in operating activities | $(47,624) | $(23,502) | | Net cash used in investing activities | $(24,541) | $(46,317) | | Net cash provided by financing activities | $73,043 | $65,929 | - Operating cash flow was negative for the nine months, primarily due to an $85.4 million increase in inventory for the peak season and new retail stores[135] - Investing activities included $20.9 million in capital expenditures for new retail stores and IT investments, and $3.7 million in capital contributions for build-to-suit stores[139] - Financing activities provided $73.0 million, primarily from $53.9 million (net) from the revolving line of credit and $20.0 million from the term loan[142] Line of Credit The company's credit agreement provides an $80.0 million revolving line of credit and a $50.0 million delayed draw term loan, both maturing on May 17, 2023, with all covenants in compliance - The credit agreement provides for $80.0 million in revolving credit and $50.0 million in a delayed draw term loan, maturing on May 17, 2023[50] - The company was in compliance with all financial and non-financial covenants as of November 3, 2019, and expects to remain so for the remainder of fiscal 2019[145] Contractual Obligations No significant changes have occurred in the company's contractual obligations since the Annual Report on Form 10-K for the fiscal year ended February 3, 2019 - No significant changes to contractual obligations since the 2018 Form 10-K[146] Off-Balance Sheet Arrangements The company is not a party to any material off-balance sheet arrangements - No material off-balance sheet arrangements[147] Critical Accounting Policies and Critical Accounting Estimates No significant changes to critical accounting policies and estimates occurred, except for the adoption of ASC 842 on February 4, 2019, which changed lease accounting - No significant changes to critical accounting policies and estimates, except for the adoption of ASC 842 on February 4, 2019[151][152] Recent Accounting Pronouncements This section refers to Note 13 for information regarding recent accounting pronouncements, indicating no new significant pronouncements during the period - Refers to Note 13 for information on recent accounting pronouncements, which states no new significant pronouncements[154] Item 3. Quantitative and Qualitative Disclosures About Market Risk No significant changes in market risks were noted from the 2018 Form 10-K, with interest rate risk information referenced in Note 3 - No significant changes in market risks as previously disclosed in the 2018 Form 10-K[155] - Interest rate disclosure related to borrowings under the credit agreement is provided in Note 3[155] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of November 3, 2019, and the previously identified material weakness in internal control over financial reporting has been remediated Evaluation of Disclosure Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of November 3, 2019 - Disclosure controls and procedures were effective as of November 3, 2019[156] Material Weakness The material weakness in internal control over financial reporting, previously disclosed in the 2018 Form 10-K, has been remediated as of November 3, 2019 - The material weakness in internal control over financial reporting has been remediated as of November 3, 2019[159] - Remediation steps included hiring additional resources and automating/enhancing reconciliation process controls[158] Changes in Internal Control Over Financial Reporting No other material changes in internal control over financial reporting occurred during the quarter covered by this Quarterly Report on Form 10-Q - No other material changes in internal control over financial reporting during the quarter[162] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business, financial condition, operating results, or cash flows - No legal proceedings are expected to have a material adverse effect on the company's business[163] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K have occurred - No material changes to risk factors as previously disclosed in the 2018 Form 10-K[164] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell any unregistered equity securities during the quarter ended November 3, 2019, but acquired shares from employees for tax withholding upon restricted stock vesting - No unregistered equity securities were sold during the quarter ended November 3, 2019[165] Shares Acquired from Employees for Tax Withholding (Quarter Ended Nov 3, 2019) | Period | Total number of shares purchased | Average price paid per share | | :-------------------------- | :----------------------------- | :--------------------------- | | August 5 - September 1, 2019 | 78 | $11.62 | | September 2 - October 6, 2019 | 46 | N/A | | October 7 - November 3, 2019 | — | N/A | | Total | 124 | $10.59 | Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the CEO and CFO, and XBRL-related documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[168] Signatures The report is duly signed on behalf of Duluth Holdings Inc. by David Loretta, Senior Vice President and Chief Financial Officer, and Michael Murphy, Vice President and Chief Accounting Officer - The report is signed by David Loretta, Senior Vice President and Chief Financial Officer, and Michael Murphy, Vice President and Chief Accounting Officer[171][172]