Duluth (DLTH) - 2026 Q2 - Quarterly Report

Part I—Financial Information This section presents the unaudited condensed consolidated financial statements of Duluth Holdings Inc. for the periods ended August 3, 2025, and February 2, 2025 (balance sheets), and for the three and six months ended August 3, 2025, and July 28, 2024 (statements of operations, comprehensive income, shareholders' equity, and cash flows) Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Duluth Holdings Inc. for the periods ended August 3, 2025, and February 2, 2025 (balance sheets), and for the three and six months ended August 3, 2025, and July 28, 2024 (statements of operations, comprehensive income, shareholders' equity, and cash flows) It also includes detailed notes explaining the company's operations, accounting policies, debt, leases, fair value measurements, and other financial disclosures Condensed Consolidated Balance Sheets | Metric (in thousands) | August 3, 2025 | February 2, 2025 | | :-------------------- | :------------- | :--------------- | | Total current assets | $185,932 | $191,631 | | Total assets | $433,800 | $452,442 | | Total current liabilities | $129,050 | $128,637 | | Total liabilities | $266,742 | $272,763 | | Total shareholders' equity | $167,058 | $179,679 | - Total assets decreased by $18.6 million from February 2, 2025, to August 3, 2025, primarily due to decreases in inventory and property and equipment, net[9] - Total shareholders' equity decreased by $12.6 million, from $179.7 million to $167.1 million, during the six-month period[12] Condensed Consolidated Statements of Operations | Metric (in thousands) | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net sales | $131,716 | $141,619 | $234,420 | $258,303 | | Gross profit | $72,019 | $73,996 | $125,374 | $135,620 | | Operating income (loss) | $2,402 | $(1,597) | $(9,950) | $(10,568) | | Net income (loss) | $1,293 | $(1,970) | $(13,971) | $(9,835) | | Net income (loss) attributable to controlling interest | $1,261 | $(1,981) | $(14,032) | $(9,854) | | Basic EPS | $0.04 | $(0.06) | $(0.41) | $(0.30) | - Net sales decreased by 7.0% for the three months ended August 3, 2025, and by 9.2% for the six months ended August 3, 2025, compared to the prior year periods[15] - The company reported a net income of $1.3 million for the three months ended August 3, 2025, a significant improvement from a net loss of $2.0 million in the prior year's comparable quarter However, for the six months, the net loss widened to $14.0 million from $9.8 million[15] Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric (in thousands) | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) | $1,293 | $(1,970) | $(13,971) | $(9,835) | | Other comprehensive income (loss) | $28 | $96 | $450 | $(9) | | Comprehensive income (loss) | $1,321 | $(1,874) | $(13,521) | $(9,844) | - Other comprehensive income for the six months ended August 3, 2025, was $450 thousand, primarily driven by unrealized security gains, a positive change compared to a loss in the prior year[18] Condensed Consolidated Statement of Shareholders' Equity | Metric (in thousands) | Balance at Feb 2, 2025 | Balance at Aug 3, 2025 | | :-------------------- | :--------------------- | :--------------------- | | Capital stock | $108,009 | $109,499 | | Treasury stock | $(2,332) | $(2,922) | | Retained earnings | $77,721 | $63,689 | | Accumulated other comprehensive (loss) income | $(722) | $(272) | | Total shareholders' equity | $179,679 | $167,058 | - Shareholders' equity decreased by $12.6 million from February 2, 2025, to August 3, 2025, primarily due to a net loss of $15.3 million in the first quarter and $1.3 million net income in the second quarter, partially offset by stock-based compensation and other comprehensive income[21] Condensed Consolidated Statements of Cash Flows | Metric (in thousands) | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(24,436) | $(17,052) | | Net cash used in investing activities | $(3,465) | $(3,086) | | Net cash provided by (used in) financing activities | $30,304 | $(2,232) | | Increase (decrease) in cash and cash equivalents | $2,403 | $(22,370) | | Cash and cash equivalents at end of period | $5,738 | $9,787 | - Net cash used in operating activities increased to $24.4 million for the six months ended August 3, 2025, from $17.1 million in the prior year, mainly due to a decrease in accounts payable and inventory[27][145][146] - Net cash provided by financing activities was $30.3 million for the six months ended August 3, 2025, a significant improvement from net cash used of $2.2 million in the prior year, primarily driven by proceeds from the line of credit[27][148] Notes to Condensed Consolidated Financial Statements 1. Nature of Operations and Basis of Presentation - Duluth Holdings Inc. is a lifestyle brand of men's and women's casual wear, workwear, and accessories, primarily sold through its omnichannel platform[30] - The company operates as one reportable external segment and consolidates TRI Holdings, LLC as a variable interest entity[31][33] - Inventory is valued at the lower of cost or net realizable value using the first-in, first-out method, with reserves for excess and obsolete items increasing from $2.1 million to $3.7 million[36] - 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[39] 2. Leases - The company recognizes right-of-use (ROU) assets and lease liabilities for non-cancelable retail space leases, which expire through 2036[44][45] | Lease Expense (in thousands) | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :--------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Total finance lease expense | $1,085 | $1,212 | $2,175 | $2,459 | | Operating lease expense | $4,908 | $5,502 | $9,806 | $10,595 | | Total lease expense | $9,169 | $10,074 | $18,279 | $19,657 | | Lease Metric | August 3, 2025 | July 28, 2024 | | :------------- | :------------- | :------------ | | Weighted-average remaining lease term (Finance leases) | 9 years | 10 years | | Weighted-average remaining lease term (Operating leases) | 6 years | 7 years | | Weighted-average discount rate (Finance leases) | 4.5% | 4.5% | | Weighted-average discount rate (Operating leases) | 4.4% | 4.2% | 3. Debt and Credit Agreement | Debt (in thousands) | August 3, 2025 | February 2, 2025 | | :------------------ | :------------- | :--------------- | | TRI Senior Secured Note | $21,296 | $21,714 | | TRI Note | $3,500 | $3,500 | | Duluth Line of credit | $32,457 | $— | | Total Debt | $57,253 | $25,214 | - The company entered into a new $100.0 million asset-based revolving senior credit facility on April 28, 2025, replacing the prior facility, with a maturity date of April 28, 2030 This new facility aims to provide flexibility and liquidity for seasonal inventory builds at a lower interest rate[58][61] - The interest rate for SOFR loans under the New Credit Agreement is adjusted term SOFR plus 150 basis points, and for base rate loans, it's the Base Rate plus 50 basis points[59] 4. Accrued Expenses and Other Current Liabilities | Accrued Expenses (in thousands) | August 3, 2025 | February 2, 2025 | | :------------------------------ | :------------- | :--------------- | | Salaries and benefits | $5,389 | $3,897 | | Deferred revenue | $7,715 | $9,783 | | Product returns | $3,984 | $4,568 | | Total accrued expenses and other current liabilities | $33,257 | $35,684 | - Total accrued expenses and other current liabilities decreased by $2.4 million from February 2, 2025, to August 3, 2025, primarily due to decreases in deferred revenue and product returns, partially offset by an increase in salaries and benefits[65] 5. Fair Value - The company's available-for-sale security is categorized as a Level 3 instrument, valued using a discounted cash flow method[68] | Security (in thousands) | Cost or Amortized Cost | Estimated Fair Value (Aug 3, 2025) | | :---------------------- | :--------------------- | :--------------------------------- | | Corporate trust | $5,249 | $4,834 | - The fair value of the TRI Long-term debt (Level 3) was $23.0 million as of August 3, 2025, compared to its carrying amount of $24.8 million[73] 6. Variable Interest Entity - Duluth Holdings Inc. consolidates TRI Holdings, LLC as a variable interest entity because it is deemed the primary beneficiary, having the power to direct TRI's activities and the obligation/right to absorb/receive significant benefits[74][75] - TRI's primary purpose is to own the real property for the company's headquarters in Mt Horeb, Wisconsin, which Duluth leases[75] | TRI Consolidated Amounts (in thousands) | August 3, 2025 | February 2, 2025 | | :------------------------------------ | :------------- | :--------------- | | Total assets | $22,033 | $22,332 | | TRI long-term debt | $23,821 | $24,283 | 7. Earnings (Loss) Per Share | EPS (Class A and Class B) | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :------------------------ | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Basic EPS | $0.04 | $(0.06) | $(0.41) | $(0.30) | | Diluted EPS | $0.04 | $(0.06) | $(0.41) | $(0.30) | - Diluted loss per share excluded 0.2 million and 0.0 million unvested restricted stock for the six months ended August 3, 2025, and July 28, 2024, respectively, due to their anti-dilutive effect from net losses[79] 8. Stock-Based Compensation - Total stock compensation expense recognized was $1.1 million for the three months ended August 3, 2025, and $1.3 million for the six months ended August 3, 2025[82] - As of August 3, 2025, unrecognized compensation expense related to restricted stock awards was $4.6 million, expected to be recognized over a weighted average period of 2.5 years[82] | Unvested Restricted Stock Activity | Shares (thousands) | Weighted Average Fair Value per Share | | :--------------------------------- | :----------------- | :------------------------------------ | | Outstanding at February 2, 2025 | 1,686 | $6.02 | | Granted | 2,807 | $1.90 | | Vested | (1,061) | $4.93 | | Forfeited | (1,136) | $4.04 | | Outstanding at August 3, 2025 | 2,297 | $2.48 | 9. Property and Equipment | Property and Equipment (in thousands) | August 3, 2025 | February 2, 2025 | | :------------------------------------ | :------------- | :--------------- | | Total gross property and equipment | $265,692 | $268,132 | | Accumulated depreciation and amortization | $(165,720) | $(159,450) | | Property and equipment, net | $103,224 | $111,560 | - Net property and equipment decreased by $8.3 million from February 2, 2025, to August 3, 2025, primarily due to accumulated depreciation and amortization[83] 10. Revenue - Revenue primarily consists of sales of apparel, footwear, and hard goods, recognized upon shipment for direct-to-consumer sales and at the point of sale for store revenue[84] | Sales Channel (in thousands) | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :--------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Direct-to-consumer | $79,135 | $91,684 | $141,687 | $167,128 | | Stores | $52,581 | $49,935 | $92,733 | $91,175 | | Total Net Sales | $131,716 | $141,619 | $234,420 | $258,303 | - Direct-to-consumer sales decreased significantly, while store sales saw a modest increase for both the three and six months ended August 3, 2025, compared to the prior year[87] | Contract Liabilities (Gift Cards) (in thousands) | August 3, 2025 | July 28, 2024 | | :----------------------------------------------- | :------------- | :------------ | | Balance as of beginning of period | $9,782 | $9,579 | | Gift cards sold | $5,318 | $5,100 | | Gift cards redeemed | $(7,240) | $(7,043) | | Gift card breakage | $(145) | $(153) | | Balance as of end of period | $7,715 | $7,483 | 11. Income Taxes - The effective tax rate for controlling interest was (6%) for the six months ended August 3, 2025, compared to 21% for the prior year, primarily due to the establishment of a valuation allowance on deferred tax assets[90] - The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, permanently extends 100% bonus depreciation, domestic research cost expensing, and the ability to deduct interest expense, with the company currently evaluating its future impact[91][93] 12. Segment Reporting - The company operates as one reportable segment, with the Chief Executive Officer acting as the Chief Operating Decision Maker (CODM) who receives discrete financial information for gross margin and a summarized comprehensive statement of income[94] | Segment Metrics (in thousands) | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :----------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net sales | $131,716 | $141,619 | $234,420 | $258,303 | | Gross margin | $72,019 | $73,996 | $125,374 | $135,620 | | Total selling, general and administrative | $68,767 | $73,997 | $134,474 | $144,592 | | Operating income (loss) | $2,402 | $(1,597) | $(9,950) | $(10,568) | 13. Restructuring - On June 4, 2025, the company underwent a reduction in force to right-size its expense structure, incurring $850 thousand in employee termination benefit expense for the three and six months ended August 3, 2025[96][99] - In July 2024, the company amended a lease for a legacy fulfillment center, accelerating its expiration and incurring a $3.7 million termination penalty, amortized over the modified lease term[97] | Restructuring Expenses (in thousands) | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Early contract termination expense | $— | $920 | | Lease remeasurement expense | $— | $293 | | Accelerated depreciation expense | $— | $383 | | Employee termination benefit expense | $850 | $— | | Total restructuring expenses | $850 | $1,596 | 14. Recent Accounting Pronouncements - The company adopted ASU No 2023-07, 'Segment Reporting: Improvements to Reportable Segment Disclosures,' on January 29, 2024, enhancing disclosures about significant segment expenses[100] - Management is currently evaluating the effects of ASU No 2023-09, 'Income Taxes: Improvements to Income Tax Disclosures,' effective for annual periods beginning after December 15, 2024[101] - ASU No 2024-03, 'Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures,' effective for annual periods beginning after December 15, 2027, requires more detailed expense disclosures[102] 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 financial metrics, economic conditions, and how business performance is assessed It details the changes in net sales, gross profit, selling, general and administrative expenses, and net income/loss for the three and six months ended August 3, 2025, compared to the prior year, and discusses liquidity and capital resources Overview - Duluth Holdings Inc. is a lifestyle brand offering men's and women's casual wear, workwear, and accessories through its omnichannel platform, operating 61 retail stores and three outlet stores as of August 3, 2025[109] - The company emphasizes innovative, durable, and functional products, positioning itself as the 'Modern, Self-Reliant American Lifestyle' brand with a heritage in workwear[110] - The macroeconomic environment is characterized by inflation, tariff, and recessionary concerns, creating uncertainty regarding consumer demand and store traffic patterns[114] How We Assess the Performance of Our Business - Net sales decreased by 7.0% in Q2 FY25 and 9.2% in H1 FY25 compared to prior year periods[115] - Net income was $1.3 million in Q2 FY25 (vs. $2.0 million net loss in Q2 FY24), while net loss was $14.0 million in H1 FY25 (vs. $9.8 million net loss in H1 FY24)[115] - Adjusted EBITDA increased to $12.0 million in Q2 FY25 (vs. $10.5 million in Q2 FY24) but decreased to $8.2 million in H1 FY25 (vs. $12.3 million in H1 FY24)[115] - Adjusted EBITDA is used as a key measure of operating performance, excluding financing and investing activities, and is also a factor in employee bonus compensation[119][120] Results of Operations | Metric (in thousands) | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net sales | $131,716 | $141,619 | $234,420 | $258,303 | | Gross profit | $72,019 | $73,996 | $125,374 | $135,620 | | Gross margin % | 54.7% | 52.3% | 53.5% | 52.5% | | Selling, general and administrative expenses | $68,767 | $73,997 | $134,474 | $144,592 | | Operating income (loss) | $2,402 | $(1,597) | $(9,950) | $(10,568) | | Net income (loss) attributable to controlling interest | $1,261 | $(1,981) | $(14,032) | $(9,854) | - Net sales decreased due to a decline in web traffic from reduced promotional activity[124][130] - Gross margin rate increased for both periods, driven by higher average unit retail sales from reduced promotional activity and improved product costs from direct-to-factory sourcing[125][131] - Selling, general and administrative expenses decreased in absolute dollars but increased as a percentage of net sales for the six-month period due to the overall decrease in net sales[126][127][132][133] Reconciliation of Net Income (Loss) to EBITDA and EBITDA to Adjusted EBITDA | Metric (in thousands) | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) | $1,293 | $(1,970) | $(13,971) | $(9,835) | | EBITDA | $9,976 | $7,886 | $5,341 | $8,352 | | Adjusted EBITDA | $11,999 | $10,493 | $8,206 | $12,331 | - Adjusted EBITDA increased by $1.5 million to $12.0 million (9.1% of net sales) for the three months ended August 3, 2025, compared to $10.5 million (7.4% of net sales) in the prior year[137] - Adjusted EBITDA decreased by $4.1 million to $8.2 million (3.5% of net sales) for the six months ended August 3, 2025, compared to $12.3 million (4.8% of net sales) in the prior year[138] Liquidity and Capital Resources - Primary liquidity sources are cash from operating activities and a credit facility, with cash needs for inventory, marketing, payroll, leases, and capital expenditures[139] - Net working capital was $56.9 million, including $5.7 million in cash and cash equivalents, as of August 3, 2025[139] - Expected capital expenditures for fiscal 2025 are approximately $17.0 million, primarily for two new stores and information technology investments[140] | Cash Flow Summary (in thousands) | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(24,436) | $(17,052) | | Net cash used in investing activities | $(3,465) | $(3,086) | | Net cash provided by (used in) financing activities | $30,304 | $(2,232) | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no significant changes in the market risks previously described in the company's 2024 Form 10-K It refers to Note 3 for disclosures on interest rates related to borrowings under the credit agreement - No significant changes in market risks were reported compared to the 2024 Form 10-K[154] - Information on interest rates for credit agreement borrowings is detailed in Note 3, 'Debt and Credit Agreement'[154] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of August 3, 2025, based on an evaluation by the Chief Executive Officer and Chief Financial Officer It also states that there were no material changes in internal control over financial reporting during the period - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of August 3, 2025[155] - No material changes in internal control over financial reporting occurred during the quarter ended August 3, 2025[156] Part II—Other Information Item 1. Legal Proceedings This section states that 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 Reserves are established for specific legal matters when an unfavorable outcome is probable and estimable - No material adverse legal proceedings are currently pending against the company[157][158] - Reserves for legal matters are established when an unfavorable outcome is probable and estimable[158] Item 1A. Risk Factors This section indicates that there have been no material changes to the risk factors previously disclosed in the company's fiscal 2024 Annual Report on Form 10-K - No material changes to risk factors were reported compared to the fiscal 2024 Annual Report on Form 10-K[159] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that the company did not sell any unregistered equity securities during the quarter ended August 3, 2025 It details shares acquired from employees to satisfy minimum tax withholding requirements upon the vesting of restricted stock - No unregistered equity securities were sold during the quarter ended August 3, 2025[160] | Period | Total number of shares purchased | Average price paid per share | | :------------------------- | :------------------------------- | :--------------------------- | | May 5, 2025 - June 1, 2025 | 205,279 | $1.77 | | Total | 205,279 | $— | - The shares purchased were solely from employees to satisfy tax withholding obligations on vested restricted stock[161] Item 5. Other Information This section confirms that no director or Section 16 officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended August 3, 2025 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or Section 16 officers during the quarter[163] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including the First Amendment to the New Credit Agreement, certifications from the CEO and CFO, and XBRL-related documents - Key exhibits include the First Amendment to the New Credit Agreement (Exhibit 10.1) and certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2)[165] - XBRL-related information (Exhibit 101) is furnished, not filed, in accordance with Regulation S-T[165] Signatures This section contains the signature of the registrant, Duluth Holdings Inc., by its Senior Vice President, Chief Financial Officer, Heena Agrawal, on September 5, 2025, certifying the report - The report was signed by Heena Agrawal, Senior Vice President, Chief Financial Officer, on behalf of Duluth Holdings Inc. on September 5, 2025[169]