Duluth (US:DLTH)2019-09-14 15:19Financial Data and Key Metrics Changes - For Q2 2019, the company reported net sales of $122 million, a 10% increase from $111 million in the previous year [15] - Net income for the quarter was $1.9 million or $0.06 per diluted share, down from $6.4 million or $0.20 per diluted share last year [26] - Adjusted EBITDA decreased to $9.6 million from $13.1 million in the prior year [26] - Selling, general and administrative (SG&A) expenses increased by 16.7% to $61.1 million, compared to $52.3 million last year [21] Business Line Data and Key Metrics Changes - Direct segment sales were flat at $60.3 million, while Retail segment sales grew by 24% to $61.7 million [15] - The women's business outpaced men's with over 20% growth for the quarter, while men's sales faced challenges [19] - The company added four new stores during the quarter, bringing the total to 55 stores compared to 39 stores last year [16] Market Data and Key Metrics Changes - The company experienced sluggish sales trends in the direct channel and existing store markets, particularly in May [17] - The gross margin for the quarter declined by 310 basis points, resulting in a gross profit of $64.8 million [18] - The company expects gross margins to improve in the second half of the fiscal year but will still fall short of recovering first-half declines [20] Company Strategy and Development Direction - The company plans to moderate retail expansion in 2020 to focus on improving asset productivity and operating margin rates [11] - Key priorities include driving top-line growth through new product offerings, leveraging cost structure for profitability, and achieving greater returns on investments [13] - The company aims to transition all apparel goods out of China by 2020, with less than 15% of total sourced products currently exposed to China [21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that performance in the first half of the year was below expectations, leading to a reduction in guidance for 2019 [10] - The company expects second-half sales growth of roughly 10%, supported by new market expansion and improved inventory flow [34] - Management remains optimistic about long-term growth opportunities despite current challenges [44] Other Important Information - Capital expenditures for Q2 were $7 million, down from $12.8 million last year, primarily for new store openings [31] - The company plans to continue opening stores in new markets but will reduce the pace of capital outlays going into 2020 [32] - The company expects SG&A as a percentage of sales to decrease by over 150 basis points in the second half of the year [25] Q&A Session Summary Question: Update on leadership transition and future plans - Management is committed to overseeing operations and will begin a search for a permanent replacement in early 2020, focusing on candidates with strong brand credentials [41] Question: Thoughts on moderating retail growth - The moderation is seen as a pause to improve operating ratios, with a focus on executing well and building the brand [43] Question: Long-term vision for SG&A ratio - The company aims to leverage SG&A and return operating margins to historical levels, targeting high-single to low-double digit margins [46] Question: Behind-the-scenes investments and their impact - Investments in infrastructure and logistics are expected to yield benefits in SG&A leverage and inventory management [48] Question: Update on women's business as a percentage of total sales - Women's business is trending around 27% of total sales, with potential for growth due to strong marketing and new product launches [51]