Duluth (DLTH) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net sales decline of 8.1% for Q3 2024, with net sales totaling $127.1 million [41][34] - Gross margin expanded by 210 basis points to 52.3% compared to the previous year [34][45] - Adjusted EPS loss was$ 0.41, compared to a net loss of $10.5 million or$ 0.32 per diluted share last year [49][41] - Inventory levels increased by 33%, approximately $57 million, with 97% of inventory in current products [50][49] Business Line Data and Key Metrics Changes - Women's business declined by 4%, but the first layer category grew by 22% and the heirloom garden collection increased by nearly 70% [44][20] - Men's business saw a decline of 10%, primarily due to unseasonably warm weather affecting seasonal categories [44][24] - The company experienced a double-digit increase in average order value and digital traffic, although transactions contracted year-over-year [7][8] Market Data and Key Metrics Changes - Direct channel sales declined by 8.3%, while retail store sales decreased by 7.8% due to traffic decline [43][34] - Mobile penetration for site visits and sales increased, with 71% of visits and 57% of sales coming from mobile devices [15][28] Company Strategy and Development Direction - The company is focused on enhancing its assortment and inventory management through strategic initiatives and partnerships [10][54] - Plans to open two new stores in priority markets in the second half of 2025, while evaluating closures or relocations of underperforming stores [18][39] - The company is committed to improving operational effectiveness and financial performance through structural improvements and enterprise planning initiatives [10][31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of a highly promotional environment and warm weather on sales, but noted improvements in top-line trends leading into the holiday season [7][9] - The company is focused on ending the fiscal year with clean inventory levels and maximizing returns from strategic investments [57][58] - Future gross margin is projected to decrease by approximately 125 basis points due to higher promotional activity [54][56] Other Important Information - The company completed the closure of its Dubuque fulfillment center, incurring restructuring expenses of$ 7.7 million [38][41] - Capital expenditures for the quarter were $5 million, significantly lower than the previous year's$ 9.9 million [51][41] - The company ended the quarter with $165 million in liquidity and$ 44 million in outstanding debt [52][32] Q&A Session Summary Question: What falls under the new threshold for store closures? - Management is assessing stores on a case-by-case basis as they approach renewal dates, focusing on profitability and potential closures or relocations [61] Question: What is the primary driver to improve SG&A? - Management highlighted the progress on key initiatives and the benefits from logistics strategies, which are expected to improve SG&A over the next few years [62][65] Question: Can unsold cool weather gear be packed away or must it be cleared by year-end? - Management confirmed that some seasonal items can be packed away for future sales, while others will be marked down to avoid impacting margins [77][75]