Overview

Duluth Trading Company is a lifestyle brand of men’s and women’s casual wear, workwear and accessories sold primarily through its own omnichannel platform. The company offers products nationwide through its website and catalog. In 2010, Duluth Trading initiated its omnichannel platform with the opening of its first retail store. Since then, the company has expanded its retail presence and as of July 28, 2024, operated 62 retail stores and three outlet stores.

Duluth Trading offers a comprehensive line of innovative, durable and functional products, such as its Longtail T® shirts, Buck Naked™ underwear, Fire Hose® work pants, and No-Yank® Tank, which reflect its position as the “Modern, Self-Reliant American Lifestyle” brand. The company’s brand has a heritage in workwear that transcends tradesmen and appeals to a broad demographic for everyday and on-the-job use.

Financial Performance Summary

A summary of Duluth Trading’s key financial results is as follows:

Metric	Q2 2024	Q2 2023	H1 2024	H1 2023
Net Sales	$141.6 million	$139.1 million	$258.3 million	$262.9 million
Net Loss	$3.7 million	$2.0 million	$11.6 million	$5.9 million
Adjusted EBITDA	$10.6 million	$8.6 million	$12.4 million	$13.8 million

Key Highlights:

• Net sales increased 1.8% in Q2 2024 compared to Q2 2023, but decreased 1.7% in H1 2024 compared to H1 2023.
• Net loss increased in both Q2 2024 and H1 2024 compared to the prior year periods.
• Adjusted EBITDA increased in Q2 2024 but decreased in H1 2024 compared to the prior year periods.

Economic Conditions

The macroeconomic environment is experiencing inflation, recessionary concerns and general uncertainty regarding the future economic environment. Duluth Trading cannot predict the ultimate impact of these economic conditions on its operational and financial performance. Given the uncertainty, the company cannot reasonably estimate store traffic patterns and the prolonged impact on overall consumer demand.

Assessing Business Performance

Duluth Trading assesses its performance using several key financial and operating measures, including:

Net Sales: Reflects the sale of merchandise, shipping/handling revenue, less returns and discounts.

Gross Profit: Equals net sales less cost of goods sold. Gross margin is gross profit as a percentage of net sales.

Selling, General & Administrative (SG&A) Expenses: Includes all operating costs not in cost of goods sold, such as payroll, occupancy, marketing, logistics, and other expenses.

Adjusted EBITDA: A non-GAAP measure that excludes the effects of financing, investing, and certain non-cash and non-recurring expenses to provide a clearer picture of operating results.

Results of Operations

Q2 2024 vs. Q2 2023

• Net sales increased 1.8% to $141.6 million, driven by higher site conversion.
• Gross profit increased 3.5% to $74.0 million, with gross margin improving to 52.3%.
• SG&A expenses increased 4.6% to $76.3 million, including a $2.4 million non-recurring sales tax expense. Excluding this, SG&A was 52.2% of net sales.
• Net loss attributable to controlling interest was $3.7 million, compared to $2.0 million in the prior year.
• Adjusted EBITDA increased 23.9% to $10.6 million.

H1 2024 vs. H1 2023

• Net sales decreased 1.7% to $258.3 million, with store market sales down 3.8% and non-store market sales down 3.0%.
• Gross profit decreased 1.1% to $135.6 million, but gross margin improved to 52.5%.
• SG&A expenses increased 2.6% to $146.9 million, including the $2.4 million non-recurring sales tax expense. Excluding this, SG&A was 55.9% of net sales.
• Net loss attributable to controlling interest was $11.6 million, compared to $5.9 million in the prior year.
• Adjusted EBITDA decreased 10.1% to $12.4 million.

Liquidity and Capital Resources

Duluth Trading’s primary sources of liquidity are cash from operations and a credit facility. The company expects to spend approximately $25.0 million in fiscal 2024 on capital expenditures, primarily for logistics optimization and IT investments.

The company believes its cash flow from operations and availability under its credit facility will be sufficient to cover working capital and capital expenditure needs for the foreseeable future.

Conclusion

Duluth Trading faced a challenging macroeconomic environment in the first half of fiscal 2024, with net sales declining and profitability pressured. The company’s focus on cost management and operational efficiency helped drive improved gross margins, but higher SG&A expenses, including a non-recurring sales tax accrual, led to increased net losses.

Looking ahead, Duluth Trading will need to navigate ongoing economic uncertainty and its impact on consumer demand. The company’s ability to continue innovating its product offerings, optimize its omnichannel platform, and drive operational efficiencies will be critical to returning to sustainable profitability and growth.