BELLEVILLE, Wis., Dec. 08, 2016 (GLOBE NEWSWIRE) -- Duluth Holdings Inc. (dba, Duluth Trading Company) (“Duluth Trading” or the “Company”) (NASDAQ: DLTH ), a lifestyle brand of men’s and women’s casual wear, workwear and accessories, today announced its financial results for the fiscal third quarter ended October 30, 2016, and its revised guidance for the fiscal year 2016.
Highlights for the Third Quarter Ended October 30, 2016
- Net sales increased 21.2% to $67.0 million compared to $55.3 million in the prior-year third quarter
- Gross margin increased 60 basis points (bps) to 57.8% compared to 57.2% in the prior-year third quarter
- Net income was $0.5 million, or $0.01 per diluted share, compared to $1.5 million, or $0.06 per diluted share, in the prior-year third quarter. Adjusted for income taxes, pro forma net income for the prior-year third quarter was $0.9 million, or $0.04 per diluted share
- Adjusted EBITDA 1 was $2.5 million compared to $2.7 million in the prior-year third quarter
- During the third quarter, the Company opened three new retail stores, two in the Chicago metro market and one in King of Prussia, Pennsylvania, for a total of 12 retail stores and two outlet stores
- 27 th consecutive quarter of increased net sales year-over-year
1 See reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA in the accompanying financial tables.
“While we have achieved 27 consecutive quarters of increased net sales year-over-year, third-quarter net sales fell short of our expectations. In the latter part of September and through the quarter end in October, we experienced unusually warm weather that extended across the country and this had an impact on our total net sales for the third quarter. This unseasonable weather, coupled with a highly promotional environment, continued into early fourth quarter. As a result, we are revising our 2016 fiscal full-year guidance and now expect net sales in the range of $360 million to $370 million, with corresponding revisions to our EPS and Adjusted EBITDA,” said Stephanie Pugliese, Chief Executive Officer of Duluth Trading.
“Despite the challenging environment we are experiencing right now, our entire team has been operating at the highest level to ensure customer satisfaction and brand integrity. I am especially proud of our team’s execution on opening seven new stores during fiscal 2016, which exceeded our original expectation of three to five new stores this year. In the third quarter we opened three new stores and recently opened two more during the fourth quarter, one in Manassas, Virginia, a suburb of Washington D.C., and the other in Independence, Missouri, a suburb of Kansas City, which brings our total store count to 16. Retail expansion is one of the key drivers of our growth strategy and this year we have successfully expanded our retail presence into large metro markets, as well as establishing a foothold in the Eastern U.S. market where we have a sizable concentration of Duluth customers. We have a proven business model and a strong foundation for growth that makes us confident in delivering our long-term financial goals. ”
Operating Results for the Third Quarter Ended October 30, 2016
Net sales increased 21.2% to $67.0 million, compared to $55.3 million in the same period a year ago. The net sales increase was driven by 12.3% growth in direct net sales and 68.4% growth in retail net sales. Net sales growth was achieved across virtually all product categories. The Company’s website visits increased compared to the prior-year third quarter due to continued marketing efforts, including television advertising and on-line advertising. The increase in retail net sales was primarily attributable to the opening of five new retail stores during the second and third quarters of fiscal 2016, along with the opening of a retail store and outlet store in the prior year third and fourth quarters.
Gross profit increased 22.6% to $38.7 million, or 57.8% of net sales, compared to $31.6 million, or 57.2% of net sales, in the corresponding prior-year period. The increase in gross profit was primarily due to increased net sales. The 60 basis point improvement in gross margin occurred in both our direct and retail segments, and was primarily attributable to improved initial product costs, coupled with a product mix shift to higher margin products.
Selling, general and administrative expenses increased 26.6% to $37.9 million, compared to $30.0 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses increased 240 basis points to 56.6%, compared to 54.2%, in the corresponding prior-year period. As a percentage of net sales, advertising and marketing costs decreased 150 basis points to 21.8%, compared to 23.3% in the corresponding prior-year period, primarily due a decrease in women’s television advertising as a result of timing, coupled with a decrease in catalog costs primarily due to the Company’s planned decrease in catalog spend as a percentage of sales, which was partially offset by an increase in on-line advertising. As a percentage of net sales, general and administrative expenses increased 410 basis points to 19.7%, compared to 15.6% in the corresponding prior-year period, primarily due to increased rent expense and related store opening costs as a result of the increase in new retail store openings, and an increase in personnel expenses, primarily due to new headcount required to support the growth of the business, coupled with an increase in consulting fees. As a percentage of net sales, selling expense decreased 10 basis points to 15.2%, compared to 15.3% in the corresponding prior-year period, primarily due to a decrease in shipping expense due to favorable shipping rates, coupled with decrease in distribution costs, primarily attributable to the efficient utilization of our expanded Belleville distribution center, which was partially offset by an increase in customer service attributable to the growth in retail.
Net income was $0.5 million, or $0.01 per diluted share, compared to $1.5 million, or $0.06 per diluted share, in the prior-year period. Adjusted for income taxes, pro forma net income for the prior-year period was $0.9 million, or $0.04 per diluted share.
The pro forma net income gives effect to the conversion of the Company to a “C” corporation, which was effective November 25, 2015. Prior to such conversion, the Company was an “S” corporation and generally not subject to income taxes. The pro forma net income, therefore, includes an adjustment for income tax expense on the income attributable to controlling interest as if the Company had been a “C” corporation as of February 4, 2013 at an assumed combined federal, state and local effective tax rate of 40%, which approximates the calculated statutory rate for each period.
Adjusted EBITDA was $2.5 million, or 3.7% of net sales, compared to $2.7 million, or 4.8% of net sales, in the prior-year period. Duluth Trading defines Adjusted EBITDA as consolidated net income (loss) before depreciation and amortization, interest expense and provision for income taxes adjusted for the impact of certain items, including non-cash and other items.
Balance Sheet and Liquidity
The Company ended the quarter with a cash balance of approximately $0.2 million, with net working capital of $69.5 million and $26.8 million available on its $40.0 million revolving line of credit.
Revised Fiscal 2016 Outlook
The Company revised its fiscal 2016 outlook as follows:
- Net sales in the range of $360.0 million to $370.0 million
- GAAP EPS in the range of $0.52 to $0.60 per diluted share
- Adjusted EBITDA in the range of $34.0 million to $38.0 million
- Capital expenditures of $25.0 to $26.0 million 1
1 Fiscal 2016 capital expenditures include the Company’s opening of seven retail stores coupled with the expansion of our distribution center at the Company’s Belleville location and information technology investments.
Long-Term Financial Targets
The Company reaffirmed its long-term financial targets of approximately 20% net sales growth, 25% net income growth and 25% Adjusted EBITDA growth.
Conference Call Information
A conference call and audio webcast with analysts and investors will be held on Thursday, December 8, 2016 at 4:30 pm Eastern Time, to discuss the results and answer questions.
- Live conference call: 844-875-6915 (domestic) or 412-317-6711 (international)
- Conference call replay available through December 22, 2016: 877-344-7529 (domestic) or 412-317-0088 (international)
- Replay access code: 10097089
- Live and archived webcast: ir.duluthtrading.com
The Company is enabling investors to pre-register for the earnings conference call so that they can expedite their entry into the call and avoid the need to wait for a live operator. In order to pre-register for the call, investors can visit http://dpregister.com/10097089 and enter in their contact information. Investors will then be issued a personalized phone number and pin to dial into the live conference call. Individuals can pre-register any time prior to the start of the conference call on December 8 th .
About Duluth Trading
Duluth Trading is a rapidly growing lifestyle brand for the Modern, Self-Reliant American. Based in Belleville, Wisconsin, we offer high quality, solution-based casual wear, workwear and accessories for men and women who lead a hands-on lifestyle and who value a job well-done. We provide our customers an engaging and entertaining experience. Our marketing incorporates humor and storytelling that conveys the uniqueness of our products in a distinctive, fun way, and our products are sold exclusively through our content-rich website, catalogs, and “store like no other” retail locations. We are committed to outstanding customer service backed by our “No Bull Guarantee” - if it’s not right, we’ll fix it. Visit our website at www.duluthtrading.com
Non-GAAP Measurements
Management believes that non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods. Within this release, including the tables attached hereto, reference is made to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). See attached Table “Reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA” for a reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA for the three and nine months ended October 30, 2016, versus the three and nine months ended November 1, 2015. Adjusted EBITDA is a metric used by management and frequently used by the financial community, which provides insight into an organization’s operating trends and facilitates comparisons between peer companies, since interest, taxes, depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA excludes certain items that are unusual in nature or not comparable from period to period. The Company provides this information to investors to assist in comparisons of past, present and future operating results and to assist in highlighting the results of on-going operations. While the Company’s management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace the Company’s GAAP financial results and should be read in conjunction with those GAAP results.
Forward-Looking Statements
This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts included in this press release, including statements concerning Duluth Trading's plans, objectives, goals, beliefs, business strategies, future events, business conditions, its results of operations, financial position and its business outlook, business trends and certain other information herein are forward-looking statements, including Duluth Trading’s ability to execute on its growth strategies and statements under the headings “Revised Fiscal 2016 Outlook” and “Long-Term Financial Targets.” You can identify forward-looking statements by the use of words such as “may,” ”might,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “believe,” “estimate,” “project,” “target,” “predict,” “intend,” “future,” “budget,” “goals,” “potential,” “continue,” “design,” “objective,” “would” and other similar expressions. The forward-looking statements are not historical facts, and are based upon Duluth Trading's current expectations, beliefs, estimates, and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond Duluth Trading's control. Duluth Trading's expectations, beliefs and projections are expressed in good faith, and Duluth Trading believes there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs, estimates, and projections will be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the forward-looking statements, including, among others, the risks, uncertainties, and factors set forth under “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC on April 8, 2016. Forward-looking statements speak only as of the date the statements are made. Duluth Trading assumes no obligation to update forward-looking statements to reflect actual results, subsequent events or circumstances or other changes affecting forward-looking information except to the extent required by applicable securities laws.
(Tables Follow)
| DULUTH HOLDINGS INC. | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| (Unaudited) | ||||||||
| (Amounts in thousands) | ||||||||
| October 30, 2016 | January 31, 2016 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 173 | $ | 37,873 | ||||
| Accounts receivable | 30 | 20 | ||||||
| Other receivables | 3,083 | 76 | ||||||
| Inventory, net | 96,681 | 55,303 | ||||||
| Prepaid expenses | 3,633 | 3,683 | ||||||
| Deferred catalog costs | 4,633 | 1,435 | ||||||
| Total current assets | 108,233 | 98,390 | ||||||
| Property and equipment, net | 45,275 | 21,529 | ||||||
| Restricted cash | 1,367 | — | ||||||
| Goodwill | 402 | 402 | ||||||
| Other assets, net | 343 | 299 | ||||||
| Total assets | $ | 155,620 | $ | 120,620 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | 19,277 | $ | 10,611 | ||||
| Accrued expenses and other current liabilities | 17,384 | 12,049 | ||||||
| Income taxes payable | — | 1,308 | ||||||
| Bank overdrafts | 2,055 | — | ||||||
| Current maturities of long-term debt | 62 | 722 | ||||||
| Total current liabilities | 38,778 | 24,690 | ||||||
| Long-term line of credit | 13,209 | — | ||||||
| Finance lease obligations under built-to-suit leases | 1,957 | — | ||||||
| Long-term debt, less current maturities | 731 | 4,301 | ||||||
| Deferred rent obligations, less current maturities | 1,249 | 1,112 | ||||||
| Deferred tax liabilities | 182 | 31 | ||||||
| Total liabilities | 56,106 | 30,134 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders' equity: | ||||||||
| Capital stock | 86,191 | 85,389 | ||||||
| Retained earnings | 10,740 | 3,443 | ||||||
| Accumulated other comprehensive loss | — | (27 | ) | |||||
| Total shareholders' equity of Duluth Holdings Inc. | 96,931 | 88,805 | ||||||
| Noncontrolling interest | 2,583 | 1,681 | ||||||
| Total shareholders' equity | 99,514 | 90,486 | ||||||
| Total liabilities and shareholders' equity | $ | 155,620 | $ | 120,620 | ||||
| DULUTH HOLDING INC. | ||||||||||||
| Consolidated Statements of Operations | ||||||||||||
| (Unaudited) | ||||||||||||
| (Amounts in thousands, except per share figures) | ||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||
| October 30, 2016 | November 1, 2015 | October 30, 2016 | November 1, 2015 | |||||||||
| Net sales | $ | 67,008 | $ | 55,296 | $ | 201,463 | $ | 163,780 | ||||
| Cost of goods sold | 28,260 | 23,692 | 84,102 | 69,051 | ||||||||
| Gross profit | 38,748 | 31,604 | 117,361 | 94,729 | ||||||||
| Selling, general and administrative expenses | 37,929 | 29,958 | 105,215 | 84,574 | ||||||||
| Operating income | 819 | 1,646 | 12,146 | 10,155 | ||||||||
| Interest expense | 33 | 114 | 108 | 226 | ||||||||
| Other income, net | 33 | 44 | 163 | 119 | ||||||||
| Income before income taxes | 819 | 1,576 | 12,201 | 10,048 | ||||||||
| Income tax expense | 305 | — | 4,691 | — | ||||||||
| Net income | 514 | 1,576 | 7,510 | 10,048 | ||||||||
| Less: Net income attributable to noncontrolling interest | 52 | 67 | 188 | 149 | ||||||||
| Net income attributable to controlling interest | $ | 462 | $ | 1,509 | $ | 7,322 | $ | 9,899 | ||||
| Basic earnings per share (Class A and Class B): | ||||||||||||
| Weighted average shares of common stock outstanding | 31,520 | 23,815 | 31,520 | 23,815 | ||||||||
| Net income per share attributable to controlling interest | $ | 0.01 | $ | 0.06 | $ | 0.23 | $ | 0.42 | ||||
| Diluted earnings per share (Class A and Class B): | ||||||||||||
| Weighted average shares and equivalents outstanding | 32,294 | 24,026 | 32,286 | 24,289 | ||||||||
| Net income per share attributable to controlling interest | $ | 0.01 | $ | 0.06 | $ | 0.23 | $ | 0.41 | ||||
| Pro forma net income information (Note 1): | ||||||||||||
| Income attributable to controlling interest before provision for income taxes | $ | 1,509 | $ | 9,899 | ||||||||
| Pro forma provision for income taxes | 604 | 3,960 | ||||||||||
| Pro forma net income attributable to controlling interest | $ | 905 | $ | 5,939 | ||||||||
| Pro forma basic net income per share attributable to controlling interest (Class A and Class B) | $ | 0.04 | $ | 0.25 | ||||||||
| Pro forma diluted net income per share attributable to controlling interest (Class A and Class B) | $ | 0.04 | $ | 0.24 | ||||||||
Note 1 : The pro forma net income information gives effect to the conversion of the Company to a “C” corporation on November 25, 2015. Prior to such conversion, the Company was an “S” corporation and generally not subject to income taxes. The pro forma net income, therefore, includes an adjustment for income tax expense on the income attributable to controlling interest as if the Company had been a “C” corporation as of February 4, 2013 at an assumed combined federal, state and local effective tax rate of 40%, which approximates the calculated statutory rate for each period. No pro forma income tax expense was calculated on the income attributable to noncontrolling interest because this entity did not convert to a “C” corporation. The pro forma basic and diluted net income per share Class A and Class B common stock is computed using the pro forma net income, as discussed above.
| DULUTH HOLDINGS INC. | ||||||||||
| Consolidated Statements of Cash Flows | ||||||||||
| (Unaudited) | ||||||||||
| (Amounts in thousands) | ||||||||||
| Nine Months Ended | ||||||||||
| October 30, 2016 | November 1, 2015 | |||||||||
| Cash flows from operating activities: | ||||||||||
| Net income | $ | 7,510 | $ | 10,048 | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||
| Depreciation and amortization | 3,215 | 1,998 | ||||||||
| Amortization of stock-based compensation | 969 | 499 | ||||||||
| Deferred income taxes | 151 | — | ||||||||
| Loss on disposal of property and equipment | 3 | — | ||||||||
| Changes in operating assets and liabilities: | ||||||||||
| Accounts receivable | (10 | ) | (37 | ) | ||||||
| Other receivables | (3,007 | ) | (654 | ) | ||||||
| Inventory | (40,891 | ) | (31,187 | ) | ||||||
| Prepaid expense | 181 | (1,248 | ) | |||||||
| Deferred catalog costs | 485 | 311 | ||||||||
| Trade accounts payable | 6,713 | 4,915 | ||||||||
| Income taxes payable | (1,308 | ) | — | |||||||
| Accrued expenses and deferred rent obligations | (794 | ) | (1,910 | ) | ||||||
| Net cash used in operating activities | (26,783 | ) | (17,265 | ) | ||||||
| Cash flows from investing activities: | ||||||||||
| Purchases of property and equipment | (21,026 | ) | (6,553 | ) | ||||||
| Change in restricted cash | (1,367 | ) | — | |||||||
| Purchases of other assets | (80 | ) | (58 | ) | ||||||
| Net cash used in investing activities | (22,473 | ) | (6,611 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Proceeds from line of credit | 18,156 | 64,058 | ||||||||
| Payments on line of credit | (4,947 | ) | (34,365 | ) | ||||||
| Proceeds from long term debt | — | 800 | ||||||||
| Payments on long term debt | (4,216 | ) | (534 | ) | ||||||
| Payments on capital lease obligations | (14 | ) | (256 | ) | ||||||
| Change in bank overdrafts | 2,055 | 88 | ||||||||
| Distributions to shareholders | (192 | ) | (13,671 | ) | ||||||
| Distributions to holders of noncontrolling interest in variable interest entity | (30 | ) | (250 | ) | ||||||
| Capital contributions to variable interest entity | 744 | 344 | ||||||||
| Other | — | (10 | ) | |||||||
| Net cash provided by financing activities | 11,556 | 16,204 | ||||||||
| Decrease in cash | (37,700 | ) | (7,672 | ) | ||||||
| Cash at beginning of period | 37,873 | 7,881 | ||||||||
| Cash at end of period | $ | 173 | $ | 209 | ||||||
| Supplemental disclosure of cash flow information | ||||||||||
| Interest paid | $ | 116 | $ | 156 | ||||||
| Income taxes paid | $ | 7,929 | $ | — | ||||||
| DULUTH HOLDINGS INC. | ||||||||||||
| Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA | ||||||||||||
| (Unaudited) | ||||||||||||
| (Amounts in thousands) | ||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||
| October 30, 2016 | November 1, 2015 | October 30, 2016 | November 1, 2015 | |||||||||
| Net income | $ | 514 | $ | 1,576 | $ | 7,510 | $ | 10,048 | ||||
| Depreciation and amortization | 1,264 | 824 | 3,215 | 1,998 | ||||||||
| Interest expense | 33 | 114 | 108 | 226 | ||||||||
| Income tax expense | 305 | — | 4,691 | — | ||||||||
| EBITDA | $ | 2,116 | $ | 2,514 | $ | 15,524 | $ | 12,272 | ||||
| Non-cash stock based compensation | 354 | 167 | 969 | 499 | ||||||||
| Payment of grantees' tax liabilities associated with grant of restricted stock awards | — | — | — | 1,115 | ||||||||
| Adjusted EBITDA | $ | 2,470 | $ | 2,681 | $ | 16,493 | $ | 13,886 | ||||
| DULUTH HOLDINGS INC. | ||||||||||||||
| Segment Information | ||||||||||||||
| (Unaudited) | ||||||||||||||
| (Amounts in thousands) | ||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||
| October 30, 2016 | November 1, 2015 | October 30, 2016 | November 1, 2015 | |||||||||||
| Net sales | ||||||||||||||
| Direct | $ | 52,271 | $ | 46,543 | $ | 166,437 | $ | 141,241 | ||||||
| Retail | 14,737 | 8,753 | 35,026 | 22,539 | ||||||||||
| Total net sales | $ | 67,008 | $ | 55,296 | $ | 201,463 | $ | 163,780 | ||||||
| Operating income | ||||||||||||||
| Direct | $ | (84 | ) | $ | 126 | $ | 8,694 | $ | 6,270 | |||||
| Retail | 903 | 1,520 | 3,452 | 3,885 | ||||||||||
| Total operating income | 819 | 1,646 | 12,146 | 10,155 | ||||||||||
| Interest expense | 33 | 114 | 108 | 226 | ||||||||||
| Other income, net | 33 | 44 | 163 | 119 | ||||||||||
| Income before income taxes | $ | 819 | $ | 1,576 | $ | 12,201 | $ | 10,048 | ||||||
Investor Contacts: Donni Case (310) 622-8224 Johan Yokay (310) 622-8241 Financial Profiles, Inc. Duluth@finprofiles.com
