Duluth Holdings Inc. — Q1 Fiscal 2022 Form 10-Q
Reporting period: 13 weeks ended May 1, 2022; comparable period ended May 2, 2021. Duluth sells branded casual wear, workwear, and accessories through direct-to-consumer channels and stores. It operated 62 retail stores and three outlet stores at quarter-end. Figures below are in millions unless stated otherwise.
Key financial results
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $122.9 | $133.4 |
| Gross profit / gross margin | $67.1 / 54.6% | $66.5 / 49.9% |
| SG&A / percentage of sales | $68.0 / 55.3% | $64.6 / 48.5% |
| Operating income (loss) | ($0.9) | $1.9 |
| Net income (loss) | ($1.3) | $0.5 |
| Adjusted EBITDA | $7.9 | $9.6 |
| Operating cash flow | ($31.7) | $12.4 |
Basic and diluted loss per share was $0.04. Adjusted EBITDA is a non-GAAP measure; the company reported an Adjusted EBITDA margin of 6.4%, versus 7.2% a year earlier.
Liquidity, debt, and cash flow
- Cash and cash equivalents were $40.4 at May 1, down from $77.1 at January 30. Net working capital was $106.0.
- Operating cash use primarily reflected a $29.6 inventory build and a $17.5 decrease in accrued expenses, partly offset by a $10.4 increase in trade payables. Inventory was $152.2, up from $122.7 at fiscal year-end.
- Investing cash use was $3.8, primarily capital expenditures; financing cash use was $1.1. The quarter’s total cash decrease was $36.7.
- Duluth reported no balance on its own long-term debt. Consolidated TRI debt was $27.2, including $0.7 current; the filing says Duluth is not the guarantor or obligor of TRI’s notes. The company had a $150.0 revolving credit facility maturing in May 2026 and was in compliance with its covenants. The filing does not state unused borrowing availability.
- Lease liabilities were substantial: $117.6 operating and $42.3 finance, net of discounts, at May 1.
Changes versus prior year and management commentary
- Sales declined 7.9%. Management attributed the decrease mainly to continuing supply-chain disruptions and heavier clearance and promotional sales in the prior-year quarter. Direct-to-consumer sales fell to $77.7 from $88.4, while store sales were nearly flat at $45.2 versus $45.1.
- Gross margin improved 4.7 percentage points, which management attributed to a higher full-price sales mix as it reduced promotions and clearance activity. The improvement did not offset lower sales and higher SG&A.
- SG&A rose 5.2%, primarily due to new headcount, higher depreciation from capital investment, and increased advertising. Net results shifted from income to a loss, and Adjusted EBITDA declined $1.7.
- Management expects approximately $40.0 of fiscal 2022 capital expenditures, including software-hosting implementation costs, primarily for logistics optimization and automated fulfillment centers. It expects operating cash flow and credit-facility availability to cover working capital and planned capital expenditures for the foreseeable future. No revenue or earnings guidance is provided in the filing.
- The “Big Dam Blueprint” emphasizes digital-first operations, investment in direct channels, development of a multi-brand platform, testing growth opportunities, and investment in logistics, technology, and talent.
Risks, contingencies, and unusual items
- Management cites supply-chain and transportation disruption, product sourcing and delivery delays, labor and freight cost increases, changing customer demand, competition, store performance, technology execution, and business seasonality as risks. COVID-19’s continuing effects remain uncertain.
- Sales and operating profit are historically concentrated in the fourth quarter; the first-quarter cash outflow and inventory build should be viewed in that seasonal context.
- The company reported no material change to previously disclosed risk factors, no material off-balance-sheet arrangements, and no legal proceedings expected to have a material adverse effect. No impairment trigger was identified during the quarter.
- Available-for-sale security fair value declined to $6.1 from $6.6; the valuation uses Level 3 discounted-cash-flow inputs and is subject to estimation uncertainty. No other-than-temporary impairment was recorded.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether supply-chain constraints, sales trends, and full-price selling persist, and whether gross-margin gains can offset elevated SG&A.
- Inventory levels, aging and reserves, and the timing of conversion of inventory into sales and cash.
- Cash use, actual unused revolving-credit availability, and covenant headroom as planned capital spending proceeds.
- Progress and returns from logistics automation, technology investments, store strategy, and multi-brand initiatives.
- Seasonal performance and any updated outlook or risk disclosures in subsequent filings.