Duluth Holdings Inc. — Q1 Fiscal 2023 Form 10-Q
Reporting period: 13 weeks ended April 30, 2023, compared with the 13 weeks ended May 1, 2022. Duluth Trading sells apparel, workwear and accessories through an omnichannel business; it reported one operating segment. The unaudited quarter is seasonally weaker than the holiday quarter, when the company historically generates a significant portion of revenue and operating profit.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Net sales | $123.8 million | $122.9 million |
| Gross profit / margin | $65.7 million / 53.0% | $67.1 million / 54.6% |
| SG&A | $70.2 million | $68.0 million |
| Operating loss | $4.5 million | $0.9 million |
| Net loss attributable to controlling interest | $3.9 million; $0.12 per share | $1.3 million; $0.04 per share |
| Adjusted EBITDA (non-GAAP) | $5.3 million; 4.3% of sales | $7.9 million; 6.4% of sales |
| Cash used in operating activities | $14.0 million | $31.7 million |
| Cash used in investing activities | $21.3 million | $3.8 million |
Direct-to-consumer sales were $79.5 million versus $77.7 million; store sales were $44.3 million versus $45.2 million. Cost of goods sold was 47.0% of sales, compared with 45.4%.
Liquidity, debt and capital
- Cash and cash equivalents were $9.2 million at April 30, down from $45.5 million at January 29, 2023. Net working capital was $88.7 million.
- Total liabilities were $264.3 million, including operating lease liabilities of $129.7 million and finance lease liabilities of $39.6 million.
- Consolidated TRI debt was $26.5 million, including $0.8 million current. The filing says Duluth is not guarantor or obligor of the TRI notes.
- The revolving credit facility has a $200 million commitment and matures July 8, 2027. The company reported compliance with its financial and non-financial covenants. It drew and repaid $10 million during the quarter; the filing does not clearly state remaining availability at quarter-end.
- Capital expenditures were $21.4 million in the quarter. Management expected approximately $55 million of FY2023 capital expenditures, primarily for fulfillment-network and information-technology investments.
Changes, outlook and risks
- Sales grew 0.7%, but net loss widened to $3.9 million from $1.3 million and Adjusted EBITDA fell to $5.3 million from $7.9 million.
- Gross margin declined primarily because of a higher mix of promotional and clearance sales. Lower product margin was partly offset by lower expedited freight expense: $0.1 million versus $3.9 million in the prior-year quarter.
- SG&A rose 3.2%, with management citing higher occupancy costs at the new automated Southeast fulfillment center and increased amortization of software implementation costs.
- Operating cash use improved year over year, mainly reflecting a $10.0 million inventory reduction; however, accounts payable fell $21.1 million. Investing cash use increased substantially with fulfillment and IT investment.
- Management said operating cash flow and credit-facility availability should be sufficient for working capital and anticipated capital expenditures for the foreseeable future. No specific sales or earnings guidance was provided in the supplied filing text.
- Management cited continued high inflation and uncertainty about consumer demand and store traffic. Disclosed risks include competition, customer preference changes, supply-chain and transportation disruption, inventory pricing or shortages, labor and energy cost increases, store performance, and IT-system execution. No material changes to previously disclosed risk factors were reported; no legal proceedings expected to have a material adverse effect were identified.
Investor verification priorities
- Confirm quarter-end revolver borrowings and actual unused availability, alongside covenant headroom.
- Track whether planned fulfillment and IT spending delivers operating efficiencies and whether FY2023 capital expenditures remain near the stated $55 million.
- Monitor promotional and clearance activity, gross-margin recovery, and inventory levels and reserves.
- Assess cash needs and liquidity through the seasonal cycle, particularly given the quarter-end cash decline and expected concentration of operating cash generation in Q4.
- Review the company’s Adjusted EBITDA reconciliation and definition, as this is a non-GAAP measure and may not be comparable with other issuers.