Duluth Holdings Inc. — Q3 FY2021 Form 10-Q
Reporting period: The 13-week quarter ended October 31, 2021; year-to-date (YTD) covers 39 weeks. Comparisons are to the quarter and YTD periods ended November 1, 2020. Duluth sells branded apparel, workwear and accessories through stores, e-commerce and catalogs; it operated 62 retail stores and three outlets at quarter-end.
Financial results
| Metric | Q3 FY2021 | Q3 FY2020 | YTD FY2021 | YTD FY2020 |
|---|---|---|---|---|
| Net sales | $145.3m | $135.5m | $427.8m | $382.8m |
| Gross profit / margin | $83.7m / 57.6% | $71.0m / 52.4% | $231.6m / 54.1% | $195.8m / 51.2% |
| Operating income (loss) | $4.9m | $2.8m | $19.8m | ($6.3m) |
| Net income (loss) | $2.8m | $0.9m | $12.2m | ($8.4m) |
| Adjusted EBITDA | $13.2m | $11.4m | $44.9m | $16.6m |
Q3 sales rose 7.2%; YTD sales rose 11.8%. Q3 net income attributable to controlling interest was $2.8m, or $0.09 per diluted share; YTD it was $12.3m, or $0.38 per diluted share. Adjusted EBITDA is a non-GAAP measure.
Sales mix: Q3 store-market sales increased 10.5% to $103.0m, while non-store-market sales were up 0.7% to $41.1m. YTD store-market sales rose 19.9% to $300.0m; non-store-market sales declined 3.9% to $123.8m.
Cash, liquidity and debt
- Cash and cash equivalents were $20.4m at October 31, 2021, down from $47.2m at January 31, 2021. Net working capital was $89.9m.
- YTD operating cash flow was $32.8m, versus cash used of $28.6m a year earlier. Inventory increased $16.0m; accounts payable increased $24.9m.
- YTD investing cash outflow was $8.9m, mainly capital expenditures; financing cash outflow was $50.6m, primarily from paying off Duluth debt. Cash declined $26.8m over the period.
- Duluth reported no long-term debt at quarter-end. The company’s new revolving credit facility provides borrowing capacity of up to $150m and matures May 14, 2026; Duluth reported compliance with its covenants. Separately, $27.4m of TRI debt is consolidated, but Duluth is not its guarantor or obligor.
- Operating and finance lease liabilities were $123.4m combined at quarter-end. These are lease obligations, not the revolving credit balance.
Changes, outlook and risks
- Gross margin improved as full-price sales made up a larger share of sales, with less clearance inventory and fewer promotions. YTD margin also benefited from improved margins on full-price and clearance goods.
- Q3 SG&A rose 15.5% to $78.8m, faster than sales, reflecting higher personnel costs and advertising. YTD SG&A increased 4.8% to $211.8m, while declining as a share of sales to 49.5%, supported by more efficient digital marketing and lower shipping expense.
- Management expects FY2021 capital expenditures of approximately $18.5m, including about $16.4m for technology and $2.1m for one new store. It believes operating cash flow and available credit will cover working capital and anticipated capital expenditures for the foreseeable future. No specific revenue or earnings guidance is provided in the filing text.
- The “Big Dam Blueprint” prioritizes digital capabilities, optimization of owned retail channels, development of a multi-brand platform, testing growth opportunities and investments in logistics automation, technology and talent.
- Management cited uncertainty from COVID-19, including effects on store traffic, demand, distribution and supply chains. Other stated risks include transportation delays and port congestion, labor and freight cost increases, inventory planning, competition, customer preferences, seasonality and technology execution. The business is seasonally weighted toward the fourth quarter.
- No material changes to previously disclosed risk factors were reported; the company said it had no legal proceeding expected to materially affect its business. Disclosure controls were assessed as effective, with no material change in internal control reported.
Investor facts to verify
- Whether improved gross margin and store-led sales growth persist, particularly as prior-year comparisons normalize.
- Inventory levels, availability and freight or supply-chain pressures ahead of the peak holiday quarter.
- Cash generation, seasonal liquidity needs and continued covenant compliance under the $150m credit facility.
- Execution and returns on planned technology, logistics and multi-brand investments, including the FY2021 capital expenditure plan.
- The effects of COVID-19, labor and transportation costs, and store traffic on results and outlook.