Duluth Holdings Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended January 28, 2024, a 52-week year; comparable fiscal 2022 ended January 29, 2023. This is an annual report, not a standalone fourth-quarter report. Duluth sells workwear, casual apparel, outdoor gear and accessories through e-commerce, catalogs and stores. At year-end, it operated 62 retail stores and three outlets.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $646.7 million | $653.3 million |
| Gross profit / gross margin | $325.0 million / 50.3% | $343.4 million / 52.6% |
| SG&A | $333.8 million | $337.2 million |
| Operating income (loss) | $(8.8) million | $6.2 million |
| Net income (loss) | $(9.4) million; $(0.28) per share | $2.2 million; $0.07 per share |
| Adjusted EBITDA (non-GAAP) | $33.4 million; 5.2% of sales | $43.5 million; 6.7% of sales |
| Operating cash flow | $38.7 million | $(1.4) million |
| Capital expenditures | $49.1 million | $27.1 million |
| Free cash flow (non-GAAP) | $(10.4) million | $(28.5) million |
Liquidity and debt: Year-end cash was $32.2 million, down from $45.5 million. Working capital was $78.5 million. The balance sheet reported $26.0 million of TRI long-term debt, including current maturities; Duluth states it is not the guarantor or obligor on this debt. The company also reported $122.8 million of operating lease liabilities and $37.4 million of finance lease liabilities. Its revolving credit facility provides up to $200 million and matures July 8, 2027; no revolving borrowings were outstanding at year-end according to the cash-flow statement, which shows $56 million drawn and repaid during the year. Duluth reported compliance with all credit covenants.
Changes versus FY2022
- Sales declined 1.0%. Store-market sales fell 2.5% to $445.1 million, while non-store-market sales rose 2.3% to $196.0 million. Reported channel sales were $425.6 million direct-to-consumer and $221.1 million stores.
- Gross margin contracted 2.3 percentage points, primarily because more customer purchases occurred during promotional periods and full-price sales mix was lower.
- Net results swung from $2.2 million of income to a $9.4 million loss. Adjusted EBITDA declined 23.2%.
- Operating cash flow improved by $40.1 million, principally reflecting a $29.2 million inventory reduction, but higher capital spending left free cash flow negative.
- Advertising and catalog expense declined to $69.0 million from $76.3 million; shipping and processing expense rose to $47.2 million from $44.0 million.
Outlook, risks and unusual items
- Outlook: Management expects approximately $25.2 million of capital expenditures in FY2024 and says operating cash flow plus credit-facility availability should cover working-capital needs and anticipated capex for the foreseeable future. The filing does not provide a clear sales or earnings forecast.
- Strategy and commentary: The “Big Dam Blueprint” prioritizes digital-first operations, direct-channel growth, retail optimization, multi-brand and multi-channel development, test-and-learn initiatives, and investment in logistics, systems and infrastructure.
- Key risks: Consumer uncertainty and inflation, promotional pressure and shipping costs, seasonal demand and inventory forecasting, competition, foreign sourcing and supply-chain disruption, and dependence on a leading supplier. The largest supplier represented 59% of inventory expenditures in FY2023, up from 56%.
- Controls: Management and the auditor identified a material weakness in risk assessment and controls for mapping general-ledger accounts to financial statements. Management said it caused immaterial presentation misstatements, not a material misstatement of the financial statements, and has begun remediation. The auditor gave the financial statements an unqualified opinion but an adverse opinion on internal control over financial reporting; disclosure controls were also deemed ineffective.
- Other items: The company revised FY2022 balance-sheet classifications and cash-flow presentation for immaterial errors; reported net income, total assets and equity were unchanged. The auditor identified the $5.5 million product-return reserve as a critical audit matter. The filing reports no legal proceedings expected to have a material adverse effect and no cybersecurity threats that materially affected, or were reasonably likely to materially affect, the business in FY2023.
Important facts for investors to verify
- Whether the control remediation is implemented and independently validated, and whether future filings report any additional errors.
- Whether sales mix, promotional activity and shipping economics stabilize or continue to pressure gross margin and profitability.
- Whether inventory reductions support cash generation without causing product shortages, and whether planned FY2024 capital spending stays near the stated estimate.
- The company’s actual liquidity and revolver availability through seasonal working-capital peaks, including covenant headroom and interest-rate exposure.
- Supplier concentration and sourcing resilience, along with the assumptions underlying the product-return reserve.