Release Date: May 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Duluth Holdings Inc (DLTH, Financial) successfully tested an underwear trade-up event, which increased store traffic by more than 50% and contributed a 120-basis-point benefit for the quarter.
- The Adairsville fulfillment center reduced unit fulfillment costs by 56% compared to the prior year and processed 60% of total volume in the first quarter.
- The company diversified its carrier base in mid-April, lowering outbound shipping costs.
- Mobile penetration continued to grow, accounting for over half of digital sales and more than two-thirds of site visits.
- The women's first layer business grew by 8%, driven by popular products like Armachillo, Buck Naked, and Lost Lake.
Negative Points
- First-quarter net sales declined by 5.7%, impacted by lower traffic and in-stock levels.
- The men's apparel business declined by 7.1%, with significant softness in Dry on the Fly bottoms, Longtail, and AKHG.
- Retail store sales declined by 7% due to challenging traffic conditions.
- Direct channel sales saw a decline of 10%, driven by lower traffic and reduced in-stock levels.
- Gross margin contracted by 20 basis points to 52.8%, with a delay in the impact of new product costs due to older, higher-cost inventory.
Q & A Highlights
Q: Can you elaborate on the actions taken to improve in-stock positions and how they impacted Q1 results?
A: (Samuel Sato, CEO) We entered Q1 with inventory levels 19% below the prior year due to stronger-than-expected unit selling in Q4. We took swift action to improve our in-stock position in core items, which improved throughout the quarter and into Q2. This helped mitigate some of the traffic challenges we faced.
Q: What specific marketing strategies are you leveraging to drive traffic both online and in stores?
A: (Samuel Sato, CEO) We are doubling down on leveraging technology for more targeted advertising. This includes using additional streaming platforms and vendor technologies to better target specific audiences. We also elevated events across our 65-store fleet to engage with existing and new customers, such as the successful underwear trade-up event which boosted store traffic by over 50%.
Q: Can you provide more details on the cost improvements from your sourcing and product innovation initiatives?
A: (Samuel Sato, CEO) Our sourcing and product innovation functions have delivered product cost improvements above our expectations. This initiative allows us to bring high-quality, innovative products to market more frequently, increase our speed to market, and significantly reduce product costs.
Q: How did the new fulfillment center in Adairsville perform in Q1?
A: (Samuel Sato, CEO) The Adairsville unit's fulfillment costs were 56% lower compared to the prior year average of the remaining three fulfillment centers. We processed 60% of total volume in Q1 through this facility, and we are now moving into phase two of evaluating our fulfillment center network footprint.
Q: What are the key areas of focus to unlock the full profit potential of Duluth's current business?
A: (Heena Agrawal, CFO) We are focused on three key areas: an in-depth review of our real estate portfolio strategy and operating productivity, phase two of our fulfillment center network footprint to maximize productivity and capacity, and leveraging insights from a comprehensive benchmarking study to unlock structural gains in operating margin, working capital, and asset efficiency.
Q: How did the women's business perform in Q1, and what drove the results?
A: (Heena Agrawal, CFO) The women's business declined 3.3%, driven by softness in woven bottoms and No-Yank, partially offset by growth in the Heirloom Garden collection, the first layer business, and Dry on the Fly collection. Success in women's first layer was driven by Armachillo, Buck Naked, and Lost Lake.
Q: What are your expectations for gross margin improvement in fiscal-year 2024?
A: (Heena Agrawal, CFO) We expect gross margin for the full year to be up approximately 200 basis points, driven by our sourcing and product development initiatives. Gross margin will be flat in the first half and improve in the back half as we sell through older, higher-cost inventory.
Q: Can you discuss the impact of the Father's Day order shipped to Costco on Q1 sales?
A: (Heena Agrawal, CFO) The Father's Day order shipped to Costco contributed 310 basis points to Q1 sales. This was part of our strategy to test new channels and increase our reach with our target consumer who shops at Costco.
Q: What are your plans for capital expenditure in fiscal-year 2024?
A: (Heena Agrawal, CFO) Our capital expenditure spend is on track to be reduced by more than half to approximately $25 million, with the primary focus on our strategic technology roadmap.
Q: How is the mobile penetration trend impacting your digital sales?
A: (Samuel Sato, CEO) Mobile penetration of site visits continued to increase, up 100 basis points over last year. Mobile sales accounted for 55% of digital sales, reflecting an increase of 300 basis points over last year. We remain focused on enhancing digital accessibility and providing a frictionless shopping experience.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
