Duluth Holdings Inc. (NASDAQ:DLTH) Q3 2018 Earnings Conference Call Transcript

Dec 06, 2018 • 09:30 am ET

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Duluth Holdings Inc. (NASDAQ:DLTH) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, and welcome to the Duluth Holdings Third Quarter 2018 Earnings Conference Call.

All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please also note, today's event is being recorded.

At this time, I'd like to turn the conference call over to Mora Conlon(ph), Investor Relations for Duluth Holdings. Please go ahead.

Executive
Unidentified Speaker

Thank you, Jamie, and welcome to today's call to discuss Duluth Holdings third quarter 2018 financial results. Our earnings release, which we issued this morning, is available on our investor relations website at ir.duluthtrading.com under Press Releases.

I am here today with Stephanie Pugliese, Chief Executive Officer; and Dave Loretta, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we will open the call up to your questions.

(Forward-Looking Cautionary Statements)

And with that, I would now like to turn the call over to Stephanie. Stephanie, please go ahead.

Executive
Stephanie Pugliese

Thank you, Mora(ph), and welcome everyone, to our third quarter 2018 conference call.

Throughout the year, we have continued to execute on key initiatives that prepare us for our peak selling season and position us to reach our goal of $1 billion in revenues over the next several years.

In a few minutes, I will talk more about how those efforts are fortifying our omni-channel presence and enhancing our customers' experience. But first, I'm pleased to report that our team delivered a strong third quarter, achieved through a focus on innovative, new and core products, increasing brand awareness through new product marketing, and enhancing the customer experience in all channels.

Net sales increased 27% to $107 million, which marks our 35th consecutive quarter of increased net sales year-over-year. Retail sales for the quarter had a 58% growth rate, largely driven by new stores opened in 2017 and 2018. And we opened four new stores this quarter that are now ready for holiday shoppers.

Direct sales grew 10.5%. This number includes a 4 percentage point impact of revenue recognition. Absent that adjustment, our direct growth rate grew at 6.5% year-over-year, and improved over the first and second quarter growth rate. We're on track to meet an annualized direct growth rate in the mid-single digits. We saw strong results across all categories in our men's and women's divisions, with men's growing 25% year-over-year and women's growing 35%.

Gross profit margin of 57.1% was 50 basis points over last year, driven primarily by less reliance on promotional activity this quarter. Core year-round product and seasonal categories performed very well and we ended the quarter in a clean inventory position, reflecting ongoing efforts to improve turn while maintaining a 95% or higher fulfillment rate in direct.

While we achieved our goals for the quarter, the team also worked through some challenges. The transition to our new e-commerce platform in August went very well, but there was an expected period of adjustments where we saw a slowdown of direct growth and some increased expenses to monitor