Duluth Holdings Inc. (NASDAQ:DLTH) Q2 2019 Earnings Conference Call Transcript

Sep 12, 2019 • 09:30 am ET

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Duluth Holdings Inc. (NASDAQ:DLTH) Q2 2019 Earnings Conference Call Transcript

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Presentation
Executive
Stephen L. Schlecht

we have our work cut out for us. Our performance in the first half of the year was below our expectations, and it will definitely pressure the outcome for the full fiscal year. In response, we have taken down our guidance for 2019. Dave will address the details of our second quarter financial results, this revised guidance and the plans we have moving into 2020.

Also I want to recognize that we have had some growing pains over the last year-and-a-half. I want to see a slowdown in the pace of our retail expansion in 2020, and focus more on improving asset productivity and thus our operating margin rate. We have made a number of behind-the-scene improvements in our business that will bear fruit in 2020, which excite me. We have a strong team in place to execute our plans and to ensure the long-term success of the business.

In general, our top priorities remain the same. First, is to drive top-line growth through new product offerings and targeted marketing that expands our brand awareness. Second, is to leverage our cost structure to drive profitability, while ensuring that we exceed customer expectations. And third, to achieve greater return on our investments. Our team is well underway to implementing these top priorities, and we expect to see signs of improvement in the second half of this year.

And now, I will turn the call over to Dave.

Executive
Dave Loretta

Thanks, Steve, and good morning, everyone. For the second quarter, we reported net sales of $122 million, up 10% compared to $111 million last year. Our Direct segment sales were essentially flat to last year at $60.3 million and our Retail segment sales grew 24% to $61.7 million. For the quarter, shipping revenues were $1.6 million compared to $1.9 million last year. The growth in Retail was primarily driven by new stores opened in 2018 and 2019. During the quarter, we added four new stores and over 60,000 gross square feet, with each of them being our first stores in the states of Arkansas, Connecticut, Alabama, and Georgia. We ended the quarter with a total of 55 stores compared to the prior year of 39 stores.

In the second quarter, we continued to experience the challenges we faced in the beginning of the year. Sluggish sales trends in the direct channel and existing store markets deepened in the second quarter, especially in May, with traffic and overall sales volumes falling short of our expectations. In an effort to drive more store and web traffic, we extended our global promotions and took deeper markdowns on spring and summer products, particularly on core men's items. As a result, our gross margin for the quarter declined 310 basis points for a gross profit of $64.8 million.

Our women's business continues to outpace men's, with an overall growth rate of over 20% for the quarter and mid-teens growth rate online. We expect this positive trend will continue in the back half of the year with a greater assortment