Duluth Q1 Earnings Call Highlights
Key Points
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- Duluth’s first-quarter loss narrowed as gross margin expanded sharply to 57.4%, helped by reduced promotions, pricing actions and sourcing improvements that outweighed tariff costs. Adjusted EBITDA also improved to $2.6 million from a loss a year ago.
- Revenue fell 4% to $98.6 million as the company deliberately pulled back on discounting, with direct-to-consumer sales weaker but retail store sales rising 3.3%. Management said the strategy is shifting sales toward higher-quality, full-price transactions rather than low-margin volume.
- Inventory, costs and liquidity improved materially, with inventory down 24.8% year over year and net liquidity rising to about $100 million. Duluth also raised full-year adjusted EBITDA guidance to $28 million-$32 million while keeping net sales guidance unchanged.
Duluth (NASDAQ:DLTH) reported a narrower first-quarter loss and higher gross margins as management said its ongoing effort to reduce promotions, rationalize inventory and cut costs continued to reshape the apparel retailer’s financial profile.
President and Chief Executive Officer Stephanie Pugliese said the company’s first-quarter fiscal 2026 results reflected a “rigorous strategic pivot” focused on restoring profitability, strengthening brand equity and emphasizing higher-quality revenue over low-margin sales volume.
“The deliberate actions we took throughout the past year and into the first quarter directly led to an enhanced gross margin, reduced inventory levels, improved overall profitability, and stronger net liquidity,” Pugliese said on the earnings call.
Sales Decline as Promotions Are Reduced
Duluth reported first-quarter net sales of $98.6 million, down 4% from the prior year. Excluding the impact of wholesale, net sales declined 2.6%, according to Senior Vice President and Chief Financial Officer Heena Agrawal.
Management attributed the sales decline primarily to a planned pullback in promotional activity and the annualization of price increases made in 2025. Pugliese said the company reduced total global promotional days by more than 50% in the quarter and lowered the depth of discounts by 700 basis points. Those changes helped full-price sales rise nearly 14% and average unit retail increase 17% year over year.
The impact was more pronounced in the direct channel. Direct-to-consumer net sales, excluding wholesale, declined 6.4% to $57.1 million, which Agrawal said was driven by lower web traffic and conversion in February and early March as the company moved away from low-margin clearance events.
Retail stores performed better, with net sales increasing 3.3% to $41.5 million. Pugliese said store net sales benefited from higher average order values in comparable stores and the addition of two stores opened in the fall of last year.
Gross Margin Expands Sharply
The company’s gross margin expanded 540 basis points to 57.4% of net sales, compared with 52% in the prior-year quarter. Agrawal said the improvement was driven by three factors: the promotional reset, direct-to-factory sourcing initiatives and strategic pricing actions along with vendor negotiations.
Agrawal said those actions fully offset the impact of tariff costs in the quarter. She added that the margin performance was tracking ahead of the company’s prior expectations for the full year.
“What we’ve seen in the first quarter is an acceleration, and we are tracking ahead of that gross margin delivery,” Agrawal said in response to an analyst question.
Duluth’s net loss improved by $5.2 million to $10 million. Reported earnings per share were a loss of $0.29, while adjusted EPS was a loss of $0.20, compared with a loss of $0.44 a year earlier. Adjusted EBITDA was $2.6 million, improving from a loss of $3.8 million in the prior-year quarter.
Costs, Inventory and Liquidity Improve
Selling, general and administrative expenses declined $3.4 million, or 5.2%, to $61.8 million. As a percentage of net sales, SG improved to 62.7% from 63.4% a year earlier. Agrawal said the company benefited from efficiencies across its fulfillment center network and disciplined personnel expense management.
Shipping and variable costs leveraged by 130 basis points as Duluth continued consolidating its fulfillment network. Agrawal said the company has reduced its logistics network from four fulfillment centers to two over the past 18 months and is maximizing use of its Adairsville facility.
The company also reported continued progress in reducing inventory. Inventory at quarter end was $132.4 million, down $43.7 million, or 24.8%, from the prior year. Agrawal said the reduction marked the fourth consecutive quarter of year-over-year improvement and reflected enterprise planning efforts and SKU rationalization.
Pugliese said the company has reduced SKUs by more than 20%, allowing it to focus on core products. Core collections represented roughly two-thirds of sales and grew 7% from the prior year, she said.
Duluth ended the quarter with cash and cash equivalents of $6.1 million and $6 million outstanding on its asset-based lending facility. Agrawal said net liquidity was approximately $100 million, compared with $45 million a year earlier. Free cash flow improved by $42.6 million compared with the prior-year period.
Product and Marketing Initiatives
Pugliese said the company’s marketing initiatives helped support brand awareness and customer engagement during the quarter. She highlighted the “for folks who work their butts off” campaign and the Max Gluteus creative campaign, which she said performed well and contributed to year-over-year growth in the men’s Buck Naked collection.
The company also ran a women’s “Dibs On The Bibs” campaign and launched a poppy print across its gardening category. Pugliese said women’s garden products, including heirloom gardening bibs, short overalls and a garden dress, contributed to sales and healthy gross margins.
Agrawal said men’s product sales declined 1%, reflecting the promotional reset, but noted double-digit growth in first-layer and underwear collections following the Max Gluteus campaign. Women’s product sales declined 12%, which she attributed to strategic SKU rationalization, though heirloom gardening collection sales grew. AKHG brand sales declined 17% as growth in men’s woven tops and bottoms was offset by exits from swim and lower-margin outerwear programs.
Guidance Raised for Adjusted EBITDA
Duluth affirmed its full-year fiscal 2026 net sales guidance of $540 million to $560 million, representing a decline of 1% to 5% from the prior year. The company also reaffirmed its expectation for a first-half sales decrease of 6% to 10%, including the effect of not repeating a prior-year wholesale order.
For the second half of fiscal 2026, Agrawal said the company expects sales to stabilize in a range of down 2% to up 2% as it laps pricing actions and the promotional reset.
The company raised its full-year adjusted EBITDA guidance to $28 million to $32 million, up from a prior range of $26 million to $30 million, citing stronger gross margin gains and SG savings. Capital expenditures guidance was unchanged at approximately $12 million.
Agrawal said Duluth has applied for refunds related to approximately $12 million of IEEPA tariffs paid last year, but has not included any potential benefit in first-quarter results or full-year guidance.
During the question-and-answer portion of the call, Pugliese said the company is working to strengthen its customer file by shifting marketing dollars away from lower-funnel, promotion-based spending and toward upper-funnel brand awareness and consideration. She also said reactivating high-value former customers costs about one-third of what it costs to acquire new customers.
“Our financial turnaround is substantially complete,” Agrawal said, adding that the company has improved working capital efficiency, reduced fulfillment costs and achieved higher structural gross margins.
About Duluth (NASDAQ:DLTH)
Duluth Holdings Inc operates as a specialty retailer of workwear, outdoor apparel and accessories for men and women under the Duluth Trading Co name. The company's product line includes work pants, durable outerwear, performance-based shirts, base layers and specialized gear such as tool belts and backpacks. Duluth Trading Co focuses on combining practical functionality with style, targeting tradespeople, outdoor enthusiasts and anyone in need of rugged, long-lasting clothing.
Since its founding in 1989, Duluth Trading Co has grown from a regional catalog business into a national retail chain.
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