DLTH - Earnings call transcript Q3 2019

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Operator

Good morning, and welcome to the Duluth Holdings Third Quarter Fiscal Year 2019 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Donni Case, Investor Relations for Duluth Holdings. Please go ahead.

Donni Case

welcome Fiscal call year and Trading's discuss Kay, Quarter Third XXXX you, to to today's Duluth Thank financial results.

questions. which call Relations management prepared we under Loretta, Chief release, on will Schlecht, Chief here provide earnings we Officer. to and morning Stephen open this will Our Dave Officer; is today our with Investor then releases. On website remarks, press ir.duluthtrading.com Financial your and Executive at the I am issued available today's call,

we like will the forward-looking identified Before would anticipate, comments similar on the statements, be expect that I remind you estimate, phrases. of begin, to can such use today's include by as and words call the which

subject to and could by that or to uncertainties actual are described statements. that their outcomes limited risks results our involve are cause and risks those statements, forward-looking materially include, in goals, the nature, but expressed are not most from forecasts Such those differ projections, uncertainties Forward-looking and estimates, and in assumptions to, annual the I future turn other Steve. forward-looking as as call be of on upon only filings with conference And ahead, speak Go statements as to applicable. of These relied recent XX-K of and Steve. SEC should Form predictions call would not to this like events. that, date and the report over

Stephen Schlecht

of a deal I role of throughout the good assumed Interim management organization. meeting and morning, Since levels quarter, joining you thank I've last today. Good our with of spent us for CEO all time

side of I my in strategy, operational to stepped had reenter never from the business. While role back I the shaping

transformation necessary we and IT today's our years, and to distribution environment. compete couple significant infrastructure, last the have our been was of systems undergoing retail growth in support which both Over for a

we As have profitability. time, I our at reported of gaining its systems. high I and investments and they pains, of company our That clear processes have realized our I road while said, time people, the our a have both our collectively, bearing believe confidence Directors we growing in this to and are of have in share and yet growing fully Board to map recently money been potential fruit. And traction not

believe serve at quarter in the fourth I our last fact, we customers two to the any prepared better In time entered years.

a concept quarter, here's were We that quarter, planned markets we markets, and on launched quick our the of holidays. Austin, in new update exclusively a of features in the men's we And the in America. XXXX time what fiscal Lake underwear completed we Alabama; opened stores new store, the Texas; have to third for Salt for Subsequent In Birmingham, opening Mall that the new XX accomplished. City. the

of new the XXXX, out We XX. count stores markets us and to store Knoxville, of also opened bringing Nashville in our for build completed which Tennessee, the total

to when, deliver While that quarter, and driving our we role important were omnichannel in demand, our the want. third last contributed of building and the to announced how where stores they moderating strategy an top that our awareness critical customers growth. quarter In we they meaningful XX% and are play line, retail nearly today's brand shopping, experience stores expansion,

X/X merchandise and in quarter how pleased purchased systems to those and improved ship we from and customers store. mind we while up store third see are beginning of potential. the that in flow. enhanced fulfilled running Now ordering of fourth customers which inventory were to customer X, did Keep see just capabilities, quarter and sales In are direct we and stores very even BOPIS from have these powerful last picking in convenience additional are stores our the fast adopting service of not which that completed, we and their quarter, inventory, XX% online better, we up the supports have in just

Optimizing top last where on need ROI stores to improvement. We're we over of the our we Driving and our Even investments also improve years. infrastructures put is have the we and made need traffic the areas market we'll local couple our that retail how intensely stores is focused still in-store stores are, priority. a customers create through though awareness events. to our advertising greater on

delivering to customers. to newness greater need attention also product We a to draw the that we're

Expanding in local of has new team am progress have work product we positive, newness media. that I Results areas ads on and using have mail testing report prospects marketing roll Our we support, to ahead more us TV initiative, target we as been new have yet [indiscernible] programs front. footprint. pleased our our in seen direct the across a radio these been out social on

relaunch pant us which opportunity fit of younger men's and been especially categories, successful, Our customers. slim- standard-fit the in has a the and attract new to affords base

Our expectations. underwear are start Soft men's Dang results Naked posting above is a to and Pants off strong Buck

of continues with here focused filling plus sizes introduction expansion business extensions. and pipeline traction very women's line good the show new the with products. core making innovative healthy growth are We're to the Our of on and and

Regarding leverage which our our and on current controlling true earned diluted per as grew showing third some our brand's line quarter expected. $X.XX and The potential. results, still reflects we not our SG&A XX%, expenses share, achieving expectations they but top were within focus

confident am turned peak the have I plans preparedness action. quarter, into into all-important that for fourth our Moving

have holiday showing new We products traction great exciting that shoppers. gift for and already selection a are

shape, vastly across top-selling good our inventory, We our have in line sight improved is a which products. especially regarding of

regardless, shelves best. continues in turn we consumer year's this be hopes Dave That store checked in business sentiment mixed in be There our to to and everyone boxes stocked, Our retail our the will operations strong But people I'll are what's over holiday depressed during control. spending quarterly on detail. selling outlook. are the to call the season. We've to that, level discuss ready results do With [indiscernible] ready. said, are all the our for

David Loretta

and morning, everyone. Steve, good Thanks,

$XXX.X of year. quarter, up compared For reported the net to last third sales we XX% million $XXX.X million,

X.X% our grew sales year, last and segment Direct segment to compared grew retail sales XX%. Our

in year. shipping was new the quarter, primarily retail million driven opened revenues growth million compared XXXX to For were XXXX. by in $X.X $X.X and The stores last

we the to XX,XXX the stores new feet. quarter, stores of compared X total gross During XX square and stores with ended the prior quarter We third in added XX roughly a year.

the XXrd-week reported, quarter, the product up benefited challenging During the shift. as direct we this to most experience demand some X.X% period trends, continue sales from were calendar however,

Big for slightly Excluding quarter. sales driven in down and momentum increased the We direct Birthday sale September, by this, were August event. and some saw Dam activity clearance largely the

the October months. prior tough followed, reraised which a gains However, the of X

where web continue to at least clearance activity. opened sale that and during growth. years, we nonstore deeper markdowns the drive markets drove effort of greater see sales two to pleased an the more are events markets and took and traffic, In store sales amount to outpace We direct a

gross for XXX last $XX.X from year basis gross a million. was result, down amount points profit As a of margin

will fourth by our million a gross As exposure million. $X to reminder, profit continue $X.X to impact the will our tariffs quarter -- China

expect shift are year. production Our to plans margin we the countries remaining minimal to underway, next impact other and

overall outpace mid-teens growth XX% business Our and the men's online. with continues of to rate an quarter growth rate women's for

line, weather of warmer assortment as to launch both was XX% due new core expectations. over the line driven Soft successful in business men's categories by falling led by The the plus year of women's newness sales as The year, grew Headwinds our and to the last of women's well as significantly however. outerwear and launch extensions. men's such of up the business last underwear unseasonably the the was our sales and short products, growth pants soft which the supported the core expansion in exceeded plans, Dang in refit and strength to

Turning expenses. to

to on very the a most continued management, effort focused We focus spend. productive have expense been including on advertising

we've margin a resulted an leverage gain taken fixed cost steps basis. year-over-year the variable on and and Additionally, operating earnings to improved in efficiencies growth

increased $XX in expense. Selling, million by in million compared of administrative and $X.X expenses, year. This administrative in general million decrease X.X% general advertising to to million last of $XXX,XXX $X.X included $XX.X marketing a and expenses and expenses increases offset selling and

expense net XX.X% to basis sales, percentage points XXX As a -- XX.X decreased year. of SG&A XX.X% last compared to

points sales, in marketing from XX.X% some decrease the mix efficiencies of to last percentage XXX gain advertising and spend shift basis where retail primarily is a distribution of advertising and As to increasing fulfillment quarter pushed to the year. television to productive. attributed year dollars due last the advertising Selling improved XX.X% sales is as net most shipping gained network. XXX compared into We've a expenses higher our leverage to basis The a XX.X% compared XX% with within the a period, of net comparable in by decreased costs sales percentage compared and points also and and fourth print. to the decreased costs decreasing it

year, sales as leverage and a XX due to compared decreased basis XX.X% costs. net General points expenses last fixed to XX.X% gained primarily on administrative the of percentage to

For diluted per year. compared quarter, of share or net last loss or diluted $X.XX a reported the third share $XXX,XXX to we per $X.X $X.XX of income million net

$X last year. Our adjusted EBITDA million million $X.X was compared to

and well of primarily ended The for working year and inventory to receipts earlier the to $XXX to our liquidity. a due of $XXX mitigate million additional our Inventories as million reflected We year. of selling XX% with goal dislocated million, Turning stores. delivery $XXX in capital and million in as the to our cash balance third DCs to sheet goods had inventory of was the support to of $XX compared we line outstanding million net This million last season issues early $X channels. $XXX credit. balance our on weeks quarter increased several with receiving last store increase peak

primarily for $XX year the stores. million expenditures million $X new for last to third the were and quarter compared -- Capital

We guidance Thanksgiving shopping cautious at time, the remain are but to year and this maintaining full period shortened due Christmas. our between

last of extending than discounts observed steep deeper our and to be earlier years. year, the quarter also in fourth retailers expect promotional level to other as not We've we at similar cadence discount. Overall, the but prior

growth and XX% between sales or net XX-week deliver sales $XXX in million million on roughly a of XXXX. basis to expect We $XXX

be gross basis net expect in XX percentage is guidance. as XXX down last from and to administrative expenses to additional a to the be which of our of to points sales points, Selling, XX% XXX range down XX%. an basis margins We general

compares which $X.XX a $X.XX, XX-week diluted to We between basis. earnings $X.XX share be expect to on per year last and XXXX

Additionally, in fourth related which quarter, tax year we the a expect benefit bring XX.X%. approximately to down tax full to R&D rate and we'll credits, do to realize the post

approximately EBITDA be expect of We $XX million and to capital expenditures million. $XX million adjusted and between $XX

noted, prepared for we entered Steve As fourth success. the quarter

shopping Christmas. to to closer to indications are that weeks have shop While activity continue ahead, current critical we still close of three customers

year. of channels days compared Monday four Friday the Cyber events Black The our through both for to last healthy same were

this later continue leading make compressed up last Operator? up shopping in the week year. one being and period, the to below we'll Thanksgiving plan. lag positioned during we With to sales year, X being to open holiday due for for came However, our That line quarter the fourth game execute the we'll to said, the questions. weeks that, are

Operator

[Operator Instructions].

of John from comes question first D. The Morris D.A. Davidson.

John Morris

wonder be, might high, the where Can at that forward you've got up of for you any question a you XX% even two So fourth just A last that potentially looks, -- to quarter? just growth. been have the sales those to you you for let's us of relative And it questions. would if with inventory. to can you what bit be wondering, inventory pull on end feel give I correct, give expecting fact were inventory little there that, to say, adjusting year? to us I comfort I'm on the a if

David Loretta

bit, excess in which moved to warehouse into year, X were we we Yes. pulled to inventory to time, we know our X of out fairly of Sure. early. quite $XX of amounts that this weeks, Relative inventory We getting stores. amount in in a and late million in a forward our to inventories large period those that last by our

growth sales we end back see in be we for year, would because that increase line think our At I'd what of in in say we're circumstances, under if activity repeat, also come summer. inventories next levels we'll and So spring preparation and to are. to expect I the the the going to year, inventory greater closer our normal repeat

inventories pull at year-over-year back So then of inventory through sales the XXXX, and XX% with be the on XX% proceed higher we're continued end a that as reflecting year, basis to expecting And we line the growth. forward. between in get

John Morris

implied trying for if that's the that pretty correct, that, because window All math to mid-single going it through year Maybe is little just in given that. to correct? that or kind -- full good be, expectation the so, full But that with right. so quickly. to inventory And of we growth digits. to connected I third the levels, the bit guess, rate? ahead given to know were my the well, Yes, missed managing the better sales guess, about why the I would then, of maybe sales partially the case guess, be in a is low expect time, you're does understand somewhat numbers I for way compared fourth the And And of quarter. I'm a you growth I year de-sell growth QX to terms quarter guided would wondering, know

David Loretta

a our last will sales going XXrd have, week quarter fourth standpoint, against The from year. Yes. of growth impact the

mid-single little From that our inventory what high basis, a bit a from And the fiscal really, standpoint, managing sales going a be low flow is So above same a correct. digits is on week the to week-over-week -- it's digits. that's to basis. in we're XX-week period mid-single

John Morris

Okay. for holiday. stores Great. Good that Alaska great clarification. That's The look especially luck hard gear. great, with

David Loretta

Thanks, Great. John.

Stephen Schlecht

you, Thank John.

Operator

is from of Komp question next Baird. Jonathan The

Jonathan Komp

just Maybe, as gotten to for of, while anything any the off, engaged curious, business you're business picture, as you've bigger or a involved? of I'm of the you've start thoughts state just Steve, now the kind deep the into or gotten you kind back broader of since back on that surprised brand here. back kind

Stephen Schlecht

through in inventory people some lot speak as we're with logistic earlier, Well, and We've we the bringing said IT with gone to expansion systems been did new John. of that pains surprises have we've new talented store got there growing no I of, a rapid using, here, systems systems.

and drag out this So a of that XX we're last of months, created a sort that. coming

So fairly is brand I I am well. feel solid. the

but couple systems little and the in years. in good. complete ever the the and between are out program to a place bit yet, control. our there direct have a our We've to than of been out business our think learning work business. is a overall We're last that's of health Challenging omnichannel are better stores that environment how couple something they the lot about the but I got a markets this in, of stores the

first, to do are, And one we're not we probably is been carefully. I've next question probably do say that the CEO of that's sure in initiate the We're that next our here. well just go the that, for I'm trying second of So next ahead we're have the your to I'll informed that make search. about things bring, experiences on looking background and CEO is we it. the qualities planned we something to But doing really if in what quarter going be -- the what year.

Jonathan Komp

maybe if just seen the kind a on you've bottom, question to sustainably more And just good one that you gone your is the here? from positive more margin gross margin, been within handle a embedded On a it's Okay. performance. And Great. so margin while. the you're Dave, margin the a basis, expand has see and And reached since for year less maybe, more or going I'm have best a the you've been on year-over-year area of the opportunity negative, about that as speak, that's frankly, outlook curious quite in thinking that how of confidence on that's forward here?

David Loretta

to the the but profitability. would operating every I'll continue. significantly. cost going say, plans, we Sure, to This do be that of don't particular think we're improvement, quarter improved John. see The place -- degree to the sales have I in expect structure improved was, margin goal we see going forward with that quarter improvement

some know, it's And to of in do just our quarter it business, which out continuing standpoint. of to gross that's of because come the margin continues have the that. we've This are in see deep part to really big newness that's has full from a volatility best margin to of to is so products, a it. a many cases, I've the discount in be price. continued assortment, give the As the But our to good productivity. sell-throughs had side pricing And to we from going is the some to And things hit competitive, women's where doing impact pipeline now third us did think improvement in and that we've the products and you going things growth little as going long is bit to and some in a we're see got our as from and meet the going at the market sell part and well. missed. come to gross right I most nature period new But chance ability roll that's of more

hopefully, some John. question, gives that on color So you that

Jonathan Komp

last that to maybe And does. just It one. leads my

you thoughts As marketing the or file top messaging line forward look drive of sales-driving the product pipeline sitting terms as here Any you the today broader of customer the in place. in it's to? kind even to look in of what forward, getting the that or forward the opportunities some you're mix looking initiatives, here major whether

David Loretta

And pricing or nimble on to to of the the to will browsing of online. customer. habits it ability us their even personalize now just give give in that looking you forward, year And Certainly, working data and our will us warehouse effect our customer on as one of a the of biggest some tailor into on way, based go that's to, next preferences, relevant kind re-platform initiatives as also ability approach our that's based marketing going Yes. customers to a very habits mentioned, shopping system. we're the much,

think, business growth putting of be that's selling. full targeted. relevant capture promotions, also we're that the some improve That's more we preferences. of sales But price going to because in place. That's more be tied to not the can So initiative going global be going to as it's but we customers' and an to out blanketly

that with well POS Our that's goal it a in critical this for in with on stores, our the fourth year get ship even but what early is to system component. store supplement by likely, the third place really will and got already in we've marrying the better an which is, time in and BOPIS And quarter. make upgrade the year from some with come store. I'd as next thing capabilities omnichannel around next learnings experience we'll our so but say the other quarter

conversion we well. some store to So traffic know initiatives of X our is improve. that is a the seeing as major that's of store traffic level store And key traction seeing in the productivity

Operator

The Duffy from question of next Stifel. is Jim

James Duffy

of just little the me. couple Jonathan's question about mentioned of power realized. A questions not the big realize I you the bit benefits expected to some Steve, here, start and there's common begin Maybe but for systems. new you to on these opportunities fully can of the from picture. talk a guys overlap system's wanted potential still financial as of you new with

Stephen Schlecht

that. let to Dave going I'm handle

David Loretta

side year's benefits, from the see better inventory growth. starting to place. support savings Yes. that already last needed that the infrastructure prior to order that The with flow be management, also was catch-up logistics website, in from future really the to the we're and years place financial in Jim, logistics talked a as having -- about, compared right we've infrastructure new the to a in

and amount handling thus, minimize streamlines on of the efficiency center center adds is to time of and So our call operations. split improved, which backorders which call cost the we our shipments,

third get of, just and are line I it that benefit are The be sort year much and about selling benefited -- financial margin, to that next margin quarter, driving now. those for So and talked continue from from top initiatives productivity we to right going of, gross benefits improvement. to very the in we systems

financial are the X impact. biggest So going are think that we those systems have to the

James Duffy

Okay. for line fourth could talk quarter. the expectations business the direct questioning. of in Great. about near-term And then you Dave, more growth

there window? throughput in You any have servicing associated here. a expenses And incremental window concentrated curious, demand very is that there concentrated are selling limitations? with I'm

David Loretta

and front of fully already is and do is been it very No. weekend our this issues. stores We replenishment Inventory progress. any throughput a Friday anticipate We after smooth year. well not got in to in vibrant received, Black

was we standpoint. days ever So from standpoint, of system knock-on-wood Cyber again, one through got and from very Monday, which biggest have order a our a been stable, online

Last satisfy on from positive of the no cadence hiccups -- compress. kind and does demand. the to to a Monday is and Direct So similar full ships we're third And business that basis, from expect going is between weekly Cyber earlier. web quarter. it the a year, being the to infrastructure going with quarter concerns be to Thanksgiving the week

does growth. missing it between are fact, detract mentioned, kind events And be was we and period a on Friday but true Monday in to and week-over-week same a expecting basis, that Black Now up from the week it Cyber those of year-over-year as I positive we're compared to year. last

So a that's are good to that us, things indication working.

James Duffy

the last I me, the XXrd explain please? just you from that more one housekeeping quarter for Can nuance, And question, third the suppose. week. you Great. most But benefited mentioned

David Loretta

last Sure. it fiscal and pushed year XXrd the of week year, the forward the With year fiscal year beginning pushed it XXXX X in from week. our Yes. this having

quarter August, the at would which be we about end at is sales began at volumes the quarter, than end and the which of of of quarter, So think the lower of a third when beginning the you going be the to the end October. beginning they are

volume our had period by week higher picks So what than it forward, pushing year. up that last fiscal we

in growth performance we you about weeks it. when terms go a the Now called the think week-over-week true of that's and what that's let's rates difference out business, better basis, align of we similar I as of say, the back the in a and measure on

is the come week really, there. down the the a high that sales quarter. in give of missing sales impact a this we to But end at of year we'll fiscal the back have little a period. XXrd we of a the quarter in bigger or quarter, Because benefit lower the Now down third fourth slope

Operator

William from Dylan Blair. of question Next Carden is

Dylan Carden

just Dave, of last thought. that Great. continuing on sorry, sort

an gain third growth sounds business. flat? actually sort it that be of right basis, looking sort going down to printed? closer reported, direct of you're So think to your it? to, what's Or get at to is I the on of that in way as here similar quarter apples-to-apples What's a But about like, come the

David Loretta

up. quarter, the fourth will to flat the we tie slightly Low digits guidance. be what what single For is expect That's full year to would reported.

Dylan Carden

that a then as mentioned opened of been there seeing about had And as be stores any that How some would high in per really it's kicks markets helpful. you color markets? there additional difference you or markets? where when sort in? add businesses. a there volatility sort of growth that How stores outsized older Is thought in have you -- aging of over direct that amongst detail provide of you X Any to can Is years can big your are the is?

David Loretta

Yes.

where at the established after continue markets, full the in Minnesota single is in growth got those in pace. markets most faster We first store's year, once saw here Midwest largely direct direct the Wisconsin. digits, in year-over-year. and We third market growing cases in to the been quarter high business in terms in see a a its of around the a we've And that

we that contraction year some translates in second growth. supporting So see Despite that the into shift that's store we in the because of what of the the customer know activity. market

store, in And when business sales were we've for the way. with positive store the two least operating that markets in that the business. combine been you terms of continues a third in largely at with play growth So those in quarter, that to out direct we markets the years in

Dylan Carden

markets that in does packs guess, largely don't a a the of imply is are so? you sort direct issue then the or store? business, weakness in inventory of have I bigger of And that that where where newness

David Loretta

but Well, markets in store, don't where have opened just up where in we markets it we a store. it's also is a

new that or feeling this opened up of the store. of end we that kind cannibalization year those the are in that of XXXX still So at XXXX

within has direct see national that only highest have help our the where markets markets think it's that's that, back that for growth brand in those for reliant we lower on those markets. which And part some some are for the of value store, and a product or So of don't a advertising. we been rates, of But have day, X cases. newness negative our standpoint from we're end us, because been where or it's the that prospecting softer dialed X have softer we marketing that the catalog we prospecting. the at of But not business most to months do last sure. will In

Dylan Carden

already to Or is, activity periods impact of some then as will be you that continue I And last to -- sounds sort it is in And half the guess, to more then of see. And is year. you Christmas? ad enter ahead to to sort year? -- promotional able with that are back now and seeing seen guess, you're what of largely Great. like shipping this Are to leverage of expecting sounds that, what we of selling you in? line you've saying expecting expect expected that the core for be should sort I where it come related quarter fourth you're that

David Loretta

advertising, do get in we Well, expect leverage of the little quarter to a the bit there. fourth

period Although the the we've that more to of and now got on we've flexibility high digital very also added in the spend and some strategic be dollars term, we're to short return. it's in a some nimble in

of quarter, we the -- similar we'll -- fourth in not third amount it leverage from expect advertising the minor to not a certainly be to quarter. So

there? of -- terms I'm your In sorry, Dylan, of what other the part was question

Dylan Carden

maybe cadence that it, was stable call promotional on debt. the that thought expectation the I XQ Yes. is for to comment pull be, even depth back going or or

expectation the how thus far already you've going what versus Just you're seen for be the in to quarter? what is promotional

David Loretta

to product a in at and a our kind different -- steep days us. be didn't a that going little we really found individual last items while year, out bit pretty we the play we're of the promotions, flash on Yes. And setting sales spike of From discount for with a doing is, the we different productive way was of where on the it were a of that week. lot discount business,

nearly So doing the be we're daily year. not to last as is much flatters going

And some discount, year at of temp of the with the promo and some us global gets a combination discounting amount some some our sales. to promos, items a those to sale events be of flash the roughly going same to last are tailored XX% absent but at net XX%

gross November. are we're that to in So hold margin be to seeing able expect we going this already and that we in quarter,

gross margin a year-over-year year. Our to quite bit last is up

And going of are But for so us, critical quarter. the the is be be that's going nimble. place we're hoping time and and the that, for to we in to competitive also this most fourth balance

to react capture to we'll as as see business. be going kind of other steep not retailers. you we're But the So

my So point. that's I think

Operator

today's are our concludes [Operator This and time. also you Instructions]. question-and-answer There no questions other our at attending presentation. session conference. for this Thank

You disconnect. may now

Duluth (DLTH) 5 Dec 192019 Q3 Earnings call transcript