Duluth Holdings Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Janine Stichter - BTIG LLC - Analyst : Hi, Good morning and congratulations on the progress. I want to start out with some questions around the store fleet. So I guess, first off, I'd love to hear more about the two sites you're planning for next year, what you look for in terms of site selection. And then as you think about the 25% of the fleet that's up for renewal, how -- maybe some parameters of how these stores look versus the rest of the fleet, either in terms of comp performance or profitability, and how we should think about what the range of outcomes might look like for this portion of the fleet?

Question: Janine Stichter - BTIG LLC - Analyst : Perfect. And then I also want to ask about gross margin. So it sounds like you're really seeing the benefits from the sourcing initiatives. Maybe a bit more color on how that unfolds and it sounds like there's a longer tail on those benefits. So kind of what that looks like over the next year or so. And then on the flip side, it sounds like you're seeing consumers continue to gravitate toward clearance. Just more color on what you're seeing from a consumer lens, how you're seeing them dropping and what you're expecting from a promotional standpoint. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 29, 2024 / 1:30PM, DLTH.OQ - Q2 2024 Duluth Holdings Inc Earnings Call

Question: Janine Stichter - BTIG LLC - Analyst : Perfect. That's helpful color. Thanks so much. I can pass it on.

Question: Jonathan Komp - Robert W. Baird & Co - Analyst : Yes, hi, good morning. A couple of questions this morning. Maybe first, following up on the store topic. When you look at the retail stores, I'm curious what you make of the traffic declines that you're seeing? And given the lower traffic, do you still expect the store base, all the stores to be profitable this year. And if you were to consider closing some stores in the future. Any sense of what impact that might have on your direct business in those markets?

Question: Jonathan Komp - Robert W. Baird & Co - Analyst : Got it. And then maybe to follow up on inventory, just to ask a little bit further the sequential dollar increase from the first to second quarter looks pretty substantial, maybe the largest that we've seen in the past for Duluth. So could you maybe give a little more color? Were there any early receipts? Are there signed some of the new categories aren't resonating? And maybe a broader question about sort of SKU proliferation and how you avoid adding too much in terms of the overall SKU count as you pursue some of these new categories?

Question: Jonathan Komp - Robert W. Baird & Co - Analyst : And are you willing to share how much incremental markdown pressure? I know you -- given the outlook on a net basis for the gross margin, but how much incremental discounting pressure are you assuming or any detail there?

Question: Jonathan Komp - Robert W. Baird & Co - Analyst : Okay, great. And then Heena, just one last one, if I could follow up. I know you don't guide quarterly specifically, but third quarter typically is your lowest profitability quarter. So I'm wondering if you're expecting to be flat or positive on adjusted EBITDA or any other just directional color as we think about modeling the quarters?

Question: Jonathan Komp - Robert W. Baird & Co - Analyst : Okay. Great. Appreciate the color. Thanks, again.

Question: Dylan Carden - William Blair & Company - Analyst : Thanks. I'm curious if you can provide any color on just the range of performance between the stores. And sort of what's the best way to think about the productivity, if you go all the way back to kind of 2017 when you're really ramping the count it's more or less half since then. So what's -- is that the entire fleet? Is that a factor of sort of an early pop from direct business? I guess -- and the ultimate sort of theme here is just to kind of get a sense of what the potential impact could be as you close or renovate?

Question: Dylan Carden - William Blair & Company - Analyst : I guess as you think about square footage growth over the next five years then as these leases come through between openings and rationalization is the goal to kind of maintain a flat overall square footage to more productive level? Is that sort of broad strokes what we're talking about here?

Question: Dylan Carden - William Blair & Company - Analyst : Let me try another one. So if you're -- it seems like you've got a better handle on sort of line of sight into a lot of really nice cost efficiencies here. I'm curious as you kind of roll those through when you might expect to kind of get back to a level of more consistent profitability. Is that something that you think -- you kind of mentioned four years there on at least sort of the gross margin side? Is this going to be a sort of relatively slow process? Or do you think this model can inflect relatively quickly kind of the next year?

Question: Dylan Carden - William Blair & Company - Analyst : And Very good. And just -- I just want to be sort of crystal. The comment that you can get gross margins above pre-pandemic? Are you talking about getting back to, if not above, the 57%, just so we're using real numbers?

Question: Dylan Carden - William Blair & Company - Analyst : Okay. And then I had one more that's escaping me, apologies. Oh, freight. And maybe I missed it, but is there any contemplation of higher freight rates in the guide? Or is it that given how you turn inventory that, that's more like 2025 story that we can kind of wait for?

Question: Dylan Carden - William Blair & Company - Analyst : Excellent. Thanks a lot.