DULUTH HOLDINGS INC.

Previous wording

Management’s discussion focuses on fiscal 2023 results compared to fiscal 2022. Fiscal year 2023 and 2022 were 52-week periods. For a discussion of fiscal 2022 results compared to fiscal 2021, refer to the Company’s Annual Report on Form 10-K for the year ended January 29, 2023.

Current wording

Management’s discussion focuses on fiscal 2024 results compared to fiscal 2023. Fiscal year 2024 was a 53-week period and 2023 was a 52-week period. For a discussion of fiscal 2023 results compared to fiscal 2022, refer to the Company’s Annual Report on Form 10-K for the year ended January 28, 2024.

Previous wording

From our heritage as a catalog for those working in the building trades, Duluth Trading has become a widely recognized brand and proprietary line of innovative and functional apparel and gear. Over the last decade, we have created strong brand awareness, built a loyal customer base and generated robust sales momentum. We have done so by sticking to our roots of “there’s gotta be a better way” and through our relentless focus on providing our customers with quality, functional products.

Current wording

From our heritage as a catalog for those working in the building trades, Duluth Trading has become a widely recognized brand and proprietary line of innovative and functional apparel and gear. Over the last decade, we have created strong brand awareness, built a loyal customer base and generated sales growth. We have done so by sticking to our roots of “there’s gotta be a better way” and through our relentless focus on providing our customers with quality, functional products.

Previous wording

Net sales in fiscal 2023 decreased by 1.0% over the prior year to $646.7 million;

Current wording

Net sales in fiscal 2024 decreased by 3.1% compared to the prior year to $626.6 million;

Previous wording

Net loss in fiscal 2023 was ($9.4) million compared to prior year net income of $2.2 million; and

Current wording

Net loss in fiscal 2024 was ($43.6) million compared to prior year net loss of ($9.9) million; and

Previous wording

Adjusted EBITDA in fiscal 2023 decreased 23.2% over the prior year to $33.4 million.

Current wording

Adjusted EBITDA in fiscal 2024 decreased $18.0 million compared to the prior year to $14.6 million.

Previous wording

We believe Free Cash Flow is a useful measure of performance as an indication of our financial strength and provides additional perspective on our ability to efficiently use capital in executing our growth strategy. We use Free Cash Flow to facilitate a comparison of our operating performance on a consistent basis from period-to-period and our ability to generate cash.

Current wording

We believe Free Cash Flow is a useful measure of performance as an indication of the Company’s ability to generate cash and provides additional perspective on our ability to efficiently use capital in executing our growth strategy. We use Free Cash Flow to facilitate a comparison of our operating performance on a consistent basis from period-to-period and our ability to generate cash.

Previous wording

Store market net sales decreased $11.4 million, or 2.5%, to $445.1 million in fiscal 2023 compared to $456.5 million in fiscal 2022. Net sales in non-store markets increased $4.4 million, or 2.3%, to $196.0 million in fiscal 2023 compared to $191.6 million in fiscal 2022.

Current wording

Store market net sales decreased $3.3 million, or 0.8%, to $441.8 million in fiscal 2024 compared to $445.1 million in fiscal 2023. Net sales in non-store markets decreased $21.7 million, or 11.1%, to $174.3 million in fiscal 2024 compared to $196.0 million in fiscal 2023.

Previous wording

Gross profit decreased $18.5 million, or 5.4%, to $325.0 million in fiscal 2023 compared to $343.4 million in fiscal 2022. As a percentage of net sales, gross margin decreased to 50.3% of net sales in fiscal 2023 compared to 52.6% of net sales in fiscal 2022. The decrease in gross margin rate was primarilydue to a lower mix of full price sales as customers purchasing activity increased during periods of promotions.

Current wording

Gross profit decreased $16.5 million, or 5.1%, to $308.5 million in fiscal 2024 compared to $325.0 million in fiscal 2023. As a percentage of net sales, gross margin decreased to 49.2% of net sales in fiscal 2024 compared to 50.3% of net sales in fiscal 2023. The decrease in gross margin rate was primarilydue to a lower mix of full price sales as customers’ purchasing activity increased during periods of promotions, partially offset by an improvement in product costs from our direct to factory sourcing initiative.

Previous wording

Selling, general and administrative expenses decreased $3.4 million, or 1.0%, to $333.8 million in fiscal 2023 compared to $337.2 million in fiscal 2022. Selling, general and administrative expenses as a percentage of net sales was 51.6% in fiscal 2023 and fiscal 2022.

Current wording

Selling, general and administrative expenses increased $3.1 million, or 0.9%, to $337.6 million in fiscal 2024 compared to $334.5 million in fiscal 2023. Selling, general and administrative expenses as a percentage of net sales was 53.9% in fiscal 2024 compared to 51.7% in fiscal 2023.

Previous wording

Interest expense increased $0.5 million to $4.2 million in fiscal 2023 compared to $3.7 million in fiscal 2022. The increase in interest expense was primarily attributable to increased interest rates on outstanding debt in fiscal 2023 compared to fiscal 2022.

Current wording

Interest expense increased $0.4 million to $4.6 million in fiscal 2024 compared to $4.2 million in fiscal 2023. The increase in interest expense was primarily attributable to increased interest rates on outstanding debt in fiscal 2024 compared to fiscal 2023.

Previous wording

Income tax benefit was $2.7 million in fiscal 2023 compared to income tax expense of $0.7 million in fiscal 2022. Our effective tax rate related to controlling interest was 22.4% in fiscal 2023 compared to 23.5% in fiscal 2022.

Current wording

Income tax expense was $2.4 million in fiscal 2024 compared to income tax benefit of $2.9 million in fiscal 2023. Our effective tax rate related to controlling interest was (5.7%) in fiscal 2024 compared to 22.4% in fiscal 2023. The provision for fiscal 2024 reflected the establishment of a valuation allowance against the net amount of deferred tax assets as well as pre-tax loss in the current year.

Previous wording

Net loss attributable to controlling interest was ($9.4) million in fiscal 2023 compared to net income attributable to controlling interest of $2.3 million in fiscal 2022, due to the factors discussed above.

Current wording

Net loss attributable to controlling interest was ($43.7) million in fiscal 2024 compared to ($9.9) million in fiscal 2023, due to the factors discussed above.

Previous wording

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA decreased $10.1 million, or 23.2%, to $33.4 million in fiscal 2023 compared to $43.5 million in fiscal 2022. As a percentage of net sales, Adjusted EBITDA decreased to 5.2% of net sales in fiscal 2023 compared to 6.7% of net sales in fiscal 2022.

Current wording

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA decreased $18.0 million to $14.6 million in fiscal 2024 compared to $32.7 million in fiscal 2023. As a percentage of net sales, Adjusted EBITDA decreased to 2.3% of net sales in fiscal 2024 compared to 5.1% of net sales in fiscal 2023.

Previous wording

Free cash flow increased $18.0 million to ($10.4) million in fiscal 2023 compared to ($28.5) million in fiscal 2022. The increase was primarily driven by lower inventory levels, partially offset by higher purchases of property and equipment.

Current wording

Free cash flow decreased $14.8 million to ($25.2) million in fiscal 2024 compared to ($10.4) million in fiscal 2023. The decrease was primarily driven by higher inventory levels compared to a reduction in inventory in the prior year, partially offset by a decrease in purchases of property and equipment.

Previous wording

Our business relies on cash from operating activities and a credit facility as our primary sources of liquidity. Our primary cash needs have been for inventory, marketing and advertising, payroll, store leases, and capital expenditures associated with infrastructure and information technology. The most significant components of our working capital are cash, inventory, accounts payable and other current liabilities. As of January 28, 2024 our working capital was $78.5 million, which includes cash and cash equivalents of $32.2 million.

Current wording

Our business relies on cash from operating activities and a credit facility as our primary sources of liquidity. Our primary cash needs have been for inventory, marketing and advertising, payroll, store leases, and capital expenditures associated with infrastructure and information technology. The most significant components of our working capital are cash, inventory, accounts payable and other current liabilities. As of February 2, 2025 our working capital was $63.1 million, which includes cash and cash equivalents of $3.3 million.

Previous wording

We spent $53.2 million in fiscal 2023 on capital expenditures, inclusive of investments in software hosting implementation costs, which are included in Prepaid expenses & other current assets on the Company’s Consolidated Balance Sheets. We expect to spend approximately $25.2 million in fiscal 2024 on capital expenditures. Due to the seasonality of our business, a significant amount of cash from operating activities is generated during the fourth quarter of our fiscal year. During the first three quarters of our fiscal year, we typically are net users of cash in our operating activities as we acquire inventory in anticipation of our peak selling season, which typically occurs in the fourth quarter of our fiscal year. We also use cash in our investing activities for capital expenditures throughout all four quarters of our fiscal year.

Current wording

We spent $17.4 million in fiscal 2024 on capital expenditures, inclusive of investments in software hosting implementation costs, which are included in Prepaid expenses & other current assets on the Company’s Consolidated Balance Sheets. We expect to spend approximately $20.0 million in fiscal 2025 on capital expenditures. Due to the seasonality of our business, a significant amount of cash from operating activities is generated during the fourth quarter of our fiscal year. During the first three quarters of our fiscal year, we typically are net users of cash in our operating activities as we acquire inventory in anticipation of our peak selling season, which typically occurs in the fourth quarter of our fiscal year. We also use cash in our investing activities for capital expenditures throughout all four quarters of our fiscal year.

Previous wording

For fiscal 2022, net cash used in operating activities was $1.4 million, which primarily consisted of net income of $2.2 million, non-cash depreciation and amortization of $30.8 million, amortization of stock-based compensation of $2.7 million, which was offset by cash used in operating assets and liabilities of $37.2 million. The cash used in operating assets and liabilities of $37.2 million primarily consisted of a $32.3 million increase in inventory, primarily due to the pull forward of spring receipts, and a $11.8 million decrease in accrued expenses, partially offset by a $12.7 million increase in trade accounts payable.

Current wording

For fiscal 2024, net cash used in operating activities was $16.9 million, which primarily consisted of non-cash depreciation and amortization of $32.3 million and amortization of stock-based compensation of $4.0 million, offset by cash used in operating assets and liabilities of $12.0 million and net loss of ($43.6) million. The cash used in operating assets and liabilities of $12.0 million primarily consisted of a $40.8 million increase in inventory partially offset by a $22.9 million increase in trade accounts payable.

Previous wording

For fiscal 2023, net cash provided by operating activities was $38.7 million, which primarily consisted of non-cash depreciation and amortization of $32.2 million, amortization of stock-based compensation of $4.2 million and cash provided by operating assets and liabilities of $13.7 million, which was partially offset by net loss of ($9.4) million. The cash provided by operating assets and liabilities of $13.7 million primarily consisted of a $29.2 million decrease in inventory partially offset by a $5.4 million and $5.1 million decrease in trade accounts payable and accrued expenses, respectively.

Current wording

For fiscal 2023, net cash provided by operating activities was $38.7 million, which primarily consisted of non-cash depreciation and amortization of $32.2 million, amortization of stock-based compensation of $4.2 million and cash provided by operating assets and liabilities of $14.5 million, which was partially offset by net loss of ($9.9) million. The cash provided by operating assets and liabilities of $14.5 million primarily consisted of a $29.2 million decrease in inventory partially offset by a $5.4 million and $4.4 million decrease in trade accounts payable and accrued expenses, respectively.

Previous wording

For fiscal 2022, net cash used in investing activities was $26.9 million, driven by purchases of property and equipment of $27.1 million, primarily related to the Adairsville, Georgia fulfillment center.

Current wording

For fiscal 2024, net cash used in investing activities was $8.1 million, driven by purchases of property and equipment of $8.3 million.

Previous wording

For fiscal 2023 and fiscal 2022, net cash used in financing activities was $3.3 million and $3.2 million, respectively, primarily consisting of payments on finance lease obligations.

Current wording

For fiscal 2024 and fiscal 2023, net cash used in financing activities was $3.8 million and $3.3 million, respectively, primarily consisting of payments on finance lease obligations.

Previous wording

On July 8, 2022, the Company entered into the First Amendment to the Credit Agreement (the “First Amendment”), which was treated as a modification for accounting purposes. The First Amendment amends the Credit Agreement in order to (i) increase the revolving commitment from $150.0 million to $200.0 million; (ii) extend the maturity date from May 14, 2026 to July 8, 2027; (iii) amend the pricing index to replace BSBY with the Term Secured Overnight Financing Rate; and (iv) reduce the commitment fee in some instances. As of and for the fiscal year ended January 28, 2024, we were in compliance with all financial and non-financial covenants.

Current wording

On July 8, 2022, the Company entered into the First Amendment to the Credit Agreement (the “First Amendment”), which was treated as a modification for accounting purposes. The First Amendment amends the Credit Agreement in order to (i) increase the revolving commitment from $150.0 million to $200.0 million; (ii) extend the maturity date from May 14, 2026 to July 8, 2027; (iii) amend the pricing index to replace BSBY with the Term Secured Overnight Financing Rate; and (iv) reduce the commitment fee in some instances.

Previous wording

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established if it is more likely than not that some portion or all of the deferred income tax asset will not be realized. No valuation allowance was recognized for the years ended January 28, 2024 or January 29, 2023.

Current wording

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established if it is more likely than not that some portion or all of the deferred income tax asset will not be realized. A valuation allowance was recognized for the year ended February 2, 2025.