dlth-20240428x10q

Three Months Ended

April 28, 2024

April 30, 2023

(in thousands)

Depreciation and amortization

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________


þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 28, 2024


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 001-37641

_________________________________________

DULUTH HOLDINGS INC.

(Exact name of registrant as specified in its charter)

_________________________________________

	99
Wisconsin	39-1564801
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

201 East Front Street Mount Horeb, Wisconsin	53572
(Address of principal executive offices)	(Zip Code)

(608) 424-1544

(Registrant’s telephone number, including area code)

_________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class B Common Stock, No Par Value	DLTH	NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	o	Accelerated Filer	þ
Non-accelerated Filer	o	Smaller Reporting Company	þ
		Emerging Growth Company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the Registrant’s Class A common stock, no par value, as of May 29, 2024, was 3,364,200.

The number of shares outstanding of the Registrant’s Class B common stock, no par value, as of May 29, 2024, was 31,701,292.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DULUTH HOLDINGS INC.

Condensed Consolidated Balance Sheets - Assets

(Unaudited)

(Amounts in thousands)


	April 28, 2024		January 28, 2024
ASSETS
Current Assets:
Cash and cash equivalents	$	6,799	$	32,157
Receivables		10,572		5,955
Income tax receivable		84		617
Inventory, less reserves of $1,729 and $1,361, respectively		136,434		125,757
Prepaid expenses & other current assets		17,537		16,488
Total current assets		171,426		180,974
Property and equipment, net		126,526		132,718
Operating lease right-of-use assets		117,400		121,430
Finance lease right-of-use assets, net		38,432		40,315
Available-for-sale security		4,798		4,986
Other assets, net		9,629		9,020
Deferred tax assets		3,172		1,010
Total assets	$	471,383	$	490,453

The accompanying notes are an integral part of these condensed consolidated financial statements.

‎

DULUTH HOLDINGS INC.

Condensed Consolidated Balance Sheets – Liabilities and Shareholders’ Equity

(Unaudited)

(Amounts in thousands)


	April 28, 2024		January 28, 2024
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable	$	37,419	$	51,122
Accrued expenses and other current liabilities		26,366		30,930
Current portion of operating lease liabilities		16,619		16,401
Current portion of finance lease liabilities		3,253		3,149
Duluth line of credit		11,000		—
Current maturities of TRI long-term debt		867		847
Total current liabilities		95,524		102,449
Operating lease liabilities, less current maturities		102,188		106,413
Finance lease liabilities, less current maturities		33,435		34,276
TRI long-term debt, less current maturities		24,933		25,141
Total liabilities		256,080		268,279
Shareholders' equity:
Preferred stock, no par value; 10,000 shares authorized; no shares ‎ issued or outstanding as of April 28, 2024 and January 28, 2024		—		—
Common stock (Class A), no par value; 10,000 shares authorized; 3,364 shares ‎issued and outstanding as of April 28, 2024 and January 28, 2024		—		—
Common stock (Class B), no par value; 200,000 shares authorized; ‎ 31,945 shares issued and 31,710 shares outstanding as of April 28, 2024 and ‎31,178 shares issued and 31,023 shares outstanding as of January 28, 2024		—		—
Treasury stock, at cost; 235 and 155 shares as of April 28, 2024 and ‎ January 28, 2024, respectively		(2,121)		(1,738)
Capital stock		105,061		103,579
Retained earnings		115,943		123,816
Accumulated other comprehensive loss		(532)		(427)
Total shareholders' equity of Duluth Holdings Inc.		218,351		225,230
Noncontrolling interest		(3,048)		(3,056)
Total shareholders' equity		215,303		222,174
Total liabilities and shareholders' equity	$	471,383	$	490,453

The accompanying notes are an integral part of these condensed consolidated financial statements.

‎

DULUTH HOLDINGS INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except per share figures)


	Three Months Ended
	April 28, 2024		April 30, 2023
Net sales	$	116,684	$	123,759
Cost of goods sold (excluding depreciation and amortization)		55,060		58,108
Gross profit		61,624		65,651
Selling, general and administrative expenses		70,595		70,200
Operating loss		(8,971)		(4,549)
Interest expense		993		934
Other income, net		16		148
Loss before income taxes		(9,948)		(5,335)
Income tax benefit		(2,083)		(1,458)
Net loss		(7,865)		(3,877)
Less: Net income (loss) attributable to noncontrolling interest		8		(8)
Net loss attributable to controlling interest	$	(7,873)	$	(3,869)
Basic earnings per share (Class A and Class B):
Weighted average shares of common stock outstanding		33,087		32,865
Net loss per share attributable to controlling interest	$	(0.24)	$	(0.12)
Diluted earnings per share (Class A and Class B):
Weighted average shares and equivalents outstanding		33,087		32,865
Net loss per share attributable to controlling interest	$	(0.24)	$	(0.12)

The accompanying notes are an integral part of these condensed consolidated financial statements.

‎

DULUTH HOLDINGS INC.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

(Amounts in thousands)


	Three Months Ended
	April 28, 2024		April 30, 2023
Net loss	$	(7,865)	$	(3,877)
Other comprehensive loss
Securities available-for sale:
Unrealized security loss arising during the period		(140)		(79)
Income tax benefit		(35)		(20)
Other comprehensive loss		(105)		(59)
Comprehensive loss		(7,970)		(3,936)
Comprehensive income (loss) attributable to noncontrolling interest		8		(8)
Comprehensive loss attributable ‎to controlling interest	$	(7,978)	$	(3,928)

The accompanying notes are an integral part of these condensed consolidated financial statements.

‎

DULUTH HOLDINGS INC.

Condensed Consolidated Statement of Shareholders’ Equity

(Unaudited)

(Amounts in thousands)


	Three Months Ended April 28, 2024
								Accumulated		Noncontrolling
	Capital stock							other		interest in		Total
				Treasury		Retained		comprehensive		variable interest		shareholders'
	Shares	Amount		stock		earnings		loss		entity		equity
Balance at January 28, 2024	34,387	$	103,579	$	(1,738)	$	123,816	$	(427)	$	(3,056)	$	222,174
Issuance of common stock	782		110		—		—		—		—		110
Stock-based compensation	—		1,372		—		—		—		—		1,372
Restricted stock forfeitures	(15)		—		—		—		—		—		—
Restricted stock surrendered for taxes	(80)		—		(383)		—		—		—		(383)
Other comprehensive loss	—		—		—		—		(105)		—		(105)
Net (loss) income	—		—		—		(7,873)		—		8		(7,865)
Balance at April 28, 2024	35,074	$	105,061	$	(2,121)	$	115,943	$	(532)	$	(3,048)	$	215,303

The accompanying notes are an integral part of these condensed consolidated financial statements.

‎

DULUTH HOLDINGS INC.

Condensed Consolidated Statement of Shareholders’ Equity

(Unaudited)

(Amounts in thousands)


	Three Months Ended April 30, 2023
								Accumulated		Noncontrolling
	Capital stock							other		interest in		Total
				Treasury		Retained		comprehensive		variable interest		shareholders'
	Shares	Amount		stock		earnings		loss		entity		equity
Balance at January 29, 2023	33,443	$	98,842	$	(1,459)	$	133,172	$	(148)	$	(3,210)	$	227,197
Issuance of common stock	1,081		136		—		—		—		—		136
Stock-based compensation	—		990		—		—		—		—		990
Restricted stock forfeitures	(9)		—		—		—		—		—		—
Restricted stock surrendered for taxes	(41)		—		(273)		—		—		—		(273)
Other comprehensive income	—		—		—		—		(59)		—		(59)
Net loss	—		—		—		(3,869)		—		(8)		(3,877)
Balance at April 30, 2023	34,474	$	99,968	$	(1,732)	$	129,303	$	(207)	$	(3,218)	$	224,114

The accompanying notes are an integral part of these condensed consolidated financial statements.

‎

DULUTH HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)


	Three Months Ended
	April 28, 2024		April 30, 2023
Cash flows from operating activities:
Net loss	$	(7,865)	$	(3,877)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		8,251		7,413
Stock based compensation		1,372		990
Deferred income taxes		(2,127)		(1,365)
Loss on disposal of property and equipment		13		—
Changes in operating assets and liabilities:
Receivables		(4,617)		(396)
Income taxes receivable		533		—
Inventory		(10,677)		9,953
Prepaid expense & other current assets		871		84
Software hosting implementation costs, net		(2,617)		(746)
Trade accounts payable		(13,150)		(21,080)
Income taxes payable		—		(338)
Accrued expenses and deferred rent obligations		(4,635)		(4,475)
Other assets		37		(17)
Noncash lease impacts		945		(119)
Net cash used in operating activities		(33,666)		(13,973)
Cash flows from investing activities:
Purchases of property and equipment		(1,525)		(21,392)
Principal receipts from available-for-sale security		48		44
Net cash used in investing activities		(1,477)		(21,348)
Cash flows from financing activities:
Proceeds from line of credit		28,000		10,000
Payments on line of credit		(17,000)		(10,000)
Payments on TRI long term debt		(204)		(186)
Payments on finance lease obligations		(737)		(694)
Payments of tax withholding on vested restricted shares		(383)		(273)
Other		109		136
Net cash provided by (used in) financing activities		9,785		(1,017)
Decrease in cash and cash equivalents		(25,358)		(36,338)
Cash and cash equivalents at beginning of period		32,157		45,548
Cash and cash equivalents at end of period	$	6,799	$	9,210
Supplemental disclosure of cash flow information:
Interest paid	$	993	$	934
Income taxes paid	$	2	$	216
Supplemental disclosure of non-cash information:
Unpaid liability to acquire property and equipment	$	1,392	$	1,832

The accompanying notes are an integral part of these condensed consolidated financial statements.

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

A. Nature of Operations

Duluth Holdings Inc. (“Duluth Trading” or the “Company”), a Wisconsin corporation, is a lifestyle brand of men’s and women’s casual wear, workwear and accessories sold primarily through the Company’s own omnichannel platform. The Company’s products are marketed under the Duluth Trading name, with the majority of products being exclusively developed and sold as Duluth Trading branded merchandise.

The Company identifies its operating segments according to how its business activities are managed and evaluated. The Company continues to report one reportable external segment, consistent with the Company’s omnichannel business approach. The Company’s revenues generated outside the United States were insignificant.

The Company has two classes of authorized common stock: Class A common stock and Class B common stock. The rights of holders of Class A common stock and Class B common stock are identical, except for voting and conversion rights. Each share of Class A common stock is entitled to ten votes per share and is convertible at any time into one share of Class B common stock. Each share of Class B common stock is entitled to one vote per share. The Company’s Class B common stock trades on the NASDAQ Global Select Market under the symbol “DLTH.”

B. Basis of Presentation

The condensed consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). The Company consolidates TRI Holdings, LLC (“TRI”) as a variable interest entity (see Note 6 “Variable Interest Entity” for further information). All significant intercompany balances and transactions have been eliminated in consolidation.

The Company’s fiscal year ends on the Sunday nearest to January 31 of the following year. Fiscal 2024 is a 53-week period and ends on February 2, 2025. Fiscal 2023 was a 52-week period and ended on January 28, 2024. The three months of fiscal 2024 and fiscal 2023 represent the Company’s 13-week periods ended April 28, 2024 and April 30, 2023, respectively.

The accompanying condensed consolidated financial statements as of and for the three months ended April 28, 2024 and April 30, 2023 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations as of and for the three months ended April 28, 2024 and April 30, 2023. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the fiscal year ended January 28, 2024.

C. Impairment Analysis

As of April 28, 2024 and for the three months ended, no triggering events or indicators of asset impairment were noted.

D. Inventory

Inventory, consisting of purchased product, is valued at the lower of cost or net realizable value, under the first-in, first-out method. The significant estimates used in inventory valuation are obsolescence (including excess and slow-moving inventory and lower of cost or market reserves) and estimates of inventory shrinkage. Both estimates have calculations that require the Company to make assumptions and apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends. Inventory is adjusted periodically to reflect current market conditions, which requires management’s judgment that may significantly affect the ending inventory valuation, as well as gross margin.

The reserve for inventory shrinkage is adjusted to reflect the trend of historical physical inventory count results. The Company performs its retail store physical inventory counts in July and the difference between actual and estimated shrinkage, recorded in Cost of goods sold, may cause fluctuations in second fiscal quarter results.

E. Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the following:


	April 28, 2024		January 28, 2024
(in thousands)
Prepaid expenses & other current assets
Pending returns inventory, net	$	2,108	$	2,778
Current software hosting implementation costs, net		3,702		3,353
Other prepaid expenses		11,727		10,357
Prepaid expenses & other current assets	$	17,537	$	16,488

Other assets, net
Goodwill	$	402	$	402
Intangible assets, net		428		436
Non-current software hosting implementation costs		7,403		6,705
Other assets, net		1,396		1,477
Other assets, net	$	9,629	$	9,020

F. Seasonality of Business

The Company’s business is affected by the pattern of seasonality common to most apparel businesses. Historically, the Company has recognized a significant portion of its revenue and operating profit in the fourth fiscal quarter of each year due to increased sales during the holiday season.

G. Cash and Cash Equivalents

The Company considers short-term investments with original maturities of three months or less when purchased to be cash equivalents. Amounts receivable from credit card issuers are typically converted to cash within 2 to 4 days of the original sales transaction and are considered to be cash equivalents.

H. Significant Accounting Policies

There have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended January 28, 2024.

‎

2. LEASES

Based on the criteria set forth in ASC Topic 842, Leases (“ASC 842”), the Company recognizes right-of-use (ROU) assets and lease liabilities related to leases on the Company’s consolidated balance sheets. The Company determines if an arrangement is, or contains, a lease at inception. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities reflect the obligation to make lease payments arising from the lease. At any given time during the lease term, the lease liability represents the present value of the remaining lease payments and the ROU asset is measured at the amount of the lease liability, adjusted for pre-paid rent, unamortized initial direct costs and the remaining balance of lease incentives received. Both the lease ROU asset and liability are reduced to zero at the end of the lease.

The Company leases retail space under non-cancelable lease agreements, which expire on various dates through 2036. Substantially all of these arrangements are store leases. Store leases generally have initial lease terms ranging from five years to fifteen years with renewal options and rent escalation provisions. At the commencement of a lease, the Company includes only the initial lease term as the option to extend is not reasonably certain. The Company does not record leases with a lease term of 12 months or less on the Company’s consolidated balance sheets.

When calculating the lease liability on a discounted basis, the Company applies its estimated discount. The Company bases this discount on a collateralized interest rate as well as publicly available data for instruments with similar characteristics.

In addition to rent payments, leases for retail space contain payments for real estate taxes, insurance costs, common area maintenance, and utilities that are not fixed. The Company accounts for these costs as variable payments and does not include such costs as a lease component.

The expense components of the Company’s leases reflected on the Company’s consolidated statement of operations were as follows:


	Consolidated Statement	Three Months Ended
	of Operations	April 28, 2024		April 30, 2023
(in thousands)
Finance lease expenses
Amortization of right-of-use ‎assets	Selling, general and ‎administrative expenses	$	838	$	840
Interest on lease liabilities	Interest expense		409		438
Total finance lease expense		$	1,247	$	1,278
Operating lease expense	Selling, general and ‎administrative expenses	$	5,093	$	5,050
Amortization of build-to-suit ‎leases capital contribution	Selling, general and ‎administrative expenses		321		321
Variable lease expense	Selling, general and ‎administrative expenses		2,922		2,914
Total lease expense		$	9,583	$	9,563

‎

Other information related to leases were as follows:


	Three Months Ended
	April 28, 2024		April 30, 2023
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	737	$	694
Operating cash flows from finance leases	$	409	$	438
Operating cash flows from operating leases	$	5,268	$	5,135

Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	-	$	588

Weighted-average remaining lease term (in years):
Finance leases		10		11
Operating leases		7		8

Weighted-average discount rate:
Finance leases		4.5%		4.4%
Operating leases		4.2%		4.1%

Future minimum lease payments under the non-cancellable leases are as follows as of April 28, 2024:


Fiscal year	Finance		Operating
(in thousands)
2023 (remainder of fiscal year)	$	3,590		15,937
2024		5,099		20,612
2025		3,993		19,659
2026		3,993		18,410
2027		4,017		16,631
Thereafter		25,214		46,792
Total future minimum lease payments	$	45,906	$	138,041
Less – Discount		(9,218)		(19,234)
Lease liability	$	36,688	$	118,807

3. DEBT AND CREDIT AGREEMENT

Debt consists of the following:


	April 28, 2024		January 28, 2024
(in thousands)
TRI Senior Secured Note	$	22,300	$	22,488
TRI Note		3,500		3,500
	$	25,800	$	25,988
Less: current maturities		867		847
TRI long-term debt	$	24,933	$	25,141

Duluth Line of credit	$	11,000	$	—
Less: current maturities		11,000		—
Duluth long-term debt	$	—	$	—

TRI Holdings, LLC

TRI entered into a senior secured note (“TRI Senior Secured Note”) with an original balance of $26.7 million. The TRI Senior Secured Note is scheduled to mature on October 15, 2038 and requires installment payments with an interest rate of 4.95%. See Note 6 “Variable Interest Entities” for further information.

TRI entered into a promissory note (“TRI Note”) with an original balance of $3.5 million. The TRI Note is scheduled to mature in November 2038 and requires annual interest payments at a rate of 3.05%, with a final balloon payment due in November 2038.

While the above notes are consolidated in accordance with ASC Topic 810, Consolidation, the Company is not the guarantor nor obligor of these notes.

Credit Agreement

On May 14, 2021, the Company entered into a credit agreement (the “Credit Agreement”), which was treated as a modification for accounting purposes. The Credit Agreement originally matured on May 14, 2026 and provided for borrowings of up to $150.0 million that were available under a revolving senior credit facility, with a $5.0 million sublimit for issuance of standby letters of credit, as well as a $10.0 million sublimit for swing line loans. At the Company’s option, the interest rate applicable to the revolving senior credit facility was a floating rate equal to: (i) the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus the applicable rate of 1.25% to 2.00% determined based on the Company’s rent adjusted leverage ratio, or (ii) the base rate plus the applicable rate of 0.25% to 1.00% based on the Company’s rent adjusted leverage ratio. The Credit Agreement was secured by essentially all Company assets and requires the Company to maintain compliance with certain financial and non-financial covenants, including a maximum rent adjusted leverage ratio and a minimum fixed charge coverage ratio as defined in the Credit Agreement.

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 April 28, 2024 and for the three months then ended, the Company was in compliance with all financial and non-financial covenants contained within the Credit Agreement and the First Amendment.

‎

4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:


	April 28, 2024		January 28, 2024
(in thousands)
Salaries and benefits	$	3,864	$	2,692
Deferred revenue		8,105		9,579
Freight		1,588		4,001
Product returns		4,448		5,541
Unpaid purchases of property & equipment		911		765
Accrued advertising		1,521		1,129
Other		5,929		7,223
Total accrued expenses and other current liabilities	$	26,366	$	30,930

5. FAIR VALUE

ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., an exit price). The exit price is based on the amount that the holder of the asset or liability would receive or need to pay in an actual transaction (or in a hypothetical transaction if an actual transaction does not exist) at the measurement date. ASC 820 describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last unobservable, as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s assets and liabilities measured at fair value are categorized as Level 1 or Level 3 instruments. The fair value of the Company’s money market account is obtained from real-time quotes for transactions in active exchange markets involving identical assets (Level 1). The fair value of the Company’s available-for-sale security was valued based on a discounted cash flow method (Level 3), which incorporates the U.S. Treasury yield curve, credit information and an estimate of future cash flows. During the three months ended April 28, 2024, certain changes in the inputs did impact the fair value of the available-for-sale security. The calculated fair value is based on estimates that are subjective in nature and involve uncertainties and matters of significant judgement and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The amortized cost and fair value of the Company’s money market account and available-for-sale security and the corresponding amount of gross unrealized gains and losses recognized in accumulated other comprehensive income are as follows:


	April 28, 2024
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
(in thousands)
Level 1 security:
Money market funds	$	—	$	—	$	—	$	—

Level 3 security:
Corporate trust	$	5,508	$	—	$	(710)	$	4,798


	January 28, 2024
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
(in thousands)
Level 1 security:
Money market funds	$	28,396	$	—	$	—	$	28,396

Level 3 security:
Corporate trust	$	5,556	$	—	$	(570)	$	4,986

The Company does not intend to sell the available-for-sale-security in the near term and does not believe that it will be required to sell the security. The Company reviews its securities on a quarterly basis to monitor its exposure to other-than-temporary impairment.

No other-than-temporary impairment was recorded in the unaudited condensed consolidated statements of operations for the three months ended April 28, 2024 or April 30, 2023.

The following table presents future principal receipts related to the Company’s available-for-sale security by contractual maturity as of April 28, 2024.


	Amortized		Estimated
	Cost		Fair Value
(in thousands)
Within one year	$	205	$	156
After one year through five years		1,349		1,104
After five years through ten years		2,023		1,778
After ten years		1,931		1,760
Total	$	5,508	$	4,798

The carrying values and fair values of other financial instruments in the Consolidated Balance Sheets are as follows:


	April 28, 2024				January 28, 2024
		Carrying Amount		Fair Value		Carrying Amount		Fair Value
(in thousands)
TRI Long-term debt, including short-term portion	$	25,800	$	22,627	$	25,988	$	23,554

The above long-term debt, including short-term portion is attributable to the consolidation of TRI in accordance with ASC Topic 810, Consolidation. The fair value was also based on a discounted cash flow method (Level 3) based on credit information and an estimate of future cash flows.

6. VARIABLE INTEREST ENTITY

Based upon the criteria set forth in ASC 810, Consolidation, the Company consolidates variable interest entities (“VIEs”) in which it has a controlling financial interest and is therefore deemed the primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance; and (b) the obligation to absorb the VIE losses and the right to receive benefits that are significant to

the VIE. The Company has determined that it was the primary beneficiary of one variable interest entity (“VIE”) as of April 28, 2024 and January 28, 2024.

The Company leases the Company’s headquarters in Mt. Horeb, Wisconsin from TRI. In conjunction with the lease, the Company invested $6.3 million in a trust that loaned funds to TRI for the construction of the Company’s headquarters. TRI is a Wisconsin limited liability company whose primary purpose and activity is to own this real property. The Company considers itself the primary beneficiary for TRI as the Company has both the power to direct the activities that most significantly impact the entity’s economic performance and is expected to receive benefits that are significant to TRI. As the Company is the primary beneficiary, it consolidates TRI and the lease is eliminated in consolidation. The Company does not consolidate the trust as the Company is not the primary beneficiary.

The condensed consolidated balance sheets include the following amounts as a result of the consolidation of TRI as of April 28, 2024 and January 28, 2024:


	April 28, 2024		January 28, 2024
(in thousands)
Cash	$	15	$	17
Property and equipment, net		22,786		22,941
Total assets	$	22,801	$	22,958

Other current liabilities	$	49	$	26
Current maturities of long-term debt		867		847
TRI long-term debt		24,933		25,141
Noncontrolling interest in VIE		(3,048)		(3,056)
Total liabilities and shareholders' equity	$	22,801	$	22,958

7. LOSS PER SHARE

Earnings per share is computed under the provisions of ASC 260, Earnings Per Share. Basic earnings per share is based on the weighted average number of common shares outstanding for the period. Diluted earnings per share is based on the weighted average number of common shares plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding restricted stock and are considered only for dilutive earnings per share unless considered anti-dilutive. The reconciliation of the numerator and denominator of the basic and diluted earnings per share calculation is as follows:


	Three Months Ended
	April 28, 2024		April 30, 2023
(in thousands, except per share data)
Numerator - net loss attributable to ‎controlling interest	$	(7,873)	$	(3,869)
Denominator - weighted average shares ‎ (Class A and Class B)
Basic		33,087		32,865
Dilutive shares		—		—
Diluted		33,087		32,865
Loss per share (Class A and Class B)
Basic	$	(0.24)	$	(0.12)
Diluted	$	(0.24)	$	(0.12)

The computation of diluted loss per share excluded 0.3 million of unvested restricted stock for the three months ended April 28, 2024 and April 30, 2023, because their inclusion would be anti-dilutive due to a net loss.

8. STOCK-BASED COMPENSATION

The Company accounts for its stock-based compensation plan in accordance with ASC 718, Stock Compensation, which requires the Company to measure all share-based payments at grant date fair value and recognize the cost over the requisite service period of the award.

Total stock compensation expense associated with restricted stock recognized by the Company was $1.4 million and $1.0 million for the three months ended April 28, 2024 and April 30, 2023, respectively. The Company’s total stock compensation expense is included in selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.

A summary of the activity in the Company’s unvested restricted stock during the three months ended April 28, 2024 is as follows:


		Weighted
		average
		fair value
	Shares	per share
Outstanding at January 28, 2024	1,367,270	$	8.77
Granted	764,055		4.64
Vested	(247,698)		8.03
Forfeited	(14,732)		8.19
Outstanding at April 28, 2024	1,868,895	$	6.93

At April 28, 2024, the Company had unrecognized compensation expense of $8.7 million related to the restricted stock awards, which is expected to be recognized over a weighted average period of 3.0 years.

9. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:


	April 28, 2024		January 28, 2024
(in thousands)
Land and land improvements	$	4,486	$	4,486
Leasehold improvements		57,364		56,850
Buildings		36,186		36,191
Vehicles		121		121
Warehouse equipment		66,594		66,481
Office equipment and furniture		55,075		54,294
Computer equipment		11,167		11,142
Software		39,258		39,923
		270,251		269,488
Accumulated depreciation and amortization		(145,340)		(140,551)
		124,911		128,937
Construction in progress		1,615		3,781
Property and equipment, net	$	126,526	$	132,718

10. REVENUE

The Company’s revenue primarily consists of the sale of apparel, footwear and hard goods. Revenue for merchandise that is shipped to our customers from our distribution centers and stores is recognized upon shipment. Store revenue is recognized at the point of sale, net of returns, and excludes taxes. Shipping and processing revenue generated from customer orders are included as a component of net sales and shipping and processing expense, including handling expense, is included

as a component of selling, general and administrative expenses. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses.

Sales disaggregated based upon sales channel is presented below.


	Three Months Ended
	April 28, 2024		April 30, 2023
(in thousands)
Direct-to-consumer	$	75,444	$	79,502
Stores		41,240		44,257
	$	116,684	$	123,759

Contract Assets and Liabilities

The Company’s contract assets primarily consist of the right of return for amounts of inventory to be returned that is expected to be resold and is recorded in Prepaid expenses and other current assets on the Company’s consolidated balance sheets. The Company’s contract liabilities primarily consist of gift card liabilities and are recorded in Accrued expenses and other current liabilities under deferred revenue (see Note 4 “Accrued Expenses and Other Current Liabilities”) on the Company’s consolidated balance sheets. Upon issuance of a gift card, a liability is established for its cash value. The gift card liability is relieved and revenues on gift cards are recorded at the time of redemption by the customer.

Contract assets and liabilities on the Company’s consolidated balance sheets are presented in the following table:


	April 28, 2024		January 28, 2024
(in thousands)
Contract assets	$	2,108	$	2,373
Contract liabilities	$	8,105	$	9,579

Revenue from gift cards is recognized when the gift card is redeemed by the customer for merchandise or as a gift card breakage, an estimate of gift cards which will not be redeemed. The Company does not record breakage revenue when escheat liability to the relevant jurisdictions exists. Gift card breakage is recorded within Net sales on the Company’s consolidated statement of operations. The following table provides the reconciliation of the contract liability related to gift cards for the three months ended:


	April 28, 2024		April 30, 2023
(in thousands)
Balance as of beginning of period	$	9,579	$	10,249
Gift cards sold		2,222		1,878
Gift cards redeemed		(3,635)		(3,553)
Gift card breakage		(61)		(49)
Balance as of end of period	$	8,105	$	8,525

11. INCOME TAXES

For the three months ended April 28, 2024, the Company has utilized the discrete effective tax rate method as allowed by Accounting Standards Codification ("ASC") 740-270-30-18, Income Taxes – Interim Reporting to calculate its interim tax provision. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. The Company believes that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method.

The effective tax rate related to controlling interest was 21% and 27% for the three months ended April 28, 2024 and April 30, 2023, respectively. The income from TRI was excluded from the calculation of the Company’s effective tax rate, as TRI is a limited liability company and not subject to income taxes.

12. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued Accounting Standards Update No. 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” (“ASU 2016-13”), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, which include trade and other receivables, loans and held-to-maturity debt securities, to record an allowance for credit risk based on expected losses rather than incurred losses, otherwise known as “CECL”. In addition, this guidance changes the recognition for credit losses on available-for-sale debt securities, which can occur as a result of market and credit risk and requires additional disclosures. On November 15, 2019, the FASB issued ASU No. 2019-10 “Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815, and Leases (Topic 842),” (ASU 2019-10”), which provides a framework to stagger effective dates for future major accounting standards and amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities. ASU 2019-10 amends the effective dates for ASU 2016-13 for smaller reporting companies with fiscal years beginning after December 15, 2022, and interim periods within those years. The Company adopted ASU 2016-13 on January 30, 2023, the first day of the Company’s first quarter for the fiscal year ending January 28, 2024, the Company’s fiscal year 2023. The adoption of the standard did not have a material impact on the Company’s consolidated financial results.

Recent Accounting Pronouncements Not Yet Adopted

Segment Reporting – Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting: Improvements to Reportable Segment Disclosures.” This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The new guidance is effective for public companies with annual periods beginning after December 15, 2023, and interim periods within annual period beginning after December 15, 2024, with early adoption permitted. Management is currently evaluating the effects adoption of this guidance will have on its consolidated financial statements.

Income Taxes – Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes: Improvements to Income Tax Disclosures.” This ASU improves the transparency of income tax disclosures by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii) income taxes paid disaggregated by jurisdiction. This new guidance will be effective for annual periods beginning after December 15, 2024, and early adoption is permitted. Management is currently evaluating the effects adoption of this guidance will have on its consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the financial statements and related notes of Duluth Holdings Inc. included in Item 1of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2024 (“2023 Form 10-K”).

The Company’s fiscal year ends on the Sunday nearest to January 31 of the following year. Fiscal 2024 is a 53-week period and ends on February 2, 2025. Fiscal 2023 was a 52-week period and ended on January 28, 2024. The three months of fiscal 2024 and fiscal 2023 represent our 13-week periods ended April 28, 2024 and April 30, 2023, respectively.

Unless the context indicates otherwise, the terms the “Company,” “Duluth,” “Duluth Trading,” “we,” “our,” or “us” are used to refer to Duluth Holdings Inc.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. All statements other than statements of historical or current facts included in this Quarterly Report on Form 10-Q are forward-looking statements. Forward looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “could,” “estimate,” “expect,” “project,” “plan,” “potential,” “intend,” “believe,” “may,” “might,” “will,” “objective,” “should,” “would,” “can have,” “likely,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenue, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth initiatives, or strategies are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, including the risks and uncertainties described under Part I, Item 1A “Risk Factors,” in our 2023 Form 10-K, and other SEC filings, which factors are incorporated by reference herein. These risks and uncertainties include, but are not limited to, the following: the impact of inflation and measures to control inflation on our results of operations; the prolonged effects of economic uncertainties on store and website traffic and disruptions to our distribution network, supply chains and operations; our ability to maintain and enhance a strong brand and sub-brand image; adapting to declines in consumer confidence, inflation and decreases in consumer spending; disruptions in our e-commerce platform; effectively adapting to new challenges associated with our expansion into new geographic markets; our ability to meet customer delivery time expectations; natural disasters, unusually adverse weather conditions, boycotts, prolonged public health crises, epidemics or pandemics and unanticipated events; generating adequate cash from our existing stores and direct sales to support our growth; the impact of changes in corporate tax regulations and sales tax; identifying and responding to new and changing customer preferences; the success of the locations in which our stores are located; effectively relying on sources for merchandise located in foreign markets; transportation delays and interruptions, including port congestion; inability to timely and effectively obtain shipments of products from our suppliers and deliver merchandise to our customers; the inability to maintain the performance of maturing store portfolio; our inability to deploy marketing tactics to strengthen brand awareness and attract new customers in a cost effective manner; our ability to successfully open new stores; competing effectively in an environment of intense competition; our ability to adapt to significant changes in sales due to the seasonality of our business; price reductions or inventory shortages resulting from failure to purchase the appropriate amount of inventory in advance of the season in which it will be sold; the potential for further increases in price and availability of raw materials; our dependence on third-party vendors to provide us with sufficient quantities of merchandise at acceptable prices; the susceptibility of the price and availability of our merchandise to international trade conditions; failure of our vendors and their manufacturing sources to use acceptable labor or other practices; our dependence upon key executive management or our inability to hire or retain the talent required for our business; increases in costs of fuel or other energy, transportation or utility costs and in the costs of labor and employment; failure of our information technology systems to support our current and growing business, before and after our planned upgrades; disruptions in our supply chain and fulfillment centers; our inability to protect our trademarks or other intellectual property rights; infringement on the intellectual property of third parties; acts of war, terrorism or civil unrest; the impact of governmental laws and regulations and the outcomes of legal proceedings; changes in U.S. and non-U.S. laws affecting the importation and taxation of goods, including imposition of unilateral tariffs on imported goods; our ability to secure the personal and/or financial information of our customers and employees; our ability to comply with the security standards for the credit card industry; our failure to maintain adequate internal controls over our financial and management systems; acquisition, disposition, and development risks; and other factors that may be disclosed in our SEC filings or otherwise.

Moreover, we operate in an evolving environment, new risk factors and uncertainties emerge from time to time and it is not possible for management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements.

We undertake no obligation to update or revise these forward-looking statements, except as required under the federal securities laws.

Overview

We are a lifestyle brand of men’s and women’s casual wear, workwear and accessories sold primarily through our own omnichannel platform. We offer products nationwide through our website and catalog. In 2010, we initiated our omnichannel platform with the opening of our first store. Since then, we have expanded our retail presence, and as of April 28, 2024, we operated 62 retail stores and three outlet stores.

We offer a comprehensive line of innovative, durable and functional products, such as our Longtail T^® shirts, Buck Naked^TM underwear, Fire Hose^® work pants, and No-Yank^® Tank, which reflect our position as the Modern, Self-Reliant American Lifestyle brand. Our brand has a heritage in workwear that transcends tradesmen and appeals to a broad demographic for everyday and on-the-job use.

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.

A summary of our financial results is as follows:

Net sales decreased by 5.7% over the prior year first quarter to $116.7 million;

Net loss of $7.9 million in fiscal 2024 first quarter compared to the prior year first quarter net loss of $3.9 million; and

Adjusted EBITDA decreased to $1.8 million in fiscal 2024 first quarter compared to the prior year first quarter Adjusted EBITDA of $5.3 million.

See the “Reconciliation of Net Loss to EBITDA and EBITDA to Adjusted EBITDA” section for a reconciliation of our net loss to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S. GAAP financial measures. See also the information under the heading “Adjusted EBITDA” in the section “How We Assess the Performance of Our Business” for our definition of Adjusted EBITDA.

Our management’s discussion and analysis includes market sales metrics for our stores, website and catalog sales. Market areas are determined by a third-party that divides the United States and Puerto Rico into 280 unique geographical areas. Our store market sales metrics include sales from our stores, website and catalog. Our non-store market sales metrics include sales from our website and catalog.

Economic Conditions

The macroeconomic environment is experiencing inflation, recessionary concerns and general uncertainty regarding the future economic environment and therefore we cannot predict the ultimate impact of these economic conditions on our operational and financial performance. Given the uncertainty, we cannot reasonably estimate store traffic patterns and the prolonged impact on overall consumer demand.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of financial and operating measures that affect our operating results.

Net Sales

Net sales reflect our sale of merchandise plus shipping and handling revenue collected from our customers, less returns and discounts. Direct-to-consumer sales are recognized upon shipment of the product and store sales are recognized at the point of sale.

Gross Profit

Gross profit is equal to our net sales less cost of goods sold. Gross profit as a percentage of our net sales is referred to as gross margin. Cost of goods sold includes the direct cost of purchased merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost and net realizable reserves; inbound freight; and freight from our distribution centers to our retail stores. The primary drivers of the costs of individual goods are

raw material costs. Depreciation and amortization are excluded from gross profit. We expect gross profit to increase to the extent that we successfully grow our net sales. Our gross profit may not be comparable to other retailers, as we do not include distribution network and store occupancy expenses in calculating gross profit, but instead we include them in selling, general and administrative expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include all operating costs not included in cost of goods sold. These expenses include all payroll and payroll-related expenses and occupancy expenses related to our stores and to our operations at our headquarters, including utilities, depreciation and amortization and distribution network expenses. They also include marketing expense, which primarily includes digital and television advertising, catalog production, mailing and print advertising costs, as well as all logistics costs associated with shipping product to our customers, consulting and software expenses and professional services fees. Selling, general and administrative expenses as a percentage of net sales is usually higher in lower-volume quarters and lower in higher-volume quarters because a portion of the costs are relatively fixed.

Adjusted EBITDA

We believe Adjusted EBITDA is a useful measure of operating performance, as it provides a clearer picture of operating results by excluding the effects of financing and investing activities by eliminating the effects of interest and depreciation costs and eliminating expenses that are not reflective of underlying business performance. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business.

We define Adjusted EBITDA as consolidated net income before depreciation and amortization, interest expense and provision for income taxes adjusted for the impact of certain items, including non-cash and other items we do not consider representative of our ongoing operating performance. We believe Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other items. We also use Adjusted EBITDA as one of the key financial metric in determining bonus compensation for our employees. This non-GAAP measure may not be comparable to similarly titled measures used by other companies.

Results of Operations

The following table summarizes our unaudited consolidated results of operations for the periods indicated, both in dollars and as a percentage of net sales.


	Three Months Ended
	April 28, 2024			April 30, 2023
(in thousands)
Net sales	$	116,684		$	123,759
Cost of goods sold (excluding depreciation and amortization)		55,060			58,108
Gross profit		61,624			65,651
Selling, general and administrative expenses		70,595			70,200
Operating loss		(8,971)			(4,549)
Interest expense		993			934
Other income, net		16			148
Loss before income taxes		(9,948)			(5,335)
Income tax benefit		(2,083)			(1,458)
Net loss		(7,865)			(3,877)
Less: Net income (loss) attributable to noncontrolling interest		8			(8)
Net loss attributable to controlling interest	$	(7,873)		$	(3,869)
Percentage of Net sales:
Net sales		100.0	%		100.0	%
Cost of goods sold (excluding depreciation ‎and amortization)		47.2	%		47.0	%
Gross margin		52.8	%		53.0	%
Selling, general and administrative expenses		60.5	%		56.7	%
Operating loss		(7.7)	%		(3.7)	%
Interest expense		0.9	%		0.8	%

Other income, net	-	%	-	%
Loss before income taxes	(8.5)	%	(4.3)	%
Income tax benefit	(1.8)	%	(1.2)	%
Net loss	(6.7)	%	(3.1)	%
Less: Net income (loss) attributable to noncontrolling interest	-	%	-	%
Net loss attributable to controlling interest	(6.7)	%	(3.1)	%

Three Months Ended April 28, 2024, Compared to Three Months Ended April 30, 2023

Net Sales

Net sales decreased $7.1 million, or 5.7%, to $116.7 million in the three months ended April 28, 2024 compared to $123.8 million in the three months ended April 30, 2023. Net sales was impacted by challenging traffic and a lower in-stock position at the beginning of the quarter.

Store market net sales decreased $7.3 million, or 8.6%, to $78.1 million in the three months ended April 28, 2024 compared to $85.4 million in the three months ended April 30, 2023. Non-store market net sales decreased by $3.8 million, or 10.2%, to $33.6 million in the three months ended April 28, 2024 compared to $37.4 million in the three months ended April 30, 2023.

Gross Profit

Gross profit decreased $4.0 million, or 6.1%, to $61.6 million in the three months ended April 28, 2024 compared to $65.7 million in the three months ended April 30, 2023. As a percentage of net sales, gross margin decreased slightly to 52.8% of net sales in the three months ended April 28, 2024, compared to 53.0% of net sales in the three months ended April 30, 2023. While new product cost came in better than expected, we are seeing a delay in impact to gross margin rate as we sell through older, higher cost inventory.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $0.4 million, or 0.6%, to $70.6 million in the three months ended April 28, 2024 compared to $70.2 million in the three months ended April 30, 2023. Selling, general and administrative expenses as a percentage of net sales increased to 60.5% in the three months ended April 28, 2024, compared to 56.7% in the three months ended April 30, 2023.

The increase in selling, general and administrative expense was mainly driven by higher fixed costs and depreciation from foundational strategic investments, partially offset by efficiencies across logistics and the fulfillment center network.

Income Taxes

Income tax benefit was $2.1 million in the three months ended April 28, 2024, compared to income tax benefit of $1.5 million in the three months ended April 30, 2023. The effective tax rate related to controlling interest for the three months ended April 28, 2024 and April 30, 2023 was 21% and 27%, respectively.

Net Loss Attributable to Controlling Interest

Net loss attributable to controlling interest was $7.9 million, in the three months ended April 28, 2024 compared to net loss of $3.9 million in the three months ended April 30, 2023, due to the factors discussed above.

Reconciliation of Net Loss to EBITDA and EBITDA to Adjusted EBITDA

The following table presents reconciliations of net loss to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S. GAAP financial measures, for the periods indicated below. See the above section titled “How We Assess the Performance of Our Business,” for our definition of Adjusted EBITDA.

Amortization of internal-use software hosting
subscription implementation costs		1,170		1,270
Interest expense		993		934
Income tax benefit		(2,083)		(1,458)
EBITDA	$	466	$	4,282
Stock based compensation		1,372		990
Adjusted EBITDA	$	1,838	$	5,272

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA decreased $3.4 million to $1.8 million in the three months ended April 28, 2024 compared to $5.3 million in the three months ended April 30, 2023. As a percentage of net sales, Adjusted EBITDA decreased to 1.6% of net sales in the three months April 28, 2024 compared to 4.3% of net sales in the three months ended April 30, 2023.

Liquidity and Capital Resources

General

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. At April 28, 2024, our net working capital was $75.9 million, including $6.8 million of cash and cash equivalents.

We expect to spend approximately $25.0 million in fiscal 2024 on capital expenditures, inclusive of software hosting implementation costs, primarily due to investments in logistics optimization, including investments in the fulfillment network and information technology. 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. We also use cash in our investing activities for capital expenditures throughout all four quarters of our fiscal year.

We believe that our cash flow from operating activities and the availability of cash under our credit facility will be sufficient to cover working capital requirements and anticipated capital expenditures for the foreseeable future.

Cash Flow Analysis

A summary of operating, investing and financing activities is shown in the following table.


	Three Months Ended
	April 28, 2024		April 30, 2023
(in thousands)
Net cash used in operating activities	$	(33,666)	$	(13,973)
Net cash used in investing activities		(1,477)		(21,348)
Net cash provided by (used in) financing activities		9,785		(1,017)
Decrease in cash and cash equivalents	$	(25,358)	$	(36,338)

Net Cash Used in Operating Activities

Operating activities consist primarily of net income adjusted for non-cash items that include depreciation and amortization, stock-based compensation and the effect of changes in operating assets and liabilities.

For the three months ended April 28, 2024, net cash used in operating activities was $33.7 million, which primarily consisted of cash used in operating assets and liabilities of $33.3 million and a $7.9 million net loss for the three months ended April 28, 2024 partially offset by depreciation of $8.3 million. The cash used in operating assets and liabilities of $33.3 million was primarily due to a $10.7 million increase in inventory and $13.2 million decrease in trade accounts payable.

For the three months ended April 30, 2023, net cash used in operating activities was $14.0 million, which primarily consisted of cash used in operating assets and liabilities of $17.1 million. The cash used in operating assets and liabilities of $17.1 million was primarily due to a $21.1 million decrease in trade accounts payable partially offset by a $10.0 million decrease in inventory.

Net Cash Used in Investing Activities

Investing activities consist primarily of capital expenditures for growth related to investments in infrastructure and information technology.

For the three months ended April 28, 2024 and April 30, 2023, net cash used in investing activities was $1.5 million and $21.3 million, respectively.

Net Cash Provided by (Used in) Financing Activities

Financing activities consist primarily of borrowings and payments related to our revolving line of credit as well as payments on finance lease obligations.

For the three months ended April 28, 2024, net cash provided by financing activities was $9.8 million, primarily consisting of $11.0 million in net borrowings under our revolving line of credit.

For the three months ended April 30, 2023, net cash used in financing activities was $1.0 million, primarily consisting of payments on finance lease obligations.

Contractual Obligations

There have been no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the fiscal year ended January 28, 2024.

Off-Balance Sheet Arrangements

We are not a party to any material off-balance sheet arrangements.

Critical Accounting Policies and Critical Accounting Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the related disclosures of contingent assets and liabilities at the date of the financial statements. We evaluate our accounting policies, estimates, and judgments on an on-going basis. We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions and such differences could be material to the consolidated financial statements.

As of the date of this filing, there were no significant changes to any of the critical accounting policies and estimates described in our 2023 Form 10-K.

Recent Accounting Pronouncements

See Note 12 “Recent Accounting Pronouncements,” of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1, of this quarterly report on Form 10-Q for information regarding recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in the market risks described in our 2023 Form 10-K. See Note 3 “Debt and Credit Agreement,” of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1, of this quarterly report on Form 10-Q, for disclosure on our interest rate related to borrowings under our credit agreement.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Section 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires management of an issuer subject to the Exchange Act to evaluate, with the participation of the issuer’s principal executive and principal financial officers, or persons performing similar functions, the effectiveness of the issuer’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of each fiscal quarter. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were not effective over certain financial reporting areas due to the material weakness in our internal control over financial reporting described below. Management has performed additional analysis and other procedures to ensure that our condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the condensed consolidated financial statements for the period covered by and included in this Quarterly Report on Form 10-Q

fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

Material Weakness

As disclosed in the section titled “Evaluation of Disclosure Controls and Procedures” in Item 9A of the Company’s 2023 Annual Report on Form 10-K, we previously identified control deficiencies in the implementation of our internal control over financial reporting that constituted a material weakness. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

The material weakness identified in our internal control over financial reporting related to control deficiencies in effective risk assessment related to the mapping of general ledger accounts to the consolidated financial statements resulting in manual controls in the financial reporting process that were not designed to sufficiently mitigate the risk of incorrect presentation of certain general ledger accounts in the consolidated financial statements.

Remediation Plans

Management has simplified the process related to the mapping of general ledger accounts to the consolidated financial statements and performed a thorough risk assessment of the updated process to identify all risk points and design and implemented new process-level controls to mitigate the risk of incorrect presentation of general ledger accounts in the consolidated financial statements. However, the material weakness cannot be considered fully remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

We are taking the appropriate actions to remediate the material weakness relating to our internal control over financial reporting, as described above. Except as otherwise described herein, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(d) and 15d-15(d) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that may have a material adverse effect on our business, financial condition and results of operations. For a detailed discussion of the risks that affect our business, please refer to the section entitled “Risk Factors” in our 2023 Form 10-K, or other SEC filings. There have been no material changes to our risk factors as previously disclosed in our fiscal 2023 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not sell any equity securities during the quarter ended April 28, 2024, which were not registered under the Securities Act.

The following table contains information of shares acquired from employees in lieu of amounts required to satisfy minimum tax withholding requirements upon the vesting of the employees’ restricted stock during the three months ended April 28, 2024.

				Total number	Approximate dollar
				of shares purchased	value of shares that
	Total number			as part of publicly	may yet to be
	of shares	Average price		announced plans	purchased under the
Period	purchased	paid per share		or programs	plans or programs
January 29, 2024 - February 25, 2024	24,617	$	4.90	—	$	—
February 26, 2024 - March 31, 2024	159,404		4.60	—		—
April 1, 2024 - April 28, 2024	16,677		4.90	—		—
Total	200,698	$	4.67	—	$	—

Item 5. Other Information

During the three months ended April 28, 2024, no director or Section 16 officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
‎

Item 6. Exhibits

EXHIBIT INDEX


Exhibit No.
10.1	Amended and Restated Annual Incentive Plan, incorporate by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated February 20, 2024.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as amended.*
31.2	Certification of Interim Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended.*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification of Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS	XBRL Instance Document**
101.SCH	XBRL Taxonomy Extension Schema Document**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF	XBRL Taxonomy Extension Definition Document**
101.LAB	XBRL Taxonomy Extension Label Linkbase Document**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document**
104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended April 28, 2024 has been formatted in Inline XBRL (Inline Extensible Business Reporting Language and contained in Exhibits 101).


*	Filed herewith
**	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”

‎


Date: May 31, 2024
	DULUTH HOLDINGS INC. ‎(Registrant)
		/s/ Heena Agrawal
		Heena Agrawal
		Senior Vice President, Chief Financial Officer
		(On behalf of the Registrant and as Principal Financial Officer)

		/s/ Michael Murphy
		Michael Murphy
		Vice President, Chief Accounting Officer and Treasury
		(On behalf of the Registrant and as Principal Accounting Officer)



	Part I—Financial Information	Page
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of April 28, 2024 and January 28, 2024 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the three months ended April 28, 2024 and April 30, 2023 (Unaudited)	5
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months ended April 28, 2024 and April 30, 2023 (Unaudited)	6
	Condensed Consolidated Statement of Shareholders’ Equity for the three months ended April 28, 2024 (Unaudited)	7
	Condensed Consolidated Statement of Shareholders’ Equity for the three months ended April 30, 2023 (Unaudited)	8
	Condensed Consolidated Statements of Cash Flows for the three months ended April 28, 2024 and April 30, 2023 (Unaudited)	9
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
	Part II—Other Information
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 5.	Other Information	29
Item 6.	Exhibits	30

Signatures		31