Duluth Holdings Inc.

Good morning and welcome to the Duluth Holdings Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Donnie Case, Investor Relations for Duluth Holdings. Please go ahead.

Thank you and welcome to today's call to discuss Duluth Trading's second quarter financial results. Our earnings release, which we issued this morning, is available on our investor relations website at irduluthrating.com under press releases. I am here today with Steve Schlecht, Chief Executive Officer and Dave Loretta, Chief Financial Officer. On today's call, management will provide prepared remarks and then we'll open the call to your questions. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements which can be identified by the use of words such as estimate, anticipate, expect and similar phrases. Forward-looking statements by their nature involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as prediction of future events. and with that, I'd like to turn the call over to Steve Schlecht, Chief Executive Officer of Duluth Trading. Steve, go ahead.

Good morning everyone and thank you for joining today's call. I am pleased to report that net sales for the second quarter grew 13% to $137 million driven by a 67% growth in direct sales year over year. In the quarter, We also saw a meaningful improvement in earnings and cash flow. Of course, we're far from taking a victory lap in the COVID environment, yet I can clearly see the Duluth Trading story playing out according to our long-term strategy. Our company was built on three brand pillars, solution-based design, humorous and distinctive marketing, and an outstanding and engaging customer experience that continues to set us apart regardless of the competitive landscape. I'm very proud how our agility, brand strength, and business model are serving us well during these unconventional times. The solid results we reported this quarter reflect our unwavering commitment to our customers. First, we are heads down, focused on creating innovative and solution-based apparel and goods that consumers value. When comfort was key, our spring and summer product assortments had widespread appeal to both men and women. The men's business was especially strong this quarter. It was up 15% over last year, and our drive to deliver the newness factor to customers, such as the launch of a men's swimwear line, accounted for close to 18% of total men's sales for the quarter. Women's apparel delivered a 10% year-over-year growth rate Comfortable basics like no yank tank, base layers, Noga, and outdoor favorites like gardening and overalls were especially strong. The second factor was in the investments we made to strengthen customer engagement before the pandemic reshaped consumer shopping. Our outstanding online performance this quarter was supported by enhanced website and mobile capabilities that easily accommodated the surge in demand. Total site visits increased 34% in the second quarter. Mobile traffic was up 42%. Sales from mobile doubled versus the comparable period. Investments in our distribution system also paid off. We continued to fulfill online orders from both warehouse and store inventory through our ship-from-store process, as well as bulkless and contactless Curbside Pickup at store locations. In fact, our omni-channel capabilities are a leading competitive edge for us, with 26% of digital orders fulfilled by stores. Third, we shifted our focus to more digital marketing versus traditional media spend. Digital, when combined with relevant product messaging and promotions, drives higher and more customized engagement. This has been notably effective in our direct channel where we saw a 130% lift in new buyers during the second quarter. Strong digital capabilities will become especially important in the third and fourth quarters if traditional media opportunities like sports events are curtailed. Fourth, the omnichannel model continued to validate our commitment even in the face of store closures and lower traffic as stores began to reopen. Our thesis that having a store in a market builds overall brand awareness once again proved out in the second quarter with direct sales growth of 80% in store markets outpacing that of non-store markets. We can also draw a very strong correlation that when in-store shopping was curtailed by the pandemic, customers readily adapted to online shopping. The ultimate value of a true and strong omnichannel is that a retailer does not lose precious customers when it offers an alternative path to purchase. As we move into the back half of the fiscal year, I have a couple of observations. First, we were fortunate that our strong online capabilities filled the gap created by store closures in the first half of this year. Second, while no one has a crystal ball on how things will ultimately shake out over the coming months. We know there will be some headwinds. We already anticipate that steep discounting will continue, holiday deals will begin even earlier, and shipping networks will be constrained by increased volume. And there are other external factors that can have a meaningful impact on consumer sentiment. Even so, we are already executing our plan for the peak selling season. which basically boils down to doing what works and lean into it. We will continue to drive home messages that are resonating with customers, shop your way, online, curbside pickup, and both of us. We will ramp up digital marketing, especially around events like our big damn birthday and the launch of 40 Grit, which as I mentioned on our last call, is a new price point category aimed at younger shoppers. Through email and digital campaigns, we will market newness to past purchasers of similar products and categories and target 2020 new customers to make additional purchases. As we move into the fall and holiday seasons, I am confident that our team is focused on doing our level best to keep momentum going. While we must fasten our seat belts for a bumpy ride, we have a We have the talent, agility, and conviction to meet the challenges ahead. Now I'll turn the meeting over to Dave to discuss our financials and operations.