Duluth Holdings Inc.

Good morning and welcome to the Duluth Holdings Fourth Quarter 2020 and Fiscal Year 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 Donny Case, Investor Relations for Duluth Holdings. Please go ahead.

Thank you and welcome to today's call to discuss Duluth Trading's fourth quarter and fiscal year financial results. Our earnings release, which we issued this morning, is available on our Investor Relations website at irduluthtrading.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 will 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 risk 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 predictions of future events. And with that, I'll turn the call over to Steve Schlepp, Chief Executive Officer of Duluth Trading. Steve?

Good morning, and thank you everyone for joining today's call. It was one year ago, almost to the date that we announced our first store closings, primarily in the Northeast due to COVID. At that time, we didn't know just how far reaching the impact would be, but it was clear that our plans for 2020 were suddenly disrupted. I won't go into all the details of our COVID response as it was pretty much standard procedure for all responsible retailers. Protect the staff and customers and protect the financial position. What I think is more important are the lessons we learned from operating in an altered retail reality. First lesson, you don't know if your business model is resilient until it's pressure tested. By the end of March, all 62 of our existing stores were closed due to the pandemic, and we had absolutely no idea when they could reopen. In the prior year, retail store sales accounted for 43% of total revenues. So this circumstance presented a giant mountain to climb to fill that revenue gap. Fortunately, we already had a strong omnidirect channel in place that allowed customers who traditionally shopped in stores to shift their buying patterns online. When our stores closed, we also ramped up digital marketing and promotions to draw current and new customers to our website. And it worked. Direct sales closed the retail gap and ended the year accounting for 72% of total 2020 sales. The second lesson was that the currency of the Duluth Trading brand was validated in a difficult retail environment. When your entire organization is dedicated to creating innovative, solution-based, high-quality products and an outstanding customer experience, you have created a lifestyle brand that can prevail in challenging times. Our online activity soared as both established and new customers recognized that Duluth products hit the sweet spot of their new normal at home and outdoors. As customers found their way to Duluth Trading Brand, we saw a 17% increase in new buyers, the largest percentage gain in three years. Our third lesson, never stop investing to make your company stronger and more competitive. Were it not for the substantial investments made over the last three years in distribution facilities, expansion, and capabilities, in replatforming our e-commerce channel and value-added services like Bopas, We would never have been ready to handle the surge in direct business. Fourth lesson, believe in the power of newness. During the past year, we expanded our playbook to focus on new ways to delight customers. We made headway building out our family of brands platform that celebrates the can-do spirit of Duluth. We developed 40Grid, a no-frills basic workwear line to appeal to a younger, more price-sensitive customer. We expanded our Alaska Hard Gear line with a new fishing collection and added the best-made brand of premium hard goods and workwear to our family of brands. We continue to drive innovative product development with new lines like swimsuits for men and women, Dank Soft underwear, Nova Natural, and additional pant sizes for men. For all these reasons and the challenges encountered in 2020, I'm very proud of what our team accomplished to deliver net sales of $639 million, up nearly 4% year-over-year, adjusted EBITDA of $55 million, up 7%, and free cash flow of $38.5 million. So what's ahead in 2021? As we've discussed before, we have paused our retail store expansion until there's more clarity around consumer buying patterns post-pandemic. Right now, we have only one signed lease for 2021. Looking beyond this year, we'll be studying new store concepts to reflect the changing retail environment. We'll continue to focus on new product innovations and potential line extensions, including possibly adding a women's collection to 40 Grits, Alaskan Hard Gear, and Best Made. We'll continue to make investments to expand digital capabilities that will provide more customized marketing and then improve our localized assortments in stores. And we are exploring the benefits of partnerships. In the beginning of March, we entered into a pilot test with Tractor Supply Company to have Duluth displays of buck naked underwear in 13 of their stores. Tractor Supply is not only one of the biggest successes in retail today, It is also closely aligned to the Duluth customer base. If the pilot is successful, the concept will be rolled out to other tractor supply locations. I think this type of partnership makes sense for Duluth. We see this as a great opportunity to expand our brand awareness with a top-tier partner. That said, it's way too early to count any chickens. In today's press release, we announced that board member Dave Coolidge has decided to retire, at the time of our upcoming annual shareholder meeting. Dave has been involved with Duluth for 20 years, having served on our earlier advisory board and then on our public board, providing invaluable advice and guidance to our company. Brett Paschke has been slated to replace Dave on our board. Brett is a partner and managing director of William Blair's Equity Capital Markets and was instrumental in bringing Duluth public. His deep experience in the capital markets and public company directorships will be a complimentary benefit to our board. I also want to mention that we have engaged a search firm to identify our next chief executive officer. When I reassumed the CEO role in September of 2019, I didn't expect to stay on this long. However, COVID made the continuity of leadership a deciding factor. Frankly, jumping back into day-to-day management gave me a greater appreciation for the talent and dedication of our team. I'm proud of the work we did together during the most trying of times, and I have more confidence than ever in the future of the company. Finally, Duluth Trading has always been committed to the principles of corporate social responsibility, and many of its principles are embedded in the ten wells that shape our culture of striving for greater purpose. like we treat customers, coworkers, and vendors like next-door neighbors. We strive for growth, both personally and collectively. We build lasting satisfaction into our products, and we aim to achieve a fair profit. I admit that we have been a laggard in communicating our commitment to CSR and ESG, but in 2021, we are going to do a better job. We have already formed an ESG steering committee and are adding ESG to the oversight responsibility of the nominating governance committee of our board of directors. We understand this is an important initiative for our many stakeholders, our customers, employees, vendors, investors, and the communities in which we have facilities. With that, I'll turn the call over to Dave Loretta to cover the details of our financial and operating results for the fourth quarter and full year.