Duluth Holdings Inc.

Good day and welcome to the Duluth Holdings Inc. First Quarter 2023 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 telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Miki. Please go ahead.

Thank you and welcome to today's call to discuss Duluth Trading first quarter financial results. Our earnings release, which was issued this morning, is available on our investor relations website at ir.duluthtrading.com under press releases. I'm here today with Sam Sato, President and Chief Executive Officer, and Dave Loretta, Senior Vice President and Chief Financial Officer. On today's call, management will provide prepared remarks, and then we 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 statement. Such risk 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 Sam Sato, President and Chief Executive Officer. Sam?

Thank you for joining today's call. We're pleased to share the first quarter results reflecting strong demand for our spring and summer collections and the great progress we're making on several strategic growth initiatives. Fiscal 2023 business is off to a good start with several positive trend reversals in the business from the fourth quarter. including overall net sales that increased from last year, an increase in total customers for the quarter, and better inventory in stock positions that are fulfilling demand and driving greater efficiency in our working capital. While we still expect the economic cross currents to weigh on consumer price sensitivity, Our conservative business planning for 2023 provides flexibility in our go-to-market strategies to achieve near-term goals, and we remain committed to our long-term objective as outlined in our Big Damn Blueprint growth strategies to build a platform of can-do lifestyle sub-brands. It was one year ago that we announced the rebranding of Duluth by Duluth Trading Company and AKHG, to align with our customers' distinct use cases. Duluth is focused on serving the needs of our customers for durable, functional workwear. Our target customers are fine tuners, fixers, and tinkerers who believe that calloused hands and dirty fingernails build character. A great example of serving our customers who like to dig in is our garden, landscaping, and planting collection which has continued to build each year as we expand in both size and breadth across apparel and gear. This category was up nearly 30% compared to last year in the first quarter and represents a healthy, long-term growth category for us. AKHG is our outdoor recreation brand for those who believe the work of outdoor experiences makes it worth it, and the grind is part of the adventure. These folks live to be outside in their free time and they invest in outdoor experiences. For them, fun tends to start where reliable cell service ends. Since last year's spring launch of our women's collection by AKHG, we continue to see a tremendous positive response from our customers. I'll share more details shortly regarding recent product performance but I'm excited to share that along with the addition of women's, AKHG men's has also seen growth and the overall sub-brand was up 43% from last year's first quarter. Additionally, we see opportunities to leverage our brand platform for potentially new brands we develop or through acquisitions that are in adjacent underdeveloped categories with customers that have some similarities and crossover with Duluth and AKHG. We're not going to stray far from who we are, rather move into under-penetrated categories within our current business and either develop or acquire expertise in categories where we don't currently participate. We look forward to sharing more about the incremental brand growth opportunities when the time is right. But now I'll touch on our recent results. Today we reported first quarter net sales of $123.8 million, an increase of nearly 1%, a net loss per share of 12 cents, and positive adjusted EBITDA of $5.3 million. These results were in line with our plans and keep us on track with the full year outlook provided on our last call. Our inventory levels ended the quarter down roughly 5% from the same period last year and down 6% from the fourth quarter. Our disciplined efforts to appropriately plan our purchase and receipt flow has resulted in a well-positioned inventory mix of seasonal, year-round, and clearance goods. Given the macro pressures consumers are facing with persistent high inflation and higher interest rates, we are seeing price and basket sensitivity as consumers remain selective in their discretionary purchases. However, the underpinnings of our brand remain strong as evidenced by our strong unit sales growth of 6% over last year. Dave will share further details on our financial results, but I'd like to commend our teams for continuing to be nimble and focused on executing our plans and serving our customers at the highest level. Our improvements in the demand trend this quarter can be attributed to several actions we took, but most importantly, it starts with new, innovative products. We continue to see success when we expand proven technologies and fabrications that our customers already love into new products. Our Armachillo material, originally designed for men's underwear, is serving as the base fabric for a new line of sun-protecting tops under our SunPerior collection for men and women. These lightweight, long-sleeved tops provide wicking and skin-cooling attributes, plus UPF 50 protection from the sun. In the shorts category, we combined our Hero Fabrication and Duluth Flex fire hose with Coolmax technology to provide a hot season cargo short for guys who need to work under the hot sun. With a 13-inch inseam, the extra coverage and wicking features keeps them dry and cooler than cotton. Plus, adding the flex and standard gusset features, along with our bonus room elastic waistband, allows for extra ease when stretching and twisting on the job. To address our customers' affinity to get active in the water, our new Lost Lake swimwear collection for men and women was the number one collection in AKHG for the quarter. We suspected this new offering was going to be a splash, as we shared on our last call, and the positive reviews have been great, with call-outs on the extra convenience features, built-in UPF sun protection, and durable flexibility for the hike to the swimming hole or lounging under the beach umbrella. We'll continue to innovate and infuse new materials that serve a purpose or solve a problem for our customers because it's in our DNA. Like our new no-fly zone collection of lightweight overalls, pants, and garden shirt jacks, which features an odorless, insect-repelling finish that keeps the bugs away when you're sweating on the job. And based on strong customer feedback and data analytics, we're extending our size range while simultaneously amplifying the features and benefits of our design and innovative fabric formulation. Also contributing to the positive demand trend we saw this quarter was our holistic marketing focus around college basketball and March Madness. We positioned Duluth across multiple points of engagement and interactions to create national awareness and call to action to drive conversion. We combined linear TV placements on sports-heavy channels with streaming content and leveraged sports-related influencers to drive significant brand and product impressions across the media landscape during a three-week period. The results were an increase in web visits, particularly with new, younger customers, a spike in new buyers, and increased sales in key categories. With high levels of awareness generated by the March Madness campaign, we followed up with a strong promotional offering in our first annual Do It All Days event featuring select seasonal categories. Most of the media spend pivoted to lower funnel conversion tactics to capitalize on the greater awareness and introduce new buyers to Duluth's broader offering. These special priced events are also effective at generating retention with current customers and reactivating lapsed buyers with products that are still seasonally relevant. Our marketing strategy is anchored on a multi-level approach that strives to attract, inform, and convert consumers. When a consumer sees our ads on TV, streaming, or online, they are enticed through paid search or social ads to research the product online, and then they're given a compelling reason to buy with personalized recommendations through email, text, or social media retargeting based on their behaviors and affinities. Enabling this strategy requires an understanding of where consumers notice advertising versus where they take action and what content is needed. Therefore, our investments in consumer segmentation and modernizing the data architecture and analytic capabilities are keys to optimizing the return on our media investment and building a healthy mix of new and retained buyers. Our customers' experience on the Duluth website remains a focus for us. The website replatforming we undertook last fall is delivering against consumer expectations for a fast, friction-free experience, contributing to a higher conversion rate of over 50 basis points, resulting in positive direct sales growth of nearly 2.5%. We have plans through the balance of the year to continue to enhance our site experience making shopping with us even easier. For example, we plan to improve our search function, making it more personalized with advanced result management and product imagery incorporated into the search functionality. Additionally, we're elevating our ability to tell compelling product stories on the product pages that include expanded product photography and use of video to highlight innovation and durability. Traffic to our retail stores remained challenged during the quarter, down mid single digits, with net sales down 2% year over year. That being said, the retail channel contributed to our improving customer metrics by focusing on what's in their control. Tightened selling and service efforts and deeper product knowledge training drove an increase in units per transaction, and close to a 300 basis point increase in shopper conversion during the quarter. We continue to gain insight on the store test initiated last fall with the remodel of our St. Charles, Missouri store and the 20 stores that were retrofitted to provide greater floor space for the growing women's division. Our store of the future design in St. Charles has contributed to that store's positive trend and will serve as a model for future remodels and new store openings. Lastly, we're pleased to report that progress on our Southeast Fulfillment Center in Adairsville, Georgia remains on track and on budget. With roughly 500,000 square feet, this facility will be the largest and most efficient of our fulfillment center sites with the investment in automation and robotics representing our single largest investment to date. We're excited to wrap up hiring and begin processing orders over the next few months with the goal of servicing over 50% of direct orders during the upcoming peak season. I'm confident that the long-term health of our brands and business are sound through our actions to invest deeper in our innovation and new product pipeline while continuing to attract new customers to the brand through cut-through marketing that's informed by rigorous data analytics. Expanding our platform for growth through the investments we're making in logistics, technology, and customer experience is positioning us well to address our customers' hands-on lifestyle needs in work and outdoor adventure. Our priorities are informed by this goal, with the ultimate measure being increased value for all stakeholders involved. Now I'll turn it over to Dave to provide more details on our first quarter results.