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spk03: Good morning, everyone, and welcome to the Duluth Holdings Incorporated first quarter 2024 conference call. All participants will be in a 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 and one on your touch-tone telephones. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Lisa McKee. Ma'am, please go ahead.
spk04: Thank you, and welcome to today's call to discuss Duluth Trading's 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 Hena Agrawal, 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 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 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?
spk01: Thank you for joining today's call. Let me begin by stating that despite some key quarter wins, we are not satisfied with our first quarter results, which fell short of our internal expectations. Our top-line performance at a decline of 5.7% was hampered by challenging traffic and a subpar in stock position following stronger than expected unit selling late in the fourth quarter. In fact, we entered the first quarter with inventory levels 19% below the prior year. We took swift action to improve our in stock position in core items, which improved throughout the quarter and into Q2. Let me highlight a few actions we're focused on to improve our results. We are doubling down on our efforts to further leverage technology to deliver more targeted advertising to drive incremental traffic both online and in stores. We continue to leverage additional streaming platforms and vendor technologies to hone our marketing efforts and to better target specific audiences and markets. Across our 65 store fleet, we're elevating events to emotionally engage with existing and new customers within our local markets. For example, during the first quarter, we successfully tested an underwear trade-up event. On the day of the event, store traffic jumped more than 50%, contributing a 120 basis point benefit for the entire quarter. And more than one-third of the underwear trade-ups were from female shoppers, which remains a key strategic growth opportunity for Duluth. During the quarter, we completed a comprehensive benchmarking study to identify opportunities to improve our operating margin, working capital, and asset efficiency. More to come on this initiative over the coming quarters. And finally, we've engaged third-party expert to partner with our internal team to conduct an in-depth review of our retail strategy to identify efficiencies and solidify our go-forward plan. As you can see, we're not standing still. We've taken immediate action to improve our near-term performance. We're in the process of identifying opportunities to build on our successes and drive further efficiencies across our operations, and we are controlling what we can control. Although there is much work ahead of us, we have made significant progress on our foundational initiatives aligned with our long-term strategic roadmap. Let me highlight a few key wins during the quarter. Our Daresville unit fulfillment costs were 56% lower compared to the prior year average of the remaining three fulfillment centers, and we processed 60% of total volume in the first quarter through this facility. We are now moving into phase two of evaluating our fulfillment center network footprint. In mid-April, we diversified our carrier base, lowering our outbound shipping costs. As we discussed on our last call, we meaningfully advanced our sourcing and product innovation functions. This is a critical strategic unlock for the business, which will allow us to bring the market high-quality, innovative products more frequently increase our speed to market, and significantly reduce our product costs. I'm pleased to report that this initiative is delivering product cost improvements above our expectations, and we have clear line of sight to continue benefits this year. We continue to see the positive outcomes from our previous re-platforming investments in our DuluthTraining.com website to the next generation of e-commerce tailored for mobile usability. In the quarter, our mobile penetration continued to grow, accounting for over half of our digital sales and more than two-thirds of site visits. We remained focused on enhancing digital accessibility while providing a frictionless shopping experience. Now, some product innovation highlights that resonated with consumers. The first layer business grew 4%, driven by both men's and women's. We tested photo-ready prints on Buck Smooth during the holidays, selling out quickly, and have expanded it with new prints and more inventory received in April for Father's Day. We shipped the Father's Day 3-pack to Costco as a test to increase our reach with our target consumer who shops at Costco. We're excited to see what opportunities this test enables moving forward. As I mentioned earlier, we tested a successful underwear trade-off event in April that was extremely well received and drove 120 basis points of traffic to stores for the quarter. Women's first layer grew 8%, serving as an accelerator for the overall franchise. Success in women's first layer was driven by Armachello, Buck Naked, and Lost Lake. Drivers with strategic significance include building out the bra business, delivering a 200% increase within Armachillo and representing 45% of that collection for her. And our continued focus on size inclusivity with the launch of Lost Lake Plus, driving 25% of the swim collection for her in the first season. Our Duluth Flex fire hose collection grew 1% as our innovation in fire hose HD and fire hose sweat management pants delivered significant volume for the quarter. Excitingly, we held a fire hose HD try-on event in stores, which resulted in 25% of the transactions, including a pair of fire hose HD pants. The strength in our women's heirloom garden collection continues, posting a 4% increase for the quarter, driven by overalls and prints. We continue to build awareness with our female consumer and saw a year-over-year increase in our women's-only buyers for the eighth straight quarter. The heirloom bib overall consistently ranked as the number one style this quarter, and our Show Us Your Bibs campaign was supported through social, retail, and print. It's been tagged over 550,000 times across Meta and TikTok, with big content seeing the highest engagement rate across our own social channels since the start of the campaign. In the latter half of Q4 last year, we expanded our quick-drying, dry-on-the-fly technology into tees and underwear across both men's and women's. Customers are responding favorably to the new fabrications, and these programs are off to a strong start, exceeding our expectations thus far. AKHG Fitness, with a successful launch in the latter half of Q4, is on track to add approximately 100 basis points of growth to the overall company sales this year. In Q1, this new collection represented 26% of AKHG sales and will continue to be a growth driver as we expand the offering in outdoor recreational fitness. Successful prints and collabs drove buzz and full-price sales in Q1. Within women's heirloom bibs, our top three regular-price prints were fur, gnomes, and daisies. We continued our beer collaboration with our men's barbecue shirt featuring Bush Light, which was the number one choice with twice the sell-through of the overall style. In summary, although our first quarter did not meet our internal expectations, we delivered several key wins. We took swift and appropriate near-term actions to improve the trajectory of the business. We are in the process of identifying and actioning opportunities to drive efficiencies across our operations, and our foundational investments are paying off setting the stage for long-term, sustainable, profitable growth. I remain proud of our team's unwavering dedication to operating with excellence, flexibility, and agility, always with our customers at the center of all that we do, celebrating their can-do spirit, enabling anyone who takes on life with their own two hands as our greater purpose. Now I'll turn it over to Hina to discuss Q1 financials and our full year outlook. Hina?
spk05: Thanks, Sam, and good morning. Let me start by reflecting on my first 90 days with the business. This is a resilient organization. The team has been resolute in taking on the challenge to future-proof the business. I'm encouraged to see meaningful impact from investments in talent and infrastructure to enable the company to capture the next inflection point of growth. I'm impressed by this team that embodies the desire to excel, the dedication and can-do spirit of the Duluth brand. Our strengths span our brand, our unique and loyal consumer base, our innovative and superior product design, our cutting-edge and engaging storytelling, and the capabilities we have built through key hires, infrastructure, and technology. The opportunity and, in turn, the significant work ahead of us is to build on this progress. First, to unlock the full profit potential of Duluth's current business. Next, to strategically deploy capital to unlock growth and white space opportunities. Let me first elaborate on unlocking the full profit potential of Duluth's current business. We are focused on three key areas of opportunity. As Sam mentioned, first, an in-depth review of our real estate portfolio strategy and operating productivity. Second, embarking on phase two of our fulfillment center network footprint to maximize productivity and capacity. And third, leveraging the insights from a comprehensive benchmarking study to unlock structural gains in operating margin, working capital, and asset efficiency. As we get deeper into the work behind these three strategic work streams, we look forward to updating you on our progress and the potential current business unlocks. Our next lever is the strategic allocation of capital to drive growth in our current channels and capture white space opportunities. To drive growth in our current channels, we are focused on consumer acquisition and retention to traffic drivers to our stores and digital channels. Additionally, we continue to leverage our learnings from tests For example, Costco, as we look to unlock white space opportunities. Recognizing there is much work ahead of us, I'm excited to leverage my experience collaborating with our leadership and teams across the organization to unlock the full potential of our business. Moving to our Q1 results. Today, we reported first quarter 2024 net sales of 116.7 million, adjusted EBITDA of 1.8 million, and an EPS loss of 24 cents. Starting with the top line, our Q1 2024 net sales were 116.7 million, down 5.7%, impacted by lower traffic and in-stock levels. This quarter, sales benefited from the Father's Day order shipped to Costco. worked 310 basis points. The women's business declined 3.3%, driven by softness in woven bottoms and no yank, partially offset by continued growth in the heirloom garden collection, the first layer business, and dry-on-the-fly collection. Patterned bibs and accessories drove continued strength in the women's business. The men's apparel business declined 7.1%, due to softness in dry-on-the-fly bottoms, long tails, and AKHG. The decline in AKHG was largely driven by a low in-stock position on our number one pant collection. Within men's, we saw strength in the Duluth Flex Firehose program, Double Flex Denim, and Buff Naked. From a channel perspective, retail store sales declined 7% as a result of challenging traffic. However, we continue to see healthy shopper conversion. Direct channels saw sales decline of 10%, driven by lower traffic and reduced in-stock levels. Mobile penetration of site visits continued to inch higher, up 100 basis points over last year, and mobile sales accounted for 55% of digital sales, reflecting an increase of 300 basis points over last year. Moving to growth margin, for the first quarter of 2024, our growth margin contracted 20 basis points to 52.8% versus our expectation to see growth margin improvement starting in Q1. While new product costs came in better than expected, we are seeing a delay in impact to growth margin as we sell through older, higher cost inventory. our AURs increased slightly versus last year, driven by a lower mix of clearance sales from better inventory lifecycle management. Given the better-than-expected product costing we are experiencing, we continue to have line of sight to delivering full-year growth margin expansion of approximately 200 basis points. Now on to SG&A. For the first quarter, SG&A increased by 0.6% to 70.6 million, and deleveraged by 380 basis points to last year at 60.5% of sales. As guided in the prior call, we expect SG&A to increase, mainly driven by higher fixed costs and depreciation from strategic investments, partially offset by improvements in variable cost benefits being realized from these initiatives. For the quarter, advertising expenses grew 4.9%, deleveraging by 110 basis points to 10.3% of sales, as we continued to invest behind our brands and support new product innovation. Variable or selling expenses, which include outbound shipping costs as well as labor across our contact center, fulfillment centers, and store fleet, continued to improve, leveraging by 130 basis points. We diversified our carrier base, lowering our outbound shipping costs starting mid-April, and continued to realize efficiencies from our addressable fulfillment center. Fixed expenses, or general and administrative expenses, increased 6.2%, deleveraging by 400 basis points, primarily from annualizing depreciation and fixed costs from strategic initiatives like the investment initiated in Q3 of 2023. Q1 net loss was 7.9 million or minus 24 cents per diluted share compared to a net loss of minus 3.9 million or minus 12 cents per diluted share last year. First quarter adjusted EBITDA was positive 1.8 million. Our balance sheet remains strong with liquidity of 195.8 million. We took on 11 million of outstanding debt on our line of credit as we accelerated inventory receipts in core items into April. And we ended the quarter with 6.8 million of cash and cash equivalents. Inventory balance was down 6% or 8.5 million. Our inventory composition is healthy with 93% in current products and 7% in clearance, plus the prior year. Our capital expenditures were $4.3 million versus $22.8 million in the prior year, primarily used to invest in strategic digital capabilities as per our IT roadmap. Now turning to our outlook for fiscal year 2024. We are updating our full year guidance to approximately 640 million in net sales, the low end of our previous range. This includes 60 basis points from POSCO Father's Day shipment and 150 basis points of growth from the 53rd week. We expect the first half to be down mid to high single digits. We expect growth margin for the full year to be up approximately 200 basis points driven by our sourcing and product development initiatives. Gross margin will be flat in the first half and improve in the back half as we sell through older, higher-cost inventory, reiterating the expectation of a further improvement in margin in the out years as we continue to optimize our sourcing. We expect SG&A to deleverage by approximately 100 basis points, Advertising expenses are planned to be in line with sales growth at approximately 11% of sales. Variable or selling expenses will continue to leverage by over 100 basis points driven by transportation savings from addition of carriers as of mid-April and continuing addressable efficiencies. Fixed expenses or general and administrative expenses will increase in 2024 deleveraging by over 200 basis points, primarily from annualizing depreciation and fixed costs of strategic initiatives. With that, we are confirming the low end of our prior full-year adjusted EBITDA guidance range, or approximately 39 million, and EPS of negative 22 cents. This includes estimated diluted shares of approximately 33 million and a tax rate of 25%. Our capital expenditure spent is on track to be reduced by more than half to approximately 25 million with the primary focus on our strategic technology roadmap. In closing, we are focused on driving traffic and improved in-stock position, maximizing return from our foundational investments, and right-sizing our cost structure. Our capital expenditures are normalizing and our liquidity remains strong. With that, we'll open the call for questions.
spk03: Sam, ladies and gentlemen, at this time, and showing no questions, I'd like to turn the floor back over to Sam for any closing remarks.
spk01: Thank you again for joining this morning's call. I want to reiterate our near-term focus is on improving results and unlocking the full potential of the current business. Although our first quarter did not meet internal expectations, we delivered several key wins. We took swift and appropriate near-term action to improve the trajectory of the business. We're in the process of identifying and actioning opportunity to drive efficiencies across our operations, and our foundational investments are paying off, setting the stage for long-term, sustainable, profitable growth. Thanks again, and we'll speak to you again
spk02: during our next quarter's call.
spk03: Ladies and gentlemen, that does conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines. Thank you. Thank you. Thank you. Thank you.
spk00: Thank you.
spk03: Good morning, everyone, and welcome to the Duluth Holdings Incorporated first quarter 2024 conference call. All participants will be in a 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 and one on your touchtone telephones. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Lisa McKee. Ma'am, please go ahead.
spk04: Thank you, and welcome to today's call to discuss Duluth Trading's 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 Hena Agrawal, 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 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 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?
spk01: Thank you for joining today's call. Let me begin by stating that despite some key quarter wins, we are not satisfied with our first quarter results, which fell short of our internal expectations. Our top-line performance at a decline of 5.7% was hampered by challenging traffic and a subpar in stock position following stronger than expected unit selling late in the fourth quarter. In fact, we entered the first quarter with inventory levels 19% below the prior year. We took swift action to improve our in stock position in core items, which improved throughout the quarter and into Q2. Let me highlight a few actions we're focused on to improve our results. We are doubling down on our efforts to further leverage technology to deliver more targeted advertising to drive incremental traffic both online and in stores. We continue to leverage additional streaming platforms and vendor technologies to hone our marketing efforts and to better target specific audiences and markets. Across our 65 store fleet, we're elevating events to emotionally engage with existing and new customers within our local markets. For example, during the first quarter, we successfully tested an underwear trade-up event. On the day of the event, store traffic jumped more than 50%, contributing a 120 basis point benefit for the entire quarter. And more than one-third of the underwear trade-ups were from female shoppers, which remains a key strategic growth opportunity for Duluth. During the quarter, we completed a comprehensive benchmarking study to identify opportunities to improve our operating margin, working capital, and asset efficiency. More to come on this initiative over the coming quarters. And finally, we've engaged a third-party expert to partner with our internal team to conduct an in-depth review of our retail strategy to identify efficiencies and solidify our go-forward plan. As you can see, we're not standing still. We've taken immediate action to improve our near-term performance. We're in the process of identifying opportunities to build on our successes and drive further efficiencies across our operations, and we are controlling what we can control. Although there is much work ahead of us, we have made significant progress on our foundational initiatives aligned with our long-term strategic roadmap. Let me highlight a few key wins during the quarter. Our Daresville unit fulfillment costs were 56% lower compared to the prior year average of the remaining three fulfillment centers, and we processed 60% of total volume in the first quarter through this facility. We are now moving into phase two of evaluating our fulfillment center network footprint. In mid-April, we diversified our carrier base, lowering our outbound shipping costs. As we discussed on our last call, we meaningfully advanced our sourcing and product innovation functions. This is a critical strategic unlock for the business, which will allow us to bring the market high-quality, innovative products more frequently increase our speed to market, and significantly reduce our product costs. I'm pleased to report that this initiative is delivering product cost improvements above our expectations, and we have clear line of sight to continue benefits this year. We continue to see the positive outcomes from our previous re-platforming investments in our DuluthTraining.com website to the next generation of e-commerce tailored for mobile usability. In the quarter, our mobile penetration continued to grow, accounting for over half of our digital sales and more than two-thirds of site visits. We remained focused on enhancing digital accessibility while providing a frictionless shopping experience. Now, some product innovation highlights that resonated with consumers. The first layer business grew 4%, driven by both men's and women's. We tested photo-ready prints on Buck Smooth during the holidays, selling out quickly, and have expanded it with new prints and more inventory received in April for Father's Day. We shipped the Father's Day 3-pack to Costco as a test to increase our reach with our target consumer who shops at Costco. We're excited to see what opportunities this test enables moving forward. As I mentioned earlier, we tested a successful underwear trade-off event in April that was extremely well received and drove 120 basis points of traffic to stores for the quarter. Women's first layer grew 8%, serving as an accelerator for the overall franchise. Success in women's first layer was driven by Armachello, Buck Naked, and Lost Lake. Drivers with strategic significance include building out the bra business, delivering a 200% increase within Armachillo and representing 45% of that collection for her. And our continued focus on size inclusivity with the launch of Lost Lake Plus, driving 25% of the swim collection for her in the first season. Our Duluth Flex fire hose collection grew 1% as our innovation in fire hose HD and fire hose sweat management pants delivered significant volume for the quarter. Excitingly, we held a fire hose HD try-on event in stores, which resulted in 25% of the transactions, including a pair of fire hose HD pants. The strength in our women's heirloom garden collection continues, posting a 4% increase for the quarter, driven by overalls and prints. We continue to build awareness with our female consumer and saw a year-over-year increase in our women's-only buyers for the eighth straight quarter. The heirloom bib overall consistently ranked as the number one style this quarter, and our Show Us Your Bibs campaign was supported through social, retail, and print. It's been tagged over 550,000 times across Meta and TikTok, with big content seeing the highest engagement rate across our own social channels since the start of the campaign. In the latter half of Q4 last year, we expanded our quick-drying, dry-on-the-fly technology into tees and underwear across both men's and women's. Customers are responding favorably to the new fabrications, and these programs are off to a strong start, exceeding our expectations thus far. AKHG Fitness, with a successful launch in the latter half of Q4, is on track to add approximately 100 basis points of growth to the overall company sales this year. In Q1, this new collection represented 26% of AKHG sales and will continue to be a growth driver as we expand the offering in outdoor recreational fitness. Successful prints and collabs drove buzz and full-price sales in Q1. Within women's heirloom bibs, our top three regular-price prints were fur, gnomes, and daisies. We continued our beer collaboration with our men's barbecue shirt featuring Bush Light, which was the number one choice with twice the sell-through of the overall style. In summary, although our first quarter did not meet our internal expectations, we delivered several key wins. We took swift and appropriate near-term actions to improve the trajectory of the business. We are in the process of identifying and actioning opportunities to drive efficiencies across our operations, and our foundational investments are paying off setting the stage for long-term, sustainable, profitable growth. I remain proud of our team's unwavering dedication to operating with excellence, flexibility, and agility, always with our customers at the center of all that we do, celebrating their can-do spirit, enabling anyone who takes on life with their own two hands as our greater purpose. Now I'll turn it over to Hina to discuss Q1 financials and our full year outlook. Hina?
spk05: Thanks, Sam, and good morning. Let me start by reflecting on my first 90 days with the business. This is a resilient organization. The team has been resolute in taking on the challenge to future-proof the business. I'm encouraged to see meaningful impact from investments in talent and infrastructure to enable the company to capture the next inflection point of growth. I'm impressed by this team that embodies the desire to excel, the dedication and can-do spirit of the Duluth brand. Our strengths span our brand, our unique and loyal consumer base, our innovative and superior product design, our cutting-edge and engaging storytelling, and the capabilities we have built through key hires, infrastructure, and technology. The opportunity and, in turn, the significant work ahead of us is to build on this progress. First, to unlock the full profit potential of Duluth's current business. Next, to strategically deploy capital to unlock growth and white space opportunities. Let me first elaborate on unlocking the full profit potential of Duluth's current business. We are focused on three key areas of opportunity. As Sam mentioned, first, an in-depth review of our real estate portfolio strategy and operating productivity. Second, embarking on phase two of our fulfillment center network footprint to maximize productivity and capacity. And third, leveraging the insights from a comprehensive benchmarking study to unlock structural gains in operating margin, working capital, and asset efficiency. As we get deeper into the work behind these three strategic work streams, we look forward to updating you on our progress and the potential current business unlocks. Our next lever is the strategic allocation of capital to drive growth in our current channels and capture white space opportunities. To drive growth in our current channels, we are focused on consumer acquisition and retention to traffic drivers to our stores and digital channels. Additionally, We continue to leverage our learnings from tests, for example, Costco, as we look to unlock white space opportunities. Recognizing there is much work ahead of us, I'm excited to leverage my experience collaborating with our leadership and teams across the organization to unlock the full potential of our business. Moving to our Q1 results. Today, we reported first quarter 2024 net sales of 116.7 million, adjusted EBITDA of 1.8 million, and an EPS loss of 24 cents. Starting with the top line, our Q1 2024 net sales were 116.7 million, down 5.7%, impacted by lower traffic and in-stock levels. This quarter, Sales benefited from the Father's Day order shipped to Costco, worth 310 basis points. The women's business declined 3.3%, driven by softness in woven bottoms and no yank, partially offset by continued growth in the heirloom garden collection, the first layer business, and dry-on-the-fly collection. Patterned bibs and accessories drove continued strength in the women's business, The men's apparel business declined 7.1% due to softness in dry-on-the-fly bottoms, long tails, and AKHG. The decline in AKHG was largely driven by a low in-stock position on our number one pant collection. Within men's, we saw strength in the Duluth Flex Firehose program, Double Flex Denim, and Buff Naked. From a channel perspective, Retail store sales declined 7% as a result of challenging traffic. However, we continue to see healthy shopper conversion. Direct channels saw sales decline of 10%, driven by lower traffic and reduced in-stock levels. Mobile penetration of site visits continued to inch higher, up 100 basis points over last year. and mobile sales accounted for 55% of digital sales, reflecting an increase of 300 basis points over last year. Moving to growth margin, for the first quarter of 2024, our growth margin contracted 20 basis points to 52.8%, versus our expectation to see growth margin improvement starting in Q1. While new product costs came in better than expected, we are seeing a delay in impact to growth margin as we sell through older, higher cost inventory. Our AURs increased slightly versus last year, driven by a lower mix of clearance sales from better inventory lifecycle management. Given the better than expected product costing we are experiencing, we continue to have line of sight to delivering full-year growth margin expansion of approximately 200 basis points. Now on to SG&A. For the first quarter, SG&A increased by 0.6% to 70.6 million and deleveraged by 380 basis points to last year at 60.5% of sales. As guided in the prior call, we expect SG&A to increase mainly driven by higher fixed costs and depreciation from strategic investments, partially offset by improvements in variable cost benefits being realized from these initiatives. For the quarter, advertising expenses grew 4.9%, deleveraging by 110 basis points to 10.3% of sales as we continued to invest behind our brands, and support new product innovation. Variable or selling expenses, which include outbound shipping costs as well as labor across our contact center, fulfillment centers, and store fleet, continue to improve, leveraging by 130 basis points. We diversified our carrier base, lowering our outbound shipping costs starting mid-April, and continue to realize efficiencies from our Adairsville Fulfillment Center. Fixed expenses, or general and administrative expenses, increased 6.2%, deleveraging by 400 basis points, primarily from annualizing depreciation and fixed costs from strategic initiatives like the Adairsville investment initiated in Q3 of 2023. Q1 net loss was 7.9 million, or minus 24 cents per diluted share compared to a net loss of minus 3.9 million or minus 12 cents per diluted share last year. First quarter adjusted EBITDA was positive 1.8 million. Our balance sheet remains strong with liquidity of 195.8 million. We took on 11 million of outstanding debt on our line of credit as we accelerated inventory receipts in core items into April. And we ended the quarter with 6.8 million of cash and cash equivalents. Inventory balance was down 6% or 8.5 million. Our inventory composition is healthy with 93% in current products and 7% in clearance, flat the prior year. Our capital expenditures were 4.3 million versus $22.8 million in the prior year, primarily used to invest in strategic digital capabilities as per our IT roadmap. Now turning to our outlook for fiscal year 2024, we are updating our full year guidance to approximately $640 million in net sales, the low end of our previous range. This includes 60 basis points from POSCO Father's Day shipment and 150 basis points of growth from the 53rd week. We expect the first half to be down mid to high single digits. We expect growth margin for the full year to be up approximately 200 basis points driven by our sourcing and product development initiatives. Growth margin will be flat in the first half and improve in the back half as we sell through older, higher-cost inventory, reiterating the expectation of a further improvement in margin in the out years as we continue to optimize our sourcing. We expect SG&A to deleverage by approximately 100 basis points. Advertising expenses are planned to be in line with sales growth at approximately 11% of sales. Variable or selling expenses will continue to leverage by over 100 basis points, driven by transportation savings from addition of carriers as of mid-April, and continuing addressable efficiencies. Fixed expenses, or general and administrative expenses, will increase in 2024, deleveraging by over 200 basis points, primarily from annualizing depreciation and fixed costs of strategic initiatives. With that, we are confirming the low end of our prior full-year adjusted EBITDA guidance range, or approximately 39 million, and EPS of negative 22 cents. This includes estimated diluted shares of approximately 33 million and a tax rate of 25%. Our capital expenditure spent is on track to be reduced by more than half to approximately 25 million with the primary focus on our strategic technology roadmap. In closing, we are focused on driving traffic and improved in-stock position, maximizing return from our foundational investments, and right-sizing our cost structure. Our capital expenditures are normalizing, and our liquidity remains strong. With that, we'll open the call for questions.
spk03: And, ladies and gentlemen, at this time, and showing no questions, I'd like to turn the floor back over to Sam for any closing remarks.
spk01: Thank you again for joining this morning's call. I want to reiterate our near-term focus is on improving results and unlocking the full potential of the current business. Although our first quarter did not meet internal expectations, we delivered several key wins. We took swift and appropriate near-term action to improve the trajectory of the business. We're in the process of identifying and actioning opportunity to drive efficiencies across our operations, and our foundational investments are paying off, setting the stage for long-term, sustainable, profitable growth.
spk02: Thanks again, and we'll speak to you again during our next quarter's calls.
spk03: Ladies and gentlemen, that does conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Disclaimer