Duluth Holdings Inc.

Good morning and welcome to the Duluth Holdings, Inc. Second Quarter 2024 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 Nitsa McKee. Please go ahead.

Thank you and welcome to today's call to discuss Duluth Trading's second 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 Hina Agarwal, 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 statements. 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. I'm pleased with our second quarter performance as we delivered top-line sales growth of 1.8% while expanding our gross margin 90 basis points as we began to see the benefits of our sourcing initiatives. The quarter was highlighted by strength in women's and our first-layer business, as well as strength in our cooling technologies across Armachillo and Dry on the Fly, keeping consumers cool during the hot summer months. We saw a trendline improvement in both conversion and transactions, coupled with healthy increases over last year in both average order value and units per transaction. Before I review our second quarter results, I'm excited to update you on a key addition to our leadership team. On August 12th, Eli Getzen joined Duluth Training Company as our Senior Vice President and Chief Merchandising Officer. Eli has more than 20 years of leadership and expertise. Most recently, Eli served as the Senior Vice President and General Merchandise Manager at Academy Sports and Outdoors, where he was responsible for merchandising, strategic planning, and product innovation. Eli brings with him a wealth of experience and knowledge and has hit the ground running. We look forward to sharing his insights on future calls. I'm excited to provide an update on the progress we are making on our key strategic initiatives, including product development and sourcing, logistics network optimization, and our retail store portfolio strategy. As mentioned in prior calls, we are seeing the benefits of our sourcing and product innovation efforts. This remains a critical strategic unlock for the business which is allowing us to bring to market high-quality, innovative products more frequently, increase our speed to market, and significantly reduce our product costs. As Hina will discuss, we remain on track to realize significant product cost benefits this year with more to come over the next several years. I shared on the first quarter call that we identified and began phase two of our fulfillment center network plan to maximize productivity and cost. Our highly automated fulfillment center at Daresville is now efficiently processing nearly 60% of all online orders and replenishment volume. This has increased overall network capacity and enabled us to exit one of our legacy fulfillment centers. With the variable CPU in Adairsville 65% lower than the average legacy facilities and elimination of fixed costs from the exit, we anticipate annualized run rate savings of approximately $5 million with expected benefits to start late in the fourth quarter of this year. We're making great progress on our retail store portfolio strategy. Stores are a critical component of our omnichannel strategy with nearly two-thirds of new consumers preferring to shop in-store. In addition, our omnichannel consumers spend more on average per order and shop at more than twice the frequency of our single-channel consumers. Stores also offer important services like returns, buy online, pick up in-store, and fulfilling orders creating a seamless consumer experience. Combining a digital-first strategy with a relevant and productive store portfolio is critical to winning in an omnichannel ecosystem. The three key pillars of our retail store portfolio strategy include new stores, existing store evaluation and rationalization, and revamping marketing to drive traffic and brand awareness. As we look to future new sites, our primary criteria are location, market share opportunity with our target customer, and productivity. Format and assortment will be based on our store of the future with equal representation of men's and women's products. We've recently signed two LOIs and are targeting new store openings in the second half of next year. In terms of our current fleet, about 25% of our stores are coming up for lease renewals through 2026. We're evaluating these locations for remodel, relocation, or exit. In the short term, we're leveraging our strengths to capture market share and to optimize our marketing spend. Longer term, we're focused on building our existing presence in priority markets and entering new priority markets. We look forward to updating you on our retail store portfolio strategy on future calls. Our key strategies are on track with benefits flowing through. In addition, we're leveraging the benchmarking study to identify and implement structural improvements to improve the business model with a sense of urgency. Let me now provide key second quarter highlights on product innovation and consumer and brand marketing successes. Our level of newness sequentially improved in the second quarter and increased by more than 300 basis points when compared to last year. Some product innovation highlights that resonated with consumers include our women's business grew nearly 6% this quarter with positive results across both brands, particularly in Duluth. Growth was largely driven by strength in the women's first layer business, which grew by 22%. We continue to see success across our Armichello, Fuck Naked, and Dry on the Fly collections, and women's bras flourished with a 20% increase, driven by the popularity of our T-Lux bra, as well as plus sizes. Additionally, our Heirloom Garden collection continues to be a favorite for her, as evidenced by growth of 18% this quarter, bolstered by a variety of new prints. In our men's business, the Duluth brand delivered growth of 1% this quarter. The men's Armachillo collection led the way with a strong 10% increase, while woven shorts saw an 8% uplift, driven by the success of the Duluth Flex fire hose sweat management and dry-on-the-fly lines. These collections were all haloed by our cooling technology focus that ran for the majority of June and July. Our double-flexed denim collection also performed well with a growth of 3%. Our focus on expanding the woven shirt category resulted in growth of more than 40%, driven by strength in barbecue shirts and our Wrinkle Fighter collection. Within AKHG, we saw double-digit growth in our women's Lost Lake collection, as well as Renew Bamboo across both men's and women's. With regard to our recently launched fitness collection, we remain encouraged by its performance in the first half and, as previously stated, is on track to be a meaningful part of our overall AKHG business this year. As part of our hero underwear collection, we launched Bullpen 3D in July, an enhancement to our bullpen technology that provides even more support and lift while reducing chafing and pinching. In early August, we introduced souped-up sweats, Duluth's take on a better basic, which features a heftier 14-ounce brushed cotton for added softness and warmth. And later this month, we're excited to launch two new Duluth footwear collections, Founders and Ground Effect, which will expand our work and casual offerings. Looking ahead, we're introducing several exciting collaborations and new prints. In the coming weeks, we will continue our beer underwear collaborations with the launch of HAMS alongside a Pheasants Forever CoLab featuring a new on-brand underwear print. Building on the success of the Bush BBQ shirt from earlier this year, we're launching a Bush hoodie, t-shirt, and socks in October. We're adding new prints to our popular heirloom garden collection that will continue to drive excitement throughout the fall harvest season. Our strategic shift towards targeting younger consumers continues to gain momentum. New consumers are five years younger than existing consumers, with the average age trending younger for the past several years. Further, when looking at our active customer file for the quarter, the biggest gains in both customer talent and sales growth came from customers below 50 years old. And importantly, women's buyers increased in penetration within our target customer. We're building on the success with our mobile first strategy as mobile penetration continues to grow as a percentage of total both across customers. visits, and sales on our website. In the quarter, 70% of visits and 57% of sales came through a mobile device, reflecting increases of 100 basis points and 230 basis points, respectively. Further, conversion on mobile devices improved 10 basis points, and we saw a sales increase of nearly 10% in the quarter. On the marketing front, in the second quarter, we successfully focused our paid media on brand awareness, driving higher orders, conversion, and average order value. This is the first time we invested in Amazon Prime Video for Mother's Day and Father's Day, targeting new buyers in the 40- to 50-year-old cohort. We continue to grow our influencer program and launch targeted social and search tactics to drive consumer engagement, resulting in improved traffic trends. Our email optimization drove 10% higher traffic sequentially versus the prior quarter. We have exciting marketing campaigns and events planned for the second half of the year. On August 10th, we hosted our second in-store underwear trade-off event with much fanfare. The event was even more successful than the April event as we not only experienced an increase in in-store traffic, but the brand building and awareness also drove higher traffic online. We were also pleased to see an increase in the proportion of women participating in the underwear trade-ups, a strategic consumer target as we continue to grow our women's business. We're thrilled to be partnering again with Yellowstone, which returns this November. We've planned some exciting new creative to air during the premiere episode and just in time for the holiday selling season. The creative will include a new brand spot as well as a custom vignette featuring a Yellowstone cast member. As we move into the back half of the year, we'll be leaning further into audio media with several podcasts, as well as streaming media with Amazon Prime, Max, and Hulu. Collectively, these networks reached nearly 80% of our target 40- to 50-year-old consumer and more than 70% of existing Duluth buyers. In summary, we returned the business to top-line growth and expanded gross margin. Importantly, we're realizing benefits from our long-term strategic initiatives, including logistics and supply chain, product development and sourcing, and our digital mobile-first efforts. We filled an important merchandising leadership role. We're delivering a higher level of product newness and innovation, which is resonating with both existing and new customers. We're taking swift action on structural initiatives like phase two of our fulfillment center network restructuring plan, and we've made great progress on our retail store portfolio strategy. We ended the quarter in a strong financial position. During the quarter, we paid off the $11 million of outstanding debt on our line of credit, leaving us debt free. Our total liquidity stood at $210 million, and our ending cash balance was approximately $10 million. We're leveraging and benefiting from HINA's deep experience, expertise, and leadership in identifying and driving structural improvements and strategic priorities with financial discipline. Our can-do spirit continues to fuel all that we do. I'm incredibly proud of our team's hard work in what remains a dynamic consumer environment, and I look forward to building upon our many successes. Now I'll turn the call over to Hina to discuss Q2 Financials and our full year outlook.