Duluth Holdings Inc.

Good morning and welcome to the Duluth Holdings third quarter financial results 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 then one on a touch tone phone. 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 Chris Steffes with Duluth Investor Relations. Please go ahead.

Thank you, and welcome to today's call to discuss Duluth Trading's third quarter financial results. Our earnings release, which was issued this morning, is available on our Investor Relations website at ir.deluetrading.com under News Releases. I am here today with Stephanie Pugliese, 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 open the call for 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 will turn the call over to Stephanie.

Good morning, everyone, and thank you for joining us today. Earlier this year, we outlined a plan to reset the business, focusing on improving gross margin through reducing promotional depth controlling costs and inventory levels, and being more effective operators, all with the goal of delivering on our responsibility to our customers and shareholders. I am proud of the team's commitment to these efforts, and as evidenced by our Q3 results, they are yielding benefits. We are pleased to have delivered a consecutive quarter of improved profitability, building upon our earlier progress from Q2. Let me elaborate further on the areas of improvement. Building upon the momentum we established in the second quarter, we saw success with our pricing strategies by focusing on the balance of promotional frequency and depth. We reduced our global promotional days by more than half compared to last year. And while year-over-year sales declines were consistent with our Q1 and Q2 results, we experienced higher profitability per unit sold. Furthermore, to mitigate the impact of tariffs, we raised prices on select products in July and August, and in Q3, we maintained the sales volume on those styles, further reflecting our improving ability to strategically balance demand and retail. Now let me provide an update on some of our third quarter product wins. Within men's, denim was a strong performer for us. and our decision to amplify this Duluth core product through national advertising led to a 9% growth in sales at higher margins. Men's AKHG was also positive, driven by innovations like AfterSweat, Alpine Flex Pants, and Renew Bamboo. Within women's, our Heirloom Garden collection continues to be a foundational part of her wardrobe. and we were also pleased with the results of our relaunch of another core Duluth staple, women's denim, featuring asset management, heritage denim, and our double flex work silhouettes. At Duluth, we take the quality and functionality of our products very seriously, but we also like to have fun, and our customers love it when we put our own Duluth personality into the season. Our Highland Cowls print was featured in October and was one of our most successful prints across several product categories. More recently, a November Hasbro collaboration put Mr. and Mrs. Potato Head, Tonka Trucks, Tinker Toys, and Lincoln Logs onto our best-selling Buck Naked underwear, bralettes, and socks. Customers loved the nostalgia leading into the holiday shopping season as it became one of our fastest-selling collaborations ever. Turning to our marketing efforts for the quarter, we saw success with a full funnel approach highlighted by our Q3 men's denim branding efforts. Anchored by strong creative on our double flex denim and coupled with a strategic linear TV plan that focused on premier college football games within priority store markets, we saw a significant lift in brand consideration. Further, Our sponsorships and investments in other media like Spotify and targeted podcasts have increased our brand perception and moved a new audience toward Trial of Duluth. Our new mobile retail experience, more affectionately known as the Big Damn Van, visited the Sturgis Motorcycle Rally, a NASCAR Cup Series event at the Kansas Speedway, and our two new store openings this quarter. In its first three months, we've engaged with 650,000 customers, and the initial response has been overwhelmingly positive. And speaking of our customers, while total customer counts were down in the quarter compared to last year, primarily as a result of our strategic pullback on promotions, we are seeing key customer metrics remain strong. Sales per customer and margin dollars per customer are up year over year, as are average order values and units per transaction, reflecting our shift towards higher value customer engagement. Moving on to our retail portfolio, store sales increased slightly year on year, driven by the opening of two new stores in priority markets, Kansas City, Kansas and Maple Grove, Minnesota. In those stores, our traffic has exceeded our expectations, and we are seeing a nice flow of new customers who are discovering the brand for the first time. Our retail stores are vital to both our brand identity and the customer experience. The in-store experience continues to drive a high conversion rate among new and existing customers who report five-star reviews on satisfaction and are purchasing with increasing average order values. Now moving on to our operational improvements. We are dedicated to ongoing process improvements to optimize both current and future productivity while reducing costs. I am pleased to report that we are on track to exceed $10 million in cost savings in fiscal 2025. In addition to cost reductions, our sustained focus on inventory management and enterprise planning has resulted in more streamlined operations. A key outcome of this cross-functional initiative is a 17% reduction in our Q3 ending inventory, primarily achieved by rightsizing receipts. We expect these continued efforts, combined with planned reductions in SKU and style counts for upcoming seasons, to drive more clarity in the assortment, more efficient cash utilization, stronger inventory turns, and improved margins. And now, I would like to turn to our fourth quarter and the results we have seen to date. The holiday season is our most important period, driving customer engagement, revenues, and profitability. Leading into this timeframe, our focus remains on our turnaround efforts and executing with a clear sense of urgency. Through rigorous preparation and the alignment across all functions of the business, including our marketing and merchandising strategies, inventory positioning, systems and supply chain preparedness, and customer communication, we entered peak poised to exceed our customers' expectations. First, we implemented enhanced operational protocols and planning processes to optimize unit inventory distribution and depth across our fulfillment center network. This approach has allowed us to capitalize on efficiencies and meet customer demand, specifically by maximizing the output of our fully automated facility in a day or so, which has shipped over 60% of units to customers thus far in Q4, over a 20-point increase from last year's peak season. In addition, we increased our in-store inventory levels, improving availability and enabling healthy conversion rates on foot traffic over the Black Friday weekend and in the weeks leading up to Christmas. Regarding our merchandising plans, we have continued with the disciplined approach that we established over the last several quarters. This means offering focused promotions through more impactful events, and maintaining shallower discounts to enhance margin performance. Our commitment to inventory discipline will continue into next year, with an enhanced focus on product that is core to Duluth. We have also made adjustments to our advertising mix, strategically rebalancing our marketing spend between branding and conversion. This refinement has improved our traffic and conversion trends, in addition to brand awareness, consideration, and purchase intent. And on an exciting note, we appeared a few weeks ago on Good Morning America as part of their season of gifting. It was the first time we were live in the GMA studio, which allowed us to highlight some of our best gifts of the season during Cyber Week and drove over 200,000 first-time visits to our website. I am pleased with our holiday performance to date, and I am so proud of the team who has worked together to get us here. Our sales are in line with our expectations, our gross margin has greatly improved, and our operations are smoother. The team continues to serve our customers with the spirit that makes Duluth great, treating each transaction as unique and each person as a valuable part of our family and brand. In summary, We are pleased with our Q3 results and our peak performance to date. These outcomes reflect the initial phase of our turnaround efforts and are a direct result of the actions the team has been executing on. As we look forward, we are committed to building on this momentum by focusing on the core durable products our customers love and deepening our relationship with longstanding Duluth loyalists while attracting new brand fans. and we will continue to restore price integrity, right-size our cost structure, and most importantly, deliver with excellence on our promises to our customers. Now, I'll hand it over to Hina to discuss our financial results for the third quarter and our outlook for fiscal year 2025.