Duluth Holdings Inc.

Good morning and welcome to Duluth Trading's fourth quarter financial results 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 and then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Steffes, Senior Associate, Duluth Investor Relations. Please go ahead.

Thank you, and welcome to today's call to discuss Duluth Trading's fourth quarter financial results. Our earnings release, which was issued this morning, is available on our Investor Relations website at ir.duluthtrading.com under News Releases. I'm 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 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 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 to discuss Duluth Trading Company's fourth quarter and fiscal 2025 results. I am extremely proud of the team's continued discipline in managing promotional resets, controlling expenses, streamlining operations, and optimizing inventory. This strong execution led to the third straight quarter of enhanced gross margin, lower costs, reduced inventory, and improved profitability. Adjusted EBITDA for the full year rose more than $10 million to $24.9 million, and we delivered almost $17 million in positive free cash flow. a $42 million improvement over fiscal 2024. Our business reset is well underway. We continue to work diligently on simplification, expense control, and productivity. Our SG&A decreased by $5 million in the fourth quarter. We also ended the year with inventory down $35 million or 21% versus last year. Looking specifically at this past holiday season, we successfully executed our operational goals. This represents the culmination of a year's worth of effort by the team to focus on and improve the customer experience. Better forecasting and effective positioning of inventory across our fulfillment centers cut the average click-to-ship time in half compared to last year, and our wait times for customer service were dramatically reduced. We were in stock in our stores, and we were able to deliver with higher conversion as customers came to shop in our retail locations. Throughout the peak season, we stayed the course on our more disciplined promotional strategy, offering 30% off discounts coupled with select standbusters versus last year's 50% off across the board. This approach continued through December with Giftables, and a final 30% off promotion, expanding gross margin and delivering customer satisfaction. Overall in the fourth quarter, men's and women's apparel drove strong margin improvements despite year-over-year sales declines. We saw key wins in outerwear and the souped-up sweats collections across both genders, with men's souped-up more than doubling in sales versus last year. We drove margin gains from Holiday Under's inventory and strong giftable products. And finally, AKHG grew in sales and margin across both men's and women's. Our marketing success in the quarter was driven by an effective balance of brand awareness and conversion efforts. By running our national advertising spots for extended durations, we achieved significant improvements in ad recall and overall brand lift. High-affinity podcast reads and December Good Morning America integration increased brand sentiment, new customer conversion, and direct site visits. We focused on high-value retargeting during Black Friday and Cyber Week, and localized college football buys increased retail foot traffic and sales. After the key holiday selling period, we pivoted to clearance messaging in order to maximize post-season demand. Looking ahead, we are continuing to build brand awareness with a full funnel marketing approach, which includes exciting new spots running during March Madness and NHL games. Now turning specifically to our channel performance. Our efforts in digital to reduce reliance on promotions while building brand acceptance and revenue per customer improved profitability year over year despite reduced traffic. Overall conversion was strong, sales per customer increased 4%, and average order value improved by 10% for the full year. Our retail portfolio was a continued bright spot, with net sales growing 4.7% to $71.6 million in the fourth quarter. This performance was fueled by the opening of two new stores, an increase in average order values, and improved in stock levels. allowing us to capitalize on key traffic moments like Black Friday and throughout December. And our improved operational results impacted not only retail stores, but our entire network. In the third quarter, we moved decisively to position a day or so at the center of our fulfillment operations. And in Q4, we strategically held 69% of our inventory there. a marked increase over last year. This positioning allowed us to fulfill the majority of peak orders from this single facility, demonstrating efficiency that will enable us to rationalize further our distribution network in 2026. In addition to the current year improvements, we have made progress on our longer-term initiatives, starting with our logistics network. We have now completed the first two phases of streamlining and the consolidation of fulfillment operations by closing Dubuque in October of 2024 and now Salt Lake City in February of 2026. Concurrently, we are enhancing the fully automated Adairsville Fulfillment Center's efficiency and capacity. And for 2026, we plan to further boost Adairsville's productivity with investments in cross-stock capabilities and improved labor management. Next, our efforts to improve our retail portfolio results, driven by targeted local marketing in priority areas, an engaged and energized team, and better inventory allocation for higher in-stock positions, have successfully delivered positive comp store sales for the fourth quarter and the full year. We saw lower price sensitivity following the promotional reset and achieved more favorable lease renewals, driving a 550 basis points improvement in four-wall profitability year over year. Every store in our current fleet is profitable, and both of our recently opened new stores are projected to achieve payback in three years or less. In 2026, an additional 10% of our fleet will be due for lease renewals. We will proceed with these renewals only if they meet our predetermined profitability requirements. Third, the enterprise planning process is driving an integrated business plan by connecting forecasts across various functions, including marketing, merchandising, supply chain, and stores. This integration is continuing to deliver significant benefits such as higher forecast accuracy, right-size inventory buying, receipt time management, and optimal allocation across locations to best serve our customers across all channels. Lastly, our direct-to-factory sourcing initiative has matured. Currently, almost 60% of our product is sourced directly from factories, with the remainder coming through our two primary vendor agents. We continue to scale with our current vendors to deliver cost savings, diversify our sources to enhance supply chain agility, and maintain our focus on innovation and quality. As we move into 2026, we still have work to do in this turnaround, and it remains our primary focus, particularly in continued disciplined efforts in the first half of the year. Our ongoing priorities are building pricing and margin integrity through promotional reset, efficient inventory management, SKU reduction, and maintaining rigorous cost discipline, in part to offset the now annualized impact of tariffs. But we are not stopping there. This year, we are intensifying our focus on strategic brand initiatives. reinforcing the brand identity around our core product assortment, strengthening our leadership in workwear, delivering a memorable experience through our unique storytelling and our actions to re-engage and attract valuable customers, and further embedding operational excellence across the organization. While we expect that these efforts will benefit us more heavily in the back half of the year, We have begun to see some green shoots from our focus on core product and are pleased with the trend that we are seeing so far this quarter. Products like flex fire hose, double flex denim, and souped-up sweats are resonating in a positive way as we tell our story of innovation and long-lasting durability to both new and renewed customers. In addition, new product launches like our lightweight fire hose shirt and the poppies print that just landed for women are getting strong initial responses. Our marketing has become more effective at driving higher levels of traffic to our site and to our stores. We are executing a full funnel approach to marketing this year with the intent to reactivate our customer base, build retention, and attract new fans to the brand. As an example, we are running our new Max Gluteus ad featuring our best-selling underwear in March Madness and NHL games while supporting core product visibility and sales in lower funnel efforts like SEO and branded search. We continue to monitor response in traffic, conversion, and brand sentiment to optimize our spend with agility. To fuel the second half of the year, We are making targeted investments and creating synergies with our product and marketing. These include customer-facing improvements, such as integrating Apple Pay on our website to streamline the checkout process and fully leveraging our comprehensive full-funnel marketing strategy. Our product assortment is stronger year over year, with tighter SKU counts and a focus on core products that speak to our customers' hands-on, hardworking lifestyles, and our stores will be supported to deliver another year of increased sales. We have confidence that we will see the results of these efforts with improved sales trends and profitability in the second half of the year. In closing, I want to extend my thanks to the entire Duluth team for a year of significant progress that positions us for future success. We have entered 2026 in a stronger financial and operational position with better liquidity, improved inventory levels, a more focused assortment, and positive team momentum. We have a complete and highly capable leadership team prepared to execute our plan, and we look forward to presenting a detailed multi-year strategy during our first quarter earnings call in June. With that, I'll pass it over to our CFO, Hina Agarwal, to discuss our financials in more detail.