Executive Summary

Q1 2026 net sales fell 12.0% year over year to $102.7M, with GAAP diluted EPS of ($0.45) and Adjusted EPS of ($0.32); adjusted EBITDA was ($3.8)M, or (3.7%) of net sales .
Versus S&P Global consensus, DLTH modestly missed revenue ($102.7M vs $104.8M*) but delivered a notable EPS beat on “Primary EPS” basis (($0.32) vs ($0.42)), aided by adjustments; GAAP EPS was ($0.45) . Values retrieved from S&P Global.
Management maintained FY2025 guidance (Net Sales $570–$595M; Adjusted EBITDA $20–$25M) while lowering planned Capex to ~$17M from $20M to preserve liquidity and right-size the cost structure .
CEO Stephanie Pugliese announced decisive simplification: promotional reset, SKU reductions (≥20% by Spring/Summer 2026), tariff mitigation actions, and a workforce reduction of ~3% to support ~$10M in FY2025 cost savings .

What Went Well and What Went Wrong

What Went Well
- Management executed promotional reset (shallower discounts, fewer promo days), driving March–April gross margin improvement of over 300 bps versus last year; mobile penetration and in-store conversion improved as promo depth declined .
- Strategic sourcing and fulfillment optimization continued to lower product costs and shipping/fulfillment expenses; ABL facility extended to 2030 enhances flexibility and reduces borrowing rates .
- Clear strategic focus: narrow assortment, SKU reduction, brand storytelling, targeted marketing, and omnichannel execution; quote: “I am taking decisive actions to simplify the business… focus on brand awareness, solution-based products… and customer service” – CEO Stephanie Pugliese .
What Went Wrong
- Top-line softness: direct-to-consumer net sales down 17.1% on weaker site traffic; overall net sales down 12.0% y/y; retail store sales declined 2.6% on lower traffic .
- Gross margin contracted 80 bps to 52.0% due to higher clearance penetration (Big Dan event in February), despite underlying cost improvements .
- Elevated inventory and reliance on credit facility: inventory at $176.1M; $64.0M drawn on line of credit; net liquidity at $44.6M as of quarter-end .

Financial Results

Metric	Q4 2025	Q1 2026	Q2 2026
Revenue ($USD Millions)	$241.3	$102.7	$131.7
GAAP Diluted EPS ($)	($0.17)	($0.45)	$0.04
Adjusted EPS ($)	($0.04)	($0.32)	$0.03
Gross Margin (%)	44.1%	52.0%	54.7%
Adjusted EBITDA ($USD Millions)	$8.54	($3.79)	$12.00
Operating Income ($USD Millions)	($4.24)	($12.35)	$2.40

Segment Net Sales

Segment ($USD Millions)	Q4 2025	Q1 2026	Q2 2026
Direct-to-Consumer	$172.9	$62.6	$79.1
Retail Stores	$68.4	$40.2	$52.6

Key Operating KPIs

KPI	Q4 2025	Q1 2026	Q2 2026
Inventory ($USD Millions)	$166.5	$176.1	$148.1
Clearance Mix (%)	10%	9%	22% (quarter-end; improved to 16% by September)
Cash & Equivalents ($USD Millions)	$3.3	$8.6	$5.7
Net Liquidity ($USD Millions)	$103.3	$44.6	$73.3
Credit Facility Draw ($USD Millions)	$0.0	$64.0	$32.5

Estimates vs Actuals (S&P Global)

Metric	Q1 2026 Consensus	Q1 2026 Actual
Revenue ($USD Millions)	$104.8*	$102.7
Primary EPS ($)	($0.42)*	($0.32)

Notes: Values retrieved from S&P Global.* Primary EPS “actual” reflects S&P’s normalized methodology and differs from reported GAAP EPS of ($0.45) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Sales ($USD Millions)	FY 2025	$570–$595	$570–$595	Maintained
Adjusted EBITDA ($USD Millions)	FY 2025	$20–$25	$20–$25	Maintained
Capital Expenditures ($USD Millions)	FY 2025	~$20	~17	Lowered
Gross Margin Direction	FY 2025	+~300 bps expected	Reaffirm focus; tariffs to impact 2H	Qualitative reaffirmation
Cost Savings	FY 2025	n/a	≥$10M realized/targeted	New / Maintained

Earnings Call Themes & Trends

Topic	Q-2 (Q3 2025)	Q-1 (Q4 2025)	Current (Q1 2026)	Trend
Promotional cadence & price integrity	Highly promotional market; gross margin +210 bps from sourcing	Plan to reduce depth/frequency; target ~300 bps GM expansion	Reduced promo days 35% and depth 25%→20%; March–April GM +300 bps	Improving margin discipline
Sourcing & fulfillment optimization	Adairsville CPU −73%; Dubuque closure savings ~$5M	Backlog remediation; fulfillment network optimization continues	Further cost/unit gains; faster click-to-delivery	Structural tailwind
Tariffs & mitigation	Not a focus	FY2025: expect 300 bps GM expansion despite promo reset	10% tariffs ROW; ~$14M cost impact; <1% China exposure; targeted price increases, vendor share	Managing headwind
Inventory management	Elevated; pack-and-hold strategy	Aim to normalize 2H; end-year inventory down double digits	Inventory $176.1M; mix 9% clearance; enterprise planning initiatives	Normalizing over 2H
Store portfolio	2 new stores planned; higher hurdle rates	Closed one low-performing store; renewals at higher hurdle	Continued rationalization; omnichannel emphasis	Focused footprint
Assortment & SKU reduction	Increased newness; women’s categories strong	Refine category focus	≥20% SKU cuts by Spring/Summer 2026; core-focus	Sharpening assortment
Marketing & brand	New agency; full funnel; Yellowstone, GMA features	Upper/lower funnel rebalance	Brand awareness push; GMA/Father’s Day; Big Damn Van activation	Building awareness

Management Commentary

“I am taking decisive actions to simplify the business and focus on… brand awareness, solution-based products… and customer service… We will narrow our assortment breadth with at least a 20% reduction of SKUs by spring 2026” — Stephanie Pugliese, President & CEO .
“We are on track to realize $10 million in cost savings in fiscal year 2025… offset tariff impacts with targeted price increases, vendor negotiations, and inventory receipt management. Exposure to China is minimal, <1% of current year receipts” — Heena Agrawal, SVP & CFO .
“Gross margin improved by over 300 basis points in March and April versus last year as reduced costs from direct-to-factory sourcing flowed through and we reset promotion depth/frequency” — Management .

Q&A Highlights

Marketing mix and brand awareness: Management reevaluating full-funnel strategy; early successes with GMA feature and store traffic/awareness; reinvestment into upper funnel as ROI improves .
Promotional reset impact: Shallower promotions and fewer promo days driving higher AOV and conversion, especially in stores; balancing promo cadence with retention/acquisition, shipping offers, and funnel tactics .
Pricing elasticity and tariffs: Targeted price increases on unique products meeting sales expectations; partnerships with vendors, and receipt timing to mitigate tariff impact .
Cost savings cadence: ~$10M savings largely from headcount (51 roles) and controllable expenses; about a third realized by Q2 with remainder ramping through FY2025 .
Margin outlook: Expect stronger gross margin in 2H as tariff mitigation and promotional discipline continue, with a larger ramp in Q4 .

Estimates Context

Q1 2026: Revenue slightly below consensus ($102.7M vs $104.8M*), while Primary EPS beat ($0.32) vs ($0.42), highlighting benefit from non-GAAP adjustments; reported GAAP EPS was ($0.45) . Values retrieved from S&P Global.
Prior quarter context: Q4 2025 revenue missed estimates (~$241.3M vs $252.9M*) and EPS missed (estimated $0.11 vs actual ($0.045)), mainly due to fulfillment backlog and promotional actions . Values retrieved from S&P Global.
Subsequent quarter (Q2 2026): Revenue beat (~~$131.7M vs $123.7M*), EPS beat (~~$0.03–$0.04 vs ($0.115)), reflecting promotional reset and cost control . Values retrieved from S&P Global.

Key Takeaways for Investors

Near-term trading: Expect continued focus on profitability over growth; 2H gross margin tailwinds from pricing actions and lower product costs, with Q4 seeing the biggest step-up; monitor tariff passthrough and consumer elasticity .
Liquidity/Leverage: ABL facility to 2030, net liquidity improved sequentially to $73.3M in Q2; borrowing halved from Q1 to Q2; watch inventory normalization and clearance mix trend (Q2 quarter-end 22% improved to 16% by September) .
Strategic simplification: SKU reductions (≥20% by Spring/Summer 2026), assortment focus on core men’s/women’s workwear and adjacent categories; expect inventory turns and margin improvement from narrower, higher-productivity lines .
Promotional reset durability: Shallower promotions are holding with improving gross margin; store profitability trends improving as depth is reduced; mobile penetration/traffic to be supported by full-funnel marketing .
Tariff risk managed: ~$14–$15M tariff cost in FY2025 primarily impacting 2H; mitigation via selective pricing, vendor sharing, and receipts timing; minimal China exposure (<1%) reduces risk concentration .
Execution watchpoints: Inventory normalization and operational execution (fulfillment, planning) are critical after Q4 2025 backlog issues; progress evidenced by automation savings and faster delivery .
Guidance discipline: FY2025 Net Sales and Adjusted EBITDA targets reaffirmed; Capex lowered to ~$17M; cost savings tracking toward ≥$10M provides buffer against top-line headwinds .

Notes on non-GAAP adjustments: Q1 2026 Adjusted EPS excludes ~$4.1M valuation allowance and ~$0.4M net impairment; adjusted EBITDA excludes long-term incentive and impairment expenses, providing insight into underlying operations .

DULUTH HOLDINGS INC. (DLTH)·Q1 2026 Earnings Summary