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DH

DULUTH HOLDINGS INC. (DLTH)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 (fiscal quarter ended October 27, 2024) came in soft: net sales declined 8.1% to $127.1M, GAAP diluted EPS was ($0.85) and adjusted EPS was ($0.41); gross margin expanded 210 bps YoY to 52.3% on sourcing benefits, but higher promotions and deleveraged SG&A weighed on earnings .
  • Management issued new FY 2024 guidance: net sales ≈ $640M (maintained), but gross margin now projected to decline ~125 bps YoY (vs prior guide for +150 bps expansion), SG&A deleverage ≈ 80 bps, and capex ≈ $23M (down from ~$25M); this guidance reset is a key stock narrative catalyst .
  • Strategic actions advancing: fulfillment network optimization (Dubuque exit) drives ~$5M annual run-rate SG&A savings beginning in Q4; Adairsville variable CPU is 73% lower than legacy facility; inventory actions focused on ending the year “clean,” with selective pack-away of core seasonal goods .
  • Near-term headwinds: unusually warm weather pressured fall/winter categories, reduced transactions, and elevated seasonal inventory; second-half trends improved into Black Friday/Cyber Monday, but Q3 showed margin pressure and SG&A deleverage (+600 bps) .
  • Consensus estimates via S&P Global were unavailable at time of writing; result-to-estimate comparisons are therefore not provided (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

  • Gross margin expanded 210 bps YoY to 52.3% on direct-to-factory sourcing savings, even as AUR fell; second consecutive quarter of margin improvement from sourcing/logistics initiatives .
  • Fulfillment optimization: Adairsville automated FC processed 64–65% more units over Black Friday weekend and variable CPU is 73% lower than legacy facilities, enabling ~$5M annual run-rate savings after Dubuque exit .
  • Digital/mobile execution: 71% of visits and 57% of sales were via mobile; double-digit increase in website traffic from first-time visitors after onboarding a new media agency .

Management quotes:

  • “We registered another quarter of gross margin expansion… over 200 basis points… We continue to have line of sight to multiple years of significant product cost benefits.” — CEO prepared remarks .
  • “Variable CPU in Adairsville [is] 73% lower than the legacy facility… we anticipate annualized run rate savings of approximately $5 million.” — CEO prepared remarks .
  • “In the quarter, 71% of visits and 57% of sales came through a mobile device.” — CEO prepared remarks .

What Went Wrong

  • Top-line underperformed: net sales fell 8.1% to $127.1M amid a highly promotional environment and unseasonably warm weather, which also pressured fall/winter categories (men’s planners, outerwear, sweaters) .
  • SG&A deleveraged 600 bps to 65.2% of sales (higher fixed costs and depreciation); advertising deleveraged 240 bps to 15.3% of sales as revenue fell .
  • Inventory ended higher than planned due to early receipts for holiday in-stocks and slower fall/winter sell-through; clearance actions required to end the year clean (though clearance mix improved to 3%) .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$102.7 $131.7 $127.1
GAAP Diluted EPS ($)($0.45) $0.04 ($0.85)
Adjusted EPS ($)($0.32) $0.03 ($0.41)
Gross Margin (%)52.0% 54.7% 52.3%
Adjusted EBITDA ($USD Millions)($3.79) $12.00 ($6.79)

Segment Net Sales

SegmentQ1 2025Q2 2025Q3 2025
Direct-to-Consumer Net Sales ($USD Millions)$62.6 $79.1 $79.8
Retail Store Net Sales ($USD Millions)$40.2 $52.6 $47.2

KPIs

KPIQ1 2025Q2 2025Q3 2025
Cash & Cash Equivalents ($USD Millions)$8.6 $5.7 $9.3
Liquidity ($USD Millions)$44.6 $73.3 $165.3
Net Working Capital ($USD Millions)$54.2 $56.9 $60.6
Line of Credit Outstanding ($USD Millions)$64.0 $32.5 $44.0
Inventory ($USD Millions)$176.1 $148.1 $231.4
Clearance Inventory (% of total)11% (H1 context) 11% (H1 context) 3%

Notes:

  • Q3 inventory increase reflects one-third in-transit (ownership timing), one-third early receipts of core goods to avoid Q4 stock-outs, and one-third fall/winter inventory impacted by warm weather; actions underway to end year clean and pack away certain core seasonal items .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($USD Millions)FY 2024≈ $640 ≈ $640 Maintained
Gross Margin (YoY bps)FY 2024+150 bps expansion ≈ (125) bps reduction Lowered
SG&A (YoY bps, excl. sales tax contingency)FY 2024≈ (80) bps deleverage ≈ (80) bps deleverage Maintained
Adjusted EBITDA ($USD Millions)FY 2024$39 Not reiterated in Q3 PR Withdrawn/Unspecified
Adjusted EPS ($)FY 2024(0.22) Not reiterated in Q3 PR Withdrawn/Unspecified
Capital Expenditures ($USD Millions)FY 2024≈ $25 ≈ $23 Lowered
Fulfillment savingsFY 2024/Q4 onwardBegin late Q4, ~$5M annual run-rate Affirmed; ~$5M annual run-rate Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025)Previous Mentions (Q2 2025)Current Period (Q3 2025)Trend
Sourcing/product costFoundation emphasized; margin headwinds from clearance GM +90 bps; multi-year tailwind planned GM +210 bps YoY; continued tailwind Improving margin trajectory
Fulfillment/logisticsAdairsville optimization; planning Phase 2 Dubuque exit announced; ~$5M run-rate savings Dubuque exit completed; CPU 73% lower; savings starting Q4 Structural Opex improvement
Store portfolioPortfolio rationalization; omnichannel importance 25% leases up by 2026; 2 LOIs for new stores Higher hurdle rates; closures/relocations possible; 2 H2’25 openings Mix shift to higher productivity
Marketing/mobileDigital-first; brand focus Amazon Prime/streaming; influencers; mobile sales 57% New agency; double-digit new-visitor traffic; mobile 71% visits, 57% sales Stronger top-of-funnel, conversion work
Inventory managementElevated clearance; right-sizing Clearance at 11%; plan to clean in H2 Elevated seasonal inventory; selective markdowns and pack-aways Aggressive clean-up
Weather/macroConsumer softness; traffic pressure Value-seeking consumer; traffic still challenged Warm weather materially impacted fall/winter sell-through External headwind

Management Commentary

  • Strategic focus: “We’re realizing benefits from our long-term strategic initiatives, including product development and sourcing, logistics and supply chain, our mobile-first efforts and go-to-market initiatives.” — CEO prepared remarks .
  • Fulfillment excellence: “Adairsville processed 64% more units… with a significant reduction in our click to delivery time… variable CPU… 73% lower than the legacy facility.” — CEO prepared remarks .
  • Inventory discipline: “We are committed to prudently managing our inventory and ending the fiscal year in a clean, high-quality position.” — CEO prepared remarks .
  • CFO outlook: “We are reconfirming our full year top line sales guidance of $640 million… we are now projecting full year gross margin reduction of approximately 125 basis points versus prior year.” — CFO prepared remarks .

Q&A Highlights

  • Store fleet and productivity: Management reiterated higher hurdle rates for renewals, with potential closures/relocations to improve portfolio profitability; all stores were four-wall profitable at end of 2023, but productivity by location varies .
  • SG&A trajectory: Savings from fulfillment network rationalization (~$5M run-rate) and lower capex-to-depreciation equilibrium expected to help SG&A over time .
  • Inventory strategy: Seasonal items unique to the current season to be cleared; core seasonal products (e.g., puffers) can be packed away to protect margin; focus on minimizing clearance carryover into next year .
  • Margin path: Multi-year sourcing tailwind remains intact; near-term clearance pressure acknowledged in Q3 with actions to end year clean .

Estimates Context

  • S&P Global consensus estimates for Q3 2025 were unavailable at time of writing due to a data access limit. As a result, comparisons to Wall Street consensus for revenue and EPS are not provided here. Values retrieved from S&P Global were unavailable.

Where estimates may need to adjust:

  • The guidance reset from expected gross margin expansion to ~125 bps reduction YoY suggests consensus margin/EPS trajectories for FY 2024 likely need downward revisions; adjusted EBITDA/EPS were not reiterated, increasing uncertainty for near-term profitability framing .

Key Takeaways for Investors

  • The quarter reflects execution progress (sourcing/logistics/mobile) but also external/weather headwinds; the guidance reset on gross margin is the principal negative surprise and likely the near-term stock driver .
  • Structural Opex work (fulfillment network exit, ~$5M SG&A savings) should begin benefiting Q4 and FY 2025, offering medium-term margin support even as near-term promotions weigh .
  • Inventory strategy is proactive: expect markdowns to clear seasonal goods and selective pack-away of core items to protect future margin; watch clearance mix and year-end inventory quality metrics .
  • Store portfolio discipline (higher hurdle rates, potential closures/relocations, 2 new openings) is consistent with omnichannel strategy; expect localized marketing/events to support traffic and omnichannel engagement .
  • Digital/mobile traction is strong; conversion optimization is the next lever after successful top-of-funnel traffic growth — a potential driver of DTC mix and shipping leverage .
  • FY 2024 capex trimmed to ~$23M; along with lower capex run-rate, expect longer-term SG&A normalization as depreciation burdens moderate .
  • Near-term trading implication: the GM guidance cut and Q3 SG&A deleverage likely cap near-term multiple expansion; medium-term thesis hinges on sourcing savings, logistics efficiency, and portfolio optimization translating to sustainable margin recovery and improved cash generation .