Duluth Posts 7% Sales Drop in Fiscal Q2

Key Points

• Net sales (GAAP) fell 7.0% to $131.7 million, with digital/direct-to-consumer sales declined 13.7%.

• Gross margin expanded to 54.7%, aided by fewer promotions and better sourcing, while adjusted earnings turned positive.

• Inventories declined 12.2%, helping boost liquidity and support a stable financial outlook.

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Duluth (NASDAQ:DLTH), the workwear and casual apparel retailer known for its humorous ads and functional designs, reported its second-quarter fiscal 2025 earnings on September 4, 2025. The company posted improved profitability and gross margin, even as Net sales (GAAP) slipped to $131.7 million, a 7.0% decline from the same period last year. While no direct Wall Street estimate comparison is provided, management’s steady guidance and a more positive tone on operational progress suggest results aligned with internal expectations, especially in earnings and margins. For the quarter, Duluth delivered $0.03 adjusted earnings per share (EPS), moving from a loss last year, and showcased notable operational improvements in inventory and expense controls. However, ongoing pressure in the direct-to-consumer segment and broader sales weakness framed the quarter as a mixed but operationally disciplined performance.

About Duluth's Business and Current Focus

Duluth is best known for its rugged, functional apparel and accessories, marketed with a distinctive sense of humor. Its range spans men's and women's clothing, including workwear, outerwear, accessories, and hard goods, sold through a blend of online direct-to-consumer (DTC) channels and retail stores nationwide.

The company’s strength hinges on brand recognition, an omnichannel approach, steady product innovation, and efficient supply chain management. Recent strategic initiatives have concentrated on restoring profitability, optimizing its product assortment, and improving operational efficiency. Maintaining customer loyalty, investing in digital transformation, and ensuring seamless integration across store and web platforms remain critical to its long-term success.

Quarter Highlights: Sales Dynamics, Margins, Inventory, and Channel Trends

The period demonstrated a duality—profitability rebounded from recent lows even as revenue continued to trend downward. Net sales (GAAP) fell by 7.0%, marking a smaller year-over-year decrease than the double-digit decline seen in the prior quarter. Despite this contraction, Duluth improved its net income (GAAP) to $1.3 million, reversing a $2.0 million loss a year earlier. Adjusted EBITDA grew to $12.0 million, supported by both margin improvements and lower spending.

One key driver of earnings growth was the expansion of gross margin to 54.7%, up from 52.3% in the prior-year period. Management credited this to higher average selling prices, achieved by pulling back on promotional discounts, and to improved product costs stemming from the company’s direct-to-factory sourcing strategy. Lower costs of shipping and reduced personnel expenses also played a part, with selling, general, and administrative (SG&A) costs down by 7.1% year over year.

Channel performance diverged sharply. DTC sales dropped 13.7%, attributed to fewer digital customers—partially offset by higher order values. Retail store sales rose 5.3% because of higher spending per transaction.

Inventory management made significant headway, with ending inventory (GAAP) at $148.1 million, a reduction of 12.2% from a year earlier. This effort to right-size working capital alleviated logistical and liquidity pressures.

Brand, Product, and Operations in Context

Duluth’s apparel mix covers men’s and women’s outerwear, shirts, pants, and accessories—marketed with a focus on durability and function. The company’s proprietary product designs, often with unique features or materials, differentiate it within a crowded retail field. Its brand voice, typified by the “No Bull Guarantee” and storytelling-driven campaigns, is designed to foster customer loyalty and repeat business.

Key success factors stem from its omnichannel strategy, which aims to give customers the flexibility to shop seamlessly online and in-store. At the same time, operational practices such as direct-to-factory sourcing improve product costs, while inventory agility supports margin targets. Supply chain reliability and efficiency are essential, given Duluth’s dependence on third-party vendors to deliver its innovative product pipeline.

Looking Ahead: Financial Guidance and Investor Focus

Management has kept its prior full-year guidance intact, reflecting measured confidence in continued cost and margin gains. It expects adjusted EBITDA of $20–25 million for FY2025, as stated earlier, and offered no upgrades or downgrades in the quarter’s release. No specific updates were given on expected revenue trends or future sales outlook beyond the existing plan.

Investors should continue to track trends in digital sales, customer retention efforts, and the impact of cost discipline if top-line pressures persist. The path to sustained recovery likely depends on restoring growth in DTC operations, further leveraging omnichannel capabilities, and executing on product assortment simplification.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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