UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended February 2, 2025
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file No. 001-37641
DULUTH HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Wisconsin
39-1564801
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
201 East Front Street, Mount Horeb, Wisconsin
53572
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (608) 424-1544
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class B Common Stock, No Par Value
DLTH
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
x
Smaller reporting company
x
Emerging Growth Company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect
the correction of an error to previously issued financial statements. x
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of
the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $51.2 million based upon the closing price on the last business
day of the registrant’s most recently completed second fiscal quarter (July 28, 2024).
The number of shares outstanding of the Registrant’s Class A common stock, no par value, as of March 19, 2025, was 3,364,200. The number of shares outstanding of
the Registrant’s Class B common stock, no par value, as of March 19, 2025 was 31,774,348.
Table of Contents
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed within 120 days of February 2, 2025 are incorporated by reference in this Annual Report on Form 10-K
in response to Part III, Items 10, 11, 12, 13 and 14.
TABLE OF CONTENTS
Page
PART I
ITEM 1.
BUSINESS
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ITEM 1A.
RISK FACTORS
9
ITEM 1B.
UNRESOLVED STAFF COMMENTS
22
ITEM 1C.
CYBERSECURITY
23
ITEM 2.
PROPERTIES
24
ITEM 3.
LEGAL PROCEEDINGS
25
ITEM 4.
MINE SAFETY DISCLOSURES
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
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PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
27
ITEM 6.
[RESERVED]
27
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
37
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
64
ITEM 9A.
CONTROLS AND PROCEDURES
64
ITEM 9B.
OTHER INFORMATION
64
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
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PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
65
ITEM 11.
EXECUTIVE COMPENSATION
65
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
65
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
65
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
65
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE
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ITEM 16.
FORM 10-K SUMMARY
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SIGNATURES
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of
1995 that are subject to risks and uncertainties. All statements other than statements of historical or current facts included in this Annual Report on Form
10-K are forward-looking statements. Forward-looking statements refer to our current expectations and projections relating to our financial condition,
results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do
not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “could,” “design,” “estimate,” “expect,” “project,”
“plan,” “potential,” “intend,” “believe,” “may,” “might,” “will,” “objective,” “should,” “would,” “can have,” “likely” and other words and terms of similar
meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements
we make relating to our estimated and projected earnings, revenue, costs, expenditures, cash flows, growth rates and financial results, our plans and
objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking
statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we
expected, including:
the impact of inflation and measures to control inflation on our results of operations;
the prolonged effects of economic uncertainties on store and website traffic;
disruptions to our distribution network, supply chains and operations;
failure to effectively manage inventory levels;
our ability to maintain and enhance a strong brand and sub-brand image;
adapting to declines in consumer confidence, inflation and decreases in consumer spending;
disruptions to our e-commerce platform;
our ability to meet customer delivery time expectations;
our ability to properly allocate inventory throughout our distribution network to fulfill customer demand;
our failure to meet our debt covenant ratios;
natural disasters, unusually adverse weather conditions, boycotts, prolonged public health crises, epidemics or pandemics and unanticipated
events;
generating adequate cash from our existing stores and direct sales to support our growth;
the impact of changes in corporate tax regulations and sales tax;
identifying and responding to new and changing customer preferences;
the success of the locations in which our stores are located;
effectively relying on sources for merchandise located in foreign markets;
transportation delays and interruptions, including port congestion;
our inability to timely and effectively obtain shipments of products from our suppliers and deliver merchandise to our customers;
the inability to maintain the performance of our maturing store portfolio;
our inability to deploy marketing tactics to strengthen brand awareness and attract new customers in a cost effective manner;
our ability to successfully open new stores;
effectively adapting to new challenges associated with our expansion into new geographic markets;
competing effectively in an environment of intense competition or elevated promotions;
our ability to adapt to significant changes in sales due to the seasonality of our business;
price reductions or inventory shortages resulting from failure to purchase the appropriate amount of inventory in advance of the season in
which it will be sold;
the potential for further increases in price and lack of availability of raw materials;
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our dependence on third-party vendors to provide us with sufficient quantities of merchandise at acceptable prices;
the susceptibility of the price and availability of our merchandise to international trade conditions including tariffs;
failure of our vendors and their manufacturing sources to use acceptable labor or other practices;
our dependence upon key executive management or our inability to hire or retain the talent required for our business;
increases in costs of fuel or other energy, transportation or utility costs and in the costs of labor and employment;
failure of our information technology systems to support our current and growing business, before and after our planned upgrades;
disruptions in our supply chain and fulfillment centers;
our inability to protect our trademarks or other intellectual property rights;
infringement on the intellectual property of third parties;
acts of war, terrorism or civil unrest;
the impact of governmental laws and regulations and the outcomes of legal proceedings;
changes in U.S. and non-U.S. laws affecting the importation and taxation of goods, including imposition of unilateral tariffs on imported
goods;
our ability to secure the personal and/or financial information of our customers and employees;
failure to comply with data privacy regulations;
our ability to comply with the security standards for the credit card industry;
our failure to maintain adequate internal controls over our financial and management systems; and
acquisition, disposition, and development risks.
We make many of our forward-looking statements based on our operating budgets and forecasts, which are based upon detailed assumptions. While
we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to
anticipate all factors that could affect our actual results.
See the “Risk Factors” section of this Annual Report on Form 10-K for a more complete discussion of the risks and uncertainties mentioned above
and for discussion of other risks and uncertainties. All forward-looking statements attributable to us are expressly qualified in their entirety by these
cautionary statements as well as others made in this annual report and hereafter in our other SEC filings and public communications. You should evaluate
all forward-looking statements made by us in the context of these risks and uncertainties.
We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-
looking statements included in this Annual Report on Form 10-K are made only as of the date hereof. We undertake no obligation to publicly update or
revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
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PART I
ITEM 1.
BUSINESS
Unless the context indicates otherwise, the terms the “Company,” “Duluth,” “Duluth Trading,” “Duluth Holdings,” “Duluth Trading Company,”
“Duluth Trading Co.,” “we,” “our” or “us” are used to refer to Duluth Holdings Inc.
The following discussion contains references to fiscal years 2024 and 2023, which refer to our fiscal years ended February 2, 2025 and January 28,
2024, respectively. Fiscal year 2024 was a 53-week period and 2023 was a 52-week period.
Duluth Trading is a lifestyle brand of men’s and women’s workwear, casual wear, outdoor apparel and accessories primarily sold through our own
omnichannel platform. We offer products nationwide through our website. In 2010, we initiated our omnichannel platform with the opening of our first
store. Since then, we have expanded our retail presence, and as of February 2, 2025, we operated 62 retail stores and three outlet stores.
Duluth Trading was founded in 1989 when two brothers in the home construction industry were tired of dragging tools from job to job using
discarded five-gallon drywall compound buckets. The two brothers were never satisfied with the status quo and believed “there’s gotta be a better way.” So,
they invented the Bucket Boss® - a ruggedly durable canvas tool organizer that fits around a drywall bucket and transformed the way construction workers
organized their tools. Capitalizing on their initial success, these brothers launched a catalog that later became known as Duluth Trading Company. Under
the initial philosophy of “Job Tough, Job Smart,” this catalog was dedicated to improving and expanding on existing methods of tool storage, organization
and transport. In December 2000, GEMPLER’S Inc., a Wisconsin corporation and an agricultural and horticultural supply catalog business founded and
owned by Stephen L. Schlecht, acquired Duluth Trading and brought the two mail order companies together. Both catalogs had customers who worked
outside and embraced the spirit of hands-on, self-reliant Americans. In February 2003, the GEMPLER’s catalog business was sold to W.W. Grainger
(NYSE:GWW) and proceeds from that sale were used to fund the growth of Duluth Trading. With that transaction, GEMPLER’S changed its corporate
name to Duluth Holdings Inc.
From what began as an idea aimed at those working in the building trades, Duluth Trading has become a widely recognized brand and proprietary
line of innovative and functional apparel and gear. We have created strong brand awareness and built a loyal customer base. We believe the foundation of
our success is our culture of “poking average in the eye” by seeing things for what they could be and should be and finding a way to make them exactly
that, and we like to do it all with a big, toothy grin.
Our Growth Strategies
In 2021, the Company completed a comprehensive review of current operations, logistics networks, marketing and technology capabilities, and
unique brands and products. The Company formulated the “Big Dam Blueprint”, which management believes will unlock the Company’s full potential for
long-term, sustainable growth.
Begin with a digital-first mindset that integrates technology into all areas of the business, fundamentally changing how we operate and
deliver value to customers.
Intensify efforts to optimize Duluth Trading’s owned retail channels by increasing focus and investments in our direct channel as our
primary growth vehicle. We are conducting strategic research that will inform decisions on future stores regarding new locations and market
share potential, size, format, and assortment.
Evolve the Company’s platform to grow into a multi-brand and multi-channel business. Create unique brand positions, across men’s and
women’s, for Duluth and AKHG, as well as for our important Buck Naked franchise to address customer needs for various occasions including
work, outdoor recreation, casual lifestyle, and first layer. Invest in the evolution of the Duluth Trading platform to enable the integration of new
brands and channels, expand our product offering and broaden our customer base.
Prioritize test and learn to unlock long-term growth potential. Explore new opportunities to engage current and potential customers
through products, services and touchpoints that they expect and value.
Future proof the business through investments in capabilities and infrastructure. Including logistics, operations, and planning systems,
processes, and talent needed to scale the business and enable a multi-brand and multi-channel strategy.
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Omnichannel
Our omnichannel business strategy allows our sales channels to work in synergy to seamlessly deliver a consistent brand experience to the customer,
including consistent marketing, pricing and product presentation. All sales channels are fully integrated, including stores, website, catalogs and customer
contact centers. Our omnichannel services include order-in-store, buy-online-pickup-in-store, and ship-from-store as well as retail store and mobile
shopping experiences.
Retail Store Environment
Our retail stores are designed to bring our brand to life by creating a unique and entertaining experience, including engaging sales associates, a
compelling and complete product assortment, and custom-made fixtures to fit our brand. We also showcase unique attractions at each retail store that
celebrate the heritage of the local area, such as the tool museum in our Mt. Horeb, Wisconsin store and the “Exploded Tractor” exhibit in our Ankeny, Iowa
store. We believe these local community elements help promote customer loyalty and drive repeat purchases.
Our Products
We offer a comprehensive line of innovative, durable and functional workwear, casual wear, outdoor apparel and accessories for both men and
women. Our product assortment includes shirts, pants, shorts, underwear, outerwear, footwear, accessories and hard goods. Our products feature proprietary
designs and distinct names, such as our Longtail T® shirts, Buck Naked® underwear, Fire Hose® work pants and No-Yank® Tank.
Our product assortment appeals to our customers for their everyday and on-the-job use. The majority of our products represent enduring styles that
go beyond short-lived fashion trends. We believe many of our customers’ purchases are driven by our thoughtful design and high-quality craftsmanship,
and our best-selling styles tend to be items that carry over year to year with only minor updates.
We believe the authenticity of our products is driven by a number of factors, including our solution-based design process, use of technical materials,
sophisticated manufacturing methods and innovative product features. Our products are sold at competitive prices and are designed to offer superior
performance with added features such as underarm panels for more freedom of movement, triple-stitched seams for durability and mid-leg utility pockets
for functionality. We also collaborate with our suppliers to develop advanced fabrics that we sell under our trademarks. For example, we incorporate our
DuluthFlex® Fire Hose® cotton canvas into products to provide strength and abrasion resistance with stretch for freedom of movement.
Product Development
We are focused on developing apparel and gear that builds upon the Duluth Trading brand’s product heritage of “there’s gotta be a better way,”
resulting in distinctive products with enhanced features. Members of our product development team also regularly read online customer product reviews,
attend tradeshows and collaborate with our vendors, which facilitates new product innovation. Our product development team incorporates all of this input
to develop new product solutions and features, ensure consistent fit, style and color and design functional and durable fabrics.
Marketing
Our marketing strategy is designed to build brand awareness, acquire new customers, enhance customer loyalty and drive sales transactions. We are
nationally known for our creative, irreverent and quirky advertising that features our Giant Angry Beaver, Buck Naked Guy and Grab-Happy Grizzly
characters to showcase our brand philosophy, humor and innovation. We also feature testimonials in our marketing campaigns, which put our products in
context, tying them to the individuals who represent our core customer, who leads a hands-on lifestyle, values a job well-done and is often outdoors for
work and hobbies. We believe our customers identify with the inspiring stories of real men and women, recognize our products’ versatility and appreciate
the extreme and demanding conditions our products can withstand.
We pursue our marketing strategy through multiple forms of media, which gives our products an identity and enhances our brand:
Digital and Email Marketing. We employ a variety of digital and online advertising strategies. These efforts include display advertising, digital
video advertising, search engine marketing and optimization and targeted email, which we send to customers to introduce new products and
offer promotions on select merchandise.
Television and Radio. We advertise in online video channels, streaming television, on cable and broadcast television networks, as well as
through streaming and on-demand audio channels to build brand awareness for both men’s and women’s products and to reach a large, national
audience. These advertisements feature both our
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animated characters and female models, and are intended to be humorous, irreverent and quirky in order to grab the viewer’s attention, while
highlighting the particularly innovative, solution-based features of our core products and the Duluth Trading name.
Social Media. We have an engaged social media community, which allows us to personally connect with our customers online, and we believe
further raises brand awareness. We maintain a social media presence on Facebook, Instagram, Pinterest, YouTube and X (formerly known as
Twitter).
Catalogs. Our catalogs are an important part of our heritage and represent a tangible vehicle for our authentic and humorous storytelling.
E-Commerce. Our website is an integral part of our marketing strategy where we use humor and authentic storytelling to engage our customers.
Customer Service
We are committed to providing outstanding customer service and believe in treating our customers like next-door neighbors. Our retail stores are
stocked with a comprehensive assortment of our products and staffed with knowledgeable and well-trained sales associates. We stand behind all purchases
with our “No Bull Guarantee.”
Manufacturing
We do not own or operate any manufacturing facilities. Instead, we arrange with third-party vendors for the manufacturing of our merchandise. We
have built strong, long-term relationships with our vendors. In fiscal 2024, 43% of our purchases came from our largest supplier, an agent partner in Hong
Kong. Goods manufactured on our behalf, ("non-market buy") are sourced from multiple factories across the globe, including concentrations in Vietnam,
Indonesia, Pakistan, Bangladesh, and Cambodia.
Our sourcing strategy focuses on identifying and employing vendors that provide quality materials and fine craftsmanship that our customers expect
of our brand. To ensure that our high standards of quality and timely delivery of merchandise are met, we work closely with our third-party partners. All of
our products are produced according to our specifications, and we require all of our manufacturers to adhere to strict regulatory compliance and standards
of conduct. We seek to ensure the consistent product quality by training Duluth Trading-certified factory auditors to selectively examine pre-production
samples, conduct periodic site visits to certain of our vendors’ production facilities and inspect inbound shipments at our fulfillment centers.
Fulfillment Centers
We operate fulfillment centers located in Belleville, Wisconsin, Salt Lake City, Utah and Adairsville, Georgia. The approximate square footage of
each facility is included in Item 2 of Part I of this report.
Information Technology
We use technology to provide customer service, business process support and business intelligence across our sales channels. We continually aim to
have more efficient supply chain and distribution systems operations. Our distributed order management systems provide us with omnichannel capabilities
that have a global view of available-to-promise inventory management.
Competition
We operate primarily in the apparel, footwear and accessories industry, which is highly competitive. We compete with a diverse group of direct-to-
consumer companies and retailers, including men’s and women’s specialty apparel chains, department stores, outdoor specialty stores, apparel catalog
businesses and online apparel businesses. We compete principally on the basis of brand recognition, innovation, product quality, customer service and
price. To stay ahead of our competition, we continue to develop innovative solution-based products for which we create unique selling propositions that
incorporate humor and storytelling.
Intellectual Property
Our trademarks are important to our marketing efforts. We own or have the rights to use certain trademarks, service marks and trade names that are
registered with the U.S. Patent and Trademark Office, trademark offices in other jurisdictions, or exist under common law in the United States and other
jurisdictions. The “Duluth Trading Co” trade name and trademark is used both in the United States and internationally and is material to our business.
Trademarks that are important in identifying
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and distinguishing our products and services are AKHG®, Alaskan Hardgear® Armachillo®, Ballroom®, Buck Naked®, Bullpen®, Cab Commander®,
Crouch Gusset®, Dang Soft®, Dry on the Fly®, Duluth Trading Co®, DuluthFlex®, Fire Hose®, Flexpedition®, Longtail T®, NoGA®, No Polo Shirt®, No
Yank®, Spit & Polish®, and Wild Boar®. Our rights to some of these trademarks may be limited to select markets. We also own domain names, including
“duluthtrading.com.”
Employees
As of February 2, 2025, we employed 807 full-time and 1,441 part-time and flexible part-time employees, 1,085 of which were employed at our
retail stores. The number of employees, particularly part-time employees, fluctuates depending upon seasonal needs. Our employees are not represented by
a labor union and are not party to a collective bargaining agreement. We consider our relations with our employees to be good.
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Seasonality
Our business experiences seasonal fluctuations. Our net sales and net income are generally highest in the fourth fiscal quarter, which includes the
holiday sales period. As a result, our quarterly operating results and working capital requirements fluctuate significantly from quarter to quarter. Further,
the impact of certain unusual or non-recurring items, economic conditions, weather or other factors affecting our operations may vary from one year to the
next.
Regulation and Legislation
We are subject to labor and employment laws, truth-in-advertising laws, privacy laws, safety regulations, consumer protection regulations and other
laws that regulate retailers and govern the promotion and sale of merchandise and the operation of stores and warehouse facilities. We monitor changes in
these laws and believe that we are in material compliance with applicable laws.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to
Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are made available free of charge on or through our
website at www.duluthtrading.com under the “Investors” tab as soon as reasonably practicable after such reports are filed with, or furnished to the SEC.
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ITEM 1A.
RISK FACTORS
Certain factors may have a material adverse effect on our business, financial condition and results of operations. You should consider carefully the
risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our financial statements
and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or
that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually
occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading
price of our Class B common stock could decline, and you could lose part or all of your investment.
Strategic Risks
If we fail to offer products that customers want to purchase, our business and results of operations could be adversely affected.
Our products must satisfy the desires of customers, whose preferences change over time. In order to be successful, we must design, obtain and offer
to customers innovative and high-quality products on a continuous and timely basis. Failure to effectively respond to customer needs and preferences, or
convey a compelling brand image or price-to-value equation to customers may result in lower net sales and gross profit margins.
Our success depends in part on management’s ability to effectively anticipate or identify customer needs and preferences and respond quickly with
marketable product offerings in advance of the actual time of sale to the customer. Even if we are successful in anticipating or identifying our customers’
needs and preferences, we must continue to develop and introduce innovative, high-quality products and product features in response to changing consumer
demand.
Factors that could affect our ability to accurately forecast consumer demand for our products include:
a failure in our solution-based design process to accurately identify the problems our customers are experiencing with commonly available
apparel and gear or a lack of customer acceptance of new products or product features we design;
customer unwillingness to attribute premium value to our new products or product features we design relative to the commonly available
apparel and gear they were intended to replace;
new, well-received product introductions by competitors;
weak economic conditions or consumer confidence, which reduce demand for our products; and
terrorism, civil unrest or acts of war, or the threat thereof, which adversely affect consumer confidence and spending and/or interrupt
production and distribution of products and raw materials.
There can be no assurance that we will be able to successfully anticipate or identify our customers’ needs and preferences and design products and
product features in response. These risks could have a material adverse effect on our brand as well as our results of operations and financial condition.
Our business depends on our ability to maintain strong brands and sub brands. We may not be able to maintain and enhance the Duluth Trading
brands if we receive unfavorable complaints, negative publicity or otherwise fail to live up to consumers’ expectations, which could materially adversely
affect our business, results of operations and growth prospects.
We currently offer a differentiated brand to our customers defined by solution-based products manufactured with high quality craftsmanship,
humorous and distinctive marketing, and an outstanding customer experience. Maintaining and enhancing the Duluth Trading brand is critical to expanding
our base of customers. If we fail to maintain our brand, or if we incur excessive expenses in this effort, our business, operating results and financial
condition may be materially adversely affected. We anticipate that, as we raise our profile nationally and attract an increasing amount of competition,
maintaining and enhancing our brand may become increasingly difficult and expensive and may require us to make substantial additional investments in
areas such as marketing, store operations, merchandising, technology and personnel.
Customer complaints or negative reactions to, or unfavorable publicity about, our product quality or product features, our storytelling or irreverent
advertising, the shopping experience on our website or in our retail stores, product delivery times, customer data privacy and security practices or customer
support, especially on blogs, social media, other third-party websites and our website, could rapidly and severely diminish consumer use of our website and
catalogs, visits to our retail stores and consumer confidence in us and result in harm to our brand. Furthermore, these factors could cause our customers to
no longer
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feel a personal connection with the Duluth Trading brand, which could result in the loss of customers and materially adversely affect our business, results
of operations and growth prospects.
We may face risks and challenges if we pursue further geographic expansion.
Our expansion into new geographic markets could result in increased competition and merchandising, distribution and other challenges. We may
encounter difficulties in attracting customers in our new retail store locations due to a lack of customer familiarity with our brand, our lack of familiarity
with local customer preferences, competition with new competitors or with existing competitors with a large, established market presence and seasonal
differences in the market. Our ability to expand successfully into other geographic markets will depend on acceptance of our retail store experience by
customers in those markets, including our ability to design our stores in a manner that resonates locally and to offer the correct product assortment to appeal
to consumers in such markets. There can be no assurance that any newly opened stores will be received as well as, or achieve net sales or profitability
levels consistent with, our projected targets or be comparable to those of our existing stores in the time periods estimated by us, or at all. If our stores fail to
achieve, or are unable to sustain, acceptable net sales and profitability levels, our business, results of operations and growth prospects may be materially
adversely affected.
Furthermore, our retail stores may be located in regions that will be far from our Mount Horeb, Wisconsin headquarters and will require additional
management time and attention. Failure to properly supervise the operation and maintain the consistency of the customer experience in those retail stores
could result in loss of customers and potentially harm future net sales prospects.
The success of our direct-to-consumer channel depends on customers’ use of our digital platform, including our website, and response to digital
marketing; if our overall marketing strategies are not successful, including our maintenance of a robust customer list and ability to effectively
customize our marketing efforts based on understanding customers preferences, our business and results of operations could be materially adversely
affected.
The level of customer traffic and volume of customer purchases through our direct-to-consumer channel is substantially dependent on our ability to
provide a content-rich and user-friendly website, a fun, easy and hassle-free customer experience and reliable delivery of our products. If we are unable to
maintain and increase customers’ use of our e-commerce platform, including our website, and the volume of purchases decline, our business and results of
operations could be adversely affected.
Customer response to our digital marketing is substantially dependent on merchandise assortment, merchandise availability and creative presentation,
as well as the selection of customers to whom our digital marketing is directed and our catalogs are sent. Our maintenance of a robust customer list, which
we believe includes desirable demographic characteristics for the products we offer, has also been a key component of our overall strategy. If the
performance of our website and email declines, or if our overall marketing strategy is not successful, our business, results of operations and stock price
could be adversely affected.
If we fail to acquire new customers, or fail to do so in a cost-effective manner, we may not be able to increase net revenue or profit per active
customer.
Our success depends on our ability to acquire customers in a cost-effective manner. In order to expand our customer base, we must appeal to and
acquire customers who identify with the Duluth Trading brand. We have made significant investments related to customer acquisition and expect to
continue to spend significant amounts to acquire additional customers. For example, our national television advertising campaigns are expensive and may
not result in the cost-effective acquisition of customers. Furthermore, as our brand has become more widely known in the market, our marketing campaigns
have not resulted in acquisition of new customers at the same rate as past campaigns, and this trend may continue in the future.
We also use other paid and non-paid advertising. Our paid advertising includes search engine marketing, display advertising and paid social media.
Our non-paid advertising efforts include search engine optimization, non-paid social media and email. We obtain a significant amount of traffic via search
engines and, therefore, rely on search engines such as Google. Search engines frequently update and change the logic that determines the placement and
display of results of a user’s search, such that the purchased or algorithmic placement of links to our sites can be negatively affected. Moreover, a search
engine could, for competitive or other purposes, alter its search algorithms or results, causing our sites to place lower in search query results. A major
search engine could change its algorithms in a manner that negatively affects our paid or non-paid search ranking, and competitive dynamics could impact
the effectiveness of search engine marketing or search engine optimization. We also obtain a significant amount of traffic via social networking websites or
other channels used by our current and prospective customers. As e-commerce and social networking continue to rapidly evolve, we must continue to
establish relationships with these channels and may be unable to develop or maintain these relationships on acceptable terms. Additionally, digital
advertising costs may continue to rise and as our usage of these channels expands, such costs may impact our ability to acquire new customers in a cost-
effective manner. As usage of these channels by our customer base has not grown
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as expected, we have suffered a decline in customer growth and net sales. A continued decrease in the level of usage or customer growth may have a
material adverse effect on our business, financial condition and operating results.
We cannot assure you that the net profit from new customers we acquire will ultimately exceed the cost of acquiring those customers. If we fail to
deliver an outstanding customer experience, or if consumers do not perceive the products we offer to be manufactured with high quality craftsmanship, we
may not be able to acquire new customers. If we are unable to acquire new customers, our growth prospects may be materially adversely affected.
If we cannot compete effectively in the apparel, footwear and accessories industry, our business and results of operations may be adversely affected.
The apparel, footwear and accessories industry is highly competitive. We compete with a diverse group of direct-to-consumer companies and
retailers, including men’s and women’s specialty apparel chains, outdoor specialty stores, apparel catalog businesses and online apparel businesses that sell
competing lines of merchandise. Our competitors may be able to adopt more aggressive pricing policies, adapt to changes in customers’ needs and
preferences more quickly, devote greater resources to the design, sourcing, distribution, marketing and sale of their products or generate greater national
brand recognition than us. In addition, as our business continues to expand, our competitors may seek to increase efforts to imitate our product designs,
which could adversely affect our business and results of operations. An inability to overcome these potential competitive disadvantages or effectively
market our products relative to our competitors could have an adverse effect on our business and results of operations.
We may engage in strategic transactions that could negatively impact our liquidity, increase our expenses and present significant distractions to
management.
We may consider strategic transactions and business arrangements, including, but not limited to, acquisitions, asset purchases, partnerships, joint
ventures, restructurings and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term
expenditures and may pose significant integration challenges or disrupt our management or business, which could harm our operations and financial
results.
If we fail to achieve our growth strategy, our business, financial condition and operating results could be harmed.
To achieve our growth strategy, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of
people, information systems and facilities and expand, train and manage our employee base. To support growth, we must effectively integrate, develop and
motivate a large number of employees. Failure to improve and expand our infrastructure of employees may have a material adverse effect on our business,
financial condition and operating results.
Additionally, the growth strategy of our business places significant demands on our management and other employees. The growth of our business
may require significant additional resources to meet these daily demands, which may not scale in a cost-effective manner or may negatively affect the
quality of our website, retail stores, fulfillment centers, call center and other aspects of the customer experience. We are also required to manage
relationships with a growing number of suppliers, customers and other third parties. Our information technology systems and our internal controls and
procedures may not be adequate to support future growth of these relationships. If we are unable to achieve the growth strategy of our organization, our
business, financial condition and operating results may be materially adversely affected.
Operational Risks
Economic uncertainties may continue to adversely affect our business operations, store and website traffic, employee availability, financial
condition, liquidity, and cash flow for an extended period of time.
The ongoing economic uncertainty continues to affect our business operations and it is impossible to predict the effect and ultimate impact of
ongoing economic uncertainties.
Business activities continue to face economic uncertainties, including but not limited to increased inflation and interest rates, tariffs and global supply
chain constraints. The economic uncertainties may continue for an extended period and have adversely impacted, and may continue to impact, our business.
As inflationary periods continue, consumer fear may adversely affect traffic to our stores and website. Reductions in customer visits to, and spending
at, our stores and website caused by economic uncertainties have resulted in a loss of retail store sales and profits and other material adverse effects. The
extent of the impact on our business, financial results, liquidity and cash flows will depend largely on future developments, all of which are highly
uncertain and cannot be predicted.
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These and other potential impacts of economic uncertainties could therefore materially and adversely affect our business, financial condition and
results of operations.
We rely on sources for merchandise located in foreign markets, and our business may therefore be adversely affected by legal, regulatory, economic
and political risks associated with international trade and those markets.
Our reliance on suppliers in foreign markets creates risks inherent in doing business in foreign jurisdictions, including:
transportation delays and interruptions, including due to port congestion and the failure of suppliers or distributors to comply with import
regulations;
the burdens of complying with a variety of foreign laws and regulations, including trade and labor restrictions, import/export laws and
regulations, and local intellectual property laws and rights owned by third parties;
changes in U.S. and non-U.S. laws (or changes in the enforcement of those laws) affecting the importation and taxation of goods, including
disallowance of tax deductions for imported merchandise, imposition of unilateral tariffs on imported goods, duties, quotas, enhanced security
measures at U.S. ports or imposition of new legislation relating to import quotas;
economic and political instability in the countries and regions where our suppliers are located;
compliance with U.S. and other country laws relating to foreign operations, including the Foreign Corrupt Practices Act, which prohibits U.S.
companies from making improper payments to foreign officials for the purpose of obtaining or retaining business;
increases in shipping, labor, fuel, travel and other transportation costs;
the imposition of anti-dumping or countervailing duty proceedings resulting in the potential assessment of special anti-dumping or
countervailing duties;
political instability, war and acts of terrorism; and
the occurrence of a natural disaster, unusual weather conditions, or prolonged public health crises, epidemics or pandemics in foreign countries
from which we source our products.
The occurrence of one or more of these events could result in disruptions to our operations, which in turn could increase our cost of goods sold,
decrease our gross profit, or impact our ability to deliver to our customers.
New initiatives have been and may be proposed in the United States that may have an impact on the trading status of certain countries and may
include retaliatory duties or other trade sanctions that, if enacted, would increase the cost of products purchased from suppliers in such countries with
which we do business. Any inability on our part to rely on our foreign sources of production due to any of the factors listed above could have an adverse
effect on our business, results of operations and financial condition.
If we fail to timely and effectively obtain shipments of products from our suppliers and deliver merchandise to our customers, our business and
operating results could be adversely affected.
We do not own or operate any manufacturing facilities and therefore depend upon independent third-party suppliers for the manufacture of our
merchandise. We cannot control all of the various factors that might affect timely and effective procurement of supplies of product from our third-party
suppliers and delivery of merchandise to our customers. A majority of the products that we purchase must be shipped to our fulfillment centers in
Wisconsin, Georgia and Utah. While our reliance on a limited number of fulfillment centers provides certain efficiencies, it also makes us more vulnerable
to natural disasters, weather-related disruptions, accidents, system failures, public health pandemics, or other unforeseen causes that could delay or impair
our ability to fulfill customer orders and/or ship merchandise to our stores, which could adversely affect sales. Our ability to mitigate the adverse impacts of
these events depends in part upon the effectiveness of our disaster preparedness and response planning, as well as our business continuity planning. Our use
of imports also makes us vulnerable to risks associated with products manufactured abroad, including, among other things, risks of damage, destruction or
confiscation of products while in transit to a fulfillment center or at points of export or import, organized labor strikes and work stoppages, transportation
and other delays in shipments, including as a result of heightened security screening and inspection processes or other port-of-entry limitations or
restrictions in the United States, unexpected or significant port congestion, lack of freight availability and freight cost increases. In addition, as has
happened in the past, if we experience a shortage of a popular item, we may be required to arrange for additional quantities of the item, if available, to be
delivered through airfreight, which is significantly more expensive than standard shipping by sea. We may not be able to obtain sufficient freight capacity
on a timely basis or at favorable shipping rates and, therefore, may not be able to receive merchandise from suppliers or deliver products to customers in a
timely and cost-effective manner.
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Competitive pricing pressures with respect to shipping our products to our customers may harm our business and results of operations.
Given the size of our direct-to-consumer net sales relative to our total net sales, shipping and handling revenue has had a significant impact on our
gross profit and gross profit margin. Historically, this revenue has partially offset our shipping and handling expense included in selling, general and
administrative expenses. Online and omnichannel retailers are increasing their focus on delivery services, with customers increasingly seeking faster,
guaranteed delivery times and low-price or free shipping. Higher direct-to-consumer net sales has resulted and may continue to result in additional peak
surcharges assessed by our delivery partners. To remain competitive, we have been required to offer discounted, free or other more competitive shipping
options to our customers, which has resulted in declines in our shipping and handling revenue and increased shipping and handling expense. We expect
further declines in shipping and handling revenues as compared to prior years. Further declines in shipping and handling revenues may have a material
adverse effect on our gross profit and gross profit margin, as well as our Adjusted EBITDA to the extent there are not commensurate declines, or if there
are increases, in our shipping and handling expense.
We rely on third-party service providers to deliver products purchased through our direct-to-consumer channel to our customers and our business
could be negatively impacted by disruptions in the operations of these third-party service providers.
Relying on third-party service providers puts us at risk from disruptions in their operations, such as employee strikes, inclement weather and their
inability to meet our shipping demands. Moreover, we may be unable to obtain terms as favorable as those received from the transportation providers we
currently use, which would further increase our costs. In addition, if our products are not delivered to our customers on time, our customers may cancel
their orders or we may lose business from these customers in the future. We may be subject to shipping surcharges and thresholds during the peak holiday
shopping season, which may have a negative impact on our earnings. Our efforts to mitigate the impact of future thresholds may not be successful or may
result in similar surcharges. These factors may negatively impact our financial condition and results of operations.
Dependence on our e-commerce sales channel subjects us to numerous risks that could have a material adverse effect on our business, financial
condition and results of operations.
Our results of operations and financial condition are dependent on maintaining our e-commerce business and expanding our e-commerce business is
an important part of our growth strategy. Dependence on our e-commerce business and its continued growth subjects us to certain risks, including:
diversion of traffic from our stores;
liability for online content;
the need to keep pace with rapid technological change;
government regulation of the Internet, including data privacy and taxation; and
threats to the computer systems that operate our website and related support systems, including viruses, malware and other malicious code,
misconfiguration, systems failure or inadequacy, compromise or unauthorized access and similar disruptions.
Our failure to successfully respond to these risks and uncertainties could reduce our e-commerce sales, increase our costs, diminish our growth
prospects, and damage our brand and reputation, which could negatively impact our business, financial condition and results of operations.
Increases in the price of raw materials, fuel and labor, or their reduced availability, could increase our cost of goods and cause delays.
The price and availability of raw materials may fluctuate substantially, depending on a variety of factors, including demand, acreage devoted to
cotton crops and crop yields, weather patterns, supply conditions, transportation costs, energy prices, work stoppages, government regulation and
government policy, economic climates, market speculation and other unpredictable factors. Fluctuations in the price and availability of fuel, labor and raw
materials, such as cotton, could affect our cost of goods and an inability to mitigate these cost increases, unless sufficiently offset with our pricing actions,
might cause a decrease in our profitability, while any related pricing actions might cause a decline in our sales volume. Additionally, any decrease in the
availability of raw materials could impair our ability to meet our production or purchasing requirements in a timely manner. Both the increased cost and
lower availability of merchandise, raw materials, fuel and labor may have an adverse impact on our cash flow and working capital needs as well as those of
our suppliers.
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We rely upon third-party land-based and air freight carriers for merchandise shipments from our fulfillment centers to customers and our retail stores.
Accordingly, we are subject to the risks, including labor disputes, union organizing activity, inclement weather and increased transportation costs,
associated with such carriers’ ability to provide delivery services to meet outbound shipping needs. In addition, if the cost of fuel rises, the cost to deliver
merchandise from fulfillment centers to customers and our retail stores may rise and, although some of these costs are paid by our customers, such costs
could have an adverse impact on our profitability. Failure to procure suppliers of products from our third-party suppliers and deliver merchandise to
customers and our retail stores in a timely, effective and economically viable manner could damage our reputation and adversely affect our business. In
addition, any increase in distribution costs and expenses could adversely affect our future financial performance.
If our key suppliers or service providers were unable or unwilling to provide the products and services we require, our business could be adversely
affected.
Our products are sourced through third-party purchasing agents and a variety of domestic and international suppliers. If these suppliers are unable or
unwilling to provide the products or services that we require or materially increase their costs, our ability to offer and deliver our products on a timely and
profitable basis could be impaired, which could have a material adverse effect on our business, financial condition and results of operations. We cannot
assure that any or all of our relationships will not be terminated or that such relationships will continue as presently in effect. Furthermore, if any of our
significant suppliers were to become subject to bankruptcy, receivership or similar proceedings, customs actions, or other legal actions, we may be unable
to arrange for alternate or replacement relationships on terms as favorable as our current terms, which could adversely affect our sales and operating results.
Our growth strategy is influenced by the willingness and ability of our suppliers to efficiently manufacture our products in a manner that is consistent
with our standards for quality and value. If we cannot obtain a sufficient amount and variety of quality products at acceptable prices, it could have a
negative impact on our competitive position. This could result in lower revenue and decreased customer interest in our product offerings, which, in turn,
could adversely affect our business and results of operations. Our arrangements with our suppliers are generally not exclusive. As a result, our suppliers
might be able to sell similar or identical products to certain of our competitors, some of which purchase products in significantly greater volume. Our
competitors may enter into arrangements with suppliers that could impair our ability to obtain our products from those suppliers, including by requiring
suppliers to enter into exclusive arrangements, which could limit our access to such arrangements or products.
We rely on third parties to provide us with services in connection with certain aspects of our business, and any failure by these third parties to
perform their obligations could have an adverse effect on our business and results of operations.
We have entered into agreements with third parties for logistics services, information technology systems (including hosting our website), operating
our call center during certain hours, software development and support, catalog production, select marketing services, processing gift card activity,
distribution and packaging and employee benefits. Services provided by any of our third-party suppliers could be interrupted as a result of many factors,
such as acts of nature or contract disputes. Any failure by a third party to provide us with services for which we have contracted on a timely basis or within
service level expectations and performance standards could result in a disruption of our business and have an adverse effect on our business and results of
operations.
Inventory shrinkage could have a material adverse effect on our business, financial condition and results of operations.
We are subject to the risk of inventory loss and theft. Although our inventory shrinkage rates have not been material, or fluctuated significantly in
recent years, we cannot assure you that actual rates of inventory loss and theft in the future will be within our estimates or that the measures we are taking
will effectively reduce the problem of inventory shrinkage. Although some level of inventory shrinkage is an unavoidable cost of doing business, if we
were to experience higher rates of inventory shrinkage or incur increased security costs to combat inventory theft, it could have a material adverse effect on
our business, financial condition and results of operations.
We are subject to data security and privacy risks that could negatively affect our results, operations or reputation.
In the normal course of business we often collect, retain and transmit customer personal and credit card information, employee personal information,
and other sensitive and confidential information. The protection of customer and employee information, and the Company’s intellectual property, from
potential threats is vitally important to the Company. Consumers and employees continue to have significant concerns about the security of personal
information, especially when transmitted over the Internet, and the use, retention, disclosure, and privacy of such information. We continually evaluate and
upgrade our information systems, security measures, and practices to combat the ever-evolving cyber risks and to comply with our legal and regulatory
obligations, and we provide cybersecurity awareness training around phishing, social engineering, and other cyber
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risks to our employees, in an effort to elevate our cybersecurity posture and give our workforce the skills to both avoid and report cyber threats. Despite our
risk management efforts, vendor due diligence, and security measures, our facilities and systems and those of our third-party service providers, are subject
to increasingly complex cyber risks, including cyber extortion, data breaches, unauthorized access, denial of service, vendor or employee misconduct,
ransomware and other malicious software, and data exfiltration. We and our employees and customers could suffer significant harm if any personal,
financial, or credit card information was accessed or disclosed by an unauthorized third party, or our information technology systems or those of our third
party providers were compromised or subject to data loss, exfiltration, corruption, or disruption. Any security incident or data breach could severely
damage our reputation and our relationships with customers, business partners and employees, cause us to incur significant costs and expenses to
investigate, remediate and notify affected individuals, and expose us to an increased risk of litigation, regulatory enforcement, fines and penalties, and other
losses and liabilities. In addition, the media and public scrutiny of information security and privacy has become more intense and the regulatory
environment has become more complex and uncertain due to recent high-profile privacy and security incidents and legislative efforts across the globe. As a
result, we may incur significant costs to comply with laws regarding the use, retention, disclosure, security, and privacy of personal information.
We rely significantly on information technology, and any inadequacy, interruption, integration failure or security failure of this technology could
harm our ability to effectively operate our business.
Our ability to effectively manage and operate our business depends significantly on information technology systems. We rely heavily on information
technology to track sales and inventory and manage our supply chain. We are also dependent on information technology, including the Internet, for our
direct-to-consumer sales, including our e-commerce and catalog operations and retail business credit card transaction authorization. Despite our
preventative efforts, our systems and those of our third-party service providers may be vulnerable to damage or interruption. The failure of these systems to
operate effectively, problems with transitioning to upgraded or replacement systems, difficulty in integrating new systems or systems of acquired
businesses or a breach of security of these systems has and could adversely impact the operations of our business, including disruption of our ability to
accept and fulfill customer orders, effective management of inventory, inefficient ordering and replenishment of products, e-commerce operations, retail
business credit card transaction authorization and processing, corporate email communications and our interaction with the public on social media.
Our failure to retain our executive management team and to attract qualified new personnel could adversely affect our business and results of
operations.
We depend on the talents and continued efforts of our executive management team. The loss of members of our executive management may disrupt
our business and adversely affect our results of operations. Furthermore, our ability to manage further expansion will require us to continue to attract,
motivate and retain additional qualified personnel. We believe that having an executive management team with qualified personnel who are passionate
about our brand, have extensive industry experience and have a strong customer service ethic has been an important factor in our historical success, and we
believe that it will continue to be important to growing our business. Competition for these types of personnel is intense, and we may not be successful in
attracting, integrating and retaining the personnel required to grow and operate our business profitably.
An inability to attract and retain qualified employees to meet our staffing needs in our corporate office, stores, fulfillment centers or call center
could result in higher payroll costs and adversely affect our operating results.
Our performance is dependent on attracting and retaining a large number of qualified employees. Many of our strategic initiatives require that we hire
and/or develop associates with appropriate experience. Attracting and retaining a sufficient number of qualified employees to meet our staffing needs may
be difficult, because the competition for these types of personnel is intense. Many of our staffing needs in our stores, fulfillment centers and call center are
entry-level or part-time positions with historically high rates of turnover. If we cannot attract and retain employees with the qualifications we deem
necessary to meet our staffing needs in our corporate office, stores, fulfillment centers and call center, our ability to effectively operate may be adversely
affected. In addition, our staffing needs are especially high during the peak holiday season. We cannot be sure that we will be able to attract and retain a
sufficient number of qualified personnel in future periods.
Our business is seasonal, and if we do not efficiently manage inventory levels and allocation, our results of operations could be adversely affected.
Our business is subject to seasonal influences, with increased net sales and net income realized during the fourth quarter of our fiscal year, which
includes the holiday season.
We must maintain sufficient inventory levels and properly allocate inventory throughout our distribution network to operate our business
successfully, but we must also avoid accumulating excess inventory, which increases working capital needs and potentially lowers gross margins. We
obtain substantially all of our inventory from suppliers located outside the
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United States. Some of these suppliers often require lengthy advance notice of order requirements in order to be able to manufacture and supply products in
the quantities requested. This usually requires us to order our products, and enter into commitments for the purchase of our products, well in advance of the
time these products will be offered for sale. As a result, it may be difficult to respond to changes in customer demand. If we do not accurately anticipate the
future demand for a particular product or the time it will take to obtain new inventory, inventory levels will not be appropriate and our results of operations
could be adversely affected.
We expect a disproportionate amount of our net sales to occur during our fourth quarter. If we do not stock or restock popular products in amounts
sufficient to meet customer demand, it could significantly affect our revenue and our future growth. If we overstock products, we may be required to take
significant inventory markdowns or write-offs and incur commitment costs, as well as incur costs related to a pack-and-hold approach for inventory, which
could reduce profitability. We may experience an increase in our net shipping cost due to complimentary upgrades, split-shipments and additional long-
zone shipments necessary to ensure timely delivery for the holiday season. Furthermore, if too many customers access our website within a short period of
time due to increased holiday demand, we may experience system interruptions that could make our website unavailable or prevent us from efficiently
fulfilling orders, which may reduce the volume of products we sell as well as the attractiveness of our product offerings. In addition, we or our third-party
service providers may be unable to adequately staff our fulfillment and customer service centers during these peak periods, and our delivery service
providers and other fulfillment companies may be unable to meet the peak seasonal demand. For example, during the holiday season in 2024, there were
challenges in inventory planning resulting in delays in processing at a legacy fulfillment center.
As a result of holiday sales, inventories, accounts payable and borrowings under our revolving line of credit typically reach their highest levels in
October or November of each year (other than as a result of cash flow provided by or used in investing and financing activities). Inventories, accounts
payable and borrowings under our revolving line of credit then typically decline steadily during the holiday season, resulting in our cash typically reaching
its highest level, and borrowings under our revolving line of credit reaching their lowest level, typically near December 31 of each year.
Financial Risks
Our net sales and profits depend on the level of consumer spending for apparel, footwear and accessories, which is sensitive to general economic
conditions and other factors. An economic recession or a decline in consumer spending or consumer sensitivity to pricing could have a material
adverse effect on our business and results of operations.
The apparel, footwear and accessories industry has historically been subject to cyclical variations and is particularly affected by adverse trends in the
general economy. The success of our business depends on consumer spending. There are a number of factors that influence consumer spending, including
actual and perceived economic conditions, disposable consumer income, interest rates, inflation, consumer credit availability, unemployment, stock market
performance, extreme weather conditions, energy prices and tax rates in the national, regional and local markets where we sell our products. A decline in
actual or perceived economic conditions or other factors could negatively impact the level of consumer spending and have a material adverse impact on our
business and results of operations.
We are subject to payment-related risks.
We accept payments using a variety of methods, including credit cards, debit cards, Paypal, gift cards and physical bank checks. For existing and
future payment methods we offer to our customers, we may become subject to additional regulations and compliance requirements (including obligations to
implement enhanced authentication processes that could result in increased costs and reduce the ease of use of certain payment methods), as well as fraud.
For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time, raising our operating
costs and lowering profitability. We rely on third-party service providers for payment processing services, including the processing of credit and debit
cards. In each case, it could disrupt our business if these third-party service providers suffer a data breach, or become unwilling or unable to provide these
services to us. We are also subject to payment card association operating rules, including data privacy and security rules, certification requirements and
rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply
with these rules or requirements, or if our systems containing payment information are breached or compromised, we may be liable for card issuing banks’
costs, subject to fines and higher transaction fees and/or lose our ability to accept credit and debit card payments from our customers and process electronic
funds transfers or facilitate other types of payments, and our business and operating results could be adversely affected.
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We depend on cash generated from our operations to support our growth, which could strain our growth.
We primarily rely on cash flow generated from our direct-to-consumer and retail store sales and borrowings under our credit facility to fund our
current operations and our growth initiatives. As we expand our business, we will need significant amounts of cash to pay our existing and future lease
obligations, purchase inventory, pay personnel and invest in our infrastructure and facilities. If our business does not generate sufficient cash flow from
operations to fund these activities and sufficient funds are not otherwise available from our existing revolving credit facility or future credit facilities, we
may need additional equity or debt financing. If such financing is not available to us on satisfactory terms, our ability to operate and expand our business or
to respond to competitive pressures would be limited and we could be required to delay, curtail or eliminate planned investments and other activities.
Moreover, if we raise additional capital by issuing equity securities or securities convertible into equity securities, your ownership may be diluted. Any debt
financing we may incur may impose on us covenants that restrict our operations and will require interest payments that would create additional cash
demands and financial risk for us.
We may be unable to accurately forecast our operating results.
We may not be able to accurately forecast our operating results. We use a variety of factors in our forecasting and planning processes, including
historical results, recent history and assessments of economic and market conditions, among other things. The changes in net sales and profitability that we
forecast may not be achieved. Our sales and profitability depends on the growth of demand for the products we offer at the prices we offer, and our
business is affected by general economic and business conditions. A softening of demand, whether caused by changes in customer preferences or a
weakening of the economy or other factors, may result in decreased net sales. In addition, we experience seasonal trends in our business, and this variability
may make it difficult to predict net sales and could result in significant fluctuations in our operating results from period to period. Furthermore, most of our
expenses and investments are fixed, and we may not be able to adjust our spending in a timely manner to compensate for any unexpected shortfall in our
net sales results. Failure to accurately forecast our operating results could cause investors’ perceptions of our business to be adversely affected, and the
market price of our Class B common stock could decline.
Our failure to comply with restrictive covenants under our revolving credit facility and other debt instruments could trigger prepayment obligations.
Our failure to comply with the restrictive covenants under our revolving credit facility and other debt instruments could result in an event of default,
which, if not cured or waived, could result in us being required to repay these borrowings before their due date with penalties. If we are forced to refinance
these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates.
Legal, Tax, Compliance, Reputation and Other Risks
We may be subject to increased labor costs due to external factors, including changes in laws and regulations, and we may be subject to
unionization, work stoppages or slowdowns.
Our ability to meet our labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates, minimum
wage legislation, actions by our competitors with respect to compensation levels and changing demographics. Currently none of our employees are
represented by a union, but our employees have the right to be under the National Labor Relations Act. Changes that adversely impact our ability to meet
our labor needs in a cost-effective manner could adversely affect our operating results. In addition, the employer mandate provisions of the Patient
Protection and Affordable Health Care Act (the “PPACA”), changes in regulations under the PPACA, changes in federal and state minimum wage laws and
other laws and regulations relating to employee benefits could cause us to incur additional wage and benefit costs, which could negatively impact our
business, financial condition and results of operations.
Unseasonal or severe weather conditions may adversely affect our merchandise sales.
Our business is adversely affected by unseasonal weather conditions. Sales of certain seasonal apparel items, especially outerwear, are dependent in
part on the weather and may decline in years in which weather conditions do not favor the use of these products. Sales of our spring and summer products,
which traditionally consist of lighter weight clothing, are adversely affected by cool or wet weather. Similarly, sales of our fall and winter products, which
are traditionally weighted toward outerwear, are adversely affected by mild, dry or warm weather. Severe weather events may impact our ability to supply
our retail stores, deliver orders to customers on schedule and staff our retail stores, fulfillment centers and call center, which could have an adverse effect
on our business and results of operations.
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Our product designs are not protected by substantial intellectual property rights.
Due to the rapid pace of change in the apparel, footwear and accessories industry, the length of time it takes to obtain patents and the expense and
uncertainty of obtaining patent protection, we have not taken steps to obtain patent protection for many of our innovative product designs. Competitors
have attempted to copy our product designs in the past, and we expect that if we are able to raise our national profile, our products may be subject to greater
imitation by existing and new competitors. If we are not able to continue rapid innovation of new products and product features, our brand may be harmed
and our results of operations may be materially adversely affected.
If we are unable to protect or preserve our brand image and our proprietary rights, our business may be adversely affected.
We regard our trademarks, copyrights, trade secrets and similar proprietary rights as critical to our success. As such, we rely on trademark and
copyright law, trade secret protection and confidentiality agreements with our associates, consultants, suppliers and others to protect our proprietary rights.
Nevertheless, the steps we take to protect our proprietary rights may be inadequate and we may experience difficulty in effectively limiting the
unauthorized use of our trademarks and other intellectual property worldwide. Unauthorized use of our trademarks, copyrights, trade secrets or other
intellectual property rights may cause significant damage to our brand and our ability to effectively represent ourselves to agents, suppliers, vendors,
licensees and/or customers. While we intend to enforce our intellectual property rights, there can be no assurance that we are adequately protected in all
countries or that we will prevail when defending our trademark and proprietary rights. If we are unable to protect or preserve the value of our trademarks,
copyrights or other intellectual property rights for any reason, or if we fail to maintain our brand image due to merchandise and service quality issues,
actual or perceived, adverse publicity, governmental investigations or litigation or other reasons, our brand and reputation could be damaged and our
business may be adversely affected.
We may be subject to liability if we infringe upon the intellectual property rights of third parties.
Third parties may sue us for alleged infringement of their proprietary rights or use intellectual property rights to interfere with or attempt to interfere
with the manufacture of products for us or the supply of products to us. The party claiming infringement might have greater resources than we do to pursue
its claims, and we could be forced to incur substantial costs and devote significant management resources to defend against such litigation. If the party
claiming infringement were to prevail, we could be forced to discontinue the use of the related trademark or design and/or pay significant damages or enter
into expensive royalty or licensing arrangements with the prevailing party, assuming these royalty or licensing arrangements are available at all on an
economically feasible basis, which they may not be. We could also be required to pay substantial damages. Such infringement claims could harm the
Duluth Trading brand. In addition, any payments we are required to make and any injunction we are required to comply with as a result of such
infringement could adversely affect our financial results.
If our independent suppliers do not use ethical business practices or comply with applicable regulations and laws, our reputation could be
materially harmed and our business and results of operations may be adversely affected.
Our reputation and customers’ willingness to purchase our products depend in part on our suppliers’ compliance with ethical employment practices,
such as with respect to child labor, wages and benefits, forced labor, discrimination, freedom of association, unlawful inducements, safe and healthy
working conditions and with all legal and regulatory requirements relating to the conduct of their business. While we operate compliance and monitoring
programs to promote ethical and lawful business practices, we do not exercise ultimate control over our independent suppliers or their business practices
and cannot guarantee their compliance with ethical and lawful business practices. Violation of labor or other laws by our suppliers, or the divergence of a
supplier’s labor practices from those generally accepted as ethical in the United States, could materially hurt our reputation, which could have an adverse
effect on our business and results of operations.
We may be subject to assessments for additional taxes, including sales taxes, which could adversely affect our business.
In accordance with current law, we pay, collect and/or remit taxes in those states where we or our subsidiary, as applicable, maintain a physical
presence. Tax laws are complex and their application differs from state to state. It is possible that some taxing jurisdictions may attempt to assess additional
taxes and penalties on us or assert either an error in our calculation, a change in the application of law or an interpretation of the law that differs from our
own, which may, if successful, adversely affect our business and results of operations.
An increasing number of states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies.
Additionally, the Supreme Court of the United States ruled in South Dakota v. Wayfair, Inc. et al, or Wayfair, that online sellers can be required to collect
sales and use tax despite not having a physical presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments have adopted,
or begun to enforce, laws requiring us to
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calculate, collect and remit taxes on sales in their jurisdictions. A successful assertion by one or more states requiring us to collect taxes where we presently
do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes
on past sales, as well as penalties and interest. The imposition by state governments or local governments of sales tax collection obligations on out-of-state
sellers could also create additional administrative burdens for us and decrease our future sales, which could have an impact on our business, financial
condition and results of operations.
We may become involved in a number of legal proceedings and audits, and outcomes of such legal proceedings and audits could adversely affect
our business, financial condition and results of operations.
Our business requires compliance with many laws and regulations, including labor and employment, customs, truth-in-advertising, data privacy and
security, consumer protection and zoning and occupancy laws and ordinances that regulate retailers generally and/or govern the importation, promotion and
sale of merchandise and the operation of stores and warehouse facilities. Failure to achieve compliance could subject us to lawsuits and other proceedings,
and could also lead to damage awards, fines and penalties. We may become involved in a number of legal proceedings and audits including government
and agency investigations, and consumer, employment, tort and other litigation. We cannot predict with certainty the outcomes of these legal proceedings
and other contingencies. The outcome of some of these legal proceedings, audits and other contingencies could require us to take, or refrain from taking,
actions which could negatively affect our operations or require us to pay substantial amounts of money adversely affecting our financial condition and
results of operations. Additionally, defending against these lawsuits and proceedings may be necessary, which could result in substantial costs and diversion
of management’s attention and resources, causing a material adverse effect on our business, financial condition and results of operations. There can be no
assurance that any pending or future legal proceedings and audits will not have a material adverse effect on our business, financial condition and results of
operations.
Changes to accounting rules or regulations could significantly affect our financial results.
Our consolidated financial statements are prepared in accordance with U.S. GAAP. New accounting rules or regulations and changes to existing
accounting rules or regulations have occurred and may occur in the future. Future changes to accounting rules or regulations could negatively affect our
results of operations and financial condition through increased compliance costs.
Risks Related to Ownership of our Class B Common Stock
The dual class structure of our common stock and the existing ownership of common stock by our executive officers, directors and their affiliates
have the effect of concentrating voting control with our executive officers, directors and their affiliates for the foreseeable future, which will limit your
ability to influence corporate matters.
Our Class A common stock has ten votes per share, and our Class B common stock has one vote per share. Given the greater number of votes per
share attributed to our Class A common stock, our Chairman, Stephen L. Schlecht, who through his voting trust is our only Class A shareholder,
beneficially owns shares representing more than 50% of the voting power of our outstanding capital stock. As a result of our dual class ownership structure,
Mr. Schlecht will be able to exert a significant degree of influence or actual control over our management and affairs and over matters requiring
shareholder approval, including the election of directors, a merger, consolidation or sale of all or substantially all of our assets and any other significant
transaction. Mr. Schlecht together with our other executive officers, directors and their affiliates, owns shares representing the majority of the voting power
of our outstanding capital stock. This concentrated control will limit your ability to influence corporate matters for the foreseeable future. For example,
these shareholders will be able to control elections of directors, amendments of our articles of incorporation or bylaws, increases to the number of shares
available for issuance under our equity incentive plans or adoption of new equity incentive plans and approval of any merger or sale of assets for the
foreseeable future. This control may materially adversely affect the market price of our Class B common stock.
Additionally, the holder of our Class A common stock may cause us to make strategic decisions or pursue acquisitions that could involve risks to you
or may not be aligned with your interests. The holder of our Class A common stock will also be entitled to a separate vote in the event we seek to amend
our articles of incorporation in a manner that alters or changes the powers, preferences or special rights of the Class A common stock in a manner that
affects its holder adversely.
We are a controlled company within the meaning of the NASDAQ rules, and as a result, we rely on exemptions from certain corporate governance
requirements that provide protection to shareholders of other companies.
Mr. Schlecht controls more than 50% of the total voting power of our common stock, and we are considered a controlled company under the
NASDAQ corporate governance listing standards. As a controlled company, certain exemptions under the
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NASDAQ listing standards exempt us from the obligation to comply with certain NASDAQ corporate governance requirements, including the
requirements:
that a majority of our board of directors consist of independent directors, as defined under the rules of NASDAQ;
that we have a nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s
purpose and responsibilities; and
that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s
purpose and responsibilities.
Although we have a majority of independent directors on our board, we are a controlled company. As such, there is no guarantee that we will not take
advantage of this exemption in the future. Accordingly, as long as we are a controlled company, holders of our Class B common stock may not have the
same protections afforded to shareholders of companies that are subject to all of the NASDAQ corporate governance requirements.
Our stock price may be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors.
The market price of our Class B common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control,
including:
actual or anticipated fluctuations in our results of operations, particularly in our growth rates and margins;
the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings by any securities analysts
who follow our company or our failure to meet these estimates or the expectations of investors;
announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, operating
results or capital commitments;
changes in operating performance and stock market valuations of other retail companies generally, or those in our industry in particular;
price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
changes in our board of directors or management;
sales of large blocks of our Class B common stock, including sales by our executive officers, directors and significant shareholders;
lawsuits threatened or filed against us;
changes in laws or regulations applicable to our business;
changes in our capital structure, such as future issuances of debt or equity securities;
short sales, hedging and other derivative transactions involving our capital stock;
general economic conditions in the United States and abroad; and
other events or factors, including those resulting from pandemics, war, incidents of terrorism or responses to these events.
In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of
equity securities of many retail and e-commerce companies. Stock prices of many retail companies and e-commerce companies have fluctuated in a manner
unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have instituted securities class action litigation
following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the
attention of management from our business and materially adversely affect our business, financial condition and operating results.
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share
price and trading volume could decline.
The trading market for our Class B common stock will depend in part on the research and reports that securities or industry analysts publish about us
or our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade
our shares or change their opinion of our shares, our share
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price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility
in the financial markets, which could cause our share price or trading volume to decline.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain
additional executive management and qualified board members.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform
and Consumer Protection Act, the listing requirements of the NASDAQ Global Select Market and other applicable securities rules and regulations.
Compliance with these rules and regulations increase our legal and financial compliance costs, make some activities more difficult, time-consuming or
costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current
reports with respect to our business and results of operations. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure
controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures
and internal control over financial reporting, significant resources and management oversight may be required. As a result, management’s attention may be
diverted from other business concerns, which could materially adversely affect our business and results of operations.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public
companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are
subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new
guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and
standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from
revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended
by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against
us, and our business may be materially adversely affected.
As a result of disclosure of information in this annual report and in filings required of a public company, our business and financial condition will
become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are
successful, our business and results of operations could be materially adversely affected, and even if the claims do not result in litigation or are resolved in
our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and materially adversely affect
our business, financial condition and operating results.
Anti-takeover provisions in our charter documents and under Wisconsin law could make an acquisition of our company more difficult, limit
attempts by our shareholders to replace or remove our current management and limit the market price of our Class B common stock.
Provisions in our amended and restated articles of incorporation and amended and restated bylaws may have the effect of delaying or preventing a
change of control or changes in our management. In addition to the dual class structure of our common stock, our amended and restated articles of
incorporation and amended and restated bylaws include provisions that:
permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;
authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a shareholder rights plan;
provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and
establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by
shareholders at annual or special shareholder meetings.
These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult
for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because
we are incorporated in Wisconsin, the Wisconsin control share acquisition statute and Wisconsin’s “business combination” provisions would apply and
limit the ability of an acquiring person to engage in certain transactions or to exercise full voting power of acquired shares under certain circumstances. As
a result, offers to acquire us, which may represent a premium over the available market price of our Class B common stock, may be withdrawn or otherwise
fail to be realized.
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ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
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ITEM 1C.
CYBERSECURITY
We believe cybersecurity is critical to advancing our “Big Dam Blueprint” vision and recognize the importance of assessing, identifying and
managing material risks associated with cybersecurity threats defined in Item 106(a) of Regulation S-K. These risks include, among others described in
our risk factor disclosures in Item 1A of this Annual Report on Form 10-K: operational risks, fraud, harm to employees or customers and violation of data
privacy or security laws. These cybersecurity risks make it necessary that we incur significant expenditures on cybersecurity.
Cybersecurity Governance
Our audit committee of our board of directors is formally charged with oversight of cybersecurity risk. This includes reviewing the Company’s
cybersecurity and other information technology risks, controls and procedures, including a high-level review of the threat landscape facing the Company
and the Company’s strategy to mitigate cybersecurity risks and potential breaches, and the Company’s plan to respond to data breaches.
Identifying and assessing our cybersecurity risk is integrated into our overall risk management systems and processes. As part of our program, our
internal audit team facilitates an annual risk assessment that includes assessing cybersecurity and other technology risks. The results are shared with the
board of directors during a regular board meeting. In addition, a quarterly cyber risk assessment process run by our information technology team, including
our chief technology officer, is shared with the audit committee. The chair of the audit committee reports on significant cybersecurity updates to the full
board of directors during executive sessions of our quarterly meetings. Our audit committee members also engage in conversations throughout the year
with management on cybersecurity events and discuss any updates to our cybersecurity processes, systems and programs.
Our cybersecurity risk management processes are overseen by leaders from our information technology, compliance and legal teams. Our chief
technology officer has over 30 years of experience leading information technology organizations. Other individual leaders within these teams have on
average over 20 years of experience in roles involving information technology, including security and compliance.
Cybersecurity Risk Management and Strategy
We have implemented several measures to identify and assess our cybersecurity threats. We self-assess maturity levels along with areas of risk for the
cyber kill chain using the ISO/IEC 33004:2015 Process Maturity Model. Within this model, our risk dashboard is continually assessed based on eight key
initiatives: reconnaissance, intrusion, exploitation, privilege escalation, lateral movement, obfuscation/anti-forensics, denial of service and exfiltration.
Along with this model, we engage and utilize various third parties to measure risk profiles of ourselves and vendors, security threats specific to our
Company both internal and external through multiple avenues such as our website and social media and perform periodic penetration tests on Company
systems to identify cybersecurity risks and threats to the Company. These evaluations include testing both the design and operational effectiveness of
security controls. We recognize a cybersecurity incident experienced by a supplier or vendor could materially impact us. We assess third party
cybersecurity controls as part of our third-party information technology risk when integrating new tools or third parties. We contractually require third
parties to report cybersecurity incidents, if applicable, to us so we can assess the impact of the incident and any necessary regulatory reporting obligations
that may be required. Additionally, as part of the contract management process, new information technology vendors are subject to a cybersecurity review
by the information technology team and include cybersecurity and data privacy language, if applicable, in contracts.
Training of employees, utilization of incident response plans, payment card industry audits, and SOX testing are all processes by which we seek to
prevent, detect, mitigate and remediate cybersecurity incidents. In the event of a security or data incident, the impact is evaluated, ranked by severity, and
prioritized for remediation. Incidents deemed to have a moderate or higher business impact, even if immaterial to the Company, are reported to the audit
committee.
Notwithstanding our risk management efforts related to cybersecurity, we may not be successful in preventing or mitigating a cybersecurity incident
that could have a material or other adverse effect on us. See Item 1A. “Risk Factors” for a discussion of our information technology and cybersecurity
risks.
In fiscal 2024, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business
strategy, results of operations or financial condition.
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ITEM 2.
PROPERTIES
The following table sets forth the location, primary use and size of our leased and owned facilities as of February 2, 2025.
Location
Number of Stores
Primary Use
Gross Sq Ft
Leased/Owned
Retail Stores
North East
Connecticut
1
Store
9,792
Leased
Maine
1
Store
12,951
Leased
Massachusetts
1
Store
16,360
Leased
New Jersey
2
Store
24,741
Leased
Pennsylvania
2
Store
34,945
Leased
Rhode Island
1
Store
14,528
Leased
Midwest
Illinois
3
Store
38,410
Leased
Indiana
1
Store
14,557
Leased
Iowa
1
Store
12,249
Leased
Kansas
1
Store
15,385
Leased
Michigan
3
Store
45,588
Leased
Minnesota
4
Store
61,900
Leased
Missouri
2
Store
27,692
Leased
Nebraska
1
Store
15,757
Leased
North Dakota
1
Store
14,557
Leased
Ohio
4
Store
58,420
Leased
South Dakota
1
Store
9,166
Leased
Wisconsin
4
Store
53,246
Leased
South
Alabama
2
Store
31,312
Leased
Arkansas
1
Store
15,656
Leased
Florida
1
Store
14,557
Leased
Georgia
1
Store
20,041
Leased
Kentucky
2
Store
28,582
Leased
North Carolina
2
Store
41,672
Leased
Oklahoma
1
Store
15,536
Leased
Tennessee
2
Store
27,325
Leased
Texas
6
Store
92,212
Leased
Virginia
2
Store
31,828
Leased
West
Alaska
1
Store
25,409
Leased
Colorado
3
Store
52,643
Leased
Oregon
2
Store
39,463
Leased
Utah
1
Store
15,602
Leased
Washington
1
Store
15,656
Leased
Leased to Open New Store
Kansas City, Missouri
Store
16,045
Leased
Other
Mount Horeb, WI
Photo Studio
7,000
Leased
Belleville, WI
Outlet store
17,890
Owned
Oshkosh, WI
Outlet store
12,777
Leased
Red Wing, MN
Outlet store
15,560
Leased
Mount Horeb, WI
Corporate headquarters
108,000
Leased
Kowloon, Hong Kong
Office
1,855
Leased
Belleville, WI
Fulfillment center
220,000
Owned
Adairsville, GA
Fulfillment center
494,144
Leased
Salt Lake City, UT
Fulfillment center
228,800
Leased
We consider these properties to be in good condition and believe that our facilities are adequate for our operations and provide sufficient capacity to
meet our anticipated requirements. The leases on our retail stores expire at various times and are subject to renewal options and rent escalation provisions.
As we approach lease renewals for about 25% of our stores through 2026, we are thoroughly evaluating each location for remodel, relocation, or exit based
on enhance performance standards.
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ITEM 3.
LEGAL PROCEEDINGS
From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. We are not presently party to any legal
proceedings the resolution of which we believe would have a material adverse effect on our business, financial condition, operating results or cash flows.
We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably
estimable.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
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Information about our Executive Officers
The following is a list of names and ages of executive officers of Duluth Trading indicating all positions and offices held by each such person and
each such person’s principal occupation(s) or employment during the past five years. Officers are appointed annually by the Board of Directors at the
meeting of directors immediately following the annual meeting of shareholders. There are no family relationships among any officers or director, except as
disclosed below, or arrangements or understandings between any officer and any other person pursuant to which the officer was selected. The information
presented below is as of March 21, 2025.
Name
Age
Office
Stephen L. Schlecht
77
Mr. Schlecht is the founder of our Company and has served as Chairman of the Board of Directors and Senior
Advisor since May 2021. Mr. Schlecht has served on our Board of Directors since our founding in 1986. Mr.
Schlecht previously served as Executive Chairman from February 2015 to May 2021, and as Chief Executive
Officer from August 2019 to May 2021. Prior to that, Mr. Schlecht served as Chairman of the Board of
Directors and Chief Executive Officer from February 2003 to February 2015 and as President from February
2003 to February 2012. He also served as President and Chief Executive Officer of GEMPLER’S, Inc., which
he founded in 1986, until February 2003. Mr. Schlecht holds a B.S.B.A. degree and an M.B.A. from
Northwestern University.
As previously announced, the Board of Directors of the Company appointed Mr. Schlecht as Interim Chief
Executive Officer of the Company in addition to his role as Senior Advisor to the Company, effective April 25,
2025, unless the Board appoints a permanent Chief Executive Officer prior to such date. During the transition
period between the announcement of Mr. Sato’s retirement and April 25, 2025, Mr. Schlecht will assume day-
to-day leadership of the Company.
Samuel M. Sato
61
Mr. Sato was appointed to our Board of Directors in May 2021, and since that time has served as President and
Chief Executive Officer. He previously served as the Chief Executive Officer of The Finish Line, Inc., from
February 2016 to February 2019, and also served on the Board of Directors of The Finish Line, Inc. from
October 2014 to February 2019. Mr. Sato previously served as President of The Finish Line, Inc. from October
2014 to February 2016, President, Finish Line Brand, from October 2012 to October 2014, and President and
Chief Merchandising Officer from October 2010 to September 2012, as well as The Finish Line, Inc.’s
Executive Vice President, Chief Merchandising Officer from to March 2007 to October 2010. Mr. Sato began
his career in 1985 at Nordstrom Inc., where he held various leadership roles within merchandising. Mr. Sato has
been involved in the retail industry for over 30 years.
Heena K. Agrawal
49
Ms. Agrawal has served as our Senior Vice President and Chief Financial Officer since February 2024. Ms.
Agrawal previously served as the Chief Financial Officer, Global Wrangler and Global Kontoor Supply Chain
of Kontoor Brands, Inc. from January 2023 to January 2024, and Chief Financial Officer of Global Wrangler
from September 2021 to January 2024. Prior to that, Ms. Agrawal served as the Global Segment Chief
Financial Officer, Industrial Segment for Underwriters Laboratories from February 2021 to September 2021,
and Connected Technology Appliances & Lighting Global Division Chief Financial Officer for Underwriters
Laboratories from October 2019 to February 2021, as well as various leadership positions at Walgreens Boots
Alliance from January 2012 to September 2019, most recently serving as Synergy Leader M&A Integration:
Rite Aid from 2018 to September 2019 and at Procter & Gamble from 2001 to 2011. Ms. Agrawal holds a
Bachelor of Commerce, Accounting, and Taxation degree from Narsee Monjee College of Commerce and
Economics, an M.B.A. from the Kelley School of Business at Indiana University, CPA (inactive), and is a CFA
charter holder.
Eli M. Getson
54
Mr. Getson has served as our Senior Vice President and Chief Merchandising Officer since August 2024. From
December 2016 through April 2024, Mr. Getson served as Senior Vice President and General Merchandise
Manager at Academy Sports and Outdoors, a retailer of trending outdoor and sports categories. From June 2010
through November 2016, Mr. Getson served as Executive Vice President and General Merchandise Manager at
Golfsmith International. Prior to that, Mr. Getson served in various roles at Cabela’s, Bon-Ton Corporation,
Perry Ellis International, and Polo Ralph Lauren.
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David S. Homolka
58
Mr. Homolka has served as our Senior Vice President of Talent, Retail Store Operations, Contact Center
Operations, Asset Protection & Safety since February 2020 and previously served as our Vice President of
Human Resources, Store Operations and Asset Protection from January 2019 to February 2020, and Vice
President of Human Resources from February 2017 to January 2019. Mr. Homolka previously served as Chief
Property and Design Officer and Vice President of Real Estate, Store Design and Construction at Cabela’s from
October 2015 to February 2017 and Vice President of Human Resources and Asset Protection from January
2012 to October 2015.
Richard W. Schlecht
44
Mr. Schlecht has served as our Senior Vice President of Product Development and Sourcing since October
2023, and has previously served as our Senior Vice President of Product, Merchandise and Inventory from
March 2022 to October 2023, Senior Vice President of Product, Visual and Creative from February 2020 to
March 2022, Vice President of Product Development from March 2016 to February 2020 and Director of
Product Development from September 2013 to March 2016. Mr. Schlecht holds a BSBA degree with a minor in
Statistics from Denver University. Mr. Schlecht is the son of Stephen L. Schlecht, the Chairman of the Board of
Directors of Duluth Holdings Inc.
Albert J. Sutera
59
Mr. Sutera has served as our Senior Vice President, Chief Technology Officer and Logistics since August 2022.
He previously served as US Chief Technology & Operations Officer of Signa Sports United from January 2022
to August 2022, as Executive Vice President/Chief Technology & Information Officer of JD Sports Fashion
from March 2016 to August 2021, as Senior Vice President/CTO for Hudson Bay Corporation from November
2013 to February 2016 and as Senior Vice President of Digital Technology & Operations of Saks Fifth Avenue
from March 2007 to November 2013. Mr. Sutera holds a B.S. in Finance and Accounting from Montclair State
University and a Master’s Certificate in Computer Science and Project Management from Stevens Institute of
Technology.
Garth N. Weber
55
Mr. Weber has served as our Senior Vice President of Brand and Marketing since August 2024, serving as
caretaker of brand and marketing across all facets of the company. From July 2023 to August 2024, Mr. Weber
served as our Vice President of Brand and Marketing, taking on successively greater responsibility of the
company’s brand, marketing, and customer analytics functions. Prior to joining Duluth Trading, he served as
Vice President of Brand and Creative at Wilson Sporting Goods from 2021 to 2023, a leading manufacturer and
retailer in high-performance sports equipment, apparel, footwear and accessories. Previously, he spent nearly 5
years at adidas as Senior Director of Global Brand Design. Mr. Weber earned a Bachelor of Arts degree in
Philosophy from Wheaton College and a Master of Fine Arts degree in Fiction from the State University of
New York Brockport.
PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock Listing and Trading
Our Class B common stock has been traded on the NASDAQ Global Select Market under the symbol “DLTH,” since our initial public offering on
November 19, 2015. Our Class A common stock is neither listed nor traded on an exchange.
Shareholders of Record
Based upon data provided by our transfer agent, as of March 21, 2025, there were approximately 107 holders of record of our Class B common stock,
one of whom is the sole holder of our Class A common stock. We believe the number of beneficial holders of the Company’s Class B common stock is in
excess of this amount.
Dividends
Our Class B common stock began trading on November 19, 2015. Since that time, we have not declared any cash dividends, and we do not anticipate
declaring any cash dividends in the foreseeable future.
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Securities Authorized for Issuance Under Equity Compensation Plans
Information regarding our equity compensation plans is set forth in Part III, Item 12. Security Ownership of Beneficial Owners and Management and
Related Shareholder Matters.
ITEM 6.
[RESERVED]
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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the consolidated
financial statements and the accompanying notes and information contained in other sections included elsewhere in this annual report, particularly, “Risk
Factors,” and “Business.” This discussion and analysis is based on the beliefs of our management, as well as assumptions made by, and information
currently available to our management. The statements in this discussion and analysis concerning expectations regarding our future performance, liquidity
and capital resources, as well as other non-historical statements in this discussion and analysis, are forward-looking statements. See “Forward-Looking
Statements.” These forward-looking statements are subject to numerous risks and uncertainties, including those described under “Risk Factors.” Our
actual results could differ materially from those suggested or implied by any forward-looking statements.
Management’s discussion focuses on fiscal 2024 results compared to fiscal 2023. Fiscal year 2024 was a 53-week period and 2023 was a 52-week
period. For a discussion of fiscal 2023 results compared to fiscal 2022, refer to the Company’s Annual Report on Form 10-K for the year ended
January 28, 2024.
Overview
We are a lifestyle brand of men’s and women’s workwear, casual wear, outdoor apparel and accessories sold primarily through our own omnichannel
platform. We offer products nationwide through our website and catalog. In 2010, we initiated our omnichannel platform with the opening of our first store.
Since then, we have expanded our retail presence, and as of February 2, 2025, we operated 62 retail stores and three outlet stores.
We offer a comprehensive line of innovative, durable and functional products, such as our Longtail T® shirts, Buck Naked® underwear, Fire Hose®
work pants and No-Yank® Tank, which reflect our position as the Modern, Self-Reliant American Lifestyle brand. Our brand has a heritage in workwear
that transcends tradesmen and appeals to a broad demographic for everyday and on-the-job use.
From our heritage as a catalog for those working in the building trades, Duluth Trading has become a widely recognized brand and proprietary line of
innovative and functional apparel and gear. Over the last decade, we have created strong brand awareness, built a loyal customer base and generated sales
growth. We have done so by sticking to our roots of “there’s gotta be a better way” and through our relentless focus on providing our customers with
quality, functional products.
A summary of our financial results is as follows:
Net sales in fiscal 2024 decreased by 3.1% compared to the prior year to $626.6 million;
Net loss in fiscal 2024 was ($43.6) million compared to prior year net loss of ($9.9) million; and
Adjusted EBITDA in fiscal 2024 decreased $18.0 million compared to the prior year to $14.6 million.
See “Reconciliation of Net (Loss) Income to EBITDA and EBITDA to Adjusted EBITDA” section for a reconciliation of our net loss to EBITDA
and EBITDA to Adjusted EBITDA, both of which are non-U.S. GAAP financial measures. See also the information under the heading “Adjusted
EBITDA” in the section “How We Assess the Performance of Our Business” for our definition of Adjusted EBITDA.
Our management’s discussion and analysis includes market sales metrics for our stores, website and catalog sales. Market areas are determined by a
third-party that divides the United States and Puerto Rico into 280 unique geographical areas. Our store market sales metrics include sales from our stores,
website and catalog. Our non-store market sales metrics include sales from our website, catalog and orders placed through the call center.
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How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of financial and operating measures that affect our operating results.
Net Sales
Net sales reflect our sale of merchandise plus shipping and handling revenue collected from our customers, less returns and discounts. Direct-to-
consumer sales are recognized upon shipment to a customer, while store sales are recognized at the point of sale.
Gross Profit
Gross profit is equal to our net sales less cost of goods sold. Gross profit as a percentage of our net sales is referred to as gross margin. Cost of goods
sold includes the direct cost of purchased merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving
inventory and lower of cost and net realizable reserves; inbound freight; and freight from our fulfillment centers to our retail stores. The primary drivers of
the costs of individual goods are raw material costs. Depreciation and amortization are excluded from gross profit. Shipping and handling revenue is also
reflected in our gross profit and gross profit margin. Our gross profit may not be comparable to other retailers, as we do not include distribution network
and store occupancy expenses in calculating gross profit, but instead we include them in selling, general and administrative expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all operating costs not included in cost of goods sold. These expenses include all payroll and
payroll-related expenses and occupancy expenses related to our stores and to our operations at our headquarters, including utilities, depreciation and
amortization. They also include marketing expense, which primarily includes television, digital and social media advertising, catalog production, mailing
and print advertising costs, as well as all logistics costs associated with shipping product to our customers, consulting and software expenses and
professional services fees. Selling, general and administrative expenses as a percentage of net sales is usually higher in lower-volume quarters and lower in
higher-volume quarters because a portion of the costs are relatively fixed.
While we expect these expenses to increase as we continue to increase brand awareness and invest in infrastructure to support our business, we
believe these expenses will decrease as a percentage of sales over time. Our shipping and handling expenses typically increase during the second half of the
year due to additional surcharges during our peak selling season.
Adjusted EBITDA
We believe Adjusted EBITDA is a useful measure of operating performance, as it provides a clearer picture of operating results by excluding the
effects of financing and investing activities by eliminating the effects of interest and depreciation costs and eliminating expenses that are not reflective of
underlying business performance. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period-to-
period and to provide for a more complete understanding of factors and trends affecting our business.
We define Adjusted EBITDA as consolidated net (loss) income before depreciation and amortization, interest expense and provision for income taxes
adjusted for the impact of certain items, including non-cash and other items we do not consider representative of our ongoing operating performance. We
believe Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other items. This non-GAAP
measure may not be comparable to similarly titled measures used by other companies.
Free Cash Flow
We believe Free Cash Flow is a useful measure of performance as an indication of the Company’s ability to generate cash and provides additional
perspective on our ability to efficiently use capital in executing our growth strategy. We use Free Cash Flow to facilitate a comparison of our operating
performance on a consistent basis from period-to-period and our ability to generate cash.
We define Free Cash Flow as net cash provided by operating activities less purchase of property and equipment. This non-GAAP measure may not be
comparable to similarly titled measures used by other companies.
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Results of Operations
The following table summarizes our consolidated results of operations for the periods indicated, both in dollars and as a percentage of net sales.
Fiscal Year Ended
February 2, 2025
January 28, 2024
(in thousands)
Net sales
626,629
646,681
Cost of goods sold (excluding depreciation and amortization)
318,119
321,710
Gross profit
308,510
324,971
Selling, general and administrative expenses
337,623
334,540
Restructuring expense
7,748
—
Operating loss
(36,861)
(9,569)
Interest expense
4,554
4,156
Other income, net
173
923
Loss before income taxes
(41,242)
(12,802)
Income tax expense (benefit)
2,370
(2,862)
Net loss
(43,612)
(9,940)
Less: Net income (loss) attributable to noncontrolling interest
59
(17)
Net loss attributable to controlling interest
$
(43,671)
$
(9,923)
Percentage of Net sales:
Net sales
100.0 %
100.0 %
Cost of goods sold (excluding depreciation and amortization)
50.8 %
49.7 %
Gross profit
49.2 %
50.3 %
Selling, general and administrative expenses
53.9 %
51.7 %
Restructuring expense
1.2 %
— %
Operating loss
(5.9)%
(1.5)%
Interest expense
0.7 %
0.6 %
Other income, net
— %
— %
Loss before income taxes
(6.6)%
(2.0)%
Income tax expense (benefit)
0.4 %
(0.4)%
Net loss
(7.0)%
(1.5)%
Less: Net income (loss) attributable to noncontrolling interest
— %
— %
Net loss attributable to controlling interest
(7.0)%
(1.5)%
Fiscal 2024 Compared to Fiscal 2023
Net Sales
Net sales decreased $20.1 million, or 3.1%, to $626.6 million in fiscal 2024 compared to $646.7 million in fiscal 2023. The decrease in net sales was
primarily driven by lower average unit retail prices, processing delays at a legacy fulfillment center, lower web conversion and a decline in store traffic.
Following the surge in unit demand over the Black Friday weekend, inventory units housed in our highly automated Adairsville center were significantly
depleted resulting in a higher level of orders being routed to a legacy fulfillment facility, which resulted in significant backlog. We subsequently reduced
promotional depth and frequency to address the order backlog and maintain sales quality, which constrained top-line growth.
Store market net sales decreased $3.3 million, or 0.8%, to $441.8 million in fiscal 2024 compared to $445.1 million in fiscal 2023. Net sales in non-
store markets decreased $21.7 million, or 11.1%, to $174.3 million in fiscal 2024 compared to $196.0 million in fiscal 2023.
Gross Profit
Gross profit decreased $16.5 million, or 5.1%, to $308.5 million in fiscal 2024 compared to $325.0 million in fiscal 2023. As a percentage of net
sales, gross margin decreased to 49.2% of net sales in fiscal 2024 compared to 50.3% of net sales in fiscal 2023. The decrease in gross margin rate was
primarily due to a lower mix of full price sales as customers’ purchasing activity increased during periods of promotions, partially offset by an
improvement in product costs from our direct to factory sourcing initiative.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.1 million, or 0.9%, to $337.6 million in fiscal 2024 compared to $334.5 million in fiscal
2023. Selling, general and administrative expenses as a percentage of net sales was 53.9% in fiscal 2024 compared to 51.7% in fiscal 2023.
The increase in selling, general and administrative expense as a percentage of net sales was mainly driven by increased overhead costs, partially
offset by optimization in our outbound shipping network.
Interest Expense
Interest expense increased $0.4 million to $4.6 million in fiscal 2024 compared to $4.2 million in fiscal 2023. The increase in interest expense was
primarily attributable to increased interest rates on outstanding debt in fiscal 2024 compared to fiscal 2023.
Income Taxes
Income tax expense was $2.4 million in fiscal 2024 compared to income tax benefit of $2.9 million in fiscal 2023. Our effective tax rate related to
controlling interest was (5.7%) in fiscal 2024 compared to 22.4% in fiscal 2023. The provision for fiscal 2024 reflected the establishment of a valuation
allowance against the net amount of deferred tax assets as well as pre-tax loss in the current year.
Net Loss Attributable to Controlling Interest
Net loss attributable to controlling interest was ($43.7) million in fiscal 2024 compared to ($9.9) million in fiscal 2023, due to the factors discussed
above.
Non-GAAP Financial Measures
See the above section titled “How We Assess the Performance of Our Business,” for our definition of Adjusted EBITDA and Free Cash Flow.
Reconciliation of Net Loss to EBITDA and EBITDA to Adjusted EBITDA
The following table represents reconciliations of net (loss) income to EBITDA and EBITDA to Adjusted EBITDA for the periods indicated below.
Fiscal Year Ended
February 2, 2025
January 28, 2024
(in thousands)
Net loss
$
(43,612)
$
(9,940)
Depreciation and amortization
31,133
32,159
Amortization of internal-use software hosting
subscription implementation costs
5,281
4,961
Interest expense
4,554
4,156
Income tax (benefit) expense
2,370
(2,862)
EBITDA (non-GAAP)
(274)
28,474
Long-term incentive expense
4,152
4,195
Restructuring expense
7,748
—
Impairment expense
2,998
—
Adjusted EBITDA (non-GAAP)
$
14,624
$
32,669
As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA decreased $18.0 million to $14.6 million in fiscal
2024 compared to $32.7 million in fiscal 2023. As a percentage of net sales, Adjusted EBITDA decreased to 2.3% of net sales in fiscal 2024 compared to
5.1% of net sales in fiscal 2023.
Free Cash Flow
The following table represents a reconciliation of Net cash provided by operating activities, the most comparable U.S. GAAP financial measure, to
free cash flow.
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Fiscal Year Ended
February 2, 2025
January 28, 2024
(in thousands)
Net cash (used in) provided by operating activities
$
(16,917)
$
38,673
Purchases of property and equipment
(8,329)
(49,086)
Free Cash Flow (non-GAAP)
$
(25,246)
$
(10,413)
Free cash flow decreased $14.8 million to ($25.2) million in fiscal 2024 compared to ($10.4) million in fiscal 2023. The decrease was primarily
driven by higher inventory levels compared to a reduction in inventory in the prior year, partially offset by a decrease in purchases of property and
equipment.
Liquidity and Capital Resources
General
Our business relies on cash from operating activities and a credit facility as our primary sources of liquidity. Our primary cash needs have been for
inventory, marketing and advertising, payroll, store leases, and capital expenditures associated with infrastructure and information technology. The most
significant components of our working capital are cash, inventory, accounts payable and other current liabilities. As of February 2, 2025 our working
capital was $63.1 million, which includes cash and cash equivalents of $3.3 million.
We spent $17.4 million in fiscal 2024 on capital expenditures, inclusive of investments in software hosting implementation costs, which are included
in Prepaid expenses & other current assets on the Company’s Consolidated Balance Sheets. We expect to spend approximately $20.0 million in fiscal 2025
on capital expenditures. Due to the seasonality of our business, a significant amount of cash from operating activities is generated during the fourth quarter
of our fiscal year. During the first three quarters of our fiscal year, we typically are net users of cash in our operating activities as we acquire inventory in
anticipation of our peak selling season, which typically occurs in the fourth quarter of our fiscal year. We also use cash in our investing activities for capital
expenditures throughout all four quarters of our fiscal year.
We believe that our cash flow from operating activities and the availability of cash under our credit facility will be sufficient to cover working capital
requirements and anticipated capital expenditures for the foreseeable future.
Cash Flow Analysis
A summary of operating, investing and financing activities is shown in the following table.
Fiscal Year Ended
February 2, 2025
January 28, 2024
(in thousands)
Net cash (used in) provided by operating activities
$
(16,917)
$
38,673
Net cash used in investing activities
(8,129)
(48,718)
Net cash used in financing activities
(3,776)
(3,346)
Decrease in cash and cash equivalents
$
(28,822)
$
(13,391)
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Net Cash (Used in) Provided by Operating Activities
Operating activities consist primarily of net (loss) income adjusted for non-cash items that include depreciation and amortization, stock-based
compensation and the effect of changes in assets and liabilities.
For fiscal 2024, net cash used in operating activities was $16.9 million, which primarily consisted of non-cash depreciation and amortization of $32.3
million and amortization of stock-based compensation of $4.0 million, offset by cash used in operating assets and liabilities of $12.0 million and net loss of
($43.6) million. The cash used in operating assets and liabilities of $12.0 million primarily consisted of a $40.8 million increase in inventory partially offset
by a $22.9 million increase in trade accounts payable.
The increase in inventory and trade accounts payable was primarily related to an increase in in-transit inventory as we moved from purchasing
through an agent to buying directly from factories coupled with higher inventory receipts on core year-round products to mitigate low in-stock post Black
Friday week.
For fiscal 2023, net cash provided by operating activities was $38.7 million, which primarily consisted of non-cash depreciation and amortization of
$32.2 million, amortization of stock-based compensation of $4.2 million and cash provided by operating assets and liabilities of $14.5 million, which was
partially offset by net loss of ($9.9) million. The cash provided by operating assets and liabilities of $14.5 million primarily consisted of a $29.2 million
decrease in inventory partially offset by a $5.4 million and $4.4 million decrease in trade accounts payable and accrued expenses, respectively.
Net Cash Used in Investing Activities
Investing activities consist primarily of capital expenditures related to a new fulfillment center and information technology.
For fiscal 2024, net cash used in investing activities was $8.1 million, driven by purchases of property and equipment of $8.3 million.
For fiscal 2023, net cash used in investing activities was $48.7 million, driven by purchases of property and equipment of $49.1 million, primarily
related to the Adairsville, Georgia fulfillment center.
Net Cash Used in Financing Activities
Financing activities consist primarily of borrowings and payments related to our revolving line of credit and other long-term debt, as well as
payments on finance lease obligations.
For fiscal 2024 and fiscal 2023, net cash used in financing activities was $3.8 million and $3.3 million, respectively, primarily consisting of payments
on finance lease obligations.
Credit Agreement
On May 14, 2021, the Company terminated its prior credit agreement, and entered into a credit agreement (the “Credit Agreement”), which was
treated as a modification for accounting purposes. The Credit Agreement originally matured on May 14, 2026 and provided for borrowings of up to $150.0
million that were available under a revolving senior credit facility, with a $5.0 million sublimit for issuance of standby letters of credit, as well as a $10.0
million sublimit for swing line loans. At the Company’s option, the interest rate applicable to the revolving senior credit facility was a floating rate equal to:
(i) the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus the applicable rate of 1.25% to 2.00% determined based on the Company’s rent
adjusted leverage ratio, or (ii) the base rate plus the applicable rate of 0.25% to 1.00% based on the Company’s rent adjusted leverage ratio. The Credit
Agreement is secured by essentially all Company assets and requires the Company to maintain compliance with certain financial and non-financial
covenants, including a maximum rent adjusted leverage ratio and a minimum fixed charge coverage ratio as defined in the Credit Agreement.
On July 8, 2022, the Company entered into the First Amendment to the Credit Agreement (the “First Amendment”), which was treated as a
modification for accounting purposes. The First Amendment amends the Credit Agreement in order to (i) increase the revolving commitment from $150.0
million to $200.0 million; (ii) extend the maturity date from May 14, 2026 to July 8, 2027; (iii) amend the pricing index to replace BSBY with the Term
Secured Overnight Financing Rate; and (iv) reduce the commitment fee in some instances.
On January 31, 2025, the Company entered into the Second Amendment to the Credit Agreement (the “Second Amendment”), which was treated as
an extinguishment for accounting purposes. The Second Amendment amends the Credit Agreement in order to (i) decrease the revolving commitment from
$200.0 million to $100.0 million; (ii) revise the definition of
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“Applicable Rate” to provide for pricing terms in the event of a Rent Adjusted Leverage Ratio greater than or equal to 3.50:1.0; (iii) limit the exceptions to
the prohibition on restricted payments to (a) making dividends or distributions by any subsidiary to the Company, and (b) the acquisition of equity interests
in satisfaction of tax withholding obligations associated with restricted stock or awards under employee incentive plans; and (iv) provide that the Maximum
Rent Adjusted Leverage Ratio and the Minimum Fixed Charge Coverage Ratio will be measured commencing on the fiscal quarter ending May 2, 2021 and
measured quarterly thereafter as of the last day of each fiscal quarter of the Company (other than for the fiscal quarter ending February 2, 2025).
Contractual Obligations
In connection with our investing and operating activities, we have entered into certain contractual obligations. See Note 3 “Leases” of Notes to
Consolidated Financial Statements for additional discussion of these obligations.
Off-Balance Sheet Arrangements
We are not a party to any significant off-balance sheet arrangements.
Critical Accounting Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to
make estimates and assumptions that affect amounts reported in our consolidated financial statements and related notes, as well as the related disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We
evaluate our accounting policies, estimates, and judgments on an on-going basis. We base our estimates and judgments on historical experience and various
other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and
conditions and such differences could be material to the consolidated financial statements.
We evaluated the development and selection of our critical accounting estimates and believe that the following involve a higher degree of judgment
or complexity and are most significant to reporting our results of operations and financial position, and are therefore discussed as critical.
Product Return Reserve
The Company currently estimates product return reserve using its own historical sales information. The Company regularly assesses and adjusts the
estimate of accrued sales returns by updating return rates for actual company trends and projected costs. While returns have historically been within our
expectations, future return rates may differ from those experienced in the past. Changes in these estimates can have a material impact on our financial
statements. We believe the accounting estimate related to product returns is a critical accounting estimate because it requires us to make assumptions about
future potential returns, which are highly uncertain.
Critical Accounting Policies
With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can potentially have a
materially favorable or unfavorable impact on subsequent results of operations. However, our historical results for the periods presented in the consolidated
financial statements have not been materially impacted by such variances. More information on all of our significant accounting policies can be found in
Note 2, “Summary of Significant Accounting Policies” of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Leases
The Company recognizes ROU assets and lease liabilities related to leases on the Company’s consolidated balance sheets. The Company determines
if an arrangement is, or contains, a lease at inception. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities reflect
the obligation to make lease payments arising from the lease. At any given time during the lease term, the lease liability represents the present value of the
remaining lease payments and the ROU asset is measured at the amount of the lease liability, adjusted for pre-paid rent, unamortized initial direct costs and
the remaining balance of lease incentives received. Both the lease ROU asset and liability are reduced to zero at the end of the lease. See Note 3 “Leases,”
of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Revenue Recognition
Revenue for merchandise that is shipped to our customers from our fulfillment centers and stores is recognized upon shipment following customer
payment, which is when the customer obtains control of the product and has the ability to direct
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the use of the product, including, among other options, the ability to redirect the product to a different shipping destination. Store revenue is recognized at
the point of sale. This represents the point at which the customer obtains control of the product and has the ability to direct the use of the product.
We recognize shipping and handling fees as revenue included in net sales when generated from a customer order upon shipment or at the point of
sale. Costs of shipping and handling are included in selling, general and administrative expenses.
Sales tax collected is not recognized as revenue as it is ultimately remitted to governmental authorities.
We reserve for projected merchandise returns based on both historical and actual experience, as well as various other assumptions that we believe to
be reasonable. Actual merchandise returns are monitored regularly and have not been materially different from the estimates recorded. Product returns
often represent merchandise that can be resold. Amounts refunded to customers are generally made by issuing the same payment tender as used in the
original purchase. Merchandise exchanges of the same product and price are not considered merchandise returns and are therefore excluded when
calculating the sales returns reserve.
Inventories
Our inventories are composed of finished goods and are stated at the lower of cost or net realizable value, with cost determined using the first-in,
first-out method. Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of
completion, disposal and transportation.” The inventory value is adjusted periodically, if needed, to reflect current market conditions and inventory
composition, which requires our judgments that may significantly affect the ending inventory valuation, as well as gross margin. The estimates used in
inventory valuation are obsolescence (including excess and slow-moving inventory and lower of cost or market reserves) and estimates of inventory
shrinkage. We adjust our inventory for obsolescence based on historical trends, aging reports, specific identification, current retail prices and our estimates
of future retail sales prices.
The reserve for inventory shrinkage is adjusted to reflect the trend of historical physical inventory count results. The Company performs its retail
store physical inventory counts in July and the difference between actual and estimated shrinkage, recorded in Cost of goods sold, may cause fluctuations,
particularly in second fiscal quarter results.
Due to these factors, our obsolescence and shrinkage reserves contain uncertainties. Both estimates have calculations that require us to make
assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current
inventory trends. If actual observed obsolescence or periodic updates of our shrinkage estimates differ from our original estimates, we adjust our inventory
reserves accordingly throughout the period. We do not believe that changes in the assumptions used in these estimates would have a significant effect on
our net income or inventory balances. We have not made any material changes to our assumptions included in the calculations of the obsolescence and
shrinkage reserves during the periods presented, nor have we recorded significant adjustments related to the physical inventory process.
Income Taxes
We account for income taxes and the related accounts using the asset and liability method in accordance with ASC Topic 740, Income Taxes (“ASC
740”). Under this method, we accrue income taxes payable or refundable and recognize deferred tax assets and liabilities based on differences between U.S.
GAAP and tax bases of assets and liabilities. We measure deferred tax assets and liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse, and recognize the effect of a change in enacted rates in the period of enactment.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we
consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income,
tax planning strategies and recent financial operations. A valuation allowance is established if it is more likely than not that some portion or all of the
deferred income tax asset will not be realized. A valuation allowance was recognized for the year ended February 2, 2025.
We establish assets and liabilities for uncertain tax positions taken or expected to be taken in income tax returns, using a more-likely-than-not
recognition threshold. We recognize penalties and interest related to uncertain tax positions as income tax expense.
See Note 9 “Income Taxes,” of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm (KPMG LLP, PCAOB ID No. 185)
38
Consolidated Balance Sheets as of February 2, 2025 and January 28, 2024
41
Consolidated Statements of Operations for Fiscal Years Ended February 2, 2025 and January 28, 2024
42
Consolidated Statements of Comprehensive Income for Fiscal Years Ended February 2, 2025 and January 28, 2024
43
Consolidated Statements of Shareholders’ Equity for Fiscal Years Ended February 2, 2025 and January 28, 2024
44
Consolidated Statements of Cash Flows for Fiscal Years Ended February 2, 2025 and January 28, 2024
45
Notes to Consolidated Financial Statements
46
Schedule II Valuation and Qualifying Accounts
63
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Duluth Holdings Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Duluth Holdings Inc. and subsidiaries (the Company) as of February 2, 2025 and
January 28, 2024, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the years then ended,
and the related notes and financial statement schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 2, 2025 and
January 28, 2024, and the results of its operations and its cash flows for each of the years then ended, in conformity with U.S. generally accepted
accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Product return reserve
As discussed in Note 5 to the consolidated financial statements, as of February 2, 2025 the Company recorded $4,568 thousand in reserves for product
returns within accrued expenses and other current liabilities. Management estimates the product return reserve using its own historical sales and
product return information.
We identified the assessment of the product return reserve as a critical audit matter. A high degree of auditor judgement was required to assess whether
the historical return rate used to estimate the reserve for product returns is indicative of future returns.
The following are the primary procedures we performed to address this critical audit matter. We evaluated and tested the design and implementation of
certain internal controls related to the product return reserve. This included controls related to determining the historical return rate used to estimate
product returns. We assessed the Company’s ability to accurately estimate the product return rate by comparing prior period estimates to actual product
return rates experienced. We analyzed the product return rate assumption by evaluating the consistency of the assumption with the trend of actual
historical product return rates and by comparing the product return reserve to actual product returns received after the balance sheet date.
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/s/ KPMG LLP
We have served as the Company’s auditor since 2021.
Milwaukee, Wisconsin
March 21, 2025
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DULUTH HOLDINGS INC.
Consolidated Balance Sheets
(Amounts in thousands)
February 2, 2025
January 28, 2024
ASSETS
Current Assets:
Cash and cash equivalents
$
3,335
$
32,157
Receivables
3,970
5,955
Income taxes receivable
—
617
Inventory, net
166,545
125,757
Prepaid expenses & other current assets
17,781
16,488
Total current assets
191,631
180,974
Property and equipment, net
111,560
132,718
Operating lease right-of-use assets
102,663
121,430
Finance lease right-of-use assets, net
32,957
40,315
Available-for-sale security
4,491
4,986
Other assets, net
9,140
9,020
Deferred tax assets
—
1,767
Total assets
$
452,442
$
491,210
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable
$
73,882
$
51,122
Accrued expenses and other current liabilities
35,684
34,111
Income tax payable
65
—
Current portion of operating lease liabilities
15,534
16,401
Current portion of finance lease liabilities
2,541
3,149
Current maturities of TRI long-term debt
931
847
Total current liabilities
128,637
105,630
Operating lease liabilities, less current portion
89,222
106,413
Finance lease liabilities, less current portion
30,621
34,276
TRI long-term debt, less current maturities
24,283
25,141
Deferred tax liabilities
—
—
Total liabilities
272,763
271,460
Shareholders' equity:
Preferred stock, no par value; 10,000 shares authorized; no shares
issued or outstanding as of February 2, 2025 and January 28, 2024
—
—
Common stock (Class A), no par value; 10,000 shares authorized;
3,364 shares issued and outstanding as of February 2, 2025 and
January 28, 2024
—
—
Common stock (Class B), no par value; 200,000 shares authorized;
32,077 shares issued and 31,813 shares outstanding as of February 2, 2025 and
31,178 shares issued and 31,023 outstanding as of January 28, 2024
—
—
Treasury stock, at cost; 264 and 155 shares as of February 2, 2025 and
January 28, 2024, respectively
(2,332)
(1,738)
Capital stock
108,009
103,579
Retained earnings
77,721
121,392
Accumulated other comprehensive income
(722)
(427)
Total shareholders' equity of Duluth Holdings Inc.
182,676
222,806
Noncontrolling interest
(2,997)
(3,056)
Total shareholders' equity
179,679
219,750
Total liabilities and shareholders' equity
$
452,442
$
491,210
The accompanying notes are an integral part of these consolidated financial statements.
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DULUTH HOLDINGS INC.
Consolidated Statements of Operations
(Amounts in thousands, except per share figures)
Fiscal Year Ended
February 2, 2025
January 28, 2024
Net sales
$
626,629
$
646,681
Cost of goods sold (excluding depreciation and amortization)
318,119
321,710
Gross profit
308,510
324,971
Selling, general and administrative expenses
337,623
334,540
Restructuring expense
7,748
—
Operating loss
(36,861)
(9,569)
Interest expense
4,554
4,156
Other income, net
173
923
Loss before income taxes
(41,242)
(12,802)
Income tax expense (benefit)
2,370
(2,862)
Net loss
(43,612)
(9,940)
Less: Net income (loss) attributable to noncontrolling interest
59
(17)
Net loss attributable to controlling interest
$
(43,671)
$
(9,923)
Basic earnings per share (Class A and Class B):
Weighted average shares of
common stock outstanding
33,368
32,955
Net loss per share attributable
to controlling interest
$
(1.31)
$
(0.30)
Diluted earnings per share (Class A and Class B):
Weighted average shares and
equivalents outstanding
33,368
32,955
Net loss per share attributable
to controlling interest
$
(1.31)
$
(0.30)
The accompanying notes are an integral part of these consolidated financial statements.
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DULUTH HOLDINGS INC.
Consolidated Statements of Comprehensive Income
(Amounts in thousands)
Fiscal Year Ended
February 2, 2025
January 28, 2024
Net loss
$
(43,612)
$
(9,940)
Other comprehensive loss
Securities available-for-sale:
Unrealized security loss
(296)
(372)
Income tax benefit
(1)
(93)
Other comprehensive loss
(295)
(279)
Comprehensive loss
(43,907)
(10,219)
Comprehensive income (loss) attributable
to noncontrolling interest
59
(17)
Comprehensive loss attributable
to controlling interest
$
(43,966)
$
(10,202)
The accompanying notes are an integral part of these consolidated financial statements.
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DULUTH HOLDINGS INC.
Consolidated Statements of Shareholders’ Equity
(Amounts in thousands)
Accumulated
Noncontrolling
Capital stock
other
interest in
Total
Treasury
Retained
comprehensive
variable interest
shareholders'
Shares
Amount
stock
earnings
loss
entities
equity
Balance at January 29, 2023
33,443 $
98,842 $
(1,459) $
131,315 $
(148) $
(3,210) $
225,340
Issuance of common stock
1,243
542
—
—
—
—
542
Stock-based compensation
—
4,195
—
—
—
—
4,195
Restricted stock forfeitures
(257)
—
—
—
—
—
—
Restricted stock surrendered
for taxes
(42)
—
(279)
—
—
—
(279)
Changes in the TRI Holdings, LLC
Consolidation
—
—
—
—
—
171
171
Other comprehensive loss
—
—
—
—
(279)
—
(279)
Net loss
—
—
—
(9,923)
—
(17)
(9,940)
Balance at January 28, 2024
34,387 $
103,579 $
(1,738) $
121,392 $
(427) $
(3,056) $
219,750
Issuance of common stock
1,185
384
—
—
—
—
384
Stock-based compensation
—
4,046
—
—
—
—
4,046
Restricted stock forfeitures
(239)
—
—
—
—
—
—
Restricted stock surrendered
for taxes
(156)
—
(594)
—
—
—
(594)
Changes in the TRI Holdings, LLC
Consolidation
—
—
—
—
—
—
—
Other comprehensive loss
—
—
—
—
(295)
—
(295)
Net (loss) income
—
—
—
(43,671)
—
59
(43,612)
Balance at February 2, 2025
35,177 $
108,009 $
(2,332) $
77,721 $
(722) $
(2,997) $
179,679
The accompanying notes are an integral part of these consolidated financial statements.
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DULUTH HOLDINGS INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
Fiscal Year Ended
February 2, 2025
January 28, 2024
Cash flows from operating activities:
Net loss
$
(43,612)
$
(9,940)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
32,282
32,159
Stock-based compensation
4,046
4,195
Deferred income taxes
1,767
(2,335)
Loss on disposal of property and equipment
473
130
Changes in operating assets and liabilities:
Receivables
1,985
86
Income taxes receivable
617
(617)
Inventory
(40,788)
29,165
Prepaid expense & other assets
1,085
(1,675)
Software hosting implementation costs, net
(3,171)
(216)
Trade accounts payable
22,863
(5,449)
Income taxes payable
65
(1,761)
Accrued expenses and deferred rent obligations
2,059
(4,405)
Other
473
58
Noncash lease impacts
2,939
(722)
Net cash (used in) provided by operating activities
(16,917)
38,673
Cash flows from investing activities:
Purchases of property and equipment
(8,329)
(49,086)
Principal receipts from available-for-sale security
200
181
Proceeds from disposal of PP&E
—
16
Changes in the TRI Holdings, LLC Consolidation
—
171
Net cash used in investing activities
(8,129)
(48,718)
Cash flows from financing activities:
Proceeds from line of credit
83,500
56,000
Payment on line of credit
(83,500)
(56,000)
Payments on TRI long term debt
(846)
(767)
Payments on finance lease obligations
(2,721)
(2,842)
Shares withheld for tax payments on vested restricted stock
(594)
(279)
Other
385
542
Net cash used in financing activities
(3,776)
(3,346)
Decrease in cash and cash equivalents
(28,822)
(13,391)
Cash and cash equivalents at beginning of period
32,157
45,548
Cash and cash equivalents at end of period
$
3,335
$
32,157
Supplemental disclosure of cash flow information:
Interest paid
$
4,554
$
4,156
Income taxes paid
$
125
$
2,026
Supplemental disclosure of non-cash information:
Unpaid liability to acquire property and equipment
$
1,285
$
1,874
The accompanying notes are an integral part of these consolidated financial statements.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
Duluth Holdings Inc. (“Duluth Trading” or the “Company”), a Wisconsin corporation, is a lifestyle brand of men’s and women’s casual wear,
workwear and accessories sold primarily through the Company’s own omnichannel platform. The Company’s products are marketed under the Duluth
Trading Company brand, with the majority of products being exclusively developed and sold as Duluth Trading branded merchandise.
In 2010, the Company initiated its omnichannel platform with the opening of its first store. Since then, Duluth Trading has expanded its retail
presence, and as of February 2, 2025, the Company operated 62 retail stores and three outlet stores. The Company identifies its operating segments
according to how its business activities are managed and evaluated. The Company continues to grow its omnichannel distribution network which allows the
consumer to interact with the Company through a consistent customer experience whether on the Company website or at Company stores. The Company
has one reportable external segment, consistent with the Company’s omnichannel business approach. The Company’s revenues generated outside the
United States were insignificant.
The Company has two classes of authorized common stock: Class A common stock and Class B common stock. The rights of holders of Class A
common stock and Class B common stock are identical, except for voting and conversion rights. Each share of Class A common stock is entitled to ten
votes per share and is convertible at any time into one share of Class B common stock. Each share of Class B common stock is entitled to one vote per
share. The Company’s Class B common stock trades on the NASDAQ Global Select Market under the symbol “DLTH.”
Basis of Presentation
The consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). All
significant intercompany balances and transactions have been eliminated in consolidation.
The Company’s fiscal year ends on the Sunday nearest to January 31 of the following year. Fiscal 2024 and Fiscal 2023 ended on February 2, 2025
and January 28, 2024, respectively. Fiscal 2024 was a 53-week period and Fiscal 2023 was a 52-week period.
Seasonality of Business
The Company’s business is affected by the pattern of seasonality common to most retail apparel businesses. Historically, the Company has
recognized a significant portion of its revenue and operating profit in the fourth fiscal quarter of each year as a result of increased sales during the holiday
season.
Revision of Prior Period Financial Information
During fiscal 2024, management identified inaccuracies in the collection of local sales tax transactions within certain states. Accordingly, the
Company has revised its consolidated financial statements and related notes to increase Accrued expenses by $3.2 million and Deferred tax assets by $0.8
million as of January 28, 2024, and to increase Selling, general and administrative expenses by $0.7 million and income tax benefit by $0.2 million for the
year ended January 28, 2024. The cumulative errors related to periods prior to fiscal 2023 resulted in a decrease to Retained earnings by $2.4 million as of
the beginning of fiscal 2023. The Company has determined that the errors were immaterial to all impacted periods and has corrected the impacted periods
as an immaterial correction of an error. The Company also revised the fiscal 2024 quarterly consolidated financial statements to correct the impact of the
errors on the respective periods.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements consist of the accounts of Duluth Holdings Inc. and TRI Holdings, LLC (“TRI”) as a variable
interest entity. See Note 6 “Variable Interest Entities” for further information.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company’s revenue primarily consists of the sale of apparel, footwear and hard goods. Revenue for merchandise that is shipped to our customers
from our fulfillment centers and stores is recognized upon shipment following customer payment, which is when the customer obtains control of the
product and has the ability to direct the use of the product, including, among other options, the ability to redirect the product to a different shipping
destination. Store revenue is recognized at the point of sale. The Company provides the customer the right of return on the product and revenue is adjusted
based on an estimate of the expected returns based on historical rates as well as events that may cause changes to historical rates. See Note 5 “Accrued
Expense and Other Liabilities” for the Company’s product returns reserve. Shipping and processing revenue generated from customer orders are included
as a component of net sales and shipping and processing expense, including handling expense, is included as a component of selling, general and
administrative expenses. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued
expenses. A liability is recognized at the time a gift card is sold, and revenue is recognized at the time the gift card is redeemed for merchandise. See Note
8 “Revenue” for further information.
Cost of Goods Sold and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in cost of goods sold and selling, general and administrative expenses:
Cost of Goods Sold
Selling, General and Administrative Expenses
·
Direct cost of purchased merchandise
· Payroll and payroll-related expenses
·
Inventory shrinkage and inventory adjustments due to obsolescence
· Occupancy expenses related to stores and operations at the Company's
headquarters, including utilities
·
Inbound freight
· Depreciation and amortization
·
Freight from the Company's fulfillment centers to its stores
· Marketing expenses including: digital, television, and social media
advertising; catalog production and mailing; and print advertising costs
· Logistical costs associated with shipping product to customers
· Consulting and software expenses and professional services fees
Advertising and Catalog Expenses
The Company’s advertising and catalog expense primarily consists of web marketing programs, social media and radio and television advertisements,
which are expensed as they are incurred. The Company’s direct-response advertising consists of producing, printing and mailing catalogs, which are
expensed upon receipt by customers.
Advertising and Catalog expenses were $67.5 million and $69.0 million for fiscal 2024 and fiscal 2023, respectively.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
Shipping and Processing
Shipping and processing revenue generated from customer orders has been classified as a component of net sales. Shipping and processing expense,
including handling expense, has been classified as a component of selling, general and administrative expenses. The Company incurred shipping and
processing expenses of $43.7 million and $47.2 million for fiscal 2024 and fiscal 2023, respectively.
Income Taxes
The Company accounts for income taxes and related accounts using the asset/liability method in accordance with ASC Topic 740, Income Taxes
(“ASC 740”). Under ASC 740, the Company accrues income taxes payable or refundable and recognizes deferred tax assets and liabilities based on
differences between U.S. GAAP and tax bases of assets and liabilities. The Company measures deferred tax assets and liabilities using enacted tax rates in
effect for the years in which the differences are expected to reverse, and recognizes the effect of a change in enacted rates in the period of enactment. A
valuation allowance is established if it is more likely than not that some portion or all of the deferred income tax asset will not be realized.
The Company establishes assets and liabilities for uncertain tax positions taken or expected to be taken in income tax returns, using a more-likely-
than-not recognition threshold. The Company recognizes penalties and interest related to uncertain tax positions as income tax expense. See Note 9
“Income Taxes,” of these Notes to Consolidated Financial Statements for further discussion.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. At various times
during the year, the Company has certain cash balances deposited in financial institutions in excess of federally insured limits. The Company has not
experienced any losses in such accounts and management believes it is not exposed to any significant credit risk.
Cash and Cash Equivalents
The Company considers short-term investments with original maturities of three months or less when purchased to be cash equivalents. As of
February 2, 2025, Cash and cash equivalents consisted of cash, amounts receivable from credit card issuers and money market funds. Amounts receivable
from credit card issuers are typically converted to cash within 2 to 4 days of the original sales transaction and are considered to be cash equivalents.
Significant Suppliers
The Company’s principal supplier of inventory accounted for 43% and 59% of total inventory expenditures in fiscal 2024 and fiscal 2023,
respectively.
Inventories
Inventory consists of finished goods stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out valuation
method. The Company records an inventory reserve for the anticipated loss associated with selling inventories below cost. Inventory reserve for excess,
obsolete items and shrinkage was $2.1 million and $1.4 million as of February 2, 2025 and January 28, 2024, respectively.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
Property and Equipment
Property and equipment consist of the following:
February 2, 2025
January 28, 2024
(in thousands)
Land and land improvements
$
4,486
$
4,486
Leasehold improvements
57,732
56,850
Buildings
36,272
36,191
Vehicles
84
121
Warehouse equipment
65,592
66,481
Office equipment and furniture
54,542
54,294
Computer equipment
9,472
11,142
Software
39,952
39,923
268,132
269,488
Accumulated depreciation and amortization
(159,450)
(140,551)
108,682
128,937
Construction in progress
2,878
3,781
Property and equipment, net
$
111,560
$
132,718
The Company recorded depreciation expense of $28.7 million and $28.0 million for fiscal 2024 and fiscal 2023, respectively. The Company expenses
as incurred all routine repair and maintenance costs that do not extend the estimated useful life of the asset.
Property and equipment are carried at cost and are generally depreciated using the straight-line method over the estimated useful lives. Leasehold
improvements are depreciated over the shorter of the lease term or estimated useful life. Depreciable lives by major classification generally are as follows:
Years
Land improvements
15
Leasehold improvements
3 - 15
Buildings
39
Vehicles
5
Warehouse equipment
7 - 10
Office equipment and furniture
7 - 10
Computer equipment
3 - 5
Software
3 - 5
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following:
February 2, 2025
January 28, 2024
(in thousands)
Prepaid expenses & other current assets
Pending returns inventory, net
$
2,301
$
2,778
Current software hosting implementation costs, net
3,749
3,353
Other prepaid expenses
11,731
10,357
Prepaid expenses & other current assets
$
17,781
$
16,488
Other assets, net
Goodwill
$
—
$
402
Intangible assets, net
414
436
Non-current software hosting implementation costs
7,498
6,705
Other assets, net
1,228
1,477
Other assets, net
$
9,140
$
9,020
Software Hosting Implementation Costs
Software hosting implementation costs includes costs of implementation activities of certain cloud computing arrangements in accordance with
Accounting Standards Update No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). Amortization expense was $5.3
million and $5.0 million for fiscal 2024 and fiscal 2023, respectively. Accumulated amortization was $12.4 million and $10.4 million for fiscal 2024 and
fiscal 2023, respectively. See Note 12 “Recent Accounting Pronouncements” for more information.
Goodwill
Goodwill represents the excess of purchase price over the fair value of net assets acquired. ASC Topic 350, Intangibles-Goodwill and Other, requires
that goodwill be tested for impairment annually, or more often if an event or circumstance indicates that an impairment loss may have been incurred. The
Company’s management uses its judgment in assessing whether goodwill may have become impaired between annual impairment tests. Indicators such as
unexpected adverse business conditions, economic factors, competitive activities, loss of key personnel and acts by governments may signal that an asset
has become impaired.
Management performed its annual qualitative assessment of goodwill as of December 31, 2024 and 2023, which included assessing factors such as
macroeconomic conditions, industry and market considerations, cost factors and overall financial performance. The next step after the qualitative
assessment failed was estimating the fair value of the reporting unit, which management used the market valuation approach. Through the annual
assessment, management determined the carrying amount of the Goodwill exceeded its value. Thus, the Company recognized a full impairment for the year
ended February 2, 2025.
Intangible Assets and Other Assets
Intangible assets and other assets include loan origination fees and trade names which are amortized over their estimated useful lives ranging from
three years to fifteen years. Other assets also primarily include security deposits required by certain of the Company’s lease agreements and prepaid
expenses. Amortization expense was $0.2 million for fiscal 2024 and fiscal 2023. Accumulated amortization was $1.2 million and $1.0 million as of
February 2, 2025 and January 28, 2024, respectively.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
Scheduled future amortization of amortizable other assets is as follows as of February 2, 2025:
Fiscal year
(in thousands)
2025
$
157
2026
80
2027
22
2028
2
2029
2
Thereafter
4
$
267
Impairment of Long-Lived Assets
The Company’s long-lived assets are reviewed for impairment during the fourth quarter, or whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group
of assets, a loss is recognized for the difference between the fair value and the carrying value of the asset or group of assets. Such analyses necessarily
involve judgment.
For fiscal 2024, management identified a triggering event for two stores within the annual impairment test. Management determined expected
undiscounted cash flows were greater than the carrying value and therefore, no impairment was recorded.
Store Pre-opening Costs
Store pre-opening costs are expensed as incurred and are included in selling, general and administrative expenses.
Stock-Based Compensation
In connection with the IPO, the Company adopted the 2015 Equity Incentive Plan of Duluth Holdings Inc. There are awards outstanding under the
2015 plan, but we do not grant new awards under the plan. We have adopted the 2024 Equity Incentive Plan of Duluth Holdings Inc. (“2024 Plan”), which
provides compensation alternatives such as stock options, shares, restricted stock, restricted stock units, deferred stock and performance share units, using
or based on the Company’s Class B common stock.
The Company accounts for its stock-based compensation plan in accordance with ASC Topic 718, Stock Compensation, which requires the Company
to measure all share-based payments at grant date fair value and recognize the cost over the requisite service period of the award. Restricted stock issued to
board members generally vests over a period of one year. Restricted stock issued to key employees and executives typically vests over a period of three
years to four years based on the terms for each individual award. The fair value of the restricted stock is determined based on the market value of the
Company’s Class B common stock on the grant date. Restricted stock forfeitures are recognized as incurred.
Total stock compensation expense associated with restricted stock recognized by the Company was $4.0 million and $4.2 million for fiscal 2024 and
fiscal 2023, respectively, and is included in Selling, general and administrative expenses on the Consolidated Statements of Operations.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
The following is a summary of the activity in the Company’s unvested restricted stock during the years ended February 2, 2025 and January 28,
2024:
Weighted average
grant date
fair value
Shares
per share
Outstanding at January 29, 2023
618,772
$
12.05
Granted
1,168,316
6.51
Vested
(164,116)
12.22
Forfeited
(255,702)
5.73
Outstanding at January 28, 2024
1,367,270
$
8.77
Granted
1,099,121
4.62
Vested
(540,722)
8.98
Forfeited
(239,402)
6.67
Outstanding at February 2, 2025
1,686,267
$
6.02
At February 2, 2025, the Company had unrecognized compensation expense of $5.8 million related to the restricted stock awards, which is expected
to be recognized over a weighted average period of 2.5 years.
Treasury Stock
Treasury stock consists of shares withheld in lieu of tax payments when restricted stock vests using the treasury cost method and is classified in the
Consolidated Balance Sheets as a reduction to shareholders’ equity.
Taxes Collected from Customers
The Company presents all non-income government-assessed taxes (sales, use and value-added taxes) collected from its customers and remitted to
governmental agencies on a net basis (excluded from revenue) in its consolidated financial statements.
Other Comprehensive Income
Other comprehensive income or loss represents the change in equity from non-shareholder or non-member transactions, which is not included in the
statements of earnings but is reported as a separate component of shareholders’ equity. For fiscal 2024 and fiscal 2023, other comprehensive income
consists of changes in unrealized gains and losses on the Company’s available-for-sale security, net of taxes.
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset, or paid
to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., an exit price). The exit price is based on the
amount that the holder of the asset or liability would receive or need to pay in an actual transaction (or in a hypothetical transaction if an actual transaction
does not exist) at the measurement date. ASC 820 describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of
which the first two are considered observable and the last unobservable, as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
The Company’s assets and liabilities measured at fair value are categorized as Level 1 or Level 3 instruments. The fair value of the Company’s
money market account is obtained from real-time quotes for transactions in active exchange markets involving identical assets (Level 1). The fair value of
the Company’s available-for-sale security was valued based on a discounted cash flow method (Level 3), which incorporates the U.S. Treasury yield curve,
credit information and an estimate of future cash flows. During fiscal 2024, certain changes in the inputs did impact the fair value of the available-for-sale
security. The calculated fair value is based on estimates that are subjective in nature and involve uncertainties and matters of significant judgement and,
therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The amortized cost and fair value of the Company’s money market account and available-for-sale security along with the corresponding amount of
gross unrealized gains and losses recognized in accumulated other comprehensive income are as follows.
February 2, 2025
Cost or
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
Cost
Gains
Losses
Fair Value
(in thousands)
Level 1 security:
Money market funds
$
—
$
—
$
—
$
—
Level 3 security:
Corporate trust
$
5,356
$
—
$
(865)
$
4,491
January 28, 2024
Cost or
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
Cost
Gains
Losses
Fair Value
(in thousands)
Level 1 security:
Money market funds
$
28,396
$
—
$
—
$
28,396
Level 3 security:
Corporate trust
$
5,556
$
—
$
(570)
$
4,986
The Company does not intend to sell the available-for-sale-security in the near term and does not believe that it will be required to sell the security.
The Company reviews its security on a quarterly basis to monitor its exposure to other-than-temporary impairment.
No other-than-temporary impairment was recorded in the Consolidated Statements of Operations in fiscal 2024 or fiscal 2023.
The following table presents the future receipts related to the Company’s available-for-sale security by contractual maturity as of February 2, 2025.
Amortized
Estimated
Cost
Fair Value
(in thousands)
Within one year
$
219
$
157
After one year through five years
1,438
1,123
After five years through ten years
2,142
1,827
After ten years
1,557
1,384
Total
$
5,356
$
4,491
The carrying values and fair values of other financial instruments in the Consolidated Balance Sheets are as follows:
February 2, 2025
January 28, 2024
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
(in thousands)
Carrying Amount
Fair Value
Carrying Amount
Fair Value
TRI Long-term debt, including short-term portion
$
25,214
$
21,225
$
25,988
$
23,554
The above long-term debt, including the short-term portion is attributable to the consolidation of TRI in accordance with ASC Topic 810,
Consolidation. The fair value was also based on a discounted cash flow method (Level 3) based on credit information and an estimate of future cash flows.
3. LEASES
Based on the criteria set forth in ASC Topic 842, Leases (“ASC 842”), the Company recognizes ROU assets and lease liabilities related to leases on
the Company’s Consolidated Balance Sheets. The Company determines if an arrangement is, or contains, a lease at inception. ROU assets represent the
right to use an underlying asset for the lease term and lease liabilities reflect the obligation to make lease payments arising from the lease. At any given
time during the lease term, the lease liability represents the present value of the remaining lease payments and the ROU asset is measured at the amount of
the lease liability, adjusted for pre-paid rent, unamortized initial direct costs and the remaining balance of lease incentives received. Both the lease ROU
asset and liability are reduced to zero at the end of the lease.
The Company leases retail space under non-cancelable lease agreements, which expire on various dates through 2041. Substantially all of these
arrangements are store leases. Store leases generally have initial lease terms ranging from five years to fifteen years with renewal options and rent
escalation provisions. At the commencement of a lease, the Company includes only the initial lease term as the option to extend is not reasonably certain.
The Company does not record leases with a lease term of 12 months or less on the Company’s Consolidated Balance Sheets.
When calculating the lease liability on a discounted basis, the Company applies its estimated discount rate. The Company bases this discount rate on
a collateralized interest rate as well as publicly available data for instruments with similar characteristics.
In addition to rent payments, leases for retail space contain payments for real estate taxes, insurance costs, common area maintenance, and utilities
that are not fixed. The Company accounts for these costs as variable lease expenses and does not include such costs as a lease component.
The expense components of the Company’s leases reflected on the Company’s Consolidated Statement of Operations were as follows:
Consolidated Statement of Operations
February 2, 2025
January 28, 2024
(in thousands)
Finance lease expense
Amortization of right-of-use
assets
Selling, general and administrative expenses
$
3,097
$
3,361
Interest on lease liabilities
Interest expense
1,564
1,709
Total finance lease expense
$
4,661
$
5,070
Operating lease expense
Selling, general and administrative expenses
$
22,255
$
20,267
Amortization of build-to-suit leases
capital contribution
Selling, general and administrative expenses
1,284
1,284
Variable lease expense
Selling, general and administrative expenses
11,961
10,927
Total lease expense
$
40,161
$
37,548
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
Other information related to leases were as follows:
February 2, 2025
January 28, 2024
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases
$
2,721
$
2,842
Operating cash flows from finance leases
$
1,564
$
1,709
Operating cash flows from operating leases
$
21,030
$
20,842
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases
$
4,748
$
5,468
Weighted-average remaining lease term (in years):
Finance leases
10
10
Operating leases
7
7
Weighted-average discount rate:
Finance leases
4.5%
4.5%
Operating leases
4.4%
4.2%
Future minimum lease payments under the non-cancellable leases are as follows as of February 2, 2025:
Finance
Operating
Fiscal year
Leases
Leases
(in thousands)
2025
$
3,971
$
19,720
2026
3,993
19,419
2027
3,993
18,179
2028
4,017
16,384
2029
4,217
13,898
Thereafter
20,997
33,297
Total future minimum lease payments
$
41,188
$
120,897
Less - Discount
8,026
16,141
Lease liability
$
33,162
$
104,756
Total rent expense under non-cancellable leases was $21.9 million and $21.8 million for fiscal 2024 and fiscal 2023, respectively.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
4. DEBT AND CREDIT AGREEMENT
Debt consists of the following:
February 2, 2025
January 28, 2024
(in thousands)
TRI Senior Secured Note
$
21,714
$
22,488
TRI Note
3,500
3,500
$
25,214
$
25,988
Less: current maturities
931
847
TRI Long-term debt
$
24,283
$
25,141
TRI Holdings, LLC
TRI entered into a senior secured note (“TRI Senior Secured Note”) with an original balance of $26.7 million. The TRI Senior Secured Note is
scheduled to mature on October 15, 2038 and requires installment payments with an interest rate of 4.95%. See Note 6 “Variable Interest Entities” for
further information.
TRI entered into a promissory note (“TRI Note”) with an original balance of $3.5 million. The TRI Note is scheduled to mature in November 2038
and requires annual interest payments at a rate of 3.05%, with a final balloon payment due in November 2038.
While the above notes are consolidated in accordance with ASC Topic 810, Consolidation, the Company is not the guarantor nor the obligor of
these notes.
Future principal maturities of all TRI debt, excluding unamortized financing fees of $1.0 million associated with the TRI debt are as follows as of
February 2, 2025:
Fiscal year
(in thousands)
2025
$
931
2026
1,020
2027
1,114
2028
1,214
2029
1,320
Thereafter
21,155
$
26,754
Credit Agreement
On May 14, 2021, the Company terminated its prior credit agreement, and entered into a credit agreement (the “Credit Agreement”), which was
treated as a modification for accounting purposes. The Credit Agreement originally matured on May 14, 2026 and provided for borrowings of up to $150.0
million that were available under a revolving senior credit facility, with a $5.0 million sublimit for issuance of standby letters of credit, as well as a $10.0
million sublimit for swing line loans. At the Company’s option, the interest rate applicable to the revolving senior credit facility was a floating rate equal to:
(i) the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus the applicable rate of 1.25% to 2.00% determined based on the Company’s rent
adjusted leverage ratio, or (ii) the base rate plus the applicable rate of 0.25% to 1.00% based on the Company’s rent adjusted leverage ratio. The Credit
Agreement is secured by essentially all Company assets and requires the Company to maintain compliance with certain financial and non-financial
covenants, including a maximum rent adjusted leverage ratio and a minimum fixed charge coverage ratio as defined in the Credit Agreement.
On July 8, 2022, the Company entered into the First Amendment to the Credit Agreement (the “First Amendment”), which was treated as a
modification for accounting purposes. The First Amendment amends the Credit Agreement in order to (i) increase the revolving commitment from $150.0
million to $200.0 million; (ii) extend the maturity date from May 14, 2026 to July 8, 2027; (iii) amend the pricing index to replace BSBY with the Term
Secured Overnight Financing Rate; and (iv) reduce the commitment fee in some instances.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
On January 31, 2025, the Company entered into the Second Amendment to the Credit Agreement (the “Second Amendment”), which was treated as
an extinguishment for accounting purposes. The Second Amendment amends the Credit Agreement in order to (i) decrease the revolving commitment from
$200.0 million to $100.0 million (ii) revise the definition of “Applicable Rate” to provide for pricing terms in the event of a Rent Adjusted Leverage Ratio
greater than or equal to 3.50:1.0; (iii) limit the exceptions to the prohibition on restricted payments to (a) making dividends or distributions by any
subsidiary to the Company, and (b) the acquisition of equity interests in satisfaction of tax withholding obligations associated with restricted stock or
awards under employee incentive plans; and (iv) provide that the Maximum Rent Adjusted Leverage Ratio and the Minimum Fixed Charge Coverage Ratio
will be measured commencing on the fiscal quarter ending May 2, 2021 and measured quarterly thereafter as of the last day of each fiscal quarter of the
Company (other than for the fiscal quarter ending February 2, 2025).
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
February 2, 2025
January 28, 2024
(in thousands)
Salaries and benefits
$
3,897
$
2,692
Deferred revenue
9,783
9,579
Freight
2,495
4,001
Product returns
4,568
5,541
Unpaid purchases of property & equipment
1,264
765
Accrued advertising
929
1,129
Other
12,748
10,404
Total accrued expenses and other current liabilities
$
35,684
$
34,111
6. VARIABLE INTEREST ENTITIES
Based upon the criteria set forth in ASC 810, Consolidation, the Company consolidates variable interest entities (“VIEs”) in which it has a
controlling financial interest and is therefore deemed the primary beneficiary. A controlling financial interest will have both of the following
characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance; and (b) the obligation to absorb the VIE
losses and the right to receive benefits that are significant to the VIE. The Company has determined that it was the primary beneficiary of one VIE as of
February 2, 2025 and January 28, 2024.
The Company leases the Company’s headquarters in Mt. Horeb, Wisconsin from TRI. In conjunction with the lease, the Company originally
invested $6.3 million in a trust that loaned funds to TRI for the construction of the Company’s headquarters. TRI is a Wisconsin limited liability company
whose primary purpose and activity is to own this real property. The Company considers itself the primary beneficiary for TRI as the Company has both the
power to direct the activities that most significantly impact the entity’s economic performance and is expected to receive benefits that are significant to
TRI. As the Company is the primary beneficiary, it consolidates TRI and the lease is eliminated in consolidation. The Company does not consolidate the
trust as the Company is not the primary beneficiary.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
The Consolidated Balance Sheets include the following amounts as a result of the consolidation of TRI as of February 2, 2025 and January 28, 2024.
February 2, 2025
January 28, 2024
(in thousands)
Cash
$
11
$
17
Property and equipment, net
22,321
22,941
Total assets
$
22,332
$
22,958
Other current liabilities
$
115
$
26
Current maturities of TRI long-term debt
931
847
TRI long-term debt
24,283
25,141
Noncontrolling interest in VIE
(2,997)
(3,056)
Total liabilities and shareholders' equity
$
22,332
$
22,958
While the Balance Sheet is consolidated in accordance with ASC Topic 810, Consolidation, the Company is not the guarantor nor the obligor of
the TRI debt.
7. EARNINGS PER SHARE
Earnings per share is computed under the provisions of ASC 260, Earnings Per Share. Basic earnings per share is based on the weighted average
number of common shares outstanding for the period. Diluted earnings per share is based on the weighted average number of common shares plus the
effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include
outstanding restricted stock and are considered only for dilutive earnings per share. The reconciliation of the numerator and denominator of the basic and
diluted earnings per share calculation is as follows:
Fiscal Year Ended
February 2, 2025
January 28, 2024
(in thousands, except per share data)
Numerator - net (loss) income attributable to controlling interest
$
(43,671)
$
(9,923)
Denominator - weighted average shares (Class A and Class B)
Basic
33,368
32,955
Dilutive shares
—
—
Diluted
33,368
32,955
Earnings per share (Class A and Class B)
Basic
$
(1.31)
$
(0.30)
Diluted
$
(1.31)
$
(0.30)
The computation of diluted loss per share excluded 0.1 million shares of unvested restricted stock for the fiscal year ended February 2, 2025,
respectively, because their inclusion would be anti-dilutive due to a net loss.
8. REVENUE
The Company’s revenue primarily consists of the sale of apparel, footwear and hard goods. Revenue for merchandise that is shipped to our
customers from our fulfillment centers and stores is recognized upon shipment. Store revenue is recognized at the point of sale, net of returns, and excludes
taxes. Shipping and processing revenue generated from customer orders are included as a component of net sales and shipping and processing expense,
including handling expense, is included as a component of selling, general and administrative expenses. Sales tax collected from customers and remitted to
taxing authorities is excluded from revenue and is included in accrued expenses.
Sales disaggregated based upon sales channel is presented below.
February 2, 2025
January 28, 2024
(in thousands)
Direct-to-consumer
$
419,860
$
425,562
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
Stores
206,769
221,119
$
626,629
$
646,681
Contract Assets and Liabilities
The Company’s contract assets primarily consist of the right of return for amounts of inventory to be returned that are expected to be resold and are
recorded in Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets. The Company’s contract liabilities primarily consist
of gift card liabilities and are recorded upon issuance in Accrued expenses and other current liabilities under deferred revenue (see Note 5 “Accrued
Expenses and Other Current Liabilities”) on the Company’s Consolidated Balance Sheets. Upon issuance of a gift card, a liability is established for its cash
value.
Contract assets and liabilities on the Company’s Consolidated Balance Sheets are presented in the following table:
February 2, 2025
January 28, 2024
(in thousands)
Contract assets
$
2,301
$
2,778
Contract liabilities
$
9,782
$
9,579
Revenue from gift cards is recognized when the gift card is redeemed by the customer for merchandise, or as gift card breakage, an estimate of gift
cards which will not be redeemed. The Company does not record breakage revenue when escheat liability to the relevant jurisdictions exists. Gift card
breakage is recorded within Net sales on the Company’s Consolidated Statement of Operations. The following table provides the reconciliation of the
contract liability related to gift cards:
February 2, 2025
January 28, 2024
(in thousands)
Balance as of Beginning of Period
$
9,579
$
10,249
Gift cards sold
18,975
18,116
Gift cards redeemed
(17,173)
(16,940)
Gift card breakage
(1,599)
(1,846)
Balance as of End of Period
$
9,782
$
9,579
9. INCOME TAXES
The components of income tax expense were as follows:
Fiscal Year Ended
February 2, 2025
January 28, 2024
(in thousands)
Current:
Federal
$
1
$
(638)
State
426
230
427
(408)
Deferred:
Federal
136
(1,879)
State
1,807
(575)
1,943
(2,454)
Total income tax expense
$
2,370
$
(2,862)
The tax effects of unrealized gains and losses on securities are components of other comprehensive income and therefore excluded from deferred tax
expense.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
The Company regularly assesses the realizability of deferred tax assets and under the asset and liability method prescribed under ASC 740, Income
Taxes, the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The realizability of deferred tax assets is assessed
throughout the year and a valuation allowance is recorded, if necessary, to reduce net deferred tax assets to the amount more likely than not to be realized.
The Company considers all available evidence, both positive and negative, to determine the realizability of deferred tax assets and includes historical
information about results of operations for the current and preceding years as well as more subjective information about future years. In conducting this
assessment, a significant piece of objective negative evidence evaluated by management was a cumulative loss over the most recent 36-month period ended
October 27, 2024, which was not outweighed by available positive evidence and which limited the Company’s ability to give weight to projections of
future growth for purposes of this assessment. Accordingly, as of February 2, 2025, a valuation allowance of $11.8 million was provided against the net
amount of deferred tax assets. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income
during the carryforward period are increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is
given to subjective evidence such as our projections for growth.
The reconciliation of income tax expense to the amount computed at the federal statutory rate was as follows:
Fiscal Year Ended
February 2, 2025
January 28, 2024
(in thousands)
Federal taxes at statutory rate
$
(8,672)
21.0 %
$
(2,683)
21.0 %
State and local income taxes, net of federal benefit
(1,333)
3.2 %
(409)
3.2 %
Stock compensation price difference
638
(1.6)%
150
(1.2)%
Research and development tax credits
(120)
0.3 %
(283)
2.4 %
Nondeductible compensation
(160)
0.4 %
384
(3.2)%
Adjustments to uncertain tax positions
(4)
— %
(164)
1.4 %
Valuation allowance
11,773
(28.5)%
—
— %
Other
248
(0.6)%
143
(1.2)%
Total income tax expense
$
2,370
(5.8)%
$
(2,862)
22.4 %
Deferred income taxes reflect the net tax effects of temporary differences between U.S. GAAP and tax bases of assets and liabilities. Significant
components of deferred tax assets and liabilities were as follows:
February 2, 2025
January 28, 2024
(in thousands)
Deferred tax assets:
Returns allowance
$
1,153
$
1,402
Uniform inventory capitalization
4,361
3,637
Goodwill and intangibles
29
—
Unrealized loss on investment
218
144
Federal and state credit
414
426
Lease liability
46,412
52,642
Accruals
1,355
389
Stock-based compensation
433
491
Advance payments
411
687
Business Interest limitation
475
127
Sales tax accrual
931
757
Unrecognized tax benefits
8
3
Charitable contributions
280
181
Research and development
1,790
1,723
Federal and state NOL
7,519
5,183
Gross deferred tax assets
65,789
67,792
Valuation allowance
(11,847)
—
Total deferred tax assets
53,942
67,792
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
Deferred tax liabilities:
Property and equipment
8,002
12,641
Prepaid expenses
970
949
Right-of-use asset
44,928
52,006
Goodwill and intangibles
—
71
Inventory reserve
42
358
Total deferred tax liabilities
53,942
66,025
Net deferred tax assets (liabilities)
$
—
$
1,767
As of February 2, 2025, we had state net operating losses (“NOL”) of approximately $23.2 million, with deferred tax assets of $1.2 million related to
these state NOLs. These state net operating loss carryforwards expire at various periods beginning in 2029. The federal NOL is approximately $30.1
million, with deferred tax asset of $6.3 million related to the federal NOL.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
February 2, 2025
January 28, 2024
(in thousands)
Balance beginning of year
$
119
$
287
Additions for tax positions in prior years
19
(74)
Additions for tax positions in current year
14
37
Statute of limitations
(38)
(131)
Balance at end of year
$
114
$
119
If recognized, $0.1 million of the Company’s unrecognized tax benefits as of February 2, 2025, would affect the Company’s effective tax rate. The
Company does not anticipate that there will be a material change in the balance of the unrecognized tax benefits in the next 12 months. Any interest and
penalties related to uncertain tax positions are recorded in income tax expense. There were no material amounts recorded as tax expense for interest or
penalties for the years ended February 2, 2025 or January 28, 2024.
The Company files income tax returns in the United States federal jurisdiction and in various state jurisdictions. Federal tax returns for tax years
2021 through 2023, and state tax returns for tax years 2020 through 2023, are open for examination.
10. RETIREMENT PLAN
The Company has a contributory 401(k) profit sharing plan (the “Plan”) which covers all employees who have attained age 21 and who have met
minimum service requirements. The Company makes quarterly non-discretionary “safe harbor” matching contributions to the Plan equal to 100% of the
basic contribution made by each participant on the first 3% of his or her compensation plus 50% of the basic contribution made by each participant on the
next 2% of his or her compensation. As of January 1, 2025, the Company updated the non-discretionary “safe harbor” matching contributions to the Plan to
100% of the basic contribution made by each participant on the first 1% of his or her compensation plus 50% of the basic contribution made by each
participant on the next 5% of his or her compensation.
The Company is also permitted to make discretionary profit sharing contributions to the Plan. There were no profit sharing contributions for the plan
year ended December 31, 2024.
The Company’s total expenses under the Plan were $2.3 million and $2.2 million for fiscal 2024 and fiscal 2023, respectively.
11. COMMITMENTS AND CONTINGENCIES
From time to time, the Company becomes involved in lawsuits and other claims arising from its ordinary course of business. Because of the
uncertainties related to the incurrence, amount and range of loss on any pending litigation or claim, management is currently unable to predict the ultimate
outcome of any litigation or claim, determine whether a liability has been incurred or make an estimate of the reasonably possible liability that could result
from an unfavorable outcome.
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
Management believes, after considering a number of factors and the nature of any outstanding litigation or claims, that the outcome will not have a material
effect upon the Company’s results of operations, financial condition or cash flows. However, because of the unpredictable nature of these matters, the
Company cannot provide any assurances regarding the outcome of any litigation or claim to which it is a party or the impact on it of an adverse ruling in
such matters.
12. SEGMENT REPORTING
As of February 2, 2025 and January 28, 2024, we had one reportable segment. The Company’s operating segment is based on how the Chief
Operating Decision Maker (“CODM”) makes decisions about allocating resources and assessing performance. Our CODM is our Chief Executive Officer
and the CODM receives discrete financial information for the Company’s gross margin and a summarized comprehensive statement of income monthly that
categorizes selling, general and administrative expenses into four line items with remaining expenses and expenditures for long-lived assets being
consolidated as an omnichannel business.
The following table summarizes the Company’s gross margin and selling, general and administrative expenses.
Fiscal Year Ended
February 2, 2025
January 28, 2024
(53 weeks)
(52 weeks)
(in thousands)
Net sales
$
626,629
$
646,681
Cost of goods sold
318,119
321,710
Gross margin
308,510
324,971
Less:
Outbound shipping expenses
43,664
47,185
Advertising expenses
67,518
69,049
Variable expenses
56,055
58,049
Overhead expenses
178,134
160,257
Total selling, general and administrative
345,371
334,540
Operating loss
$
(36,861)
$
(9,569)
13. RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
Intangibles – Goodwill and Other – Internal-use Software
On February 3, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2018-15, Intangibles – Goodwill and Other – Internal-Use
Software (Subtopic 350-40) (“ASU 2018-15”) which provides additional guidance on the accounting for costs of implementation activities performed in a
cloud computing arrangement that is a service contract. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to
follow the new internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. The new internal-use
software guidance requires that certain costs incurred during the application development stage be capitalized and other costs incurred during the
preliminary project and post-implementation stages be expensed as they are incurred. The Company adopted ASU 2018-15 using the prospective method.
In fiscal 2024 and 2023, $11.2 million and $10.1 million of capitalized costs associated with implementation activities, net of amortization are classified
within Prepaid expenses & other current assets on the Company’s Consolidated Balance Sheets, respectively, and $5.3 million and $5.0 million of related
amortization costs are included in Selling, general and administrative expenses on the Company’s Consolidated Statement of Operations, respectively.
Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments
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DULUTH HOLDINGS INC.
Notes to Consolidated Financial Statements
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments,” (“ASU 2016-13”), which amends the impairment model by requiring entities to use a forward-looking approach based
on expected losses to estimate credit losses on certain types of financial instruments, which include trade and other receivables, loans and held-to-maturity
debt securities, to record an allowance for credit risk based on expected losses rather than incurred losses, otherwise known as “CECL”. In addition, this
guidance changes the recognition for credit losses on available-for-sale debt securities, which can occur as a result of market and credit risk and requires
additional disclosures. On November 15, 2019, the FASB issued ASU No. 2019-10 “Financial Instruments-Credit Losses (Topic 326), Derivatives and
Hedging (Topic 815, and Leases (Topic 842),” (“ASU 2019-10”), which provides a framework to stagger effective dates for future major accounting
standards and amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities. ASU 2019-10
amends the effective dates for ASU 2016-13 for smaller reporting companies with fiscal years beginning after December 15, 2022, and interim periods
within those years. The Company adopted ASU 2016-13 on January 30, 2023, the first day of the Company’s first quarter for the fiscal year ending January
28, 2024, the Company’s fiscal year 2023. ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.
Segment Reporting – Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting: Improvements to Reportable Segment Disclosures.” This ASU
improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the
amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss,
provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The new guidance is
effective for public companies with annual periods beginning after December 15, 2023, and interim periods within annual period beginning after December
15, 2024, with early adoption permitted. The Company adopted ASU 2023-07 on January 29, 2024, the first day of the Company’s first quarter for the
fiscal year ending February 2, 2025, the Company’s fiscal year 2024.
Recent Accounting Pronouncements Not Yet Adopted
Income Taxes – Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes: Improvements to Income Tax Disclosures.” This ASU improves the
transparency of income tax disclosures by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii)
income taxes paid disaggregated by jurisdiction. This new guidance will be effective for annual periods beginning after December 15, 2024, and early
adoption is permitted. Management is currently evaluating the effects adoption of this guidance will have on its consolidated financial statements.
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DULUTH HOLDINGS INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended February 2, 2025 and January 28, 2024
(Amounts in thousands)
Charged to
Charged to
Beginning
Cost and
Other
Ending
Balance
Expenses
Accounts
Deductions
Balance
Inventory reserve
Year ended February 2, 2025
$
1,361
$
774
$
—
$
—
$
2,135
Year ended January 28, 2024
1,837
$
—
$
—
$
(476)
$
1,361
Product returns reserve
Year ended February 2, 2025
$
5,541
$
—
$
—
$
(973)
$
4,568
Year ended January 28, 2024
5,168
$
373
$
—
$
—
$
5,541
See accompanying Report of Independent Registered Public Accounting Firm.
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ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Section 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires management of an issuer subject to the
Exchange Act to evaluate, with the participation of the issuer’s principal executive and principal financial officers, or persons performing similar functions,
the effectiveness of the issuer’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of each fiscal
quarter. The Company carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures at the reasonable assurance
level pursuant to Rule 13a-15 of the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that,
as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under
the Exchange Act). Management assessed the effectiveness of its internal control over financial reporting as of February 2, 2025. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the Internal
Control-Integrated Framework (2013), or the COSO Report. Based on this assessment, management concluded that our internal control over financial
reporting is effective as of February 2, 2025.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), that
occurred during the fiscal quarter ended February 2, 2025, that has materially affected, or is reasonable likely to materially affect, our internal control over
financial reporting.
ITEM 9B.
OTHER INFORMATION
(a) None.
(b) During the three months ended January 28, 2024, no director or Section 16 officer of the Company adopted or terminated a “Rule 10b5-1 trading
arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item concerning our directors, audit committee, and audit committee financial experts, insider trading policy and
compliance with Section 16(a) of the Exchange Act is incorporated by reference to information under the sections “Proposal One: Election of Directors,”
“Executive Compensation—Insider Trading Policy” and “Delinquent Section 16(a) Reports” in our definitive proxy statement for our 2025 annual meeting
of shareholders to be held on May 29, 2025 (the “Proxy Statement”). It is anticipated that our Proxy Statement will be filed with the Securities and
Exchange Commission on or about April 11, 2025.
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We have adopted a code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer,
principal financial officer and principal accounting officer. We have posted the code of business conduct and ethics on our website at
http://ir.duluthtrading.com under the tab “Corporate Governance—Documents & Charters—Code of Business Conduct and Ethics.” We intend to satisfy
our disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waiver of, any provisions of our code of business conduct and ethics
that applies to our principal executive officer, principal financial officer and principal accounting officer and our directors by posting such information to
our website.
Our code of business conduct and ethics is available in print for any shareholder who requests it by writing to: Secretary, Duluth Holdings Inc., 201
East Front Street, Mount Horeb, Wisconsin, 53572. We are not including the information available on or through our website as part of, or incorporating
such information by reference into, this Annual Report on Form 10-K.
Pursuant to General Instruction G(3), certain information with respect to our executive officers is set forth under the caption “Information about Our
Executive Officers” as of March 21, 2025 in this Annual Report on Form 10-K.
ITEM 11.
EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference to the sections of the Proxy Statement entitled “Executive Compensation” (excluding
the information under the caption “Pay Versus Performance”), “Director Compensation,” and “Compensation Committee Interlocks and Insider
Participation.”
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
Information required by this Item is incorporated by reference to the sections of the Proxy Statement entitled “Security Ownership of Certain
Beneficial Owners.”
Number of securities
remaining available for
Number of securities to
Weighted-average
future issuance under
be issued upon exercise
exercise price of
equity compensation plans
of outstanding options,
outstanding options,
(excluding securities
Plan category
warrants and rights
warrants and rights
reflected in first column)(1)
Equity compensation plans approved
by security holders
— $
—
5,018,713
Equity compensation plans not approved
by security holders(2)
—
—
—
Total
— $
—
5,018,713
Equity Compensation Plan Information: The following table sets forth information as of February 2, 2025 about shares of common stock outstanding
and available for issuance under our existing equity compensation plans.
(1)
3,931,585 shares are available under the Company’s 2024 Equity Incentive Plan and 1,087,128 shares are available under the Company’s Employee Stock Purchase Plan.
(2)
All of our existing equity compensation plans have been approved by shareholders.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information required by this Item is incorporated by reference to the sections of the Proxy Statement entitled “Certain Relationships and Related
Party Transactions” and “Proposal One: Election of Directors.”
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item is incorporated by reference to the section of the Proxy Statement entitled “Audit Committee Report.”
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PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE
(a)(2) Financial Statements and Financial Statement Schedule
See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Annual Report on Form 10-K. Schedule II is included in Part II, Item 8.
All other financial statement schedules have been omitted because they are not required or are not applicable or because the information required in those
schedules either is not material or is included in the consolidated financial statements or the accompanying notes.
(a)(3) Exhibits
Exhibit No.
3.1
Amended and Restated Articles of Incorporation of Duluth Holdings Inc., incorporated by reference to Exhibit 3.1 of Pre-Effective
Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-207300), filed November 9, 2015.
3.2
Amended and Restated Bylaws of Duluth Holdings Inc., incorporated by reference to Exhibit 3.2 of the Pre-Effective Amendment No. 2
to the Company’s Registration Statement on Form S-1 (File No. 333-207300), filed November 9, 2015.
4.1
Description of Registrant’s Securities.
9.1
Voting Trust Agreement, dated November 1, 2021, by and between Stephen L. Schlecht, as trustee, and Duluth Holdings Inc.,
incorporated by reference to Exhibit 9.1 of the Company’s Annual Report on Form 10-K filed March 25, 2022.
10.1+
Outside Director Compensation Policy, incorporated by reference to Exhibit 10.1 of the Company’s Annual Report on Form 10-K for
the year ended January 28, 2024.
10.2+
2015 Equity Incentive Plan of Duluth Holdings Inc., incorporated by reference to Exhibit 10.7 of the Company’s Quarterly Report on
Form 10-Q, filed December 18, 2015.
10.3+
2024 Equity Incentive Plan of Duluth Holdings Inc., incorporated by reference to Appendix A to the Company’s Proxy Statement on
Schedule 14A filed on April 5, 2025.
10.4+
Form of Restricted Stock Agreement for non-employee directors under the 2015 Equity Incentive Plan, incorporated by reference to
Exhibit 10.17 of the Company’s Registration Statement on Form S-1 (File No. 333-207300), filed October 6, 2015.
10.5
Commercial Lease between Schlecht Retail Ventures LLC and Duluth Holdings Inc., dated February 14, 2010 (100 West Main Street,
Mt. Horeb, Wisconsin), incorporated by reference to Exhibit 10.19 of the Company’s Registration Statement on Form S-1 (File No. 333-
207300), filed October 6, 2015.
10.6
Form of S Corporation Termination, Tax Allocation and Indemnification Agreement among Duluth Holdings Inc. and shareholders of
Duluth Holdings Inc., incorporated by reference to Exhibit 10.23 of Pre-Effective Amendment No. 1 to the Company’s Registration
Statement on Form S-1 (File No. 333-207300), filed October 13, 2015.
10.7
Amended and Restated Annual Incentive Plan, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K
dated February 20, 2024.
10.8+
Form of Restricted Stock Agreement for executives under the 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 of
the Company’s Quarterly Report on Form 10-Q dated May 1, 2016.
10.9+
Form of Restrictive Covenant Agreement, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K
dated July 24, 2017.
10.10+
First Amended and Restated Employment Agreement, dated as of May 27, 2021, between Stephen L. Schlecht and the Company,
incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q dated September 3, 2021.
10.11+
Employment Agreement between Duluth Holdings Inc. and Samuel M. Sato dated May 3, 2021, incorporated by reference to Exhibit
10.3 of the Company’s Quarterly Report on 10-Q dated June 4, 2021.
10.12+
Offer Letter dated January 24, 2020 by and between David S. Homolka and Duluth Holdings Inc., incorporated by reference to Exhibit
10.18 of the Company’s Annual Report on Form 10-K, filed March 25, 2022.
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10.13+
Offer Letter dated January 24, 2020 by and between Richard W. Schlecht and Duluth Holdings Inc., incorporated by reference to
Exhibit 10.19 of the Company’s Annual Report on Form 10-K, filed March 25, 2022.
10.14
Credit Agreement, dated as of May 14, 2021, among Duluth Holdings Inc., the Lenders party thereto, Bank of America, N.A., as
Administrative Agent, Swingline Lender and L/C Issuer, BofA Securities, Inc., as a Joint Lead Arranger and Sole Bookrunner, and
Keybanc Capital Markets Inc., as a Joint Lead Arranger, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on
Form 8-K dated May 14, 2021.
10.15
Security Agreement, dated as of May 14, 2021, by and between Duluth Holdings Inc. and Bank of America, N.A., incorporated by
reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated May 14, 2021.
10.16+
Duluth Holdings Inc. Executive Change in Control Severance Plan incorporated by reference to Exhibit 10.1 of the Company’s Current
Report on Form 8-K dated April 14, 2022.
10.17+
Duluth Holdings Inc. Executive General Severance Plan Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on
Form 8-K dated April 14, 2022.
10.18
First Amendment, dated as of July 8, 2022, among Duluth Holdings Inc., the Lenders party thereto, Bank of America, N.A., as
Administrative Agent, Swingline Lender and L/C Issuer, BofA Securities, Inc., as a Joint Lead Arranger and Sole Bookrunner, and
Keybanc Capital Markets Inc., as a Joint Lead Arranger, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on
Form 8-K dated July 8, 2022.
10.19+
Offer Letter dated July 27, 2022 by and between Albert J. Sutera and Duluth Holdings Inc., incorporated by reference to Exhibit 10.1 of
the Company’s Quarterly Report on Form 10-Q dated September 2, 2022.
10.20+
Offer Letter dated January 17, 2024 by and between Heena Agrawal and Duluth Holdings Inc., incorporated by reference to Exhibit
10.1 of the Company’s Current Report on Form 8-K dated January 18, 2024.
10.21+
Inducement Restricted Stock Award Agreement, dated February 12, 2024, by and between Heena Agrawal and Duluth Holdings Inc.,
incorporated by reference to the Company’s Current Report on Form 8-K dated February 12, 2024.
10.22+
Offer Letter dated July 18, 2024 by and between Ei Getson and Duluth Holdings Inc.*
10.23+
Offer Letter dated August 5, 2024 by and between Garth Weber and Duluth Holdings Inc.*
10.24+
Second Amendment to Employment Agreement, dated as of February 26, 2025, by and between Stephen L. Schlecht and Duluth
Holdings Inc.*
10.25+
Form of Restricted Stock Agreement for executives under the 2024 Equity Incentive Plan, incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarter ended July 28, 2024.*
10.26
Form of Restricted Stock Agreement for non-employee directors under the 2024 Equity Incentive Plan, incorporated by reference to the
Company’s Quarterly Report on Form 10-Q for the quarter ended July 28, 2024.
10.27
Second Amendment, dated as of January 31, 2025, among Duluth Holdings Inc., the Lenders party thereto, Bank of America, N.A., as
Administrative Agent, Swingline Lender and L/C Issuer, BofA Securities, Inc., as a Joint Lead Arranger and Sole Bookrunner, and
Keybanc Capital Markets Inc., as a Joint Lead Arranger, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on
Form 8-K dated January 31, 2025.
19.1
Duluth Holdings Inc. Statement of Policy on Securities Trading.*
23.1
Consent of KPMG LLP.*
24.1
Power of Attorney.*
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as
amended.*
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as
amended.*
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
97.1
Executive Officer Compensation Recovery Policy, incorporated by reference to Exhibit 97 of the Company’s Annual Report on Form
10-K for the year ended January 28, 2024.
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101.INS
XBRL Instance Document**
101.SCH
XBRL Taxonomy Extension Schema Document**
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF
XBRL Taxonomy Extension Definition Document**
101.LAB
XBRL Taxonomy Extension Label Linkbase Document**
101.PRE
104
XBRL Taxonomy Extension Presentation Linkbase Document**
Cover Page interactive data file (formatted as inline XBRL and contained in Exhibit 101)
+ Indicates a management contract or compensation plan or arrangement
* Filed herewith
** In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall be deemed to be “furnished” and not
“filed.”
ITEM 16.
FORM 10-K SUMMARY
Not applicable.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DULUTH HOLDINGS INC.
By:
/s/ Samuel M. Sato
Samuel M. Sato
President and Chief Executive Officer
DATE: March 21, 2025
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the dates indicated.
Name
Title
Date
/s/ Samuel M. Sato
Samuel M. Sato
President and
Chief Executive Officer
(Principal Executive Officer)
March 21, 2025
/s/ Heena K. Agrawal
Heena K. Agrawal
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
March 21, 2025
Directors: Samuel M. Sato, Brett L. Paschke, Francesca M. Edwardson, Janet H. Kennedy, David C. Finch, Susan J. Riley, Stephen L. Schlecht, Scott K.
Williams and Ronald Robinson.
By:
/s/ Samuel M. Sato
March 21, 2025
Samuel M. Sato
Attorney-In-Fact*
*Pursuant to authority granted by powers of attorney, copies of which are filed herewith.
69
Exhibit 10.22
July 18, 2024
Dear Eli:
It is my pleasure to extend the following offer of employment to you on behalf of Duluth Trading Company. This
letter will highlight some of the details of your employment. If you are in agreement with the terms of this offer,
please acknowledge your acceptance verbally by end of business on 07/19/2024 and subsequently by signing
and returning a copy of this letter to me.
Position Title: Senior Vice President, Chief Merchant
Start Date: 08/12/2024
Reporting Relationship: Sam Sato, President and CEO
Work Location: Mount Horeb, WI – Headquarters
Work Arrangement: At Duluth Trading Company, we value face-to-face interactions that foster our culture of
learning, creativity, and teamwork. The role is based at our headquarters near Madison, WI. Beginning on your
date of hire, unless other arrangements are agreed to, you will work in the office Monday through Thursday,
with the option to work remotely from home on Fridays if you prefer. The company reserves the right to adjust
the schedule based on business needs. Employees will be provided with advance notice whenever possible in
the event of schedule changes.
Base Salary: Your annual base salary will be $450,000, which is paid bi-weekly and is subject to deductions for
taxes and other withholdings that are required by law. All permanent exempt and non-exempt employees hired
on or before November 1 of the fiscal year typically receive an annual performance and merit review or as
otherwise deemed appropriate by the Company in its sole discretion.
Annual Bonus: You are eligible to participate in the Company’s bonus plan for executive-level employees as
then in effect. For fiscal 2024, your bonus target will be 65% of your base salary and is contingent on the
Company meeting certain pre-established financial thresholds as previously disclosed and shall be prorated
based on your effective date.
Additional Compensation: You will receive a one-time initial restricted stock grant equivalent to 100% of your
annual base salary, with the number of Class B shares to be determined based on the closing market price on
the date of the stock grant, which will be your first date of employment. The grant will vest 100% on the 3rd
anniversary of the initial grant date, provided you are still employed with the Company at the vesting date.
1
Long-Term Incentive: Beginning in fiscal year 2025, in March or April of each year, you will be eligible for an
annual grant of restricted stock, subject to Compensation Committee approval and company performance. Your
target incentive will have a grant date fair value equal to 50% of your base salary. The grant will vest 25% each
year on a 4-year schedule, provided you are still employed on each vesting date. For avoidance of doubt, in light
of the inducement grant of restricted stock, you will not be entitled to receive an LTI annual grant of restricted
stock in fiscal year 2024.
Benefits: You will be eligible to participate in the Company’s health, dental, life, disability, 401(K), and flex
spending programs. You are also eligible for the BeniComp Select Executive Medical Reimbursement Plan for
you and your eligible dependents up to $15,000 per year.
Severance Benefits: As a member of the Executive team, you will be a participant in the Executive General
Severance Plan and the Executive Change in Control Severance Plan.
Time Off: Eligible employees are free to take leave when they require it, for vacation time, personal days, and
sick leave, including, but not limited to, time off required under applicable local and state sick leave laws,
subject to the limitations described in the Unlimited Time Off Policy for Exempt Employees.
Employee Purchase Program: The employee purchase program provides you with a 40% discount for personal
use, including gift giving and can be redeemed online or at any one of our retail locations.
Relocation: This offer is being made with the understanding and expectation that you will relocate to the
greater Madison area within 12 months from the first date of your employment with us. Duluth Trading
Company’s relocation policy is designed to assist you and your family by providing you with a comprehensive
relocation package that facilitates your move while minimizing personal disruption and expense.
I trust this letter confirms your understanding of the major items related to our offer of employment. If not,
please contact me to resolve any outstanding items.
Sincerely,
Sam Sato
President & Chief Executive Officer
Duluth Trading Company
ACCEPTED:
/s/ Eli Getson
July 18, 2024
Eli Getson
Date
2
Exhibit 10.23
August 5, 2024
Dear Garth:
It is my pleasure to extend the following promotion to you on behalf of Duluth Trading Company. This letter will
highlight some of the details of your promotion.
Position Title: Senior Vice President of Brand & Marketing
Work Location: Mount Horeb, WI - Headquarters
Start Date: 08/05/2024
Base Salary: Your annual base salary will be $325,000 annual, which is paid bi-weekly and is subject to
deductions for taxes and other withholdings that are required by law.
Bonus Potential: You are eligible to participate in the Company’s bonus plan for executive-level employees, and
your bonus target will be 65% of your base salary, and the maximum bonus award shall be up to 130% of your
base salary. The amount of bonus for FY24 is contingent on the Company meeting certain pre-established
financial thresholds as previously disclosed, and shall be prorated based on your effective date.
Long-Term Incentive: Beginning in fiscal year 2025, you will be eligible for an annual grant of restricted stock,
subject to Compensation Committee approval and company performance. Your target incentive will have a
grant date fair value equal to 50% of your base salary. The grant will vest 25% each year on a 4-year schedule,
provided you are still employed on each vesting date.
Signing Bonus: The repayment terms for the signing bonus, initiated on July 25th, 2023, remain in effect.
Benefits: Your enrollment in the Company’s health, dental, life, disability, 401(K), and flex spending programs
will continue unchanged. Additionally, your eligibility for the BeniComp Selected Executive Medical
Reimbursement Plan, covering both you and your eligible dependents, will now extend from a maximum of
$10,000 annually to a maximum of $15,000 annually.
Severance Benefits: As a member of the Executive team, you will be a participant in the Executive General
Severance Plan and the Executive Change in Control Severance Plan. A summary of these plans at the Senior
Vice President level is included in this agreement.
Time Off: Your paid time off benefits remain unchanged.
1
Relocation: We anticipate your move to the greater Madison area by October 1st, 2025. At Duluth Trading
Company, we understand the significance of relocating, and our policy is tailored to support you and your
family through this transition. Please note that this updated relocation agreement replaces the previous one
effective from July 25th, 2023, resulting in a reset of your relocation benefits and any submitted expenses.
Enhanced Flex Benefit Program: Duluth recognizes your intention to utilize mileage and temporary housing
support throughout the relocation policy agreement. As a result, we are increasing the flex benefit cap from
$10,000 to $21,000. This enhanced program maintains flexibility, allowing you to allocate the benefits towards
mileage, temporary living expenses, or a combination of both.
Sincerely,
Sam Sato
President & Chief Executive Officer
Duluth Trading Company
ACCEPTED:
/s/ Garth Weber
August 5th, 2024
Garth Weber
Date
2
Exhibit 10.24
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (“Second
Amendment”) is executed as of this 26th day of February, 2025 (“the Amendment Effective Date”), by
and between Stephen L. Schlecht (“Executive”) and Duluth Holdings Inc. (the “Company”).
RECITALS
WHEREAS, the Company and Executive (jointly, the “Parties” and each a “Party”) entered into
that certain Employment Agreement, dated August 5, 2015 (the “2015 Employment Agreement”);
WHEREAS, the Company and Executive amended and restated the 2015 Employment
Agreement in its entirety, on the terms and conditions set forth in the First Amended and Restated
Employment Agreement, dated May 27, 2021 (the “Amended and Restated Employment Agreement”);
and
WHEREAS, the Parties desire to amend the Amended and Restated Employment Agreement on
the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the promises and the mutual agreements and
covenants contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Parties, the Parties agree as follows:
1.
Definitions. Capitalized terms used and not defined in this Second Amendment have the
respective meanings assigned to them in the Amended and Restated Employment Agreement.
2.
Amendments to the Amended and Restated Employment Agreement.
a.
The first sentence of Section 1.2 (Term of Employment) of the Amended and Restated
Employment Agreement is hereby amended and restated in its entirety as follows:
“The Company employes Executive, and Executive accepts employment by the Company, for the
period commencing on the Effective Date and ending on the date of the annual meeting of
shareholders of the Company in 2026 (the “Employment Term”); provided, however, that the
Employment Term shall be subject to earlier termination as hereafter set forth in Article III,
below.”
b.
Section 2.2 (Incentive Compensation) of the Amended and Restated Employment
Agreement is hereby amended and restated in its entirety as follows:
“Incentive Compensation. During the Employment Term, Executive shall be eligible to participate
in annual incentive bonus plans (the “Bonus Plan”) offered by the Company to its senior
executives from time-to-time. The performance metrics for the Bonus Plan and the extent to
which such metrics are met, as well as any other material terms, including threshold and
maximum levels for annual cash incentive bonuses, shall be determined in the sole discretion of
the Board. For fiscal year 2021, Executive’s bonus target shall be one hundred percent (100%) of
Executive’s Base Salary and the maximum bonus award shall be up to one hundred fifty percent
(150%) of Base Salary. The amount of bonus for fiscal 2021 shall be contingent upon the
Company meeting certain pre-established financial thresholds as
1
previously approved by the Compensation Committee of the Board. For fiscal years 2022, 2023,
2024, 2025 and 2026, Executive’s bonus target shall be fifty percent (50%) of Executive’s Base
Salary and the maximum bonus award shall be up to seventy five percent (75%) of Base Salary.
The amount of bonus for fiscal years 2022, 2023, 2024, 2025 and 2026 shall be contingent upon
the Company meeting certain pre-established financial thresholds to be approved by the
Compensation Committee of the Board for the senior officers of the Company. During the
Employment Term, Executive will not be eligible for grants of equity compensation under the
Company’s equity incentive plan in effect during the Employment Term. The bonus for fiscal year
2026 shall be prorated for a partial year of service.”
3.
Limited Effect. Except as expressly provided in this Second Amendment, all the terms and
provisions of the Amended and Restated Employment Agreement are and will remain in full force and effect and
are hereby ratified and confirmed by the Parties. Without limiting the generality of the foregoing, the amendments
contained herein will not be construed as an amendment to or waiver of any other provision of the Amended and
Restated Employment Agreement or as a waiver of or consent to any further or future action on the part of either
Party that would require the waiver or consent of the other Party.
4.
Miscellaneous.
a.
This Second Amendment is governed by and construed in accordance with the laws of the
State of Wisconsin, without regard to the conflict of laws provisions of such State.
b.
The headings in this Second Amendment are for reference only and do not affect the
interpretation of this Second Amendment.
c.
This Second Amendment may be executed in counterparts, each of which is deemed an
original, but all of which constitute one and the same agreement. Delivery of an executed counterpart of
this Second Amendment electronically shall be effective as delivery of an original executed counterpart of
this Second Amendment.
d.
This Second Amendment constitutes the sole and entire agreement between the Parties
with respect to the subject matter contained herein, and supersedes all prior and contemporaneous
understandings, agreements, representations, and warranties, both written and oral, with respect to such
subject matter.
IN WITNESS WHEREOF, the Parties hereto have caused this Second Amendment to be duly
executed as of the Amendment Effective Date.
EXECUTIVE:
_____________________________________
Stephen L. Schlecht
DULUTH HOLDINGS INC.:
_____________________________________
Samuel M. Sato
President and Chief Executive Officer
2
Exhibit 19.1
DULUTH HOLDINGS INC.
STATEMENT OF POLICY ON SECURITIES TRADING
(Amended as of October 31, 2017)
I.
PURPOSE OF STATEMENT OF POLICY
The federal securities laws prohibit “insider trading.” Insider trading is a major focus of
the enforcement program of the Securities and Exchange Commission and of criminal
prosecutions brought by the Department of Justice.
As of the date of adoption of this Statement of Policy on Securities Trading, companies
are subject to a civil penalty of up to the greater of $1,525,000 or three times the profit gained or
loss avoided as a result of an employee’s violation, and a criminal penalty of up to
$25,000,000. Individuals who trade on (or tip others as to) material non-public information are
subject to a civil penalty of up to the greater of $1,000,000 or three times the profit gained or
loss avoided, a criminal fine (no matter how small the profit) of up to $5,000,000, and a jail term
of up to twenty years. Other “controlling persons,” such as managerial and supervisory
personnel, may also be subject to similar penalties under certain circumstances if they fail to
take appropriate steps to prevent insider trading violations by their controlled persons. In
addition, the federal securities laws permit private rights of action against companies and
individuals for insider trading.
In order to comply with its obligations under the federal securities laws, Duluth Holdings
Inc. (the “Company”) has adopted this Statement of Policy on Securities Trading.
II.
POLICY
A.
Policy on Prohibited Trading. It is the Company’s policy to prohibit trading by
the Company and its subsidiaries and the directors, officers and employees of the Company
and its subsidiaries (each a “Covered Person”) while in possession of material non-public
information. Accordingly, no Covered Person shall buy or sell securities of the Company while
in possession of material non-public information relating to the Company or any of its affiliates,
nor shall any Covered Person buy or sell securities of any other company, including Company
customers, while in possession of material non-public information relating to such company
which was obtained in the course of service to the Company or from any Covered Person.
B.
Policy of Confidentiality. Often illegal trading results from the misuse of
confidential information, such as “tipping” which means communicating material non-public
information to others under circumstances that suggest that the “tipper” was trying to help the
“tippee” make a profit or avoid a loss. In order to facilitate the foregoing policy on prohibited
trading, it is the policy of the Company that all material non-public information relating to the
Company, or material non-public information relating to any other company which was obtained
in the course of service to the Company or from any Covered Person, shall be treated as
confidential and shall not be communicated to any other person, including other Covered
Persons, except for a valid Company purpose.
1
C.
Pre-Clearance of All Trades by Directors, Executive Officers and Certain
Others. To further facilitate the foregoing policy on prohibited trading, to provide assistance in
preventing inadvertent violations and to avoid even the appearance of an improper transaction,
all transactions in Company securities by directors of the Company, individuals who have been
designated by the Board of Directors as executive officers of the Company, and other Covered
Persons designated by the Compliance Officer (defined below) must be pre-cleared by the
Compliance Officer and generally will be limited to a trading window commencing three days
after the public release of quarterly financial information (the “Release”) and ending on the last
trading day of the second month of the quarter following the quarter to which such Release
relates (the “Trading Window”). This period, however, may be shortened or suspended by the
Compliance Officer when (i) the person seeking to engage in a transaction is in possession of
material non-public information relating to the Company, (ii) the Company is contemplating, or in
the process of, the purchase or distribution of its securities, (iii) the Company is contemplating,
or in the process of conducting, any extraordinary material business activity which has not yet
been made public or (iv) otherwise determined to be appropriate by the Compliance
Officer. This period may also be extended under circumstances as determined to be
appropriate by the Compliance Officer. The Compliance Officer will give notice to each other
Covered Person who becomes subject to these requirements.
D.
Prohibition on Certain Transactions by Directors, Executive Officers and Certain
Others. Those Covered Persons who are subject to the foregoing requirement concerning pre-
clearance of trades are prohibited from engaging in the following transactions in securities of the
Company unless advance approval is obtained from the Compliance Officer:
1.
Hedging. Such persons may not engage in any transaction in the securities of the
Company, including hedging, short selling, borrowing, or lending, with the effect of
or intent to mitigate loss or manage the risks of changes in the price, or to profit or
share in any profit from any decrease in the price, of any security of the Company.
2.
Options trading. Such persons may not buy or sell puts or calls on securities of
the Company.
3.
Other derivative instruments. Such persons may not buy or sell warrants,
convertible securities, stock appreciation rights, or similar rights with an exercise
or conversion privilege or a settlement payment or mechanism at a price related to
any security of the Company or with a value derived in whole or part from the
value of any security of the Company, whether or not such instrument or right is
subject to settlement in the underlying security of the Company, or any other
instrument that provides the direct or indirect opportunity to profit or share in any
profit derived from any increase or decrease in the value of any security of the
Company.
4.
Pledges. Such persons may not pledge securities of the Company, whether as
collateral for the extension of a loan or otherwise.
E.
Non-Public Information. For purposes of this Statement of Policy, non-public
information is defined as information which is not generally available to the investing
public. Information released by the Company will be considered public two days after full
dissemination of the information through a national news service or the filing of a report
containing the information with the SEC, whichever occurs first. Selectively disclosing such
2
information to a few members of the public does not make the information public for insider
trading purposes, and may, in fact, be prohibited by the federal securities laws.
F.
Material Information. For purposes of this Statement of Policy, material
information is defined as any information that a reasonable investor would consider important in
a decision to buy, hold or sell securities. The following types of information are examples of
information that will be considered material for purposes of this Statement of Policy: projections
of future earnings or losses; proposals, plans or agreements, even if preliminary in nature,
involving a merger, acquisition, tender offer, significant sale of assets or disposition of a
significant subsidiary; significant changes in dividend policies, the declaration of a stock split, or
the repurchase of securities; changes in management; impending bankruptcy or financial
liquidity problems; significant write-downs in assets or increases in reserves; developments
regarding significant litigation or government agency investigations; changes in debt ratings;
and offerings of Company securities.
G.
Family and Household Members and Related Trusts and Entities. Each
Covered Person will use reasonable efforts to ensure that such Covered Person’s family
members and others living in the Covered Person’s household also comply with the foregoing
policy on prohibited trading and policy on confidentiality as if they were Covered Persons. In
addition, directors of the Company and individuals who have been designated as executive
officers of the Company will use reasonable efforts to ensure such compliance by trusts and
other entities in which such person has an interest that must be reported under Section 16 of
the Securities Exchange Act of 1934 (“Related Trusts and Entities”). Finally, Covered Persons
who are subject to the foregoing requirement concerning pre-clearance of trades will use
reasonable efforts to ensure that such Covered Person’s family members and others living in
the Covered Person’s household and such Covered Person’s Related Trusts and Entities also
comply with such pre‑clearance and Trading Window requirements.
H.
Application of Policy After Termination of Employment or Tenure. When a
Covered Person’s employment or tenure as a director terminates, the Covered Person will
continue to be subject to this Statement of Policy until such person is no longer in possession of
material non-public information as provided in this Statement of Policy. In addition, if the
Covered Person’s transactions in Company securities are subject to the foregoing requirement
concerning pre-clearance of trades and a Covered Person’s employment or tenure as a director
terminates while the Trading Window is closed, the Covered Person will continue to be subject
to such pre-clearance and Trading Window requirement until the Trading Window opens.
I.
Violations of Policy. Violations of this Statement of Policy may constitute
grounds for corrective action, up to, and including, immediate dismissal. Exceptions to this
Statement of Policy for particular transactions, if any, may only be granted by the Compliance
Officer in advance of the proposed transaction.
III.
ESTABLISHMENT OF OFFICE OF SECURITIES TRADING COMPLIANCE OFFICER
A.
Creation of Office of Compliance Officer. In order to ensure compliance with
this Statement of Policy by the Company and all Covered Persons, the Company has created
the office of Securities Trading Compliance Officer (the “Compliance Officer”) and has appointed
the Company’s Chief Financial Officer, as the Compliance Officer. The Compliance Officer is
authorized to formulate and implement rules, procedures and educational programs designed to
promote the effectiveness of this Statement of Policy,
3
designate additional Covered Persons whose transactions are subject to pre-clearance and/or
limited to the Trading Window, direct appropriate Company action upon receipt of material non-
public information, and respond to questions concerning this Statement of Policy and its
application to specific transactions. In this regard, certain Covered Persons may be required to
certify that they have read the Statement of Policy and may be asked to disseminate and
discuss the Statement of Policy with employees under their supervision.
B.
Questions. Any Covered Person who has a question about this Statement of
Policy, any specific securities transaction, or prohibitions on trading while in possession of
material non-public information should contact the Compliance Officer. Any such question
should be resolved prior to any trade which may potentially be prohibited.
4
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statement (Nos. 333-279655, 333-276949, 333-230064,
333-225364, 333-223217, 333-209540, 333-208185, and 333-216128) on Form S-8 of our reports dated March 21,
2025, with respect to the consolidated financial statements and financial statement schedule II of Duluth Holdings Inc..
/s/ KPMG LLP
Milwaukee, WI
March 21, 2025
Exhibit 24.1
POWER OF ATTORNEY FOR ANNUAL REPORT ON FORM 10-K
Each of the undersigned directors of Duluth Holdings Inc. (the “Corporation”) hereby
designates and appoints Samuel M. Sato, Heena Agrawal and Jason G. Prasch, and each of them,
the undersigned’s true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for the undersigned and in the undersigned’s name, place and stead to sign for the
undersigned and in the undersigned’s name in the capacity as a director of the Corporation the
Corporation’s Annual Report on Form 10-K for the year ended February 2, 2025, and to file the
same, with all exhibits thereto, other documents in connection therewith, and any amendments to
any of the foregoing, with the Securities and Exchange Commission and any other regulatory
authority, granting unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the premises, as fully
and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or the undersigned’s substitute, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have each executed this Power of Attorney for
Annual Report on Form 10-K, on one or more counterparts, as of the 26th day of February, 2025.
/s/ Stephen L. Schlecht
/s/ Samuel M. Sato
Stephen L. Schlecht
Samuel M. Sato
/s/ David C. Finch
/s/ Brett L. Paschke
David C. Finch
Brett L. Paschke
/s/ Ronald Robinson
/s/ Francesca M. Edwardson
Ronald Robinson
Francesca M. Edwardson
/s/ Susan J. Riley
/s/ Scott K. Williams
Susan J. Riley
Scott K. Williams
/s/ Janet H. Kennedy
Janet H. Kennedy
Exhibit 31.1
CERTIFICATIONS
I, Sam Sato, Chief Executive Officer, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Duluth Holdings Inc. (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 21, 2025
/s/ Sam Sato
Sam Sato
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Heena Agrawal, Chief Financial Officer, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Duluth Holdings Inc. (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 21, 2025
/s/ Heena Agrawal
Heena Agrawal
Chief Financial Officer
Exhibit 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Duluth Holdings Inc. (the “Company”) for the fiscal year ended
February 2, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sam Sato, as Chief
Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”); and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Sam Sato
Name:
Sam Sato
Title:
Chief Executive Officer
Date:
March 21, 2025
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be
deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to liability under that section. This certification shall not be deemed incorporated by reference in any filing under the
Securities Act of 1933, as amended or the Exchange Act, except to the extent that the Company specifically incorporates it by
reference.
Exhibit 32.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Duluth Holdings Inc. (the “Company”) for the fiscal year ended
February 2, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Heena Agrawal, as
Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”); and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Heena Agrawal
Name:
Heena Agrawal
Title:
Chief Financial Officer
Date:
March 21, 2025
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be
deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to liability under that section. This certification shall not be deemed incorporated by reference in any filing under the
Securities Act of 1933, as amended or the Exchange Act, except to the extent that the Company specifically incorporates it by
reference.