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DLTH
Earnings call · Jul 2026 (Q2 FY27)

DULUTH HOLDINGS Q2 FY27 earnings call DLTH

Sep 3, 2026 Source

Executive summary

Duluth Holdings Inc. Q2 FY27 — Improved Profitability and Inventory Health

Duluth Holdings delivered improved profitability and cash flow in Q2 FY27, driven by a successful promotional reset, inventory optimization, and margin expansion. The company is now shifting focus to scalable growth under its 'Frame the Structure' strategy, investing in marketing, customer experience, and new channels, while reaffirming full-year sales guidance and raising Adjusted EBITDA expectations.

Highlights

5

  • Net income improved by $17.1 million to $18.4 million, including $16.3 million in tariff refunds.

  • Adjusted diluted EPS was $0.50, including $0.44 per share from tariff refunds.

  • Adjusted EBITDA increased by $15 million to $27 million, with underlying Adjusted EBITDA (excl. tariff refunds) at $10.7 million or 8.8% of sales.

  • Gross margin rate expanded by 1,810 basis points to 72.8% (59.6% excluding tariff refunds, up 490 bps).

  • Inventory reduced by 15.5% YoY to $125.2 million, with clearance inventory down 43.1% in dollars and 46.6% in units.

Concerns

4

  • Net sales decreased by 7.8% to $121.4 million, and 5.4% excluding wholesale.

  • Direct-to-consumer net sales decreased by 7.6% due to promotional reset and annualized price increases.

  • Women's product sales declined 15% and AKHG brand sales declined 26% due to SKU rationalization and exiting low-margin categories.

  • SG&A expenses deleveraged by 510 basis points to 57.3% of sales due to sales decline, with advertising costs up 200 bps and corporate expenses up 250 bps.

Guidance & targets

CategoryTargetConfidence
Full-year Adjusted EBITDA
$38M-$42M
high materiality
High
Full-year Net Sales
$540M-$560M
high materiality
High
Second Half Sales Performance
-2% to +2%
medium materiality
Medium
Q3 Sales Performance
moderate
medium materiality
Medium
Full-year Capital Expenditures
$12M
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Direct-to-Consumer (excl. wholesale)
Impacted by promotional reset and annualized price increases, resulting in lower conversions. Partially offset by 2.4% gain in average order value and 10% higher site traffic. Mobile sales penetration increased by 90 basis points.
$69.5M-7.6%——
Retail Stores
Impacted by lower traffic and conversion, partially offset by improved inventory availability and 6% higher average order values. Retail continued to outperform the direct channel, delivering flat year-on-year sales for the first half.
$51.3M-2.4%——
Men's Products
Driven by strong cold demand in first layer and woven bottoms, including DuluthFlex Fire Hose and Double Flex Denim.
—+0.5%——
Women's Products
Driven largely by strategic SKU rationalization and reduced clearance sales, while gross margin continued to expand.
—-15%——
AKHG Brand
As low margin categories like swimwear were exited to improve gross margin. Cooling UPF selections and Shoreside woven bottoms delivered strong sell-throughs.
—-26%——

DLTH operating KPIs by quarter

DLTH operating KPIs stated on its earnings calls, by fiscal quarter
KPI May 2026 Q1 FY27This call Jul 2026 Q2 FY27Change vs prior quarter
Fulfillment centers
2 In the last 18 months, we have now consolidated the logistics network from four fulfillment to 2. Source transcript
2 In the last 2 years, we have consolidated the logistics network from 4 fulfillment centers to 2. Source transcript
0%

Operating figures the company states on every call, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

ProductTypeDetails
Hellbent work pantslaunch
No Quit utility shirtslaunch

Deals & partnerships

Amazon Wholesale launch

Duluth products have gained strong momentum since mid-July launch, generating consistent week-over-week acceleration in sales.

Risks & headwinds

Macroeconomic volatility

Unquantified

Mitigation:Established a leaner operating model that can better weather macroeconomic volatility; maintaining a reserve to counter macroeconomic headwinds.

Fuel cost increases and carrier surcharges Q2 FY27 and H1 FY27

Partially offset Adjusted EBITDA gains and impacted gross margin.

Mitigation:Optimizing carrier network to sustain nationwide click-to-delivery speed and partially offset impact.

Lower traffic and conversion in retail stores Q2 FY27

Unquantified impact on sales decline.

Mitigation:Improved inventory availability and higher average order values partially offset the impact.

Headwinds in transportation costs H2 FY27

Expected to continue.

Mitigation:Supply chain transformation continues to deliver structural cost savings.

Lapping prior year's heavy, low-margin clearance sales Q3 FY27

Will temporarily weigh on Q3 top line results.

Mitigation:Company is not repeating some of these clearance events, focusing on higher quality sales.

What to watch in Q3 FY27

Q3 Sales Performance

next quarter
Current H1 net sales down 6.2% YoY
Target Improved trend vs Q2, but moderating due to clearance lap

Why it matters

Verifying the sales trend in Q3 will indicate the effectiveness of the promotional reset and marketing investments against a tough prior-year comparison.

While overall second half sales performance is projected to be between minus 2% to plus 2%, we expect sales in the third quarter to moderate as we lap prior year clearance events that generated lower margin revenue.

Q&A highlights

Why is Q3 guidance a step back, and what is the drag from the Alaskan Hardgear (AKHG) business?

Management clarified that Q3 sales trend is expected to be better than Q2, but will moderate due to lapping prior year's heavy, low-margin clearance events. AKHG is a small part of the overall business, and while it experienced declines due to SKU rationalization, it's not a significant drag on core men's and women's apparel. The promotional reset's impact on Q3 is a headwind compared to last year's volume.

“On Q3 guidance, we expect the trend in Q3 to be better than Q2. However, we are not repeating some of the clearance events. As I mentioned in the call, our clearance inventory is down over 40%, both in dollars and units. And so that's the reason for moderating our expectations on Q3, but it will be an improving trend versus Q2.”

asked by Dylan Carden · answered by Heena Agrawal

2 min read 6 chapters

Detailed narrative

Operational Rigor and Margin Expansion

Duluth Holdings achieved its fifth consecutive quarter of year-over-year gains in net income margin and free cash flow, driven by operational rigor and financial discipline. The company executed a deliberate cleanup of clearance inventory, reducing it by 43% compared to last year, and shifted towards a hero core product strategy. This led to a nearly 500 basis points improvement in operational gross margin year-over-year, excluding tariff refunds, and a 6% increase in average unit retails.

Strategic Marketing and Brand Building

The company is evolving its marketing into a sophisticated, full-funnel engine, balancing top-of-funnel brand awareness with lower-funnel conversion efforts. Investments include Connected TV, Meta, Search, premium audio integrations (Conan O'Brien), and sports partnerships (NHL playoffs, college football). AI capabilities are being leveraged for discoverability and digital footprint optimization, with a focus on increasing the customer fan base and reactivating lapsed buyers.

Build to Last Strategic Roadmap Progress

Duluth has completed the 'Seal the Foundation' phase, which focused on stabilizing the business through margin protection and cost control, establishing a leaner operating model. The company is now in the 'Frame the Structure' phase, shifting focus to scalable growth by investing in customers, core products, and brand reach. This includes improving e-commerce, piloting wholesale presence (Amazon), and refining next-generation store formats, with the 'Raise the Roof' growth phase planned for 2028 and beyond.

Product-Led Growth and Innovation

The 'Core First' strategy emphasizes product innovation and technical design, with core products like Flex Fire Hose, Heirloom Bibs, and Buck Naked Underwear outperforming. New products such as Hellbent work pants and No Quit utility shirts exemplify the focus on solution-based workwear, utilizing advanced materials and articulated patterning for durability and mobility. This approach reinforces the value proposition of Duluth gear, justifying premium price points.

Inventory Management and Supply Chain Efficiency

Inventory at quarter-end was $125.2 million, a 15.5% reduction year-over-year, marking the fifth straight quarter of improvement. The inventory mix is healthier, with 85.4% in current products and 14.6% in clearance goods. Supply chain transformation continues to deliver structural cost savings, including consolidating logistics from four to two fulfillment centers. The fully automated Adairsville Fulfillment Center now processes 75% of total units, and network variable cost per unit has been reduced by nearly 25%.

Financial Strength and Capital Allocation

The company ended Q2 with a stronger balance sheet, $26.8 million in cash, and zero debt on its asset-based lending facility, resulting in $96.1 million in net liquidity. Free cash flow for the first half was $13 million, an improvement of $41 million. Capital allocation priorities include fueling brand growth with incremental marketing, funding long-term strategic initiatives like retail store growth and wholesale partnerships, and maintaining a reserve against macroeconomic and supply chain headwinds.

AI-generated summary of the company's earnings call. Not investment advice.