Duluth Holdings announced its financial results for the fiscal third quarter ended November 1, 2015.
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Net sales increased 29.9% to $55.3 million, compared to $42.6 million in the same period a year ago. The net sales increase was driven by 26.9% growth in direct net sales and 48.5% growth in retail net sales, with growth achieved across virtually all product categories.
The direct net sales gains were largely attributable to Duluth Trading’s marketing efforts, which resulted in greater e-commerce traffic to the company’s website and sales through the company’s call center.
The increase in retail net sales was primarily attributable to the opening of a new store during the third quarter of fiscal 2014 and the opening of a new store and an outlet store during the first and third quarter of fiscal 2015, respectively, which, in total, accounted for an increase of $2.4 million in net sales.
Gross profit increased 32.0% to $31.6 million, or 57.2% of net sales, compared to $23.9 million, or 56.2% of net sales, in the corresponding prior-year period.
The increase in gross profit and gross margin rate was primarily due to increased net sales, coupled with product mix and an increase in full price sales as a percentage of overall net sales.
Selling, general and administrative expenses increased 43.8% to $30.0 million, compared to $20.8 million in the same period a year ago, which was attributable to a $4.1 million increase in advertising and marketing costs, a $2.5 million increase in general and administrative expenses and a $2.5 million increase in selling expenses.
The increase in advertising and marketing costs was due to testing of new advertisements leading up to the important holiday season. The increase in selling expenses was due to increased sales as well as additional expenses associated with the implementation of our warehouse management system and 3PL infrastructure.
The increase in general and administrative expenses also reflected increased professional fees associated with Duluth Trading becoming a public company, coupled with an increase in depreciation expense due to retail stores, information technology and infrastructure investments.
Adjusted EBITDA was $2.7 million, or 4.8% of net sales, compared to $3.6 million, or 8.5% of net sales, in the prior-year period.
Duluth Trading defines Adjusted EBITDA as consolidated net income (loss) before depreciation and amortization, interest expense and provision for income taxes adjusted for the impact of certain items, including non-cash and other items.
GAAP net income was $1.5 million, or $0.06 per diluted share, compared to $3.0 million, or $0.13 per diluted share, in the prior-year period. Pro forma net income was $0.9 million, or $0.04 per diluted share, compared to $1.8 million, or $0.08 per diluted share, in the prior-year period.
The pro forma net income gives effect to the conversion of the company to a “C†corporation on November 25, 2015. Prior to such conversion, the company was an “S†corporation and generally not subject to income taxes.
The pro forma net income, therefore, includes an adjustment for income tax expense on the income attributable to controlling interest as if the company had been a “C†corporation as of February 4, 2013 at an assumed combined federal, state and local effective tax rate of 40%, which approximates the calculated statutory rate for each period.
The company ended the quarter with a cash balance of approximately $0.2 million, and $9.7 million available on its $40.0 million line of credit. ■