Duluth Q2 Earnings Call Highlights

Key Points

• Profitability improved despite lower sales: Second-quarter net sales fell 7.8% to $121.4 million as Duluth reduced promotions and clearance activity, but adjusted EBITDA rose to $27 million. Gross margin excluding tariff refunds expanded to 59.6%, up 490 basis points year over year.
• Inventory and cash flow strengthened: Inventory declined 15.5% to $125.2 million, clearance inventory fell sharply, and the company ended the quarter with $26.8 million in cash and no debt on its lending facility. Free cash flow improved by $41 million to $13 million.
• Full-year outlook was raised: Duluth maintained its $540 million-$560 million sales guidance but increased adjusted EBITDA guidance to $38 million-$42 million, including a $16.3 million tariff refund. Management plans to increase marketing investment ahead of the holiday season while continuing its shift toward a smaller core-product assortment.

Duluth NASDAQ: DLTH reported second-quarter fiscal 2026 results marked by improved profitability, stronger cash flow and lower inventory, while net sales declined as the workwear retailer continued its promotional reset and reduced clearance activity.

President and Chief Executive Officer Stephanie Pugliese said the company’s operating priorities during the quarter included improving profitability, controlling inventory, reducing promotional reliance and using marketing to build brand awareness. Duluth completed what Pugliese described as a deliberate cleanup of clearance inventory while shifting its merchandising strategy toward a more focused lineup of core products.

“We have moved away from a broad assortment, discount-heavy approach toward a hero core product strategy,” Pugliese said. “By reducing the total number of SKUs and focusing our buys on proven winners, we have created a leaner, more agile inventory position.”

Sales Decline, but Margins Expand

Second-quarter net sales totaled $121.4 million, down 7.8% from the prior-year period. Excluding wholesale, net sales decreased 5.4%. Chief Financial Officer Heena Agrawal said the sales decline reflected the company’s continuing promotional reset and the annualization of price increases implemented in 2025.

Direct-to-consumer sales excluding wholesale were $69.5 million, down 7.6%. The company said lower conversion was partially offset by a 2.4% increase in average order value and a 10% increase in website traffic, supported by higher marketing investment. Mobile sales penetration rose 90 basis points.

Duluth’s 66 retail stores generated $51.3 million in sales, a 2.4% decline. Lower traffic and conversion affected store results, though improved inventory availability and a 6% gain in average order value partially offset those pressures. Retail sales were flat for the first half of the fiscal year, according to the company.

Men’s product sales increased 0.5%, supported by demand for first-layer products and woven bottoms including DuluthFlex Fire Hose and Double Flex denim. Women’s product sales fell 15%, which management attributed largely to SKU rationalization and reduced clearance sales. AKHG sales declined 26% as the company exited low-margin categories including swimwear.

Pugliese told analysts that AKHG remains a relatively small portion of Duluth’s overall assortment and is not a significant drag on the company’s broader core men’s and women’s apparel business. She said Duluth is rebuilding the brand around selected core products, including Stone Run pants.

Tariff Refunds Lift Reported Results

Duluth reported net income of $18.4 million, an improvement of $17.1 million from a year earlier. Reported and adjusted diluted earnings per share were $0.50, including $16.3 million in tariff refunds received during the quarter, which contributed $0.44 per share.

Gross margin expanded 1,810 basis points to 72.8% of sales, including the tariff refunds. Excluding those refunds, gross margin was 59.6%, up 490 basis points year over year. Agrawal said the underlying improvement was driven by higher average unit retail prices, reduced promotional activity and savings from direct-to-factory sourcing, partly offset by higher fuel prices and carrier surcharges.

Adjusted EBITDA was $27 million, compared with $12 million in the second quarter of the prior year. Excluding tariff refunds, adjusted EBITDA was $10.7 million, or 8.8% of sales.

Selling, general and administrative expenses rose 1.1% to $69.5 million. Advertising represented 10.9% of sales, up 200 basis points as Duluth invested in awareness-building efforts. The company also cited higher fuel costs and transportation surcharges, while noting savings from fulfillment-center consolidation and store labor efficiencies.

Inventory, Cash Flow and Operations

Ending inventory was $125.2 million, down $22.9 million, or 15.5%, from a year earlier. Current products represented 85.4% of inventory, while clearance goods accounted for 14.6%, compared with 22.2% in clearance goods during the prior-year quarter. Clearance inventory dollars declined 43.1%, and clearance units fell 46.6%.

Agrawal said inventory improvement has continued for five straight quarters, aided by enterprise planning and SKU rationalization. Prioritizing inventory at the company’s Adairsville hub and retail stores improved in-stock levels by more than 600 basis points.

The company ended the quarter with $26.8 million in cash and cash equivalents and no debt outstanding on its asset-based lending facility, compared with $32.5 million in facility debt a year earlier. Net liquidity was approximately $96.1 million. Free cash flow through the end of the second quarter was $13 million, an improvement of $41 million from the comparable prior-year period.

Duluth also said its supply-chain consolidation has reduced its fulfillment footprint from four centers to two over the past two years. The automated Adairsville facility processed 75% of total units in the quarter, up 230 basis points from a year earlier, while overall network variable cost per unit declined by nearly 25%.

Marketing and Full-Year Outlook

Pugliese said Duluth is increasing full-funnel marketing investment during the third quarter to build demand before the holiday season. Planned activity includes connected television, college football broadcasts, premium audio integrations and search initiatives. The company will feature its Fire Hose collection during linear and connected-TV coverage of upcoming college football matchups.

The company also cited positive early results from its mid-July Amazon wholesale launch, saying sales have accelerated consistently on a week-over-week basis. Duluth is investing in artificial-intelligence capabilities across paid and organic media, as well as customer insights from its Duluth Diehards pilot.

Customer metrics showed some improvement, according to Pugliese. Average order value and sales per customer improved in the second quarter, first-half retention rates increased, net promoter score rose 11%, and reactivation campaigns brought back 9% more lapsed buyers than in the prior-year quarter.

Duluth reaffirmed full-year net sales guidance of $540 million to $560 million. The company expects second-half sales performance to range from down 2% to up 2%, with third-quarter sales still affected by comparisons with prior-year clearance events that generated lower-margin revenue. Management expects each quarter in the second half to improve sequentially, with the fourth quarter stronger than the third quarter.

The company raised its full-year adjusted EBITDA outlook to a range of $38 million to $42 million from prior guidance of $28 million to $32 million. The revised outlook includes the $16.3 million tariff-refund gain, partly offset by growth investments and higher fuel expenses. Duluth maintained its capital expenditure guidance of approximately $12 million.

About Duluth (NASDAQ:DLTH)

Duluth Holdings Inc operates as a specialty retailer of workwear, outdoor apparel and accessories for men and women under the Duluth Trading Co name. The company's product line includes work pants, durable outerwear, performance-based shirts, base layers and specialized gear such as tool belts and backpacks. Duluth Trading Co focuses on combining practical functionality with style, targeting tradespeople, outdoor enthusiasts and anyone in need of rugged, long-lasting clothing.

Since its founding in 1989, Duluth Trading Co has grown from a regional catalog business into a national retail chain.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.

Continue following MarketBeat

Add MarketBeat as your preferred source on Google to see our latest stories in your feed.

Add As Preferred Source