Good morning, and welcome to the Duluth Holdings Fourth Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that there will not be a question-and-answer session following this presentation. Please note this event is being recorded.
I would now like to turn the conference over to Nitza McKee, Senior Associate Investor Relations at ICR. Please go ahead..
Thank you, and welcome to today's call to discuss Duluth Trading's fourth quarter financial results. Our earnings release, which was issued this morning, is available on our Investor Relations website at ir.duluthtrading.com under Press Releases.
I'm here today with Sam Sato, President and Chief Executive Officer; Heena Agrawal, Senior Vice President and Chief Financial Officer; and Stephen Schlecht, Founder and Chairman of the Board. On today's call, management will provide prepared remarks.
Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified by the use of words such as estimate, anticipate, expect and similar phrases.
Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.
Such risks and uncertainties include, but are not limited to those that are described in our most recent annual report on Form 10-K and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events.
And with that, I will turn the call over to Sam Sato, President and Chief Executive Officer.
Sam?.
Thank you, Nitza, and thank you all for joining today's call. Let me begin by sharing our fourth quarter results, starting with the significant challenge we faced in fulfilling orders which we addressed with immediate corrective action.
I'll then highlight the foundational progress we made in 2024 on our Big Dam Blueprint initiatives, strategic work designed to transform the business and unlock our full growth and profit potential.
After reviewing our key focus areas for fiscal 2025, I'll turn it over to Heena to provide a detailed financial update and our outlook for the year ahead. Our fourth quarter results fell short of expectations due to processing delays at our legacy fulfillment center.
Net sales declined 1.8% to $241 million, with direct channel sales remaining flat with increased mobile penetration while retail store sales decreased 6.9% as traffic declined and shopper conversion held steady. Adjusted EBITDA for the quarter was approximately $9 million.
Although, we experienced improved performance leading into Black Friday week through Cyber Monday, resulting in record sales during that period, we subsequently reduced promotional depth and frequency to address the order backlog and maintain sales quality. This decision, while operationally necessary constrained our top line growth.
Let me address the processing delays at our legacy Belleville fulfillment center. Following the surge in unit demand over the Black Friday weekend, we significantly depleted inventory units housed in our highly automated Adairsville center. This resulted in a higher level of orders being routed to our Belleville facility.
Belleville's order process capacity is considerably less than Adairsville, which ultimately resulted in a significant backlog in orders being filled. We've since implemented enhanced operational protocols and planning processes to ensure that we have optimized unit inventory distribution across our fulfillment network.
Moving on to our full year 2024 results. Net sales were $627 million and adjusted EBITDA of $15 million. While we saw benefits from our sourcing initiatives, these gains were offset by lower average unit retail prices.
We maintained our strategic investment in marketing, supporting our focus to attract new customers and strengthen relationships with existing ones. We continue to make progress against our strategic initiatives, which we believe are critical to driving growth and profitability.
Let me start by elaborating on the progress we've made on our ongoing transformation journey. Our product development and sourcing initiatives are delivering meaningful benefits exceeding our initial expectations. The shift to direct-to-factory sourcing is not only reducing our product costs but fundamentally changing how we bring products to market.
We are now able to introduce innovative products more frequently and get them to our customers faster. This is a critical strategic unlock for our business that improves both our financial performance and our ability to serve customers with fresh, innovative products more often.
The challenges from the fourth quarter underscore the importance of continuing to advance our logistics and fulfillment capabilities.
Our state-of-the-art Adairsville fulfillment center has become the cornerstone of our optimization strategy, now processing more than 60% of total volume at a cost per unit that is 66% lower than that of our legacy facilities.
This investment has yielded tangible customer benefits through faster click-to-delivery times while significantly expanding our network capacity.
We've also successfully completed the planned closure of our Dubuque facility, generating approximately $5 million in annual cost savings, and we are improving cross-functional processes to maximize our network investments. These strategic initiatives represent structural improvements to our business model that will deliver incremental value.
Our mobile-first digital strategy is delivering strong results and continues to be a key growth driver. Mobile now accounts for nearly 70% of our site visits and 58% of our digital sales with both metrics growing year-over-year. Importantly, our mobile conversion rates remain significantly above industry averages.
Mobile is our customer's primary gateway to the brand, and we're seeing the benefits of meeting them where they prefer to shop. In 2025, we will continue to invest in enhancing our mobile experience while seamlessly extending it to desktop and retail stores, creating a holistic omnichannel customer experience.
We're making significant progress on revitalizing our retail store portfolio with a comprehensive strategy focused on both existing and new locations. Across our 65-store fleet, and as we evaluate new locations, we've established higher productivity hurdle rates.
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 these enhanced performance standards.
Regarding new store locations, we've identified priority markets to meet our target customers where they currently shop and are on track to open two new stores in the second half of 2025.
The omnichannel strategy is crucial to our business as evidenced by the fact that our customers who shop across multiple channels make purchases over twice as often as those who shop through a single channel. Our physical stores remain central to our omnichannel strategy. Let me update you on the progress of our technology road map.
Our initial focus is on building foundational platforms for data and e-commerce, which have been completed. In 2025, we are implementing the product information platform, mobile site redesign and complete warehouse management system. Connecting these platforms will optimize omnichannel fulfillment and inventory management.
The final phase requires a unified promotion engine, loyalty program enablement and our core ERP replacement. For 2025, we're committed to building on the progress we've made on strategic initiatives and structural improvements while enhancing our operational execution.
A key focus is on enhancing our inventory management approach, ensuring we have the right products in the right place and at the right time. Our assortment decisions are leveraging deeper customer insights and linked to the strategic growth categories.
These changes fundamentally improve how we operate and set us up to deliver stronger financial results. As Heena will walk through shortly, we are resetting our business model to support higher full-price sales, higher gross margin flow-through and cash generation driven by working capital improvements.
Moving on to the current year, we have exciting new product innovations launching across our brands. In Duluth Men's, we're expanding our successful Armachillo cooling technology with new Double Flex pants, and our backyard line expands, including a new BBQ shirt that is 100% cotton and breathes easy when behind the grill.
Continuing to build upon our successful collaborations, we're excited to be partnering with Leinenkugels this spring. Our outerwear offering expands as well with new Nor'Wester, a softshell transitional jacket that takes you from winter chill to spring showers.
Within AKHG, our new wanderwear bottoms offers stretch and sweat-wicking performance, which is just what you need from a dependable pair of active pants when you're on the move.
We're also introducing an additional new pant named Alpine Flex, which offers versatility, comfort and practicality for any outdoor adventure with its ultra-stretchy and quick drying fabrications. And the expansion of our successful after-sweat fleece collection continues with an improved fabric that's even easier to care for.
We're elevating our first layer business with an improved bullpen construction, featuring greater comfort and support as well as a new buck-naked cotton offering, which brings the no pinch, no stick and no sweat our customers love to a naturally breathable cotton blend.
In women's, we continue to build on the success of our Hero Heirloom collection by expanding the offering. We're excited about our new coveralls, which provide a bit more coverage than our heirloom overalls for those sticky and prickly situations out in the garden.
Within our famous NoGa collection, we've introduced NoGa Air, designed to reduce heat buildup as you move. This technology features a feathery like fabric with moisture-wicking odor-fighting properties to keep you feeling fresh all day. Additionally, our newly introduced French Terry collection has been met with great response from our customers.
We're really excited about our robust innovation pipeline this year, which is the result of our strategic focus on development. In addition, our new media agency is bringing fresh thinking to our consumer-centric strategy with a refined focus on full funnel media, efficiency of spend and traffic driving initiatives.
Through this partnership, we can now measure brand lift monthly to track awareness, consideration and purchase intent among both existing and new customers. The holiday campaign was successful with aided awareness up 9 points, overall visits were up 2% and first-time visits were up 19%.
Strategic partnerships and product collaborations, including Yellowstone, Good Morning America, Busch Light and Hamm's drove brand metrics like awareness and purchase consideration higher, attracted new customers and drove social commerce growth.
We will build on this momentum in 2025 with fresh collaborations, partnerships and social initiatives that engage consumers and drive sales. These efforts balance brand building and immediate sales impact attracting more of our target audience and staying true to our authentic can-do spirit. Let me update you on our inventory and financial position.
With the strong unit sales between Black Friday and Cyber Monday combined with our strategic decision to pack and hold certain core fall/winter products, our sequential inventory position at the end of February improved with high in-stock on year-round items, higher newness levels in our assortment and percentage of clearance inventory in line with last year.
Looking ahead to fiscal 2025, we're focused on driving higher quality sales, which means reduced unit sales matched with lower inventory receipts, driving improved inventory turns, AURs and margin.
Importantly, we finished 2024 in a strong financial position, debt-free with positive cash and $103 million in liquidity, which gives us the flexibility to manage the business.
As I said earlier, we're not satisfied with our most recent results, I want to reiterate the team's commitment to improving our results and are steadfast in executing our strategic initiatives. These initiatives are beginning to yield measurable benefits.
And while there is much work ahead of us, we've made significant progress on our foundational investments. We are seeing tangible improvements in our logistics network, product development capabilities and digital experience.
I remain incredibly proud of our team's unwavering dedication to operating with excellence, agility and a customer-first mindset always celebrating the can-do spirit that defines our brand.
We'll continue to focus on driving operational excellence, maximizing returns from our strategic investments and prudently managing our business for profitable growth.
Before I turn it over to Heena, as you might have read in this morning's press release, I've announced my retirement as President and Chief Executive Officer and as a Board member effective April 25, 2025.
To assist with the seamless transition, Steve Schlecht, Founder and Chairman of the Board, will take over the day-to-day operations effective March 14, 2025. It has been a privilege to serve as President and CEO and member of the Board of Directors of Duluth Trading.
I'm humbled and proud of what our team has accomplished and the progress we have made. Working with such talented and passionate team members has been an honor, and I believe the future of the Company is bright. Finally, I want to thank Steve sincerely for his support and partnership over the course of my tenure. Now I'll turn the call over to Heena..
Resetting the depth and frequency of promotions through enhanced inventory management and improving operational execution. These efforts will enable us to fully realize the benefits of the progress we are making on our strategic initiatives and structural enhancements.
To summarize, we are transforming our business to achieve sustainable, profitable growth. In 2024, the team made significant progress on strategic and structural initiatives, ending the year with no debt, strong liquidity and high quality of inventory.
Our focus in 2025 will be on resetting price integrity, enhanced inventory management and operational execution. I will now turn the call over to Steve..
Thank you, Heena. On behalf of the Board of Directors, I want to thank Sam for his years of service and dedication and wish him the absolute best in his upcoming retirement. Sam's career in retail began more than 30 years ago as a young sales associate on the Nordstrom shoe floor.
His passion for people, the customer experience, product knowledge, operational excellence, have served him well throughout his career. Sam and I share a deep commitment to Duluth Trading Company's success and I appreciate Sam's many contributions to our company, including his leadership in creating and advancing the Big Dam Blueprint.
These efforts have established important foundational building blocks for our company's future. As Sam mentioned earlier, to assist with a seamless transition, I will be stepping in to take over the day-to-day operations while we move forward with a permanent CEO search. Thank you, Sam and Henna, and thank you all for joining today's call..
Operator:.