Duluth Holdings' Q2 2025: Contradictions in Promotional Discipline, SG&A Savings, and Inventory Rationalization Timelines

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 4, 2025

Financials Results

• Revenue: $131.7M, down 7% YOY; down 9.8% excluding wholesale shipment shift
• EPS: $0.04 GAAP; $0.03 adjusted, up $0.05 YOY
• Gross Margin: 54.7%, up 240 bps YOY

Guidance:

• Maintaining FY2025 adjusted EBITDA guidance of $20–$25M.
• Expect FY2025 tariff impact ~ $15M; average tariff rate ~12%; impact primarily in H2.
• Price increases (effective Jul 25 and Aug 8) meeting elasticity goals; vendor negotiations and receipt timing to mitigate tariffs.
• On track for ~$10M SG&A cost reductions in FY2025.
• Year-end inventory expected to decline double digits YOY; peak borrowings are behind.
• FY2025 capex ~ $17M, including two new store openings (Kansas City, KS; Maple Grove, MN).
• Maintaining marketing spend as a percent of sales.

Business Commentary:

• Promotional Strategy and Gross Margin Improvement:
• Duluth Holdings reported a gross margin expansion of 240 basis points to 54.7% in Q2, with an 8% increase in average unit retail.

• The improvement was driven by a rebalancing of promotions to restore price integrity by reducing the depth of discounts.

• Inventory Management and Cost Control:

• Inventory at the end of Q2 was $148.1 million, a decrease of 12% compared to the prior year, with store in-stock levels up by 200 basis points.

• These improvements were due to enhanced processes like enterprise planning, which optimized inventory receipts and positioning.

• Tariff Mitigation and Pricing Strategy:

• Duluth Holdings initiated targeted price increases and is on track to offset approximately $15 million of a $17.5 million tariff-related cost increase for the year.

• The company is also negotiating with vendors and managing the timing of inventory receipts to mitigate tariff impacts.

• Retail Performance and Store Optimization:

• Retail store sales increased by 5.3%, with improved traffic trends, higher conversion rates, and increased average order values.
• The success was driven by targeted marketing efforts and optimized inventory allocation, leading to improved in-stock levels.

Sentiment Analysis:

• Gross margin expanded 240 bps to 54.7% despite a 7% sales decline. Adjusted EBITDA rose $1.5M to $12M (9.1% of sales). Management is maintaining FY2025 adjusted EBITDA guidance of $20–$25M, is on track for ~$10M cost reductions, ended Q2 with $73M liquidity, and reduced inventory 12% YOY.

Q&A:

• Question from Jonathan Komp (Robert W. Baird): What metrics guide your promotional pullback, and how confident are you maintaining discipline into fall/holiday?
  Response: Focus is on gross margin dollars via shallower discounts (frequency unchanged); early success in H1 gives confidence to sustain reduced depth through H2.

• Question from Jonathan Komp (Robert W. Baird): Can gross margin continue expanding in the back half given tariffs?
  Response: Price hikes (Jul 25/Aug 8), vendor negotiations, and receipt timing are mitigating tariffs; expect to meet gross margin goals with a larger tariff impact in Q4 than Q3.

• Question from Jonathan Komp (Robert W. Baird): How are the $10M SG&A savings tracking and ramping?
  Response: About one-third realized in Q2, driven by headcount reductions and cuts to controllable expenses; on track for full ~$10M in FY2025.

• Question from Jonathan Komp (Robert W. Baird): What’s needed to define longer-term margin targets?
  Response: Complete 2025 actions on expense control and price integrity, then 2026 SKU/style reduction (~20%) and inventory productivity; once rationalized, a stronger long-term margin profile can be set.