Duluth (NASDAQ:DLTH) executives said the company’s ongoing turnaround efforts produced a second consecutive quarter of improved profitability in the third quarter of fiscal 2025, as management continued to reset promotional activity, tighten inventory, and reduce costs while navigating tariff pressures.
Promotional reset drives margin improvement despite sales declines
President and CEO Stephanie Pugliese said the company has been working to “reset the business” by improving gross margin through reduced promotional depth, controlling costs and inventory levels, and becoming more effective operators. A central theme of the call was Duluth’s efforts to restore “price integrity,” including a significant pullback in promotions.
On profitability, Agrawal said gross margin expanded 150 basis points to 53.8%, driven by shallower promotions, benefits from a direct-to-factory sourcing initiative, and tariff mitigation actions. Average unit retail increased 6% in the quarter, helped by targeted price increases implemented at the start of the quarter and greater full-price selling. Agrawal noted that average unit costs increased as tariffs offset some sourcing benefits, but the quarterly tariff cost was limited to $3 million through receipt management and vendor negotiations.
Cost reductions, inventory discipline, and liquidity improvements
Agrawal said SG&A expense was $70.7 million, down $11.6 million or 14.1% from last year. SG&A as a percentage of sales improved by 330 basis points to 61.5%. The company reiterated it is on track to exceed its fiscal 2025 cost savings target, with Agrawal indicating savings are now expected to be closer to $12 million, above the prior target of $10 million.
Inventory reductions were another key focus. The company ended the quarter with inventory of $192.2 million, down 17% or $39.2 million from the prior year, following a 12% year-over-year reduction in the second quarter. Agrawal said the decline was driven by “right-sizing receipts” and improved enterprise planning, including a 15% decrease in year-round product and a 7% decline in fall/winter goods, partially offset by a 27% increase in spring/summer goods.
On liquidity, Agrawal said the company ended the third quarter with “a strong liquidity position of over $88 million,” including net liquidity of $88.6 million and net debt of $36.4 million. She added that, following most of the peak selling season, Duluth has fully paid down its borrowings and is now “out of the credit facility,” with net liquidity of approximately $125 million.
Product and marketing highlights, with retail stability
Management highlighted several product areas that performed well, even as category sales declined overall. Agrawal said men’s sales fell 8.7% and women’s sales declined 12.8%, with performance partially offset by strength in men’s fall transitional outerwear, denim, and AKHG, and women’s Heirloom Gardening collection.
Pugliese pointed to men’s denim as a “strong performer,” saying national advertising around core denim contributed to 9% sales growth at higher margins. She also called out AKHG innovations such as Après Sweat and Alpine Fleece pants, and described strong customer response to seasonal prints and a Hasbro collaboration that placed nostalgic brands on the company’s Buck Naked underwear and related products.
In retail, the company said store sales increased 0.4%, helped by two new store openings late in the quarter in Kansas City, Kansas, and Maple Grove, Minnesota. Pugliese said traffic at the new stores exceeded expectations and brought in new customers. She also emphasized improving customer economics, noting that while total customer counts were down year-over-year largely due to reduced promotions, sales per customer and margin dollars per customer were up, along with average order value and units per transaction.
Operations and holiday season: “Smoother” execution and a more disciplined Q4 promo stance
Pugliese said operational execution has improved significantly in the fourth quarter to date, citing fulfillment, service, and inventory availability metrics. She said the company’s fully automated Adairsville fulfillment center has shipped over 60% of units to customers so far in Q4, more than a 20-point increase from last year’s peak period. She also reported on-time delivery above 90%, average call center wait times under five minutes, and retail in-stocks at 97% on Black Friday.
Responding to a question about the implied fourth-quarter profitability outlook, Agrawal said a key driver is lapping last year’s more aggressive promotions. She said Duluth did not repeat a “Black Friday Cyber Week 50% off” approach and instead shifted to “30% with some 50% doorbusters,” supporting gross margin improvement. She also pointed to smoother operations and the company’s cost savings progress as contributing factors.
Guidance updated: EBITDA outlook raised; sales range lowered
For fiscal 2025, Agrawal said the company is affirming adjusted EBITDA guidance but narrowing expectations to the higher end of the prior range, increasing the outlook from $20–$25 million to $23–$25 million. At the same time, management lowered its full-year sales range to $555–$565 million, from an initial range of $570–$595 million, reflecting pricing actions, the promotional reset, and what Agrawal described as a commitment to “long-term quality of sales.”
Other outlook items included a reduced expected annual tariff impact, now projected at $12 million versus a prior estimate of $15 million, and capital expenditures expected to total approximately $17 million for the year. The capex plan includes the two new stores, Manhattan Omni Fulfillment Software, and maintenance spending. Management also said it plans to maintain advertising investment above 10% of sales.
Looking beyond fiscal 2025, management discussed efforts to streamline the assortment. Agrawal said Duluth reduced SKUs by 5% in Fall/Winter 2025, is on track to reduce SKUs by more than 20% in Spring/Summer 2026, and is targeting an additional double-digit reduction in Fall/Winter 2026.
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.
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