Duluth (NASDAQ:DLTH) executives used the company’s fourth-quarter earnings call to highlight progress in an ongoing turnaround effort centered on tighter promotions, cost controls, and inventory reduction. President and CEO Stephanie Pugliese said the company delivered a “third straight quarter of enhanced gross margin, lower costs, reduced inventory, and improved profitability,” citing improved operations during the holiday season and continued work on simplification and productivity.
Turnaround focus: promotions, inventory, and execution
Pugliese said the company has been working through a “business reset,” emphasizing a more disciplined promotional strategy, expense control, and operational streamlining. She pointed to lower promotional intensity during the holiday season, noting the company maintained 30% off discounts with select “stump busters,” compared with 50% off across the board the prior year. Management said the approach supported gross margin expansion while maintaining customer satisfaction.
Fourth-quarter results: sales decline, margin expansion, profitability improvement
Senior Vice President and CFO Heena Agrawal reported fourth-quarter net sales of $215.9 million, down 10.5% year over year. Excluding the prior year’s 53rd week, the sales decline was 8.3%.
Despite lower sales, gross margin expanded 890 basis points to 53%, which the company attributed to the promotional reset and pricing discipline. Agrawal said the company delivered net income of $7.8 million, an increase of $13.4 million, with reported EPS of $0.22 and adjusted EPS of $0.23. Adjusted EPS included $0.3 million of net restructuring expense related to the Salt Lake City fulfillment center closure; she noted the company did not adjust for a tax valuation allowance that would have reduced adjusted EPS by $0.04 in the quarter.
Adjusted EBITDA for the fourth quarter was $17.5 million, up $8.9 million, representing an 8.1% margin and a 460-basis-point improvement.
Full-year performance: improved cash flow and liquidity, but lower revenue
For fiscal 2025, Agrawal reported net sales of $565.2 million, down 9.8%. Excluding the prior year’s 53rd week and wholesale, net sales declined 9.4%. Gross margin expanded 420 basis points to 53.4%.
Adjusted EBITDA was $24.9 million, up $10.3 million year over year, and Pugliese said the company generated nearly $17 million in positive free cash flow, which Agrawal quantified at $16.6 million—an improvement of $41.8 million versus the prior year.
Agrawal said the company ended the year with more than $141 million of liquidity, including no outstanding debt on its asset-based lending facility and $16.3 million in cash and cash equivalents. Inventory was $131.3 million at year-end, down $35.2 million, or 21.1%, which management attributed to enterprise planning and SKU rationalization.
Agrawal also detailed the year’s earnings metrics, reporting a full-year EPS loss of $0.47 and an adjusted EPS loss of $0.43, an improvement of $0.63. Adjustments included $0.9 million of net restructuring expenses and $0.4 million of net impairment expenses; she said the company did not adjust for a tax valuation allowance that would have improved adjusted EPS by $0.11 for the year.
Channel trends: retail strength offsets digital pressure
Management drew a clear contrast between retail and direct performance. Pugliese said the retail portfolio was a “bright spot,” with fourth-quarter retail net sales up 4.7% to $71.6 million, supported by two new store openings, higher average order values, and improved in-stock levels. For the full year, Agrawal said retail channel sales grew 3.5%, aided by comparable sales growth and the new stores, partially offset by one store closure in the second quarter.
Direct channel performance, however, was pressured by reduced promotional activity. Agrawal said the direct channel declined 16% for the year, primarily due to decreased web traffic, partially offset by double-digit growth in average order value from higher average unit retail prices. She added that mobile sales penetration increased by 160 basis points.
In the Q&A, William Blair’s Dylan Carden asked why retail held up better than online and whether the promotional pullback started earlier in stores. Agrawal said the reset began at the same time and pricing is consistent across channels, but store customers have shown “greater resilience and less price sensitivity,” along with higher conversion and higher average order values. She also cited intentional inventory allocation to stores—driving an in-stock increase of more than 500 basis points during peak season—and strong customer service, reflected in five-star satisfaction reviews. Pugliese added that full-funnel and localized marketing efforts have helped drive store traffic.
Agrawal said the company’s expectation for first-half pressure and second-half stabilization in fiscal 2026 is largely due to the digital channel, while the company assumes “positive bumps” for retail for the full year.
Operations, sourcing, and logistics initiatives
On the operational side, management discussed ongoing logistics consolidation and fulfillment efficiency. Pugliese said the company shifted to position Adairsville as the center of fulfillment operations in the third quarter and held 69% of inventory there in the fourth quarter, enabling the company to fulfill most peak orders from a single facility. She said this efficiency is expected to allow further distribution network rationalization in 2026.
The company said it completed “the first two phases” of streamlining and consolidation by closing the Dubuque facility in October 2024 and closing the Salt Lake City fulfillment center in February 2026. Pugliese said Duluth is enhancing the automated Adairsville facility’s efficiency and capacity, with 2026 plans to invest in cross-dock capabilities and improved labor management.
Management also discussed sourcing initiatives. Pugliese said nearly 60% of product is now sourced directly from factories, with the rest coming through two primary vendor agents, as the company works to scale cost savings, diversify supply sources, and maintain an innovation and quality focus.
Agrawal said gross margin expansion benefited from reduced discounting, lower product costs associated with direct-to-factory sourcing initiatives and tariff mitigation, and that the company overcame an approximate $11 million tariff impact during fiscal 2025. She said average unit retails increased 12% year over year and noted gross margin expanded 640 basis points in the second half despite tariff costs.
Fiscal 2026 guidance: sales pressure early, stabilization later
Agrawal provided fiscal 2026 guidance calling for net sales of $540 million to $560 million and adjusted EBITDA of $26 million to $30 million. Capital expenditures are expected to be approximately $12 million.
- Net sales: projected down about 1% to 5% versus 2025, with first-half declines of 6% to 10% and second-half stabilization in a range of down 2% to up 2%.
- Adjusted EBITDA: projected at $26 million to $30 million for the full year.
- Capital expenditures: approximately $12 million, allocated to growth, infrastructure improvements, and maintenance.
Agrawal said first-half sales pressure reflects ongoing adjustments to promotional depth and frequency, annualization of price increases from the back half of fiscal 2025, and the decision not to repeat the Big Dam clearance event in February and the wholesale program. She said second-half trends are expected to benefit from anniversarying the promotional reset and price increases, right-sized inventory purchases that support a higher mix of full-price sales, a more edited assortment focused on core products, and returns from full-funnel marketing investments.
On gross margin, the company expects about 100 basis points of expansion to approximately 54.4%, driven by continued promotional reset, annualization of price increases, mix shift to full-price sales, and sourcing savings, partially offset by the annualized tariff impact. Agrawal said the outlook assumes tariff rates in effect prior to the Supreme Court ruling and does not include recovery of previously paid tariffs.
Pugliese said the company is seeing “green shoots” from a renewed focus on core products, calling out DuluthFlex Fire Hose, Double Flex Denim, and Souped-Up Sweats, as well as new launches like a lightweight Fire Hose shirt and NoGA Air for women. She also noted planned customer-facing improvements such as integrating Apple Pay on the website.
Management said it plans to provide a detailed multi-year strategy during the company’s first-quarter earnings call in June.
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.
