EPS of $-0.11 decreased by 80.9% from previous year
Gross margin of 52.3%
Net income of -3.74M
"We are encouraged by our second quarter results demonstrating positive momentum in our initial turnaround efforts." - Stephanie L. Pugliese
Duluth Holdings Inc (DLTH) Q2 2025 Results — Turnaround Momentum, Margin Expansion, and Path to Profitable Growth (QQ2 2025)
Executive Summary
Duluth Holdings reported a Q2 2025 performance that signals meaningful progress on its turnaround plan, albeit with near-term topline headwinds. Management executed a disciplined promotional reset, initiated tariff mitigation, and advanced inventory optimization, culminating in a 54.7% gross margin and a $12 million adjusted EBITDA, or 9.1% of sales, despite a 7% year-over-year decline in net sales.
Key operational indicators point to a durable margin upcycle: inventory ended down 12% YoY at $148.1 million, store in-stock levels rose 200 basis points, and year-to-date cost reductions are on track to deliver roughly $10 million of annualized savings. Management reiterated a commitment to right-size promotions, reduce SKU count (targeting a >20% SKU reduction in 2026), and selectively raise prices to offset tariff costs, with price increases implemented in July–August 2025 showing elasticity to date. The company reaffirmed full-year adjusted EBITDA guidance of $20–$25 million, while acknowledging an approximate $15 million tariff impact for the year and a plan to further optimize SG&A and inventory receipts.
Taken together, the QQ2 2025 results position Duluth as a turnaround story with a tangible margin restoration trajectory, a strengthened balance sheet, and a roadmap to higher cash conversion and profitability in 2026 and beyond. Investors should monitor the sustainability of topline momentum, the pace of SKU rationalization, the execution of price actions amid tariff headwinds, and the impact of new store openings on overall mix and margins.
Key Performance Indicators
Revenue
141.62M
QoQ: 21.37% | YoY:1.81%
Gross Profit
74.00M
52.25% margin
QoQ: 38.64% | YoY:3.52%
Operating Income
-2.29M
QoQ: 74.47% | YoY:-58.70%
Net Income
-3.74M
QoQ: 52.45% | YoY:-86.83%
EPS
-0.11
QoQ: 54.17% | YoY:-80.92%
Revenue Trend
Margin Analysis
Key Insights
wholesale) due to promotional reset; retail store sales up ~5.3% YoY; AKHG growth >10% on inventory improvements; AUR up more than 10% in Duluth men’s category. Outlook and tariffs: Tariff impact expected to be ~$15 million for the year; price actions implemented in late July/early August are meeting elasticity expectations; inventory and SKU rationalization to continue into 2026.
Financial Highlights
Revenue and gross margin: QQ2 2025 net sales of $131.7 million, down 7% year over year; gross margin of 54.7% (+240 bps vs. prior year). Profitability: Adjusted EBITDA of $12.0 million (9.1% of sales); GAAP operating income negative at the quarter, reflecting ongoing turnaround costs. Margin drivers: Gross margin expansion driven by higher AUR (approx. 8% YoY), reduced promotional depth, direct-to-factory sourcing, and SG&A leverage (SG&A $68.8 million, down 7.1% YoY or -$5.2 million). Cash flow and liquidity: End-Q2 inventory $148.1 million, down $20.7 million or 12% YoY; net liquidity $73.3 million; net debt $26.7 million; capex $9.7 million in H1; two new stores opening. Channel mix: Direct channel down ~18% (ex- wholesale) due to promotional reset; retail store sales up ~5.3% YoY; AKHG growth >10% on inventory improvements; AUR up more than 10% in Duluth men’s category. Outlook and tariffs: Tariff impact expected to be ~$15 million for the year; price actions implemented in late July/early August are meeting elasticity expectations; inventory and SKU rationalization to continue into 2026.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
141.62M
1.81%
21.37%
Gross Profit
74.00M
3.52%
38.64%
Operating Income
-2.29M
-58.70%
74.47%
Net Income
-3.74M
-86.83%
52.45%
EPS
-0.11
-80.92%
54.17%
Key Financial Ratios
currentRatio
1.6
grossProfitMargin
52.3%
operatingProfitMargin
-1.62%
netProfitMargin
-2.64%
returnOnAssets
-0.77%
returnOnEquity
-1.74%
debtEquityRatio
0.78
operatingCashFlowPerShare
$0.5
freeCashFlowPerShare
$0.45
priceToBookRatio
0.58
priceEarningsRatio
-8.4
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Theme: Turnaround progress and profitability focus. Quote: “We are encouraged by our second quarter results demonstrating positive momentum in our initial turnaround efforts.” Significance: Signals management confidence in the ongoing efficiency gains and margin restoration program. Theme: Tariffs and pricing strategy. Quote: "The impact of tariffs on Q2 margin was negligible and will be felt more strongly in the second half of the year. We began implementing our targeted price increases… to offset tariff costs." Significance: Highlights early tariff mitigation actions and price elasticity expectations. Theme: Inventory and cost discipline. Quote: "12% reduction in Q2 ending inventory… rightsizing inventory receipts" and “on track to realize $10 million in cost savings in fiscal 2025.” Significance: Demonstrates operational discipline translating into stronger cash and margin potential.
We are encouraged by our second quarter results demonstrating positive momentum in our initial turnaround efforts.
— Stephanie L. Pugliese
The impact of tariffs on Q2 margin was negligible and will be felt more strongly in the second half of the year.
— Heena K. Agrawal
Forward Guidance
Management reaffirmed FY2025 adjusted EBITDA guidance of $20–$25 million, highlighting tariff mitigation, price action, and inventory management as pivotal levers. The company now expects an approximate $15 million tariff impact for the year, with tariff effects more pronounced in the second half. Price increases implemented in late July/early August are designed to offset costs and maintain demand, while vendor negotiations and inventory receipt timing are being managed to preserve profitability. Capex is planned at roughly $17 million for the year, including two new stores and Omni fulfillment software. Year-end inventory is projected to decline by double digits versus the prior year, supporting improved inventory turns and operating leverage. Investors should monitor: (1) the sustainability of price elasticity and the effectiveness of tariff mitigation on gross margins in Q3 and Q4, (2) the pace of SKU rationalization and its impact on sell-through and AUR, (3) the trajectory of SG&A relative to topline, and (4) execution of new store openings and fulfillment network optimization on revenue mix and profitability.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
DLTH Focus
52.25%
-1.62%
-1.74%
-8.40%
TLYS
30.70%
-0.45%
-0.05%
-571.20%
LE
47.90%
0.78%
-2.32%
-23.74%
ZUMZ
34.20%
-0.19%
-0.27%
-137.40%
CTRN
28.40%
-14.10%
-13.50%
-1.93%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
DLTH appears to be in the early-to-mid-stage turnaround phase, with tangible progress on gross margin expansion, cost discipline, and inventory optimization that collectively improve cash flow visibility. The reaffirmed FY2025 EBITDA target and the explicit tariff mitigation strategy (pricing, vendor negotiations, and inventory timing) provide a framework for earnings resilience even as topline remains under pressure. The key to unwavering shareholder value will be sustaining price integrity, accelerating SKU rationalization, and timely execution of the two new stores plus omnichannel enhancements, which should lift margins and convert the cost savings into meaningful earnings. The potential catalysts are intact (new product lines, improved in-stock positions, and marketing efficiency), but investors should remain mindful of tariff drift, consumer demand volatility, and execution risk as the company shifts toward a leaner, more focused assortment in 2026 and beyond.
Key Investment Factors
Growth Potential
Gross margin expansion is anchored in price integrity, reduced discounting, and lower product costs from direct-to-factory sourcing. A targeted 20% SKU reduction in 2026 and ongoing inventory optimization should improve inventory turns and cash flow, while new products (e.g., Seawool, Artisan Hemp) and retail initiatives (Kansas City and Maple Grove openings, Big Damn Van) support revenue diversification and omnichannel strength.
Profitability Risk
Tariff exposure remains a material headwind with an estimated year impact of ~$15 million; topline risk from ongoing promotional reset that could dampen unit volumes; dependence on discretionary consumer spending in a competitive apparel market; potential supply chain disruptions or cost escalations; execution risk in accelerating SKU reductions and store openings.
Financial Position
Strong liquidity with net liquidity of $73.3 million and net debt of $26.7 million; cash balance of $5.7 million with borrowings of $32.5 million on the credit facility; ongoing cost reduction program targeting $10 million annualized savings; flexible financing via asset-based lending to support working capital and expansion plans.
SWOT Analysis
Strengths
Visible margin improvement in QQ2 2025 (gross margin 54.7%, +240 bps YoY) and SG&A leverage.
Strong liquidity position and manageable leverage (net liquidity $73.3m; net debt $26.7m).
Successful inventory optimization (Q2 ending inventory down 12% YoY; 78% current vs 22% clearance).
Promising store portfolio actions (opening two new stores, renewing profitable leases, closing underperforming location).
Active promotional productivity efforts and targeted price increases to offset tariffs.
New product introductions and differentiated offerings (Seawool, Artisan Hemp; Wonderwear; AKHG improvements).
omnichannel emphasis and marketing innovations (Big Damn Van; Father’s Day campaigns).
Weaknesses
Near-term topline pressure due to cautious promotional strategy and promotional depth reductions.
Q2 GAAP loss (operating income negative; net income negative) indicating ongoing turnround costs.
Tariff exposure remains a meaningful headwind with ~$15m annual impact; margin sensitivity to price elasticity.
Reliance on promotional resets may compress volume if elasticity worsens; wholesale shipment timing discrepancies noted.
Execution risk around SKU rationalization and store openings potentially impacting sell-through and assortments.
Opportunities
Margin expansion through continued SKU rationalization (targeting >20% SKU reduction in 2026) and enhanced price realization.
Strengthening omnichannel strategy and store expansion in key markets (Kansas City, Maple Grove) with improving in-stock and AUR.
Product innovation and durable, functional fabrics (Seawool, Artisan Hemp) to differentiate and command higher price points.
Strengthened inventory planning and enterprise processes to improve cash conversion and inventory turns.
Threats
Tariff regime and rate volatility; potential further cost pressures if tariff landscape shifts.
Macro consumer demand volatility in the discretionary apparel segment; competitive intensity from fast-fashion and discount channels.
Supply chain disruptions or cost escalations, particularly in imported components or fabrics.
Execution risk in reducing SKU count while protecting breadth of appeal across core and AKHG product lines.