🆙 À qui s’adresser – 10-K DULUTH HOLDINGS INC

By | avril 19, 2019




















Table CONtentes


PARAMÈTRES AVANCÉS

Le rapport annuel sur formulaire 10-K inclut des "déclarations prospectives" au sens de la loi de 1995 sur les réformes du droit des marchés privés, qui sont soumises à des risques et à des incertitudes. Toutes les déclarations prospectives contenues dans ce formulaire, à l’exception des déclarations factuelles historiques ou réelles incluses dans le rapport annuel. Les déclarations prospectives font référence à nos attentes et prévisions actuelles concernant notre situation financière, les résultats de nos activités, nos projets, nos objectifs, nos stratégies, notre performance future et nos activités. Vous pouvez identifier les déclarations futures en fonction du fait qu'elles ne sont pas étroitement liées à des faits historiques ou actuels. Ces déclarations peuvent inclure des mots tels que "prévision", "peut", "conception", "estimation", "attente", "projet", "plan", "potentiel", "intention", "croire", " 'Peut', 'volonté', 'objectif', 'doit', 'peut', 'peut', 'probable' et d'autres mots et expressions d'importance similaire en ce qui concerne les problèmes de synchronisation ou de nature opérationnelle futurs. ou la performance financière ou d'autres événements. Par exemple, toutes nos estimations sont basées sur les bénéfices, les produits, les charges, les flux de trésorerie, les taux de croissance et les résultats financiers estimés et prévus, les activités, la croissance ou les initiatives futures, les stratégies ou les résultats ou impacts attendus. procédures de règlement des litiges en cours ou en suspens sont des déclarations prospectives. Tout énoncé prospectif comporte des risques et des incertitudes qui peuvent différer considérablement des résultats réels.

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nous sommes en mesure de maintenir et de renforcer une image de marque forte;

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notre capacité à réussirouvert nouveaux magasins;

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s'adapter efficacement aux nouveaux défis liés à notre expansion sur de nouveaux marchés géographiques;

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tirer profit de nos magasins existants pour soutenir notre croissance;

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impact des modifications de la réglementation de l'impôt sur les sociétés et taxe de vente;

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identifier et répondre aux préférences nouvelles et changeantes des clients;

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augmentation des catalogues postaux, des coûts de papier et d'impression;

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le succès de nos magasins;

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nous sommes en mesure d'attirer nos clients dans divers points de vente et magasins;

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s'adapter pour réduire la confiance des consommateurs et les dépenses de consommation;

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rivaliser efficacement dans un contexte de concurrence intense;

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nous sommes en mesure de nous adapter aux changements importants de la saisonnalité des ventes;

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réduction de prix ou rupture de stock due à une absence d'achat du stock approprié avant la période de vente;

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les catastrophes naturelles, les conditions météorologiques exceptionnellement défavorables, les boycotts et les événements imprévus;

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notre dépendance vis-à-vis de tiers vendeurs à nous fournir suffisamment de marchandises à des prix raisonnables;

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augmentation des coûts de carburant ou d’énergie, des coûts de transport ou d’utilité, ainsi que des coûts de main-d’œuvre et d’emploi;

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prix et disponibilité des marchandises pour les conditions du commerce international;

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Les vendeurs et leurs sources de production sont incapables d'appliquer un travail ou d'autres pratiques acceptables;

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notre dépendance vis-à-vis des principaux dirigeants, ou notre incapacité à acquérir ou à conserver les talents dont nous avons besoin pour notre entreprise;

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l'incapacité de nos systèmes informatiques à prendre en charge nos activités actuelles et en croissance avant et après les mises à jour prévues;

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dans notre chaîne d'approvisionnement et nos centres de distribution;

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incapacité à protéger les marques de commerce ou autres droits de propriété intellectuelle;

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atteinte à la propriété intellectuelle de tiers;

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actes de guerre, de terrorisme ou de troubles civils;

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l'effet des lois et règlements du gouvernement et l'issue des procédures judiciaires;

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modifier la législation sur l'importation et la taxation des marchandises aux États-Unis et aux États-Unis, notamment en instaurant des droits de douane unilatéraux sur les marchandises importées;


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nous sommes en mesure de fournir personnel et / ou les informations financières de nos clients et répondent aux exigences de sécurité du secteur des cartes de crédit; et

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nous n'avons pas pu maintenir un contrôle interne adéquat de nos financessystèmes.

Nos déclarations prospectives sont basées sur un certain nombre de budgets d'exploitation et de prévisions basées sur des hypothèses détaillées. Bien que nous croyions que nos hypothèses sont raisonnables, nous avertissons qu'il est très difficile de prévoir les effets de facteurs connus et qu'il nous est impossible de prévoir des facteurs pouvant affecter les résultats réels.

Pour une analyse plus détaillée des risques et incertitudes susmentionnés et des autres risques et incertitudes, voir la section «Facteurs de risque» du Rapport annuel sur formulaire 10-K. Toutes les déclarations prospectives que nous nous attribuons sont expressément incluses dans ces déclarations de précaution et dans le présent rapport annuel ainsi que dans d'autres documents et annonces publiques de la SEC. Dans le contexte des risques et des incertitudes, vous devez évaluer toutes les déclarations prospectives.

Nous avertissons que les risques et les incertitudes que nous identifions ne sont pas tous des facteurs importants. De plus, les déclarations prospectives au format 10-K de ce rapport annuel ne sont faites qu'à partir de cette date. Nous ne nous engageons pas à mettre à jour ou à réviser publiquement les déclarations prospectives à la lumière de nouvelles informations, d'événements futurs ou d'autres raisons, sauf disposition contraire de la loi.


PARTIE I

Lot 1.

AFFAIRES

Sauf indication contraire du contexte, les termes "Société", "Duluth", "Duluth Trading" Duluth Holdings "Quoi", "nous" ou "nous" Duluth Holdings Inc.

Le prochain entretien est référenpour les exercices 2018, 2017 et 2016qui se réfère exercice financiers est terminé 3 février 2019 28 janvier 2018 et janvier 29 2017. respectivement. fiscal année 2018 il était une période de 53 semaines. Exercice financier 2017 et 2016 C'était 52 semaines.

Financier en 2018, we a ouvert 1 total5 vente au détail boutiques et ajouté environ 250000 carré brut fraist dans nos magasins.

Duluth Trading marque de style de vie à croissance rapide pour les vêtements décontractés, les vêtements de travail et les accessoires pour hommes et femmes propre canaux. Nous proposons une large gamme de produits innovants, durables et fonctionnels tels que les chemises Longtail T®, Buck NakedTM des sous-vêtements et des vêtements de travail Fire Hose® qui reflètent la position d’une marque américaine de style de vie moderne et indépendante. Il y a une marque un un patrimoine sur le lieu de travail qui va au-delà des commerçants et qui appelle une large démographie des hommes et des femmes pour une utilisation quotidienne et professionnelle. plus que 90% Ils le font, jusqu'à notre exercice 2018 Les ventes nettes sont constituées des propres produits de marque Duluth Trading. Nous croyons que la base de notre succès est la culture de la "confrontation moyenne" voir des choses, ce qu’ils peuvent et doivent trouver, et trouver un moyen de faire exactement cela, et faire tout avec un grand sourire en dents de scie.

Nos produits résolvent les problèmes rencontrés par nos clients la limitation des vêtements et du matériel normaux. Notre processus de conception est une approche «préférable d’être», qui donne des produits distincts dotés de caractéristiques uniques qui attirent un large éventail de clients. Nos produits représentent des styles durables qui vont au-delà des tendances de la mode éphémères. Nous nous efforçons d'acheter produits divertissantssaisir des annonces humoristiques, jerespectueux et amusant et sert renforcer l'identité de la marque. Nous utilisons également la narration pour distinguer nos produits sur le marché et créer une relation émotionnelle avec nos clients. Nous offrons à nos clients une expérience unique et divertissante à travers tous les canaux de sites Web riches en contenu, de catalogues et d'environnements de "stockage comme d'autres". Nous traitons nos clients comme des voisins, un service à la clientèle exceptionnel et une garantie inconditionnelle «Pas de garantie Bull» pour chaque achat.

Pour protéger l’intégrité de la marque Duluth Trading, nous proposons nos produitsts exclusivement par omniun réseau de distribution composé de notre site Web, de catalogues et de magasins de vente au détail. Ce modèle crée plus de points de contact avec nos clients et nous permet de réglementer à la fois la marque commerciale Duluth et la tarification des produits. Notre stratégie de distribution élimine le besoin en vendant par le biais de détaillants tiers, ce qui nous permet de nous concentrer sur le développement de produits, la narration d'histoires et le service à la clientèle. Notre segment direct, constitué de notre site Web et de notre catalogue, propose des produits nationaux et représentés environ environ 62% fiscal à partir de 2018 ventes nettes. 2010, nous avons ajouté au détail à notre omnichaîne de canal en ouvrant notre premier magasin. Depuis lors, nous avons élargi leurs retraitesl présence et. que 3 février, 2019nous avons travaillé 43 magasins de détail et trois magasins. Notre secteur de la vente au détail était représenté environ environ 38% de celui-ci fiscal 2018 chiffre d'affaires.

Duluth Trading a été fondée en 1989 lorsque deux frères de la construction de maisons en ont eu assez des seaux en composite de plâtre de cinq gallons qui ont été retirés du lieu de travail sur le lieu de travail. Les deux frères ne se sont jamais satisfaits du statu quo et ont pensé que ce serait "une meilleure solution". Ils ont donc inventé le Bucket Boss® – un organiseur d'outils en toile très résistant qui s'intègre dans un seau en placoplâtre et l'a transformé. organiser des outils pour les travailleurs de la construction. Ces frères ont commencé leur succès initial et ont lancé un catalogue qui est devenu plus tard connu sous le nom de Duluth Trading Company. Selon la philosophie initiale de "Job Tough, Job Smart", ce catalogue a été conçu pour développer et étendre les méthodes existantes de stockage, d'organisation et de livraison des outils. En décembre 2000, GEMPLER & Inc., une société du Wisconsin et est une entreprise de catalogue de fournitures agricoles et horticoles créée et détenue par Stephen L. Schlecht, qui acquiert Duluth Trading et a été acquise conjointement par les deux sociétés postales. Les deux catalogues avaient des clients qui travaillaient à l'extérieur et adoptaient l'esprit d'Américains indépendants et pratiques. En février 2003, W.W. Grainger (NYSE: GWW) et pde cette vente financer la croissance de Duluth Trading. Avec cette transaction, le nom de GEMPLER a été remplacé par Duluth Holdings Inc.

Duluth Trading est une marque bien connue et propriétaire de vêtements et d'équipements novateurs et fonctionnels, à commencer par des idées pour les travailleurs de la construction. Nous avons créé et développé une forte notoriété un clientèle fidèle et dynamisme des ventes. Pour ce faire, nous avons insisté sur le fait que nos racines étaient "meilleures" et nous nous sommes efforcés sans relâche de fournir des produits fonctionnels et de qualité à nos clients.


Nos stratégies de croissance

Notre objectif est d'accroître la disponibilité de la marque Duluth Trading en utilisant des stratégies qui augmentent davantage votre croissance et votre rentabilité:

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Créer une notoriété pour poursuivre l'acquisition de clients. Nous sommes une marque de style de vie en pleine croissance, nous avons développé une forte notoriété et avons aimé avec succès nos clients. passé ans. Relativement jeune marquenous croyons que nous avons une excellente occasion de développer une plus grande notoriété de la marque. Nous prévoyons de présenter notre marque à nos clients potentiels par le biais de nos campagnes publicitaires télévisées et numériques nationales. expansion du commerce de détail et chatalogs. Nous avons beaucoup investi dans le marketing pour accroître la notoriété de la marque chez nos clients potentiels et nous nous attendons à ce qu'ils tirent parti de ces investissements, à mesure que notre entreprise continue de croître.

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Accélérer l'expansion du commerce de détail. Nous pensons que les décisions d'achat de nos clients sont grandement influencées par la disponibilité de nos magasins de vente au détail. Nous pensons que les désirs d’achat de nos clients, ainsi que le nombre de marchés potentiels dans nos magasins de détail et l’économie unitaire compulsive de nos magasins de détail existants, nous offrent une occasion importante d’accroître la présence du commerce de détail aux États-Unis. Nous avons identifié des marchés pouvant contenir environ 100 emplacements de stockage aux États-Unis. avoir une forte concentration de clients commerciaux existants et potentiels de Duluth correspondant à la démographie de la marqueics. quoi ouverture prévue 15 entreprises en fiscalité 2019. Nos points de vente existants dans les zones métropolitaines et rurales ont été rentables sur de nombreux marchés et ont enregistré un rendement moyen depuis moins de deux ans. Financial 2019ils font de gros efforts pour promouvoir la notoriété et le trafic de nos magasins, dont le succès le plus important est la croissance du marché. Les principaux moteurs de nos magasins comprennent une nouvelle sélection de marketing ciblé et des expériences Web et de stockage plus personnalisées chaque saison. Pour soutenir la croissance de notre secteur de la vente au détail, nous prévoyons de développer notre organisation et d’investir dans des systèmes logiciels et une infrastructure opérationnelle. Sur la base de notre expérience jusqu’à présent, nous pensons que la combinaison de nos canaux de vente directe et de vente au détail sur un marché géographique donné augmente considérablement les ventes nettes et le potentiel d’acquisition de clients sur un marché donné. Par exemple, depuis l’ouverture de nos magasins de détail à Minneapolis-St. Zone métropolitaine de Paul, les ventes du segment direct dans cette zone ont continué de croître. En outre, nous pensons que nos magasins de détail offrent des avantages marketing supplémentaires en offrant une nouvelle destination pour que nos clients, nouveaux et existants, se familiarisent avec notre marque.

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Une grande variété de sélections dans les catégories de produits pour certains hommes. Nous pensons que nous avons la possibilité d'accroître les activités des hommes en élargissant de manière sélective certaines catégories de produits à fort potentiel de croissance et similaires aux modes de vie de nos clients masculins de base, tels que. vêtements de travail construits par Duluth vêtements d'extérieur et chaussures. Grâce à des présentations de produits qui augmentent la saisonnalité et la durée d'usure, nous pensons pouvoir augmenter notre part dans le placard avec nos hommes nouveaux et existants.

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Expansion des affaires des femmes. Depuis son lancement en 2005, l’activité des femmes a considérablement augmenté environ environ 25% de noust ventes exercice 2018. Nous pensons que nous avons une excellente occasion de continuer à développer notre activité grâce à l’acquisition de clients et nous prévoyons de continuer à utiliser nos canaux de marketing, y compris la télévision nationale et la publicité numérique. magasins de détail et catalogue cela. Nous nous attendons à ce que les activités de nos femmes continuent de représenter une part croissante de nos ventes nettes et donc de diviser un pourcentage plus important de notre budget publicitaire total entre les activités des femmes. Nous pensons que si notre empreinte commerciale au détail est en expansion, les habitudes d'achat actuelles de nos entreprises augmenteront l'activité des femmes. L’essence de notre gamme de produits pour femmes réside dans le fait qu’elles continueront à élaborer des solutions de style de vie américaines modernes et indépendantes, fondées sur des solutions, et à élargir délibérément notre gamme de produits afin d’attirer un plus grand nombre de clientes.

Nos canaux de vente

Notre stratégie commerciale omnicanal permet à nos canaux de vente de fonctionner en synergie afin de fournir une expérience de marque cohérente. apporter customery compris un marketing, des prix et une présentation du produit cohérents. Tous les canaux de vente sont entièrement intégrés, y compris magasins, sites Web, catalogues et centres de relation client. Nos campagnes de marketing et nos avancées technologiques visent à créer plus de demande pour notre entreprise multilingue comme séparé vente canaux. Les ventes des supermarchés principalement à partir du magasin du magasin, but peut être livré depuis n'importe lequel de nos centres de performance ou d'une autre entreprise s'il y a un élément non disponible dans le magasin d'origine. Les commandes de sites Web et de catalogues sont principalement customer à travers nos centres de performance ou customers vous pouvez afficher et sélectionner les stocks stockés sur votre site navire magasin via notre programme Achat en ligne de ramassage en magasin. De plus, commander un site webs peut être retourné dans des locaux commerciaux. Comme customeret nous continuons à utiliser plusieurs canaux de vente est et veut continuer à nous adapter à notre approche pour rencontrerà besoins. Nos produits sont vendus exclusivement par nos canaux direct et de vente au détail, nous permettant ainsi de contrôler pleinement notre marque et notre relation directe avec c.ustomer.


Segment direct

Notre canal direct, comdécerné environAtelya 62% Ils le font, jusqu'à notre exercice 2018 Les ventes nettes, via notre site Web et nos catalogues, atteignent les clients.

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e-commerce. Notre site Web, www.duluthtrading.com, sert de magasin pour notre gamme de produits et offre une expérience client interactive, conviviale et riche en contenu. Le contenu du site Web et des catégories de notre site Web, y compris les prix, les promotions saisonnières et les produits, est souvent mis à jour pour être actualisé et saisonnier, conformément à notre catalogue et aux mises à jour de nos magasins. Notre gamme complète de produits est disponible sur notre site Web, avec quelques nouveaux produits proposés exclusivement par introduction en ligne, ainsi que des produits hors saison mais en rupture de stock. Sur notre site Web, vous trouverez des vidéos de produits humoristiques et des recommandations de clients renseignant nos clients sur les fonctionnalités et les avantages de nos produits, dans la mesure où nous pensons améliorer notre expérience de magasinage. quoi nous croyons au commerce électronique L'expérience a transformé avec succès les visiteurs sur votre site. Nous pouvons acheter des clients nouveaux et existants sur plusieurs plates-formes et appareils, y compris les appareils mobiles, tablettes et ordinateurs de bureauop ordinateurs. Financial 2018, nous avons vendu la marchandise à nos clients via notre site 50 états et c'était environ environ 54,7 des millions de visites sur site, environ 18% de exercice 2017.

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catalogue. Notre activité de catalogues constitue une partie importante de notre patrimoine et constitue un élément distinctif clé sur le marché. Nos catalogues sont un outil concret pour authentiques et humoristiques la narration et la visite des clients sur notre site Web unnd magasins de détail. Financial 2018, publié 35 questions du catalogue et distribué 50 million d'exemplaires 14 dont des millions d’euros ont été envoyés à des clients potentiels. Nos catalogues reflètent notre approche marketing et incluent des expressions quel marque qui résonne avec la nôtre Clients ciblés. WCes catalogues distincts présentent les offres de produits pour hommes et pour femmes, ainsi que les illustrations présentées dans les catalogues pour hommes et les femmes de nos catalogues présentant des femmes «granuleuses et matérielles». En plusle a Une partie de nos ventes directes, nous pensons que notre catalogue est intelligent, informatif et accrocheur et est une partie vitale de la construction de la marque Duluth Trading.

Segment de la vente au détail

En 2010, nous avons ouvert notre premier magasin de détail et avons depuis élargi ovotre présence au détail, travaillant 43 magasins de détail et trois Commerces 3 février. 2019. les questions fiscales 2018, nous avons fabriqué nos magasins de détail $217,5 Millions d'eurost ventes, représentées environ environ 38% à total des ventes nettes, comparaisonjusqu'à $140,5 Millions d'euros de chiffre d'affaires. t exercice 2017, représentant 30% Ils le font, jusqu'à total des ventes nettes. Magasins existants dans les zones métropolitaines et rurales ont été rentables. Financial 2018, les visites dans nos magasins ont augmenté par 44% ca. 5.9 million visiteurspar rapport à environ environ 4.1 million visiteurs exercice 2017. Nos magasins nous permettent d’atteindre les clients qui achètent plus en brique et de mortier et permettent aux clients novateurs et existants d’innoverprendre une décision avant d'acheter. La taille de nos magasins est d'environ 14000 pieds carrés et conçu pour rendre notre marque unique en ce qui concerne la vie et une expérience divertissante comprenant la participation du personnel de vente, une gamme complète et impressionnante de produits, des équipements sur mesure qui répondent à notre marque, un accès Internet sans fil gratuit, du café et de l'eau gratuits. Nous vous montrons également les attractions uniques de chaque magasin de détail célébrant le patrimoine local, telles que le Mt. Horeb, le magasin du Wisconsin et l’exposition Exploded Tractor dans notre magasin à Ankeny, dans l’Iowa. Nous pensons que ces éléments de la communauté locale favorisent la fidélité de la clientèle et les achats répétés.

Nos magasins de détail offrent également un soutien marketing, comme la visibilité de la marque dans les zones à fort trafic. Nous fournissons à nos clients une commodité supplémentaire pour commander leurs produits en ligne et les livrer à notre magasin gratuitement. Les clients peuvent également retourner les produits achetés sur Internet dans nos points de vente et acheter certains produits Duluth Trading qui ne sont pas disponibles en magasin ou dans des kiosques en magasin et qui sont livrés directement à leur domicile.

Possibilités d'expansion et emplacement des magasins de vente au détail

Nous pensons que nous disposons d’un modèle de vente au détail convaincant qui soutient la croissance de l’empreinte des magasins aux États-Unis, sur les marchés nouveaux et existants, tout en augmentant les ventes des segments directs sur ces marchés et le potentiel de ventes total de la région. Contrairement aux revendeurs traditionnels, nous sommes en mesure de tirer parti de la richesse des données sur les clients directs du segment pour identifier les marchés potentiels de nouveaux magasins comprenant des clients à forte concentration de Duluth Commercial et des clients potentiels répondant aux caractéristiques démographiques de la marque.

Les marchés potentiels pour nos nouveaux magasins sont sélectionnés en fonction des données client existantes du segment direct, et en fonction des entrées client, de la disponibilité sur autoroute, de la visibilité, de la disponibilité en magasin et du stationnement. Nos magasins de détail sont conçus comme des restaurations emblématiques, pour la rénovation d'un bâtiment existant ou pour la construction. Le magasin de détail est construit dans un magasin intégré pour notre conception et notre empreinte uniques. Nos données de vente au détail actuelles informent également nos futures décisions de marchandisage.


Pour soutenir la croissance de notre secteur de la vente au détail, nous prévoyons de développer notre organisation et d’investir dans des systèmes logiciels et une infrastructure opérationnelle.

nos produits

Nous proposons une ligne innovante et complète vêtements de travail, vêtements de travail et accessoires durables et fonctionnels pour hommes et femmes. Notre gamme de produits comprend des chemises, des pantalons, des sous-vêtements, des vêtements d'extérieur, des chaussures, des accessoires et des biens durables. La fonction de nos produits ont leurs propres conceptions et autonomes nomscomme Longtail T® Chemises, Buck NakedTM sous-vêtements Tuyaux d'incendie et No-YankTM récipient. Le tableau ci-dessous est présents ventes nettes bpour les deux derniers exercices financiers.

L'année financière est terminée

3 février 2019

28 janvier 2018

$ Changement

% De changement

(en milliers)

homme

$

395 536

$

333 536

$

62000

18,6%

femelle

141 244

110 343

30901

28,0%

Biens durables / autres

31 322

27568

3754

13,6%

Total des ventes nettes

$

568 102

$

471 447

$

96 655

20,5%

Nous proposons une gamme stable de produits qui obligent nos clients à les utiliser au quotidien et au travail. La plupart de nos produits représentent styles durables qui vont au-delà des tendances de la mode de courte durée. Nous croyons en beaucoup de nos clients" Nos achats sont guidés par notre conception réfléchie et notre travail de qualité, et nos styles les plus vendus sont généralement des articles qui ne font que des mises à jour mineures, année après année.

Nous pensons que la crédibilité de nos produits est étayée par un certain nombre de facteurs, notamment un processus de conception basé sur une solution, l'utilisation de matériaux techniques, des méthodes de fabrication sophistiquées et des fonctionnalités de produit innovantes. Nos produits sont vendus à des prix compétitifs et offrent d'excellentes performances avec des fonctionnalités supplémentaires telles que des revêtements de sol offrant une plus grande liberté de mouvement, des coutures triples pour la durabilité et des assistants de milieu de gamme pour la fonctionnalité. Nous travaillons également avec nos fournisseurs pour développer des tissus avancés que nous vendons sous nos marques. Par exemple, nous incorporons le Duluthflex® tuyau d'incendie® produits en lin et en coton qui offrent résistance et résistance à l'abrasion en offrant une liberté de mouvement.

le développement de produits

Nous nous concentrons sur le développement de vêtements et d'équipements basés sur l'héritage de produits de Duluth Trading. Nous utilisons principalement un processus de conception innovant basé sur les commentaires, par lequel nous recherchons activement nos clients, y compris un groupe. plus de 100 produits testeurs ayant une expertise dans le commerce. Ces membres professionnels font désormais partie intégrante de notre processus de développement de produits car ils testent et évaluent des produits sélectionnés dans des conditions extrêmes et fournissent des informations en temps réel sur les performances et les fonctionnalités. Les membres de notre équipe de développement de produits lisent régulièrement les avis de clients en ligne, participent aux achats et collaborent avec nos fournisseurs pour faciliter l'innovation de nouveaux produits. Notre équipe de développement de produits inclut tous ces éléments pour développer de nouvelles solutions et fonctionnalités de produits, garantir un ajustement, un style et une couleur cohérents, et concevoir des tissus fonctionnels et durables.

vente

Notre stratégie de marketing vise à créer une image de marque, à gagner de nouveaux clients, à fidéliser la clientèle et à encourager les transactions commerciales. Nous sommes reconnus internationalement pour nos publicités créatives, irrespectueuses et amusantes, mettant en vedette nos personnages de Giant Angry Beaver, Buck Naked Guy et Grab-Happy Grizzly, qui illustrent la philosophie de notre marque, son humour et son innovation. A marketingkampányainkban ajánlásokat is adunk, amelyek termékeinket kontextusban helyezik el, és azokat az egyénekhez kötik, akik a fő ügyfeleinket képviselik, akik gyakorlati életmódot vezetnek, jól értékelt munkát végeznek és gyakran szabadban dolgoznak és hobbik számára. Hisszük, hogy ügyfeleink azonosítják a valódi férfiak és nők inspiráló történeteit, elismerik termékeink sokoldalúságát, és értékelik az extrém és igényes feltételeket, amiket termékeink képesekd.

A marketingstratégiát többféle médiumon keresztül folytatjuk, amely termékeinknek identitást ad, és növeli márkánkat:

·

Televízió. Kábel- és műsorszóró televíziós hálózatokon hirdetünk, hogy a férfiak és a nők termékeire is felhívjuk a figyelmet a márka ismertségére, és elérjük a nagy, nemzeti közönséget. Ezek a hirdetések funkciók mindkét animált karaktereinket és női modellek, és hogy humorosak, tiszteletlenek és mókásak legyenek, hogy megragadják a néző figyelmét, ugyanakkor kiemelik az alapvető termékeink és a Duluth Trading nevének különösen innovatív, megoldásokon alapuló jellemzőit.


·

Digitális és e-mail marketing. Számos digitális és online hirdetési stratégiát alkalmazunk. Ezek az erőfeszítések magukban foglalják a megjelenítő reklámot, a digitális videohirdetést, a keresőmotor-marketinget és az optimalizálást, valamint a célzott e-mailt, melyet az ügyfelek részére új termékek bevezetésére és promóciókat kínálunk a kiválasztott árukban.

·

katalógusok. Katalógusunk egy fontos rész örökségünket, és kézzelfogható eszközt jelentenek hiteles és humorunk számáramesemondás. Pénzügyi 201-ben8, mi közzétett 35 katalóguskérdések, és 5-nél többet0 million katalógusok, kb4 ebből több millió eurót küldtek le a leendő ügyfeleknek. Katalógusunk mindkét értékesítési csatornát támogatja, és úgy véljük, fontos ügyfélnek számít a beszerzési eszköz a webhelyünk és a kiskereskedelmi üzletek látogatása útján.

·

Közösségi média. Van egy elkötelezett szociális média közösségünk, amely lehetővé teszi számunkra, hogy személyesen kapcsolatba léphessünk ügyfeleinkkel online, és úgy véljük, tovább növeli a márka ismertségét. We maintain a social media presence on Facebook, Pinterest, YouTube and Twitter.

·

Radio, Collateral Print and Outdoor Marketing. We use traditional radio and collateral print advertising, such as newspaper inserts and postcards, and billboards in the areas surrounding our retail stores to build brand awareness, drive traffic to our website and stores, highlight certain promotions and events and support new store openings.

·

Event Sponsorship. We sponsor both national and local events, including the STIHL TIMBERSPORTS Series, a competition of the world’s top lumberjack athletes, with a national airing on the ABC television network. In 2017, we secured a five-year partnership as the “Official Off-Sled Outfitter” of USA Luge, providing vests, pants, socks, boots and other cold-weather gear and were featured at the 2018 Winter Olympic Games in Pyeongchang, South Korea.

Customer Service

We are committed to providing outstanding customer service and believe in treating our customers like next-door neighbors. Our retail stores are stocked with a comprehensive assortment of our products and staffed with knowledgeable and well trained sales associates. We stand behind all purchases with our unconditional “No Bull Guarantee.” Our call center is open 24 hours a day, seven days a week and is staffed with friendly, knowledgeable representatives dedicated to making every customer experience positive. As a convenience to our customers, we offer live chat through our website, which is available from 7 A.M. to 8 P.M. Central Time on weekdays and 8 A.M. to 5 P.M. Central Time hétvégenként.

Manufacturing

We do not own or operate any manufacturing facilities. Instead, we arrange with third-party vendors for the manufacturing of our merchandise. We have built strong, long-term relationships with our vendors. In fiscal 2018. 52% of our purchases came from our largest supplier, an agent partner in Hong Kong who manages multiple factories across Asia, including Cambodia, China, Indonesia and Vietnam. Approximately 15% nak,-nek mi purchases in fiscal 2018 came from our second largest supplier, which is based in Thailand. We believe sourcing inventory through this agent allows us to leverage the agent’s purchasing power with multiple factories, as well as transportation and logistics capabilities, allowing our internal team to focus on our core competencies of product development, storytelling and serving customers, rather than factory et mill management or logistics.

Our sourcing strategy focuses on identifying and employing vendors that provide quality materials and fine craftsmanship that our customers expect of our brand. To ensure that our high standards of quality and timely delivery of merchandise are met, we work closely with our third-party agent partners. All of our products are produced according to our specifications, and we require all of our manufacturers to adhere to strict regulatory compliance and standards of conduct. We seek to ensure the consistent quality by employing Duluth Trading-certified factory auditors to selectively examine pre-production samples, conduct periodic site visits to certain of our vendors’ production facilities and inspect inbound shipments at our distribution centers.

Distribution Centers

Our distribution centers are currently located across the United States in order to minimize transit times to our customers. We own and operate a distribution center in Belleville, Wisconsin, that is approximately 190,000 square feet of production and warehouse space. of which 75,000 square feet was added in July 2016. Our Belleville distribution center stocks and replenishes products in our retail stores and handles our direct segment distribution needs for the Midwest. We also contract with two third-party logistics (“3PLs”) centers in Sparks, Nevada and Carlisle, Pennsylvania. Orders are generally assigned to the distribution center closest to the customer’s ship-to location. We believe our current distribution network will allow us to substantially improve delivery times to key customer concentrations in the Eastern and Western United States and is well-positioned to provide sufficient capacity to support our planned continued growth for the foreseeable future.


Returns Center

We currently lease approximately 30,000 square feet of warehouse space located in Verona, Wisconsin. Our returns center handles nagy része a közvetlen értékesítés returns.

Information Technology

We use technology to provide customer service, business process support and business intelligence across our sales channels. We continually aim to have more efficient supply chain and distribution systems operations. Our Distributed Order Management systems provide us with omnichannel capabilities that have a global view of available-to-promise inventory management and also process direct orders from our retail stores. Our Belleville distribution center implemented a new warehouse management system in July 2015. Our Product Lifecycle Management System, which launched in June 2015, systematically coordinates efforts across our product development teams, allowing these teams to dedicate their time to building and executing solution-based product introductions. Our Vendor Portal is a web-based system that allows us to interface with key partners. In 2018, we exécutioned nouveau Order Management System (“OMS”) and a new E-commerce website. Our new OMS permets us to manage inventory cost and pricing, and seamlessly process customer orders across all channels. It will also provide us with flexible pricing and promotions to satisfy our customers’ needs. la new E-commerce weboldal permets us to provide our customers with a reliable and secure channel to shop our products. Ez unllows us to comfortably scale to meet our várható customer demands.

Competition

We operate primarily in the apparel, footwear and accessories industry, which is highly competitive. We compete with a diverse group of direct-to-consumer companies and retailers, including men’s and women’s specialty apparel chains, department stores, outdoor specialty stores, apparel catalog businesses and online apparel businesses. We compete principally on the basis of brand recognition, innovation, product quality, customer service and price. To stay ahead of our competition, we continue to develop innovative solution-based products for which we create unique selling propositions that incorporate humor and storytelling.

Intellectual Property

Our trademarks are important to our marketing efforts. We own or have the rights to use certain trademarks, service marks and trade names that are registered with the U.S. Patent and Trademark Office, trademark offices in other jurisdictions, or exist under common law in the United States and other jurisdictions. The “Duluth Trading Co” trade name and trademark is used both in the United States and internationally, and is material to our business. Trademarks that are important in identifying and distinguishing our products and services are Alaskan Hardgear®, Armachillo®, Ballroom®, Cab Commander®, Crouch Gusset®, Dry on the Fly®, Duluth Trading Co®, Duluthflex®, Fire Hose®, Longtail T®, No Polo Shirt®, No Yank® and Wild Boar Mocs®. Our rights to some of these trademarks may be limited to select markets. We also own domain names, including “duluthtrading.com.”

Az alkalmazottak

As of February 3, 2019, we employé 859 full-time and 1.935 part-time and flexible part-time employees, 1,630 amelyből were employed at our retail stores. The number of employees, particularly part-time employees, fluctuates depending upon seasonal needs. Our employees are not represented by a labor union and are not party to a collective bargaining agreement. We consider our relations with our employees to be good.

A szezonalitás

la business experiences seasonal fluctuations. Our net sales and net income are generally highest in the fourth fiscal quarter, which includes the holiday sales period. la following table ajándéks net sales and net income for the fourth quarter as a percentage of the fiscal year.









4Q

4Q Net Sales

4Q

4Q Net Income

Fiscal Year

Net Sales

% of Fiscal year

Net Income

% of Fiscal Year

(in thousands)

2018

$

250,541

44.1

%

$

20,620

89.0

%

2017

$

217,805

46.2

%

$

19,528

83.6

%

2016

$

174,653

46.4

%

$

13,993

65.6

%


Regulation and Legislation

We are subject to labor and employment laws, truth-in-advertising laws, privacy laws, safety regulations, consumer protection regulations and other laws that regulate retailers and govern the promotion and sale of merchandise and the operation of stores and warehouse facilities. We monitor changes in these laws and believe that we are in material compliance with applicable laws.

Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are készült available free of charge on or through our website at www.duluthtrading.com under the “Investors” tab as soon as reasonably practicable after such reports are filed with, or furnished to la SEC.





ITEM 1A.

RISK FACTORS



Certain factors may have a material adverse effect on our business, financial condition and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of our Class B common stock could decline, and you could lose part or all of your investment.



Risks Related To Our Business

If we fail to offer products that customers want to purchase, our business and results of operations could be adversely affected.

Our products must satisfy the desires of customers, whose preferences change over time. In order to be successful, we must design, obtain and offer to customers innovative and high-quality products on a continuous and timely basis. Failure to effectively respond to customer needs and preferences, or convey a compelling brand image or price-to-value equation to customers may result in lower net sales and gross profit margins.

Our success depends in part on management’s ability to effectively anticipate or identify customer needs and preferences and respond quickly with marketable product offerings in advance of the actual time of sale to the customer. Even if we are successful in anticipating or identifying our customers’ needs and preferences, we must continue to develop and introduce innovative, high-quality products and product features in response to changing consumer demand.

Factors that could affect our ability to accurately forecast consumer demand for our products include:

·

a failure in our solution-based design process to accurately identify the problems our customers are experiencing with commonly available apparel and gear or a lack of customer acceptance of new products or product features we design;

·

customer unwillingness to attribute premium value to our new products or product features we design relative to the commonly available apparel and gear they were intended to replace;

·

new, well-received product introductions by competitors;

·

weak economic conditions or consumer confidence, which reduce demand for our products; et

·

terrorism, civil unrest or acts of war, or the threat thereof, which adversely affect consumer confidence and spending and/or interrupt production and distribution of products and raw materials.

There can be no assurance that we will be able to successfully anticipate or identify our customers’ needs and preferences and design products and product features in response. As a result, we may not successfully manage inventory levels to meet our future order requirements. If we fail to accurately forecast consumer demand, we may experience excess inventory levels or a shortage of product required to meet the demand. Inventory levels in excess of consumer demand may result in inventory write-downs and the sale of excess inventory at discounted prices, which could have an adverse effect on the image and reputation of our brand and negatively impact profitability. On the other hand, if we underestimate demand for our products, our third-party


manufacturers may not be able to produce sufficient quantities of our products to meet consumer requirements, and this could result in delays in the shipment of products and lost revenue, as well as damage to the image and reputation of our brand and our relationship with our customers. These risks could have a material adverse effect on our brand as well as our results of operations and financial condition.

Our business depends on our ability to maintain a strong brand. We may not be able to maintain and enhance the Duluth Trading brand if we receive unfavorable complaints, negative publicity or otherwise fail to live up to consumers’ expectations, which could materially adversely affect our business, results of operations and growth prospects.

We currently offer a differentiated brand to our customers defined by solution-based products manufactured with high quality craftsmanship, humorous and distinctive marketing, and an outstanding customer experience. Maintaining and enhancing the Duluth Trading brand is critical to expanding our base of customers. If we fail to maintain our brand, or if we incur excessive expenses in this effort, our business, operating results and financial condition may be materially adversely affected. We anticipate that, as we raise our profile nationally and attract an increasing amount of competition, maintaining and enhancing our brand may become increasingly difficult and expensive and may require us to make substantial additional investments in areas such as marketing, store operations, merchandising, technology and personnel.

Customer complaints or negative reactions to, or unfavorable publicity about, our product quality or product features, our storytelling or irreverent advertising, the shopping experience on our website or in our retail stores, product delivery times, customer data magánélet and security practices or customer support, especially on blogs, social media, other third-party websites and our website, could rapidly and severely diminish consumer use of our website and catalogs, visits to our retail stores and consumer confidence in us and result in harm to our brand. Furthermore, these factors could cause our customers to no longer feel a personal connection with the Duluth Trading brand, which could result in the loss of customers and materially adversely affect our business, results of operations and growth prospects.

Our marketing strategy of associating our brand and products with the Modern, Self-Reliant American Lifestyle may not be successful with future customers.

We have been successful in marketing our products by associating our brand and products with a heritage of workwear and the Modern, Self-Reliant American Lifestyle. To sustain long-term growth, we must continue to be successful in promoting our products to customers who identify with this lifestyle. If our customer base declines through natural attrition and is not replaced by new customers due to, for example, a lack of personal identification with this lifestyle, our net sales could decline, which could adversely affect our business, results of operations and financial condition.

Our net sales and profits depend on the level of consumer spending for apparel, footwear and accessories, which is sensitive to general economic conditions and other factors. An economic recession or a decline in consumer spending could have a material adverse effect on our business and results of operations.

The apparel, footwear and accessories industry has historically been subject to cyclical variations and is particularly affected by adverse trends in the general economy. The success of our business depends on consumer spending. There are a number of factors that influence consumer spending, including actual and perceived economic conditions, disposable consumer income, interest rates, consumer credit availability, unemployment, stock market performance, extreme weather conditions, energy prices and tax rates in the national, regional and local markets where we sell our products. A decline in actual or perceived economic conditions or other factors could negatively impact the level of consumer spending and have a material adverse impact on our business and results of operations.

Retail store expansion could reduce the revenue of our direct channel and adversely affect the operating results of our retail channel.

The growth in the number of our retail stores may draw customers away from our website and catalogs, which could materially adversely affect net sales from our direct channel. As we increase the number of our retail stores, our stores may become more highly concentrated in the geographic regions we serve. As a result, the number of customers and related net sales at individual stores may decline and the payback period may be increased. In addition, as we open more retail stores, and if our competitors open stores with similar formats, our retail store format may become less unique and may be less attractive to customers as a shopping destination. If either of these events occurs, the operating results of our retail channel could be materially adversely affected.


If we cannot successfully implement future retail store expansion, our growth and profitability could be adversely impacted.

We plan to open approximately 15 new retail stores in fiscal 2019. Our ability to open new retail stores in a timely manner and operate them profitably depends on a number of factors, many of which are beyond our control, including:

·

our ability to manage the financial and operational aspects of our retail growth strategy, including making appropriate investments in our software systems, information technology and operational infrastructure;

·

our ability to identify suitable locations, including our ability to gather and assess demographic and marketing data to accurately determine consumer demand for our products in the locations we select;

·

our ability to negotiate favorable lease agreements;

·

our ability to properly assess the profitability and payback period of potential new retail store locations;

·

the availability of financing on favorable terms;

·

our ability to secure required governmental permits and approvals;

·

our ability to hire and train skilled store operating personnel, especially management personnel;

·

the availability of construction materials and labor and the absence of significant construction delays or cost overruns;

·

our ability to provide a satisfactory mix of merchandise that is responsive to the needs of our customers living in the areas where new retail stores are built;

·

our ability to establish a supplier and distribution network able to supply new retail stores with inventory in a timely manner;

·

our competitors building or leasing stores near our retail stores or in locations we have identified as targets for a new retail store;

·

consumer demand for our products, which drives traffic to our retail stores; et

·

general economic and business conditions affecting consumer confidence and spending and the overall strength of our business.

We may not be able to grow the number of our retail stores, achieve the net sales growth and payback periods historically achieved by our retail stores or maintain consistent levels of profitability in our retail stores, particularly as we expand into markets now served by other apparel chains, outdoor specialty stores, apparel catalog businesses and online apparel businesses. In addition, the substantial management time and resources which our retail store expansion strategy requires may result in disruption to our existing business operations which may decrease our profitability.

We may face risks and new challenges associated with our geographic expansion.

As we expand our retail store locations, we may face new challenges that are different from those we currently encounter. Our expansion into new geographic markets could result in increased competitive, merchandising, distribution and other challenges. We may encounter difficulties in attracting customers in our new retail locations due to a lack of customer familiarity with our brand, our lack of familiarity with local customer preferences, competition with new competitors or with existing competitors with a large, established market presence and seasonal differences in the market. Our ability to expand successfully into other geographic markets will depend on acceptance of our retail store experience by customers in those markets, including our ability to design our stores in a manner that resonates locally and to offer the correct product assortment to appeal to consumers in such markets. There can be no assurance that any newly opened stores will be received as well as, or achieve net sales or profitability levels consistent with, our projected targets or be comparable to those of our existing stores in the time periods estimated by us, or at all. If our stores fail to achieve, or are unable to sustain, acceptable net sales and profitability levels, our business, results of operations and growth prospects may be materially adversely affected.

Furthermore, our retail stores may be located in regions that will be far from our Mount Horeb, Wisconsin headquarters and will require additional management time and attention. Failure to properly supervise the operation and maintain the consistency of the customer experience in those retail stores could result in loss of customers and potentially harm future net sales prospects.


We may be unable to keep existing retail store locations or open new retail locations in desirable places, which could materially adversely affect our sales and profitability.

We may be unable to keep existing retail locations or open new retail locations in desirable places in the future. We compete with other retailers and businesses for suitable retail locations. Local land use, local zoning issues, environmental regulations and other regulations may affect our ability to find suitable retail locations and also influence the cost of leasing or buying them. We also may have difficulty negotiating real estate leases for new stores, renewing real estate leases for existing stores or negotiating purchase agreements for new sites on acceptable terms. In addition, construction, environmental, zoning and real estate delays may negatively affect retail location openings and increase costs and capital expenditures. If we are unable to keep up our existing retail store locations or open new retail store locations in desirable places and on favorable terms, our net sales and profits could be materially adversely affected.

Competitive pricing pressures with respect to shipping our products to our customers may harm our business and results of operations.

Given the size of our direct segment net sales relative to our total net sales, shipping and handling revenue has had a significant impact on our gross profit and gross profit margin. Historically, this revenue has partially offset our shipping and handling expense included in selling, general and administrative expenses. Online and omnichannel retailers are increasing their focus on delivery services, with customers increasingly seeking faster, guaranteed delivery times and low-price or free shipping. To remain competitive, we have been required to offer discounted, free or other more competitive shipping options to our customers, which has résultated in declines in our shipping and handling revenue and increased shipping and handling expense. We expect further declines in shipping and handling revenues as compared to prior years. Further declines in shipping and handling revenues may have a material adverse effect on our gross profit and gross profit margin, as well as our Adjusted EBITDA to the extent there are not commensurate declines, or if there are increases, in our shipping and handling expense.

We may be subject to additional tax liabilities or may be subject to changes in our effective tax rate that may have a negative impact on our earnings.

H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) made broad and complex changes to U.S. law, and in certain instances, lacks clarity and is subject to interpretation until additional Internal Revenue Service guidance is issued. The ultimate impact of the Tax Reform Act may differ from the Company’s estimates due to changes in the interpretations and assumptions made as well as any forthcoming regulatory guidance, and any negative impact may be material. The Company will continue to assess the provisions of the Tax Reform Act and the anticipated impact to its income tax expense and will disclose the anticipated impact on its consolidated financial statements in future financial filings until the final impact is determined.

We rely on sources for merchandise located in foreign markets, and our business may therefore be adversely affected by legal, regulatory, economic and political risks associated with international trade and those markets.

Substantially all of our merchandise is imported from suppliers in China and other emerging markets in Asia and Central America, either directly by us or through our agents. Our reliance on suppliers in foreign markets creates risks inherent in doing business in foreign jurisdictions, including:

·

the burdens of complying with a variety of foreign laws and regulations, including trade and labor restrictions, import/export laws and regulations, and local intellectual property laws and rights owned by third parties;

·

changes in U.S. and non-U.S. laws (or changes in the enforcement of those laws) affecting the importation and taxation of goods, including disallowance of tax deductions for imported merchandise, imposition of unilateral tariffs on imported goods, duties, quotas, enhanced security measures at U.S. ports or imposition of new legislation relating to import quotas;

·

economic and political instability in the countries and regions where our suppliers are located;

·

compliance with U.S. and other country laws relating to foreign operations, including the Foreign Corrupt Practices Act, which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business;

·

increases in shipping, labor, fuel, travel and other transportation costs;

·

the imposition of anti-dumping or countervailing duty proceedings resulting in the potential assessment of special anti-dumping or countervailing duties;

·

transportation delays and interruptions, including due to the failure of suppliers or distributors to comply with import regulations; et


·

political instability and acts of terrorism.

Any increase in the cost of merchandise purchased from these suppliers or restriction on the merchandise made available by these suppliers could have an adverse effect on our business and results of operations.

Manufacturers in China have experienced increased costs in recent years due to shortages of labor and the fluctuation of the Chinese Yuan in relation to the U.S. dollar. If we are unable to successfully mitigate a significant portion of such product cost increases, our results of operations could be adversely affected.

New initiatives may be proposed in the United States that may have an impact on the trading status of certain countries and may include retaliatory duties or other trade sanctions that, if enacted, would increase the cost of products purchased from suppliers in such countries with which we do business. Any inability on our part to rely on our foreign sources of production due to any of the factors listed above could have an adverse effect on our business, results of operations and financial condition.

The success of our direct channel depends on customers’ use of our digital platform, including our website, and response to catalogs and digital marketing; if our overall marketing strategies, including our maintenance of a robust customer list, is not successful, our business and results of operations could be materially adversely affected.

la level of customer traffic and volume of customer purchases through our direct channel, which accounted for hozzávetőlegesen, körülbelül 62% of mi net sales in fiscal 2018, is substantially dependent on our ability to provide a content-rich and user-friendly website, widely distributed and informative catalogs, a fun, easy and hassle-free customer experience and reliable delivery of our products. Ha mi are unable to maintain and increase customers’ use of our e-commerce platform, including our website, and the volume of purchases decline, our business and results of operations could be adversely affected.

Customer response to our catalogs and digital marketing is substantially dependent on merchandise assortment, merchandise availability and creative presentation, as well as the selection of customers to whom our catalogs are sent and to whom our digital marketing is directed, changes in mailing strategies and the size of our mailings. Our maintenance of a robust customer list, which we believe includes desirable demographic characteristics for the products we offer, has also been a key component of our overall strategy. If the performance of our website, catalogs and email declines, or if our overall marketing strategy is not successful, our business, results of operations and stock price could be adversely affected.

Dependence on our e-commerce sales channel subjects us to numerous risks that could have a material adverse effect on our business, financial condition and results of operations.

Our results of operations and financial condition are dependent on maintaining our e-commerce business and expanding our e-commerce business is an important part of our growth strategy. Dependence on our e-commerce business and its continued growth subjects us to certain risks, including:

·

diversion of traffic from our stores;

·

liability for online content;

·

the need to keep pace with rapid technological change;

·

government regulation of the Internet, including taxation; et

·

threats to the computer systems that operate our website and related support systems, including viruses, malware and other malicious code, misconfiguration, systems failure or inadequacy, compromise or unauthorized access and similar disruptions.

Our failure to successfully respond to these risks and uncertainties could reduce our e-commerce sales, increase our costs, diminish our growth prospects, and damage our brand, which could negatively impact our business, financial condition and results of operations.

We are subject to payment-related risks.

We accept payments using a variety of methods, including credit cards, debit cards, gift cards and physical bank checks. For existing and future payment methods we offer to our customers, we may become subject to additional regulations and compliance requirements (including obligations to implement enhanced authentication processes that could result in increased costs and reduce the ease of use of certain payment methods), as well as fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time, raising our operating costs and lowering profitability. We rely on third-party service providers for payment processing services, including the processing of credit and debit cards. In each case, it could disrupt our business if these third-party service providers suffer a data breach, or become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, including


data security rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, or if our rendszerek containing payment information are breached or compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees and/or lose our ability to accept credit and debit card payments from our customers and process electronic funds transfers or facilitate other types of payments, and our business and operating results could be adversely affected.

We rely on third-party service providers, such as UPS and the United States Postal Service (“USPS”). to deliver products purchased through our direct channel to our customers and our business could be negatively impacted by disruptions in the operations of these third-party service providers.

Relying on third-party service providers puts us at risk from disruptions in their operations, such as employee strikes, inclement weather and their inability to meet our shipping demands. If we are forced to use other delivery service providers, our costs could increase and we may be unable to meet shipment deadlines. Moreover, we may be unable to obtain terms as favorable as those received from the transportation providers we currently use, which would further increase our costs. In addition, if our products are not delivered to our customers on time, our customers may cancel their orders or we may lose business from these customers in the future. We may be subject to shipping surcharges during the peak holiday shopping season, which may have a negative impact on our earnings. These factors may negatively impact our financial condition and results of operations.

Increases in postage, paper and printing costs could adversely affect the costs of producing and distributing our catalogs and promotional mailings, which could have an adverse effect on our business and results of operations.

Catalog mailings are a key aspect of our business and increases in costs relating to postage, paper and printing would increase the cost of our catalog mailings and could reduce our profitability to the extent that we are unable to offset such increases by raising prices, by implementing more efficient printing, mailing, delivery and order fulfillment systems or by using alternative direct-mail formats.

We currently use the USPS for distribution of substantially all of our catalogs and are therefore vulnerable to postal rate increases. The current economic and legislative environments may lead to further rate increases or a discontinuation of the discounts for bulk mailings and sorting by zip code and carrier routes, which we currently leverage for cost savings.

Paper for catalogs and promotional mailings is a vital resource in the success of our business. The market price for paper has fluctuated significantly in the past and may continue to fluctuate in the future. In addition, the continued consolidation or closings of production facilities in the United States may have an impact on future pricing and supply availability of catalog paper. We do not have multi-year fixed-price contracts for the supply of paper and are not guaranteed access to, or reasonable prices for, the amounts required for the operation of our business over the long term.

We also depend upon external vendors to print and mail our catalogs. The limited number of printers capable of handling such needs subjects us to risks if any printer fails to perform under our agreement. Most of our catalog-related costs are incurred prior to mailing, and we are not able to adjust the costs of a particular catalog mailing to reflect the actual subsequent performance of the catalog.

If we fail to acquire new customers, or fail to do so in a cost-effective manner, we may not be able to increase net revenue or profit per active customer.

Our success depends on our ability to acquire customers in a cost-effective manner. In order to expand our customer base, we must appeal to and acquire customers who identify with the Duluth Trading brand. We have made significant investments related to customer acquisition and expect to continue to spend significant amounts to acquire additional customers. For example, our national television advertising campaigns are expensive and may not result in the cost-effective acquisition of customers. Furthermore, as our brand becomes more widely known in the market, future marketing campaigns may not result in the acquisition of new customers at the same rate as past campaigns.

We believe that many of our new customers originate from word-of-mouth and other non-paid referrals from existing customers. Therefore, we must ensure that our existing customers remain loyal in order for us to continue receiving those referrals. If our efforts to satisfy our existing customers are not successful, we may not be able to acquire sufficient numbers of new customers through word-of-mouth and other non-paid referrals so as to continue to grow our business in a cost-effective manner, and we may be required to incur significantly higher marketing expenses in order to acquire new customers.

We also használat other paid and non-paid advertising. Our paid advertising includes search engine marketing, display advertising and paid social media. Our non-paid advertising efforts include search engine optimization, non-paid social media


and email. We obtain a significant amount of traffic via search engines and, therefore, rely on search engines such as Google, Yahoo! and Bing. Search engines frequently update and change the logic that determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to our sites can be negatively affected. Moreover, a search engine could, for competitive or other purposes, alter its search algorithms or results, causing our sites to place lower in search query results. A major search engine could change its algorithms in a manner that negatively affects our paid or non-paid search ranking, and competitive dynamics could impact the effectiveness of search engine marketing or search engine optimization. We also obtain a significant amount of traffic via social networking websites or other channels used by our current and prospective customers. As e-commerce and social networking continue to rapidly evolve, we must continue to establish relationships with these channels and may be unable to develop or maintain these relationships on acceptable terms. Additionally, digital advertising costs may continue to rise and as our usage of these channels expands, such costs may impact our ability to acquire new customers in a cost-effective manner. If the level of usage of these channels by our customer base does not grow as expected, we may suffer a decline in customer growth or net sales. A significant decrease in the level of usage or customer growth would have a material adverse effect on our business, financial condition and operating results.

We cannot assure you that the net profit from new customers we acquire will ultimately exceed the cost of acquiring those customers. If we fail to deliver an outstanding customer experience, or if consumers do not perceive the products we offer to be manufactured with high quality craftsmanship, we may not be able to acquire new customers. If we are unable to acquire new customers, our growth prospects may be materially adversely affected.

If we fail to manage our growth effectively, our business, financial condition and operating results could be harmed.

To manage our growth effectively, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of people, information systems and facilities and expand, train and manage our employee base. We have rapidly increased employee headcount to support the growth in our business, and we intend for this growth to continue for the foreseeable future. The number of our employees increased from 89 full-time employees and 220 part-time and flexible part-time employees as of December 31, 2009 nak nek 859 full-time employees and 1,935 partie-time and flexible part-time employees que February 3, 2019, and we expect to add a significant number of employees in fiskális 2019. To support continued growth, we must effectively integrate, develop and motivate a large number of new employees. Failure to manage our hiring needs effectively or successfully integrate new employees may have a material adverse effect on our business, financial condition and operating results.

Additionally, the growth of our business places significant demands on our management and other employees. The growth of our business may require significant additional resources to meet these daily demands, which may not scale in a cost-effective manner or may negatively affect the quality of our website, retail stores, call center and other aspects of the customer experience. We are also required to manage relationships with a growing number of suppliers, customers and other third parties. Our information technology systems and our internal controls and procedures may not be adequate to support future growth of these relationships. If we are unable to manage the growth of our organization effectively, our business, financial condition and operating results may be materially adversely affected.

We depend on cash generated from our operations to support our growth, which could strain our growth.

We primarily rely on cash flow generated from our direct and retail sales and borrowings under our credit facility to fund our current operations and our growth initiatives. It takes a significant amount of cash to open a new retail store. If we open a large number of stores relatively close in time, the cost of these retail store openings and the cost of continuing operations could reduce our cash position or increase our debt. An increase in our cash flow used for new stores could adversely affect our operations by reducing the amount of cash available or borrowing capacity foglalkozni other aspects of our business.

In addition, as we expand our business, we will need significant amounts of cash to pay our existing and future lease obligations, purchase inventory, pay personnel and invest in our infrastructure and facilities. If our business does not generate sufficient cash flow from operations to fund these activities and sufficient funds are not otherwise available from our existing revolving credit facility or future credit facilities, we may need additional equity or debt financing. If such financing is not available to us on satisfactory terms, our ability to operate and expand our business or to respond to competitive pressures would be limited and we could be required to delay, curtail or eliminate planned store openings. Moreover, if we raise additional capital by issuing equity securities or securities convertible into equity securities, your ownership may be diluted. Any debt financing we may incur may impose on us covenants that restrict our operations and will require interest payments that would create additional cash demands and financial risk for us.


We maintain debt that could adversely affect our operating flexibility and put us at a competitive disadvantage.

The borrowings under our revolving credit facility typically peak during our third or fourth fiscal quarter, and reached a peak of $65.0 million in November of fiscal 2018.

Our level of debt and the limitations imposed on us by our credit agreement could have important consequences for investors, including the following:

·

we may not be able to obtain additional debt financing for future working capital, capital expenditures, to support our growth plans, or other corporate purposes or may have to pay more for such financing;

·

borrowings under our revolving credit facility are at a variable interest rate, making us more vulnerable to increases in interest rates; et

·

we could be less able to take advantage of significant business opportunities and to react to changes in market or industry conditions.

We may be unable to accurately forecast our operating results and growth rate, and our growth rate may decline over time.

We may not be able to accurately forecast our operating results and growth rate. We use a variety of factors in our forecasting and planning processes, including historical results, recent history and assessments of economic and market conditions, among other things. The growth rates in net sales and profitability that we have experienced historically may not be sustainable as our customer base expands and we achieve higher market penetration rates, and our percentage growth rates may decrease. The growth of our sales and profitability depends on the continued growth of demand for the products we offer, and our business is affected by general economic and business conditions. A softening of demand, whether caused by changes in customer preferences or a weakening of the economy or other factors, may result in decreased net sales or growth. In addition, we experience seasonal trends in our business, and this variability may make it difficult to predict net sales and could result in significant fluctuations in our operating results from period to period. Furthermore, most of our expenses and investments are fixed, and we may not be able to adjust our spending in a timely manner to compensate for any unexpected shortfall in our net sales results. Failure to accurately forecast our operating results and growth rate could cause our actual results to be materially lower than anticipated, and if our growth rates decline as a result, investors’ perceptions of our business may be adversely affected, and the market price of our Class B common stock could decline.

If we cannot compete effectively in the apparel, footwear and accessories industry, our business and results of operations may be adversely affected.

The apparel, footwear and accessories industry is highly competitive. We compete with a diverse group of direct-to-consumer companies and retailers, including men’s and women’s specialty apparel chains, outdoor specialty stores, apparel catalog businesses and online apparel businesses that sell competing lines of merchandise. Our competitors may be able to adopt more aggressive pricing policies, adapt to changes in customers’ needs and preferences more quickly, devote greater resources to the design, sourcing, distribution, marketing and sale of their products or generate greater national brand recognition than us. In addition, as our business continues to expand, our competitors may seek to increase efforts to imitate our product designs, which could adversely affect our business and results of operations. An inability to overcome these potential competitive disadvantages or effectively market our products relative to our competitors could have an adverse effect on our business and results of operations.

Our product designs are not protected by substantial intellectual property rights.

Due to the rapid pace of change in the apparel, footwear and accessories industry, the length of time it takes to obtain patents and the expense and uncertainty of obtaining patent protection, we have not taken steps to obtain patent protection for our innovative product designs. Competitors have attempted to copy our product designs in the past, and we expect that if we are able to raise our national profile, our products may be subject to greater imitation by existing and new competitors. If we are not able to continue rapid innovation of new products and product features, our brand may be harmed and our results of operations may be materially adversely affected.

If we are unable to protect or preserve our brand image and our proprietary rights, our business may be adversely affected.

We regard our trademarks, copyrights, trade secrets and similar proprietary rights as critical to our success. As such, we rely on trademark and copyright law, trade secret protection and confidentiality agreements with our associates, consultants, suppliers and others to protect our proprietary rights. Nevertheless, the steps we take to protect our proprietary rights may be inadequate and we may experience difficulty in effectively limiting the unauthorized use of our trademarks and other intellectual property worldwide. Unauthorized use of our trademarks, copyrights, trade secrets or other intellectual property rights may cause significant damage to our brand and our ability to effectively represent ourselves to agents, suppliers, vendors,


licensees and/or customers. While we intend to enforce our intellectual property rights, there can be no assurance that we are adequately protected in all countries or that we will prevail when defending our trademark and proprietary rights. If we are unable to protect or preserve the value of our trademarks, copyrights or other intellectual property rights for any reason, or if we fail to maintain our brand image due to merchandise and service quality issues, actual or perceived, adverse publicity, governmental investigations or litigation or other reasons, our brand and reputation could be damaged and our business may be adversely affected.

We may be subject to liability if we infringe upon the intellectual property rights of third parties.

Third parties may sue us for alleged infringement of their proprietary rights or use intellectual property rights to interfere with or attempt to interfere with the manufacture of products for us or the supply of products to us. The party claiming infringement might have greater resources than we do to pursue its claims, and we could be forced to incur substantial costs and devote significant management resources to defend against such litigation. If the party claiming infringement were to prevail, we could be forced to discontinue the use of the related trademark or design and/or pay significant damages or enter into expensive royalty or licensing arrangements with the prevailing party, assuming these royalty or licensing arrangements are available at all on an economically feasible basis, which they may not be. We could also be required to pay substantial damages. Such infringement claims could harm the Duluth Trading brand. In addition, any payments we are required to make and any injunction we are required to comply with as a result of such infringement could adversely affect our financial results.

If our key suppliers or service providers were unable or unwilling to provide the products and services we require, our business could be adversely affected.

During fiscal 2018, approximately 52% of our products were sourced through a third-party purchasing agent and egy másik 15% of our products were sourced through another vendor. The remaining products were sourced from a variety of domestic and international suppliers. If these suppliers are unable or unwilling to provide the products or services that we require or materially increase their costs, our ability to offer and deliver our products on a timely and profitable basis could be impaired, which could have a material adverse effect on our business, financial condition and results of operations. We do not have written agreements with our top suppliers, and we cannot assure that any or all of our relationships will not be terminated or that such relationships will continue as presently in effect. Furthermore, if any of our significant suppliers were to become subject to bankruptcy, receivership or similar proceedings, customs actions, or other legal actions, we may be unable to arrange for alternate or replacement relationships on terms as favorable as our current terms, which could adversely affect our sales and operating results.

Our growth strategy is influenced by the willingness and ability of our suppliers to efficiently manufacture our products in a manner that is consistent with our standards for quality and value. If we cannot obtain a sufficient amount and variety of quality products at acceptable prices, it could have a negative impact on our competitive position. This could result in lower revenue and decreased customer interest in our product offerings, which, in turn, could adversely affect our business and results of operations.  Our arrangements with our suppliers are generally not exclusive. As a result, our suppliers might be able to sell similar or identical products to certain of our competitors, some of which purchase products in significantly greater volume. Our competitors may enter into arrangements with suppliers that could impair our ability to obtain our products from those suppliers, including by requiring suppliers to enter into exclusive arrangements, which could limit our access to such arrangements or products.

We rely on third parties to provide us with services in connection with certain aspects of our business, and any failure by these third parties to perform their obligations could have an adverse effect on our business and results of operations.

We have entered into agreements with third parties for logistics services, information technology systems (including hosting our website), operating our call center during certain hours, software development and support, catalog production, select marketing services, distribution and packaging and employee benefits. Services provided by any of our third-party suppliers could be interrupted as a result of many factors, such as acts of nature or contract disputes. Any failure by a third party to provide us with services for which we have contracted on a timely basis or within service level expectations and performance standards could result in a disruption of our business and have an adverse effect on our business and results of operations.

Increases in the price of raw materials, fuel and labor, or their reduced availability, could increase our cost of goods and cause delays.

The price and availability of cotton may fluctuate substantially, depending on a variety of factors, including demand, acreage devoted to cotton crops and crop yields, weather patterns, supply conditions, transportation costs, energy prices, work stoppages, government regulation and government policy, economic climates, market speculation and other unpredictable factors. Fluctuations in the price and availability of fuel, labor and raw materials, such as cotton, could affect our cost of goods


and an inability to mitigate these cost increases, unless sufficiently offset with our pricing actions, might cause a decrease in our profitability, while any related pricing actions might cause a decline in our sales volume. Additionally, any decrease in the availability of raw materials could impair our ability to meet our production or purchasing requirements in a timely manner. Both the increased cost and lower availability of merchandise, raw materials, fuel and labor may have an adverse impact on our cash flow and working capital needs as well as those of our suppliers.

Our business is seasonal, and if we do not efficiently manage inventory levels, our results of operations could be adversely affected.

Our business is subject to seasonal influences, with net sales and net income realized during the fourth quarter of our fiscal year, which includes the holiday season. See Part I, Item 1 Business, under the heading “A szezonalitás,” for our net sales and net income realized during the fourth quarter of our fiscal year for each of the past three fiscal years.



We must maintain sufficient inventory levels to operate our business successfully, but we must also avoid accumulating excess inventory, which increases working capital needs and potentially lowers gross margins. We obtain substantially all of our inventory from suppliers located outside the United States. Some of these suppliers often require lengthy advance notice of order requirements in order to be able to manufacture and supply products in the quantities requested. This usually requires us to order our products, and enter into commitments for the purchase of our products, well in advance of the time these products will be offered for sale. As a result, it may be difficult to respond to changes in customer demand. If we do not accurately anticipate the future demand for a particular product or the time it will take to obtain new inventory, inventory levels will not be appropriate and our results of operations could be adversely affected.

We expect a disproportionate amount of our net sales to occur during our fourth quarter. If we do not stock or restock popular products in amounts sufficient to meet customer demand, it could significantly affect our revenue and our future growth. If we overstock products, we may be required to take significant inventory markdowns or write-offs and incur commitment costs, which could reduce profitability. We may experience an increase in our net shipping cost due to complimentary upgrades, split-shipments and additional long-zone shipments necessary to ensure timely delivery for the holiday season. Furthermore, if too many customers access our website within a short period of time due to increased holiday demand, we may experience system interruptions that could make our website unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume of products we sell as well as the attractiveness of our product offerings. In addition, we or our third-party service providers may be unable to adequately staff our fulfillment and customer service centers during these peak periods, and our delivery service providers and other fulfillment companies may be unable to meet the peak seasonal demand.

As a result of holiday sales, inventories, accounts payable and borrowings under our revolving line of credit typically reach their highest levels in October or November of each year (other than as a result of cash flow provided by or used in investing and financing activities). Inventories, accounts payable and borrowings under our revolving line of credit then decline steadily during the holiday season, resulting in our cash typically reaching its highest level, and borrowings under our revolving line of credit reaching their lowest level, as of December 31 of each year.

If our independent suppliers do not use ethical business practices or comply with applicable regulations and laws, our reputation could be materially harmed and on our business and results of operations may be adversely affected.

Our reputation and customers’ willingness to purchase our products depend in part on our suppliers’ compliance with ethical employment practices, such as with respect to child labor, wages and benefits, forced labor, discrimination, freedom of association, unlawful inducements, safe and healthy working conditions and with all legal and regulatory requirements relating to the conduct of their business. While we operate compliance and monitoring programs to promote ethical and lawful business practices, we do not exercise ultimate control over our independent suppliers or their business practices and cannot guarantee their compliance with ethical and lawful business practices. Violation of labor or other laws by our suppliers, or the divergence of a supplier’s labor practices from those generally accepted as ethical in the United States, could materially hurt our reputation, which could have an adverse effect on our business and results of operations.

If we fail to timely and effectively obtain shipments of products from our suppliers and deliver merchandise to our customers, our business and operating results could be adversely affected.

We do not own or operate any manufacturing facilities and therefore depend upon independent third-party suppliers for the manufacture of our merchandise. We cannot control all of the various factors that might affect timely and effective procurement of supplies of product from our third-party suppliers and delivery of merchandise to our customers. A majority of the products that we purchase must be shipped to our distribution centers in Wisconsin, Nevada and Pennsylvania. While our reliance on a limited number of distribution centers provides certain efficiencies, it also makes us more vulnerable to natural disasters, weather-related disruptions, accidents, system failures or other unforeseen causes that could delay or impair our


ability to fulfill customer orders and/or ship merchandise to our stores, which could adversely affect sales. Our ability to mitigate the adverse impacts of these events depends in part upon the effectiveness of our disaster preparedness and response planning, as well as our business continuity planning. Our use of imports also makes us vulnerable to risks associated with products manufactured abroad, including, among other things, risks of damage, destruction or confiscation of products while in transit to a distribution center or at points of export or import, organized labor strikes and work stoppages, transportation and other delays in shipments, including as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions in the United States, unexpected or significant port congestion, lack of freight availability and freight cost increases. In addition, if we experience a shortage of a popular item, we may be required to arrange for additional quantities of the item, if available, to be delivered through airfreight, which is significantly more expensive than standard shipping by sea. We may not be able to obtain sufficient freight capacity on a timely basis or at favorable shipping rates and, therefore, may not be able to receive merchandise from suppliers or deliver products to customers in a timely and cost-effective manner.

We rely upon third-party land-based and air freight carriers for merchandise shipments from our distribution centers to customers and our retail stores. Accordingly, we are subject to the risks, including labor disputes, union organizing activity, inclement weather and increased transportation costs, associated with such carriers’ ability to provide delivery services to meet outbound shipping needs. In addition, if the cost of fuel rises, the cost to deliver merchandise from distribution centers to customers and our retail stores may rise and, although some of these costs are paid by our customers, such costs could have an adverse impact on our profitability. Failure to procure suppliers of products from our third-party suppliers and deliver merchandise to customers and our retail stores in a timely, effective and economically viable manner could damage our reputation and adversely affect our business. In addition, any increase in distribution costs and expenses could adversely affect our future financial performance.

Inventory shrinkage could have a material adverse effect on our business, financial condition and results of operations.

We are subject to the risk of inventory loss and theft. Although our inventory shrinkage rates have not been material, or fluctuated significantly in recent years, we cannot assure you that actual rates of inventory loss and theft in the future will be within our estimates or that the measures we are taking will effectively reduce the problem of inventory shrinkage. Although some level of inventory shrinkage is an unavoidable cost of doing business, if we were to experience higher rates of inventory shrinkage or incur increased security costs to combat inventory theft, it could have a material adverse effect on our business, financial condition and results of operations.

We are subject to data security and privacy risks that could negatively affect our results, operations or reputation.

In the normal course of business we often collect, retain and transmit customer personal and credit card information, employee personal information, and other sensitive and confidential information. The protection of customer and employee information, and the Company’s intellectual property, from potential threats is vitally important to the Company. Consumers and employees continue to have significant concerns about the security of personal information, especially when transmitted over the Internet, and the use, retention, disclosure, and privacy of such information. We continually evaluate and upgrade our information systems, security measures, and practices to combat the ever-evolving cyber risks and to comply with our legal and regulatory obligations, and we provide cybersecurity awareness training around phishing, social engineering, and other cyber risks to our employees, in an effort to elevate our cybersecurity posture and give our workforce the skills to both avoid and report cyber threats. Despite our risk management efforts, vendor due diligence, and security measures, our facilities and systems and those of our third-party service providers, are subject to increasingly complex cyber risks, including cyber extortion, data breaches, unauthorized access, denial of service, vendor or employee misconduct, ransomware and other malicious software, and data exfiltration. We and our employees and customers could suffer significant harm if any personal, financial, or credit card information was accessed or disclosed by an unauthorized third party, or our information technology systems or those of our third party providers were compromised or subject to data loss, exfiltration, corruption, or disruption. Any security incident or data breach could severely damage our reputation and our relationships with customers, business partners and employees, cause us to incur significant costs and expenses to investigate, remediate and notify affected individuals, and expose us to an increased risk of litigation, regulatory enforcement, fines and penalties, and other losses and liabilities. In addition, the media and public scrutiny of information security and privacy has become more intense and the regulatory environment has become more complex and uncertain due to recent high-profile privacy and security incidents and legislative efforts across the globe. As a result, we may incur significant costs to comply with laws regarding the use, retention, disclosure, security, and privacy of personal information.

We rely significantly on information technology, and any inadequacy, interruption, integration failure or security failure of this technology could harm our ability to effectively operate our business.

Our ability to effectively manage and operate our business depends significantly on information technology systems. We rely heavily on information technology to track sales and inventory and manage our supply chain. We are also dependent on


information technology, including the Internet, for our direct-to-consumer sales, including our e-commerce and catalog operations and retail business credit card transaction authorization. Despite our preventative efforts, our systems and those of our third-party service providers may be vulnerable to damage or interruption. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, difficulty in integrating new systems or systems of acquired businesses or a breach of security of these systems could adversely impact the operations of our business, including disruption of our ability to accept and fulfill customer orders, effective management of inventory, inefficient ordering and replenishment of products, e-commerce operations, retail business credit card transaction authorization and processing, corporate email communications and our interaction with the public on social media.

Our failure to retain our executive management team and to attract qualified new personnel could adversely affect our business and results of operations.

We depend on the talents and continued efforts of our executive management team. The loss of members of our executive management may disrupt our business and adversely affect our results of operations. Furthermore, our ability to manage further expansion will require us to continue to attract, motivate and retain additional qualified personnel. We believe that having an executive management team with qualified personnel who are passionate about our brand, have extensive industry experience and have a strong customer service ethic has been an important factor in our historical success, and we believe that it will continue to be important to growing our business. Competition for these types of personnel is intense, and we may not be successful in attracting, integrating and retaining the personnel required to grow and operate our business profitably.

An inability to attract and retain qualified employees to meet our staffing needs in our corporate office, stores, distribution center or call center could result in higher payroll costs and adversely affect our operating results.

Our performance is dependent on attracting and retaining a large number of qualified employees. Many of our strategic initiatives require that we hire and/or develop associates with appropriate experience. Attracting and retaining a sufficient number of qualified employees to meet our staffing needs may be difficult, since the competition for these types of personnel is intense. Many of our staffing needs in our stores, fulfillment centers and call center are entrylevel or part-time positions with historically high rates of turnover. If we cannot attract and retain employees with the qualifications we deem necessary to meet our staffing needs in our corporate office, stores, fulfillment centers and call center, our ability to effectively operate may be adversely affected. In addition, our staffing needs are especially high during the peak holiday season. We cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in future periods.

We may be subject to increased labor costs due to external factors, including changes in laws and regulations, and we may be subject to unionization, work stoppages or slowdowns.

Our ability to meet our labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation, actions by our competitors with respect to compensation levels and changing demographics. Changes that adversely impact our ability to meet our labor needs in a cost-effective manner could adversely affect our operating results. In addition, the employer mandate provisions of the Patient Protection and Affordable Health Care Act (the “PPACA”), changes in regulations under the PPACA, changes in federal and state minimum wage laws and other laws and regulations relating to employee benefits could cause us to incur additional wage and benefit costs, which could negatively impact our business, financial condition and results of operations.

Currently, none of our employees are represented by a union. However, our employees have the right under the National Labor Relations Act to form or affiliate with a union.

The National Labor Relations Board continually considers changes to labor regulations, many of which could significantly affect the nature of labor relations in the United States and how union elections and contract negotiations are conducted. If some or all of our employees were to become unionized and the terms of the collective bargaining agreement were significantly different from our current compensation arrangements, it could increase our costs and adversely impact our profitability. Moreover, participation in labor unions could put us at increased risk of labor strikes and disruption of our operations.

Prior to our IPO, we were treated as an “S” corporation under Subchapter S of the Internal Revenue Code, and claims of taxing authorities related to our prior status as an “S” corporation could harm us.

Concurrent with and as a result of our IPO, our “S” corporation status terminated, and we are currently treated as a “C” corporation for federal and applicable state income tax purposes. As a “C” corporation, we are subject to federal and state income taxes. In addition, if the unaudited, open tax years in which we were an “S” corporation are audited by the Internal Revenue Service (the “IRS”), and we are determined not to have qualified for, or to have violated, our “S” corporation status, we will be obligated to pay back taxes for all relevant open tax years on all of our taxable income while we were an “S”


corporation, interest and possibly penalties, however, we may have the right to reclaim a portion of the tax distributions we made to our shareholders during those periods pursuant to a tax indemnification agreement with our existing shareholders. Any such claims could result in additional costs to us and could have a material adverse effect on our results of operations and financial condition.

We entered into a tax indemnification agreement with our existing shareholders prior to the IPO and could become obligated to make payments to them for any additional federal, state or local income taxes assessed against them for fiscal periods prior to the completion of our IPO.

Prior to our IPO, we were treated as an “S” corporation for U.S. federal income tax purposes. Concurrent with and as a result of our IPO, our “S” corporation status terminated and we are currently subject to federal income taxes and state income taxes. In the event of an adjustment to our reported taxable income for a period or periods prior to termination of our “S” corporation status, our shareholders during those periods could be liable for additional income taxes for those prior periods. Therefore, prior to the consummation of our IPO, we entered into a tax indemnification agreement with the then-existing shareholders. Pursuant to the tax indemnification agreement, we agreed to indemnify and hold harmless each such shareholder on an after-tax basis against additional income taxes, plus interest and penalties, resulting from adjustments made, as a result of a final determination made by a competent tax authority, to the taxable income we reported as an “S” corporation. Such indemnification will also include any reasonable and documented out-of-pocket expenses arising out of a claim for such tax liability.

Unseasonal or severe weather conditions may adversely affect our merchandise sales.

Our business is adversely affected by unseasonal weather conditions. Sales of certain seasonal apparel items, especially outerwear, are dependent in part on the weather and may decline in years in which weather conditions do not favor the use of these products. Sales of our spring and summer products, which traditionally consist of lighter weight clothing, are adversely affected by cool or wet weather. Similarly, sales of our fall and winter products, which are traditionally weighted toward outerwear, are adversely affected by mild, dry or warm weather. Severe weather events may impact our ability to supply our retail stores, deliver orders to customers on schedule and staff our retail stores, fulfillment centers and call center, which could have an adverse effect on our business and results of operations.

We may be subject to assessments for additional taxes, including sales taxes, which could adversely affect our business.

In accordance with current law, we pay, collect and/or remit taxes in those states where we or our subsidiary, as applicable, maintain a physical presence. While we believe that we have appropriately remitted all taxes based on our interpretation of applicable law, tax laws are complex and their application differs from state to state. It is possible that some taxing jurisdictions may attempt to assess additional taxes and penalties on us or assert either an error in our calculation, a change in the application of law or an interpretation of the law that differs from our own, which may, if successful, adversely affect our business and results of operations.

An increasing number of states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies. Additionally, the Supreme Court of the United States recently ruled in South Dakota v. Wayfair, Inc. et al, or Wayfair, that online sellers can be required to collect sales and use tax despite not having a physical presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments may adopt, or begin to enforce, laws requiring us to calculate, collect and remit taxes on sales in their jurisdictions. A successful assertion by one or more states requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state governments or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us and decrease our future sales, which could have an impact on our business, financial condition and results of operations.

We may become involved in a number of legal proceedings and audits, and outcomes of such legal proceedings and audits could adversely affect our business, financial condition and results of operations.

Our business requires compliance with many laws and regulations, including labor and employment, customs, truth-in-advertising, consumer protection and zoning and occupancy laws and ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise and the operation of stores and warehouse facilities. Failure to achieve compliance could subject us to lawsuits and other proceedings, and could also lead to damage awards, fines and penalties. We may become involved in a number of legal proceedings and audits including government and agency investigations, and consumer, employment, tort and other litigation. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies. The outcome of some of these legal proceedings, audits and other contingencies could require us to take, or refrain from taking, actions which could negatively affect our operations or require us to pay substantial amounts of money


adversely affecting our financial condition and results of operations. Additionally, defending against these lawsuits and proceedings may be necessary, which could result in substantial costs and diversion of management’s attention and resources, causing a material adverse effect on our business, financial condition and results of operations. There can be no assurance that any pending or future legal proceedings and audits will not have a material adverse effect on our business, financial condition and results of operations.

We may engage in strategic transactions that could negatively impact our liquidity, increase our expenses and present significant distractions to management.

We may consider strategic transactions and business arrangements, including, but not limited to, acquisitions, asset purchases, partnerships, joint ventures, restructurings and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could harm our operations and financial results.

Our failure to comply with restrictive covenants under our revolving credit facility and other debt instruments could trigger prepayment obligations.

Our failure to comply with the restrictive covenants under our revolving credit facility and other debt instruments could result in an event of default, which, if not cured or waived, could result in us being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates.

Changes to accounting rules or regulations could significantly affect our financial results.

Our consolidated financial statements are prepared in accordance with U.S. GAAP. New accounting rules or regulations and changes to existing accounting rules or regulations have occurred and may occur in the future. Future changes to accounting rules or regulations could negatively affect our results of operations and financial condition through increased compliance costs.

Risks Related to Ownership of our Class B Common Stock

The dual class structure of our common stock and the existing ownership of common stock by our executive officers, directors and their affiliates have the effect of concentrating voting control with our executive officers, directors and their affiliates for the foreseeable future, which will limit your ability to influence corporate matters.

Our Class A common stock has ten votes per share, and our Class B common stock has one vote per share. Given the greater number of votes per share attributed to our Class A common stock, our Executive Chairman, Stephen L. Schlecht, who is our only Class A shareholder, beneficially owns shares representing approximately 66.5% of the voting power of our outstanding capital stock. As a result of our dual class ownership structure, Mr. Schlecht will be able to exert a significant degree of influence or actual control over our management and affairs and over matters requiring shareholder approval, including the election of directors, a merger, consolidation or sale of all or substantially all of our assets and any other significant transaction. Mr. Schlecht owns shares representing approximately 35.3% of the economic interest of our outstanding capital stock and, together with our other executive officers, directors and their affiliates, owns shares representing approximately 40.7% of the economic interest and 69.3% of the voting power of our outstanding capital stock. This concentrated control will limit your ability to influence corporate matters for the foreseeable future. For example, these shareholders will be able to control elections of directors, amendments of our articles of incorporation or bylaws, increases to the number of shares available for issuance under our equity incentive plans or adoption of new equity incentive plans and approval of any merger or sale of assets for the foreseeable future. This control may materially adversely affect the market price of our Class B common stock.

Additionally, the holder of our Class A common stock may cause us to make strategic decisions or pursue acquisitions that could involve risks to you or may not be aligned with your interests. The holder of our Class A common stock will also be entitled to a separate vote in the event we seek to amend our articles of incorporation in a manner that alters or changes the powers, preferences or special rights of the Class A common stock in a manner that affects its holder adversely.

We are a controlled company within the meaning of the NASDAQ rules, and as a result, we rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

Mr. Schlecht controls more than 50% of the total voting power of our common stock, and we are considered a controlled company under the NASDAQ corporate governance listing standards. As a controlled company, certain exemptions under the


NASDAQ listing standards exempt us from the obligation to comply with certain NASDAQ corporate governance requirements, including the requirements:

·

that a majority of our board of directors consist of independent directors, as defined under the rules of NASDAQ;

·

that we have a nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; et

·

that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

Although we intend to have a majority of independent directors on our board even though we will be a controlled company, there is no guarantee that we will not take advantage of this exemption in the future. Accordingly, as long as we are a controlled company, holders of our Class B common stock may not have the same protections afforded to shareholders of companies that are subject to all of the NASDAQ corporate governance requirements.

Our stock price may be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors.

The market price of our Class B common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

·

actual or anticipated fluctuations in our results of operations, particularly in our szegmens growth rates and margins;

·

the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

·

failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;

·

announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, operating results or capital commitments;

·

changes in operating performance and stock market valuations of other technology or retail companies generally, or those in our industry in particular;

·

price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;

·

changes in our board of directors or management;

·

sales of large blocks of our Class B common stock, including sales by our executive officers, directors and significant shareholders;

·

perek threatened or filed against us;

·

changes in laws or regulations applicable to our business;

·

changes in our capital structure, such as future issuances of debt or equity securities;

·

short sales, hedging and other derivative transactions involving our capital stock;

·

general economic conditions in the United States and abroad; et

·

other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many retail and e-commerce companies. Stock prices of many retail companies and e-commerce companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and materially adversely affect our business, financial condition and operating results.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

The trading market for our Class B common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share


price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

We are an “emerging growth company,” and we cannot be certain if the reduced disclosure and exemption from the auditor attestation requirements applicable to “emerging growth companies” will make our Class B common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reduced regulatory and reporting requirements that are otherwise generally applicable to other public companies. As an emerging growth company: (i) we are exempt from the requirement to obtain an audit of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act; (ii) we are permitted to provide less extensive disclosure about our executive compensation arrangements; and (iii) we are not required to hold non-binding advisory votes on executive compensation or golden parachute provisions.

We remain an emerging growth company and may continue to take advantage of these provisions until the earliest to occur of: (i) the last day of our fiscal year following the fifth anniversary of our IPO, which will occur on the last day of fiscal 2020; (ii) the date on which we are deemed to be a “large accelerated filer” (which means (a) the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (b) we have filed at least one annual report on Form 10-K, and (c) we have been subject to the reporting requirements of the Exchange Act for at least twelve months); (iii) the last day of our fiscal year during which our annual gross revenue exceeds $1.0 billion; and (iv) the date on which we issue more than $1.0 billion of non-convertible debt during the previous three-year period.

We cannot predict if investors will find our Class B common stock less attractive or our company less comparable to certain other public companies because we will rely on these exemptions. If some investors find our Class B common stock less attractive as a result of our reliance on these exemptions, there may be a less active trading market for our Class B common stock, and our stock price may be more volatile. We also cannot predict if the lack of an independent auditor’s attestation of our internal control over financial reporting pursuant to Section 404 would allow any material design or operating effectiveness in control deficiencies to go undetected.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain additional executive management and qualified board members.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NASDAQ Global Select Market and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and results of operations. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial rapport, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could materially adversely affect our business and results of operations. We will need to hire additional employees or engage outside consultants to comply with these requirements, which will increase our costs and expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, and our business may be materially adversely affected.

As a result of disclosure of information in this annual report and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be materially


adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and materially adversely affect our business, financial condition and operating results.

In connection with the preparation of our financial statements, we identified a material weakness in our internal control over financial reporting. Any failure to maintain effective internal control over our financial reporting could materially adversely affect us.

In connection with the preparation of our fiscal 2018 consolidated financial statements, we identified a material weakness in our internal control over financial reporting due to the lack of sufficient resources throughout the year.  Specifically, we did not design and implement effective internal control activities to timely correct and resolve issues resulting from converting to a new order management system, and we did not consistently execute certain account reconciliations and analyses during fiscal 2018.

Management is committed to the planning and implementation of remediation efforts to address the material weakness, as well as to foster continuous improvement in the Company’s internal controls. In response to the material weakness described above, with the oversight of the Audit Committee of our Board of Directors, we have undertaken, and will continue to undertake, steps to improve our internal control over financial reporting to address and remediate the material weakness. Our primary efforts include to (i) evaluate resources throughout the organization to determine where current resources should be reassigned and where additional resources are needed to consistently and timely execute internal control activities, and (ii) design and implement additional application balancing control procedures to further automate and enhance the reconciliation process. Management believes these measures, when fully implemented and operational, will remediate the control deficiency we have identified and strengthen our internal control over financial reporting.

However, if the remedial measures we are implementing are insufficient, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting or in our disclosure controls occur in the future, our future consolidated financial statements or other information filed with the SEC may contain material misstatements. Failure to maintain effective controls or to timely implement any necessary improvement of our internal and disclosure controls could, among other things, result in losses from errors, harm our reputation, or cause investors to lose confidence in the reported financial information, all of which could have a material adverse effect on our business, results of operations and financial condition.

Anti-takeover provisions in our charter documents and under Wisconsin law could make an acquisition of our company more difficult, limit attempts by our shareholders to replace or remove our current management and limit the market price of our Class B common stock.

Provisions in our amended and restated articles of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. In addition to the dual class structure of our common stock, our amended and restated articles of incorporation and amended and restated bylaws include provisions that:

·

permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;

·

authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a shareholder rights plan;

·

provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; et

·

establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by shareholders at annual or special shareholder meetings.

These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Wisconsin, the Wisconsin control share acquisition statute and Wisconsin’s “business combination” provisions would apply and limit the ability of an acquiring person to engage in certain transactions or to exercise full voting power of acquired shares under certain circumstances. As a result, offers to acquire us, which may represent a premium over the available market price of our Class B common stock, may be withdrawn or otherwise fail to be realized.






ITEM 1B.

UNRESOLVED STAFF COMMENTS

Egyik sem.



la suivant asztal sets forth the location, primary use and size of our leased and owned facilities as of February 3, 2019 (except as noted).









Száma

Gross

Elhelyezkedés

Stores

Primary Use

Square Footage

Leased/Owned



Retail Segment

North East

Maine

1

Store

12,951

Leased

Massachusetts

1

Store

16,360

Leased

New Jersey

1

Store

13,300

Leased

Pennsylvania

2

Store

34,945

Leased

Rhode Island

1

Store

14,528

Leased

Midwest

Illinois

2

Store

28,410

Leased

Indiana

1

Store

14,557

Leased

Iowa

1

Store

12,249

Leased

Michigan

3

Store

45,588

Leased

Minnesota

4

Store

61,900

Leased

Missouri

2

Store

27,692

Leased

Nebraska

1

Store

20,801

Leased

Észak-Dakota

1

Store

14,557

Leased

Ohio

4

Store

58,420

Leased

South Dakota

1

Store

9,166

Leased

Wisconsin

4

Store

53,646

Leased

South

Kentucky

1

Store

15,456

Leased

Észak-Karolina

2

Store

41,672

Leased

Oklahoma

1

Store

15,536

Leased

Texas

3

Store

44,650

Leased

Virginia

1

Store

15,000

Leased

West

Alaska

1

Store

25,409

Leased

Colorado

3

Store

52,643

Leased

Oregon

1

Store

19,075

Leased



Leased to Open New Store

Friendswood, TX (1)

Store

16,026

Leased

Katy, TX (1)

Store

16,000

Leased

Wichita, KS (1)

Store

15,385

Leased

Spokane Valley, WA (2)

Store

15,656

Leased

Jacksonville, FL

Store

14,557

Leased

Rogers, AR

Store

15,656

Leased

Danbury, CT

Store

9,792

Leased

Madison, AL

Store

15,656

Leased

Round Rock, TX

Store

15,536

Leased



Direct Segment

Mount Horeb, WI

Corporate headquarters

108,000

Leased

Belleville, WI

Distribution center

220,000

Owned

Verona, WI

Returns center

30,000

Leased



Direct/Retail

Belleville, WI

Outlet store and call center

17,890

Owned

Oshkosh, WI

Outlet store and call center

12,777

Leased

Redwing, MN

Outlet store and call center

15,560

Leased

____________________________

(1)

Opened ban ben March 2019.

(2)

Opened in April 2019.

The leases on our retail stores expire at various times and are subject to renewal options. We consider these properties to be in good condition and believe that our facilities are adequate for our operations and provide sufficient capacity to meet our anticipated requirements.




ITEM 3.

LEGAL PROCEEDINGS

From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.





ITEM 4.

MINE SAFETY DISCLOSURES

Nem alkalmazható.




Executive Officers of Duluth Holdings Inc.

The following is a list of names and ages of executive officers of Duluth Trading indicating all positions and offices held by each such person and each such person’s principal occupation(s) or employment during the past five years. Officers are appointed annually by the Board of Directors at the meeting of directors immediately following the annual meeting of shareholders. There are no family relationships among these officers, nor any arrangement or understanding between any officer and any other person pursuant to which the officer was selected. The information presented below is as of April 5, 2019.





Name

Age

Office

Stephen L. Schlecht

71

Mr. Schlecht is the founder of our Company and has served as Executive Chairman of the Board since February 2015. Mr. Schlecht has served on our board of directors since our founding in 1986. Mr. Schlecht previously served as our Chief Executive Officer from February 2003 to February 2015, as President from February 2003 to February 2012 and as President and Chief Executive Officer of GEMPLER’S, Inc., which he founded in 1986, until February 2003. Mr. Schlecht holds a B.S.B.A. degree and an M.B.A. from Northwestern University. Mr. Schlecht has over 48 years of experience in the direct marketing and retail industries and has extensive leadership experience and strategic vision.

Stephanie L. Pugliese

48

Ms. Pugliese has served as President of the Company since February 2012 and as Chief Executive Officer since February 2015. Ms. Pugliese has previously served as our President and Chief Operating Officer from February 2014 to February 2015, as our Senior Vice President and Chief Merchandising Officer from July 2010 to February 2012, and as our Vice President of Product Development from November 2008 to July 2010. Ms. Pugliese previously served as a senior executive in several positions with Lands’ End, Inc. from November 2005 to October 2008, including General Merchandising Manager of Women’s Apparel, Men’s Apparel, and the Home Division. She also previously held the position of Vice President of Merchandising at Ann Inc. from March 2000 to May 2003. Ms. Pugliese holds a B.A. degree in marketing from New York University Stern School of Business. Ms. Pugliese is a seasoned executive with over 27 years of experience in the retail apparel industry.

David Loretta

51

Mr. Loretta has been our Chief Financial Officer since July 2017. Mr. Loretta previously served four years as President and Chief Financial Officer of Nordstrom Bank and led all financial and operating functions of their proprietary card operations. During his tenure, Mr. Loretta was responsible for financial reporting, budgeting, forecasting and long-range strategic planning as well as operational leadership. Previously at Nordstrom, Inc., he served as corporate Vice President and Treasurer overseeing treasury, investor relations and corporate development. Before his 13 years with Nordstrom, Mr. Loretta was Director of Planning and Analysis for Restoration Hardware, Inc., where he developed a companywide budgeting, forecasting and reporting process for the retail stores, catalog direct mail and e-commerce. Following his time at Nordstrom, Mr. Loretta launched and operated his own company, Pacific Time, LLC, a unique food and beverage business, from 2014 to 2016.  Mr. Loretta earned an MBA from San Diego State University and a B.A. in Business Economics from the University of California, Riverside.

Allen L. Dittrich

64

Mr. Dittrich has served as our Senior Vice President and Chief Operating Officer since October 2018. Mr. Dittrich has previously served as our Senior Vice President of Omnichannel Customer Experience and Operations tól től February 2015 to October 2018. He previously served as Senior Vice President of Retail at Allen-Edmonds Shoe Corporation from November 2009 until February 2015 and Chief Executive Officer of Retail Associates Ltd. from February 2006 to October 2008. Mr. Dittrich has also previously served as Executive Vice President and Chief Operating Officer of Gander Mountain from 2003 to August 2005 and Chief Merchandising and Marketing Officer from April 1998 to 2003. Prior thereto, Mr. Dittrich served as a senior executive in several positions with the Department Store Division at Dayton Hudson where he was employed from 1977 to 1998, including Senior Vice President General Merchandising Manager Home and Cosmetics and Senior Vice President General Merchandising Manager of Men’s and Children’s. Mr. Dittrich also served on our advisory board for fiscal 2014. Mr. Dittrich holds a B.A. degree in Business Administration and Marketing from Winona State University. Mr. Dittrich has held multiple senior executive roles and has over 40 years of experience in the direct marketing and retail industries.










PART II



ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Listing and Trading

la Class B common Készlet rapport traded on the NASDAQ Global Select Market under the symbol “DLTH. since our initial public offering on November 19, 2015. la Class A common stock is neither listed nor traded on an exchange.



Shareholders of Record

As of April 16, 2019. ott volt hozzávetőlegesen, körülbelül 46 holders of record based upon data provided by our transfer agent, one of whom is the sole tartó of our Class A common stock and 45 nak,-nek kit vannak holders of our Class B common stock. We believe the number of beneficial holders of the Company’s Class B common stock is in excess of this amount.

Dividends

la Class B common stock began trading on November 20, 2015, since that time, we have not declared any cash dividends, and we do not anticipate declaring any cash dividends in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

Information regarding our equity compensation plans is set forth in Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.


Stock Performance Graph

The following graph compares the cumulative total return to shareholders on Duluth Holdings Inc. Class B common stock from November 20, 2015, the first day our Class B common stock began trading on the NASDAQ Global Select Market, through February 3, 2019, the last day of fiscal 2018, for which trading occurred, with the NASDAQ Global Select Market Index and the NASDAQ Global Retail Index for the same period. The graph assumes an initial investment of $100 on November 20, 2015 in our Class B common stock, the NASDAQ Global Select Market and the NASDAQ Global Retail Index. The graph also assumes that the initial prices of our Class B common stock, the NASDAQ Global Select Market and the NASDAQ Global Retail Index on November 20, 2015 were the closing prices on that trading day.



Picture 1







Company/Market/
Peer Group

11/20/15

01/29/16

04/29/16

07/29/16

10/28/16

01/27/17

04/30/17

07/30/17

10/29/17

01/28/18

04/29/18

07/29/18

10/28/18

02/03/19

DLTH

$100.00 $120.95 $174.29 $181.68 $195.53 $168.28 $162.27 $143.30 $148.28 $136.85 $128.35 $169.67 $213.70 $172.01

NASDAQ Global
Select Market

$100.00 $90.57 $93.68 $101.31 $101.89 $111.06 $118.73 $125.16 $131.64 $147.42 $139.84 $152.01 $140.77 $142.61

NASDAQ Global
Retail Index

$100.00 $98.18 $103.51 $107.69 $102.99 $105.32 $112.03 $112.98 $115.82 $139.48 $134.90 $141.89 $133.00 $133.98








ITEM 6.

SELECTED FINANCIAL DATA

The following selected financial data is derived from Duluth Trading’s audited consolidated financial statements, with the exception of the information presented in the pro forma net income lines, which was unaudited, and should be read in conjunction with the consolidated financial statements and the notes thereto in Item 8. Financial Statements and Supplementary Data. and the information contained in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. Historical results are not necessarily indicative of future results.













Fiscal Year Ended



February 3, 2019

January 28, 2018

January 29, 2017

January 31, 2016

February 1, 2015

(in thousands, except per share and number of stores data)

Consolidated Statements of Operations:

Net sales

$

568,102

$

471,447

$

376,116

$

304,157

$

231,867

Net income attributable to controlling interest

$

23,156

$

23,351

$

21,315

$

27,439

$

23,647

Basic earnings per share (Class A and Class B):

Weighted average shares
of common stock outstanding

32,086

31,853

31,527

25,250

23,815

Net income per share attributable
to controlling interest

$

0.72

$

0.73

$

0.68

$

1.09

$

0.99

Diluted earnings per share (Class A and Class B):

Weighted average shares
and equivalents outstanding

32,317

32,285

32,249

25,978

24,002

Net income per share attributable
to controlling interest

$

0.72

$

0.72

$

0.66

$

1.06

$

0.99

Pro forma net income information (Unaudited)(1):

Pro forma net income attributable
to controlling interest

$

$

$

$

17,267

$

14,188

Pro forma basic net income per share
attributable to controlling interest
(Class A and Class B)

$

$

$

$

0.68

$

0.60

Pro forma diluted net income per share
attributable to controlling interest
(Class A and Class B)

$

$

$

$

0.66

$

0.59

Consolidated Balance Sheets:

Cash

$

731

$

2,865

$

24,042

$

37,873

$

7,881

Total assets

$

296,759

$

223,102

$

155,967

$

120,620

$

70,949

Total debt, (including capital lease obligations)

$

46,779

$

1,508

$

777

$

5,023

$

5,683

Working capital

$

65,587

$

51,530

$

66,127

$

73,700

$

25,714

Operating Data:

Number of stores(2)

46

31

16

9

6

Total store gross square footage

687,996

438,912

205,826

96,939

68,080

Capital expenditures

$

53,036

$

46,464

$

28,672

$

7,306

$

5,269

EBITDA(3)

$

50,158

$

44,823

$

39,946

$

32,168

$

26,269

Adjusted EBITDA(3)

$

51,826

$

46,420

$

41,170

$

34,003

$

26,661





_____________________________

(1)

The unaudited pro forma net income information gives effect to an adjustment for income tax expense on the income attributable to controlling interest as if we had been a “C” corporation at an assumed combined federal, state and local effective income tax rate, which approximate our statutory income tax rate, of 40%. No pro forma income tax expense was calculated on the income attributable to noncontrolling interest because this entity did not convert to “C” corporation. The Company was a “C” corporation for the entire fiscal year ended February 3, 2019, January 28, 2018 and January 29, 2017, therefore pro forma net income information is not applicable for these időszaks.

(2)

Includes three outlet stores as of February 3, 2019 and January 28, 2018, two outlet stores as of January 29, 2017 and January 31, 2016 and one outlet store as of February 1, 2015.

(3)

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – How We Assess the Performance of Our Business and Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA” for our definition of Adjusted EBITDA and un reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-GAAP financial measures.






ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and the accompanying notes and information contained in other sections included elsewhere in this annual report, particularly, “Risk Factors,” “Selected Financial Data,” and “Business.” This discussion and analysis is based on the beliefs of our management, as well as assumptions made by, and information currently available to our management. The statements in this discussion and analysis concerning expectations regarding our future performance, liquidity and capital resources, as well as other non-historical statements in this discussion and analysis, are forward-looking statements. See “Forward-Looking Statements. These forward-looking statements are subject to numerous risks and uncertainties, including those described under “Risk Factors.” Our actual results could differ materially from those suggested or implied by any forward-looking statements.

The following discussion contains references to fiscal years 2018, 2017 et 2016, which refer to our fiscal years vége lett February 3, 2019 January 28, 2018 and January 29, 2017, illetve. Fiscal year 2018 was a 53-week period, Fiscal years 2017 and 2016 were 52-week periods.

Overview

We are a rapidly growing lifestyle brand of men’s and women’s casual wear, workwear and accessories sold exclusively through our own direct and retail channels. The direct segment, consisting of our website and catalogs, offers products nationwide and Les députés européens 61.7% nak,-nek mi fiscal 2018 consolidated net sales, compared to 70.2% in fiscal 2017. In 2010, we added retail to our omnichannel platform with the opening of our first store. Since then, we il y a expanded our retail presence, and as of February 3, 2019, we operated 43 retail stores and three outlet stores. Net sales for our retail segment represented 38.3% of our fiscal 2018 consolidated net sales, compared to 29.8% in fiscal 2017. In fiscal 2018. we opened a total of 15 retail stores, adding a total of hozzávetőlegesen, körülbelül 250,000 gross square feet.

We offer a comprehensive line of innovative, durable and functional product, such as our Longtail T® shirts, Buck NakedTM underwear, Fire Hose® work pants and No-Yank™ Tank, which reflect our position as the Modern, Self-Reliant American Lifestyle brand. Our brand has a heritage in workwear that transcends tradesmen and appeals to a broad demographic for everyday and on-the-job use.

From our heritage as a catalog for those working in the building trades, Duluth Trading has become a widely recognized brand and proprietary line of innovative and functional apparel and gear. Over the last decade, we have created strong brand awareness, built a loyal customer base and generated robust sales momentum. We have done so by sticking to our roots of “there’s gotta be a better way” and through our relentless focus on providing our customers with quality, functional products.

A summary of our financial results is as follows:

·

Net sales have increased year-over-year for 36 consecutive quarters through February 3, 2019;

·

Net sales in fiscal 2018 növelve 20,5% over the prior year to $568.1 million;

·

Net income in fiscal 2018 was flat összehasonlítva the prior year nál nél $2troisième2 millió;

·

Adjusted EBITDA in fiscal 2018 növelve 11.6% over the prior year to $51.8 million;

·

Our retail stores have achieved an average payback of less than two years; et

·

Beginning October 29, 2018, the Company consolidates TRI Holdings, LLC (“TRI”). The Company considers itself the primary beneficiary for TRI as the Company has both the power to direct the activities that most significantly impact the entity’s economic performance and is expected to receive benefits that are significant to TRI.

See “Reconciliation of Net Income nak nek EBITDA and EBITDA to Adjusted EBITDA” section for a reconciliation of our net income to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S. GAAP financial measures. See also the information under the heading “Adjusted EBITDA” in the section “How We Assess the Performance of Our Business” for our definition of Adjusted EBITDA.

We are pursuing several strategies to continue our profitable growth, including building brand awareness to continue customer acquisition, accelerating retail expansion, selectively broadening assortments in certain men’s product categories and growing our women’s business.


How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of financial and operating measures that affect our operating results.

Net Sales

Net sales reflect our sale of merchandise plus shipping and handling revenue collected from our customers, less returns and discounts. Direct sales are recognized upon customer receipt of the product, while retail sales are recognized at the point of sale. We also use net sales as one of the key financial metrics we measured against in determining our annual bonus compensation for our employees.

Gross Profit

Gross profit is equal to our net sales less cost of goods sold. Gross profit as a percentage of our net sales is referred to as gross margin. Cost of goods sold includes the direct cost of purchased merchandise; leltár shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost or market reserves; inbound freight; and freight from our distribution centers to our retail stores. Depreciation and amortization is excluded from gross profit. la primary drivers of the costs of individual goods are raw material costs. We expect gross profit to increase to the extent that we successfully grow our net sales. Given the size of our direct segment sales relative to our total net sales, shipping and handling revenue has had a significant impact on our gross profit and gross profit margin. Historically, this revenue has partially offset shipping and handling expense included in selling, general and administrative expenses. We have experienced declines in shipping and handling revenues, and this irányzat elvárt to continue. Declines in shipping and handling revenues may have a material adverse effect on our gross profit and gross profit margin, as well as Adjusted EBITDA to the extent there are not commensurate declines, or if there are increases, in our shipping and handling expense. Our gross profit may not be comparable to other retailers, as we do not include distribution network and store occupancy expenses in calculating gross profit, but instead we include them in selling, general and administrative expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include all operating costs not included in cost of goods sold. These expenses include all payroll and payroll-related expenses and occupancy expenses related to our stores and to our operations at our headquarters, including utilities, depreciation and amortization. They also include marketing expense, which primarily includes television advertising, catalog production, mailing and print advertising costs, as well as all logistics costs associated with shipping product to our customers, consulting and software expenses and professional services fees. Selling, general and administrative expenses as a percentage of net sales is usually higher in lower-volume quarters and lower in higher-volume quarters because a portion of the costs are relatively fixed.

Our historical sales growth has been accompanied by increased selling, general and administrative expenses. The most significant components of these increases are advertising, marketing, occupancy, depreciation, and payroll expenses. While we expect these expenses to increase as we continue to open new stores, increase brand awareness and grow our organization to support our growing business, we believe these expenses will decrease as a percentage of sales over time.

Adjusted EBITDA

We believe Adjusted EBITDA is a useful measure of operating performance, as it provides a clearer picture of operating results by excluding the effects of financing and investing activities by eliminating the effects of interest and depreciation costs and eliminating expenses that are not reflective of underlying business performance. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business.

We define Adjusted EBITDA as consolidated net income (loss) before depreciation and amortization, interest expense and provision for income taxes adjusted for the impact of certain items, including non-cash and other items we do not consider representative of our ongoing operating performance. We believe Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other items.


Results of Operations

The following table summarizes our consolidated results of operations for the periods indicated, both in dollars and as a percentage of net sales.









Fiscal Year Ended



February 3, 2019

January 28, 2018

January 29, 2017

(in thousands)

Direct net sales

$

350,638

$

330,940

$

309,674

Retail net sales

217,464

140,507

66,442

Net sales

568,102

471,447

376,116

Cost of goods sold (excluding depreciation and amortization)

257,700

210,428

161,970

Gross profit

310,402

261,019

214,146

Selling, general and administrative expenses

273,221

223,947

179,145

Operating income

37,181

37,072

35,001

Interest expense

5,949

1,988

194

Other income, net

383

421

247

Income before income taxes

31,615

35,505

35,054

Income tax expense

8,450

11,878

13,525

Nettó jövedelem

23,165

23,627

21,529

Less: Net income attributable to noncontrolling interest

9

276

214

Net income attributable to controlling interest

$

23,156

$

23,351

$

21,315

Percentage of Net sales:

Direct net sales

61.7

%

70.2

%

82.3

%

Retail net sales

38.3

%

29.8

%

17.7

%

Net sales

100.0

%

100.0

%

100.0

%

Cost of goods sold (excluding depreciation and amortization)

45.4

%

44.6

%

43.1

%

Gross profit

54.6

%

55.4

%

56.9

%

Selling, general and administrative expenses

48.1

%

47.5

%

47.6

%

Operating income

6.5

%

7.9

%

9.3

%

Interest expense

1.0

%

0.4

%

0.1

%

Other income, net

0.1

%

0.1

%

0.1

%

Income before income taxes

5.6

%

7.5

%

9.3

%

Income tax expense

1.5

%

2,5

%

3.6

%

Nettó jövedelem

4.1

%

5.0

%

5.7

%

Less: Net income attributable to noncontrolling interest

0.0

%

0.1

%

0.1

%

Net income attributable to controlling interest

4.1

%

5.0

%

5.7

%

Fiscal 2018 Compared to Fiscal 2017

Net Sales

Net sales increased $96.7 million, or 20.5%, to $568.1 million in fiscal 2018 compared to $471.4 million in fiscal 2017, driven by gains in both direct and retail segments of $19.7 million, or 6.0%, and $77.0 million, or 54.8%, respectively, across gyakorlatilag all product categories and in both our men’s and women’s business. The inclusion of the 53rd week in fiscal 2018 amounted to an additional $7.7 million of net sales. The $77.0 millió increase in retail net sales was primarily attributable to having 46 stores in fiscal 2018 as compared to 31 stores in fiscal 2017. Fiscal 2018 was also affected by challenges with systems implementation and inventory flow.

Gross Profit

Gross profit increased $49.4 million, or 18.9%, to $310.4 million in fiscal 2018 compared to $261.0 million in fiscal 2017. As a percentage of net sales, gross margin decreased 80 basis points to 54.6% of net sales in fiscal 2018 összehasonlítva 55.4% of net sales in fiscal 2017. la decrease in gross margin rate was primarily due to the continued hanyatlás in shipping revenues and an increase in freight cost köze van transporting inventory to our retail stores due to geographic expansion.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $49.3 million, or 2deuxième0%, to $27troisième2 millió in fiscal 2018 compared to $223.9 million in fiscal 2017. Selling, general and administrative expenses as un percentage of net sales increased 60 basis points to 48.1% in fiscal 2018, compared to 47.5% in fiscal 2017. The increase in selling, general and közigazgatási


költségek of $49.3 millió compared to last year was primarily attributable to increases of $6.6 million in advertising and marketing costs, $22.0 million in selling expenses and $20.7 million in general and administrative expenses.

As a percentage of net sales, advertising and marketing costs decreased 200 basis points to 16.8% in fiscal 2018, compared to 18.8% in fiscal 2017. la 200 basis point decrease in advertising and marketing costs as a percentage of net sales was primarily attributable to a decrease of 170 basis points in catalog costs due to the adoption of the new revenue standard which provides for catalog costs to be expensed upon customer receipt and a planned decrease in catalog spend as a percentage of net sales. coupled with advertising leverage gained from a higher mix of retail net sales a fentiekben leírtak szerint.

As a percentage of net sales, selling expenses increased 140 basis points to 15.9% in fiscal 2018, compared to 14.5% in fiscal 2017. The increase in selling expenses as a percentage of net sales was primarily due an increase of 110 basis points in customer service due to the growth in retail, partially offset by a decline in shipping expenses attributable to the leverage gained from an increase in the proportion of retail net sales.

As a percentage of net sales, general and administrative expenses increased 120 basis points to 15.5% in fiscal 2018, compared to 14.2% in fiscal 2017. The 130 basis point increase in general and administrative expenses as a percentage of net sales was primarily due to an increase in information technology support and outside services, and an increase in depreciation as a result of more stores.

Segment Operating (Loss) Jövedelem

Corporate expenses are included in our direct segment and the majority of advertising costs are included in our direct segment, with the exception of retail-specific advertising. As such, our direct segment is generally burdened with higher overhead and advertising expenses. In addition, for our build to suit leases, a portion of the lease expense is included in interest expense.

Direct segment operating loss was $0.4 million in fiscal 2018 összehasonlítva operating income of $13.2 million in fiscal 2017. Direct segment operating veszteség as a percentage of net sales decreased 410 basis points to (0.1)% ban ben fiscal 2018, compared to operating income as a percentage of net sales of 4.0% in fiscal 2017. la 410 basis pont decrease in direct segment operating income was primarily due to a decline of 100 basis points in direct gross margins, based on the factors discussed above in gross profit, coupled with unn increase in selling expenses nak,-nek 220 basis points due to increased distribution costs, an increase of 140 basis points in general and administrative expenses due to an increase in consulting fees and outside services to support the growth of our direct business coupled with a decrease nak,-nek 50 basis points in advertising and marketing costs primarily due to a decrease in catalog costs.

Retail segment operating income increased $13.7 million, or 57.7%, to $37.5 millió in fiscal 2018 compared to $23.8 million in fiscal 2017. Retail segment operating income as a percentage of net sales increased 30 basis points to 17.3% in fiscal 2018, compared to 17.0% in fiscal 2017. la 30 basis points increase in retail segment operating income was primarily due to a decrease of 50 basis points in selling. general and administrative expenses due to leverage gained from higher retail net sales partially offset by an increase in store labor due to the increase in store count coupled with a decline in gross margin of 10 basis points due to the factors discussed above in gross profit.

Interest Expense

Interest expense increased $4.0 million to $6.0 millió in fiscal 2018 compared to $2.0 million in fiscal 2017. The increase in interest expense was primarily attributable to an increase in our build-to-suit retail stores. an increase in borrowings on our revolving line of credit during fiscal 2018 as compared to the prior year and interest on TRI’s Senior Secured debt, due to the consolidation of TRI.

Income Taxes

Jövedelem tax expense was $8.4 millió in fiscal 2018 compared to $11.9 million in fiscal 2017. Our effective tax rate related to controlling interest was 26.7% and 33.7% in fiscal 2018 and fiscal 2017, illetve. The decrease in the year-over-year effective tax rate is due to the enactment of “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) that became effective January 1, 2018.

Net Income

Net income volt $2troisième2 million in fiscal 2018 compared to $23.4 million in fiscal 2017, primarily due to the factors discussed above.


Fiscal 2017 Compared to Fiscal 2016

Net Sales

Net sales increased $95.3 million, or 25.3%, to $471.4 million in fiscal 2017 compared to $376.1 million in fiscal 2016, driven by gains in both direct and retail segments of $21.3 million, or 6.9%, and $74.1 million, or 111.5%, respectively, across all product categories and in both our men’s and women’s business. The $74.1 million increase in retail net sales was primarily attributable to the opening of 15 new stores during fiscal 2017, coupled with an entire full year of net sales from our seven stores we opened in fiscal 2016.

Gross Profit

Gross profit increased $46.9 million, or 21.9%, to $261.0 million in fiscal 2017 compared to $214.1 million in fiscal 2016. As a percentage of net sales, gross margin decreased 150 basis points to 55.4% of net sales in fiscal 2017 compared to 56.9% of net sales in fiscal 2016. The decrease in gross margin rate was primarily due to a decline in shipping revenues, a slight increase in global promotions, including flash sales during our fiscal fourth quarter, and an increase in freight cost for transporting inventory from our Belleville distribution center to our stores.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $44.8 million, or 25.0%, to $223.9 million in fiscal 2017 compared to $179.1 million in fiscal 2016. Selling, general and administrative expenses as percentage of net sales decreased 10 basis points to 47.5% in fiscal 2017, compared to 47.6% in fiscal 2016. The increase in selling, general and administrative expenses of $44.8 million was primarily attributable to increases of $10.1 million in advertising and marketing costs, $16.0 million in selling expenses and $18.7 million in general and administrative expenses.

As a percentage of net sales, advertising and marketing costs decreased 210 basis points to 18.8% in fiscal 2017, compared to 20.9% in fiscal 2016. The 210 basis point decrease in advertising and marketing costs as a percentage of net sales was primarily attributable to a decrease of 140 basis points in catalog costs, a decrease of 40 basis points in digital advertising, and a decrease of 30 basis points in national television advertising as a result of leverage gained from the increase in retail net sales as discussed above.

As a percentage of net sales, selling expenses increased 60 basis points to 14.5% in fiscal 2017, compared to 13.9% in fiscal 2016. The increase in selling expenses as a percentage of net sales was primarily due an increase of 100 basis points in customer service due to the growth in retail, partially offset by a decline in shipping expenses attributable to the leverage gained from an increase in the proportion of retail net sales.

As a percentage of net sales, general and administrative expenses increased 140 basis points to 14.2% in fiscal 2017, compared to 12.8% in fiscal 2016. The 140 basis point increase in general and administrative expenses as a percentage of net sales was primarily due to an increase of 80 basis points in occupancy and equipment cost due to retail growth, an increase of 30 basis points in depreciation expense primarily due to the increase in stores and infrastructure and technology investments, coupled with an increase of 20 basis points in personnel due to an increase in headcount to support the growth of the business.

Segment Operating Income

Direct segment operating income decreased $11.2 million, or 45.8%, to $13.2 million in fiscal 2017 compared to $24.5 million in fiscal 2016. Direct segment operating income as a percentage of net sales decreased 390 basis points to 4.0% in fiscal 2017, compared to 7.9% in fiscal 2016. The 390 basis point decrease in direct segment operating income was primarily due to a decline of 160 basis points in direct gross margins, based on the factors discussed above in gross profit, coupled with a decline of 70 basis points due to an increase in headcount to support the growth of the business, a decline of 30 basis points in advertising and marketing, and a decline of 30 basis points due to hosting fees.

Retail segment operating income increased $13.3 million, or 126.0%, to $23.8 million in fiscal 2017 compared to $10.5 million in fiscal 2016. Retail segment operating income as a percentage of net sales increased 110 basis points to 17.0% in fiscal 2017, compared to 15.9% in fiscal 2016. The 110 basis points increased in retail segment operating income was primarily due to a decline of 30 basis point in advertising and marketing costs, and a 140 basis point decline in personnel expenses primarily due to leveraged gained from higher retail sales, which was partially offset by a decline in gross margin of 80 basis points due to the factors discussed above in gross profit.


Interest Expense

Interest expense increased $1.8 million to $2.0 million in fiscal 2017 compared to $0.2 million in fiscal 2016. The increase in interest expense was primarily attributable to an increase in our build-to-suit retail stores and an increase in borrowings on our revolving line of credit during fiscal 2017 as compared to the prior year.

Income Taxes

Income tax expense was $11.9 million in fiscal 2017 compared to $13.5 million in fiscal 2016. Our effective tax rate related to controlling interest was 33.7% and 38.9% in fiscal 2017 and fiscal 2016, respectively.

The decrease in the year-over-year effective tax rate for the year ended January 28, 2018 was primarily attributable to the $1.5 million benefit related to remeasurement of net deferred tax liabilities resulting from the enactment of Tax Act and the benefit attributable to the reduction in the U.S. federal statutory rate in fiscal 2017 pursuant to the Tax Act.

As a result of the Tax Act, we calculated a U.S. federal statutory corporate income tax rate of 33.9% for the fiscal year ending January 28, 2018.

Net Income

Net income increased $2.0 million, or 9.6%, to $23.4 million in fiscal 2017 compared to $21.3 million in fiscal 2016, primarily due to the factors discussed above. Excluding the impact from the Tax Act discussed above, net income increased $0.2 million, or 0.8% to $21.5 million in fiscal 2017.

Reconciliation of Net Income nak nek EBITDA and EBITDA to Adjusted EBITDA

The following table represents reconciliations of net income to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-GAAP financial measures, for the periods indicated below. See the above section titled “How We Assess the Performance of Our Business,” for our definition of Adjusted EBITDA.











Fiscal Year Ended



February 3, 2019

January 28, 2018

January 29, 2017

(in thousands)

Nettó jövedelem

$

23,165

$

23,627

$

21,529

Depreciation and amortization

12,594

7,330

4,698

Interest expense

5,949

1,988

194

Income tax expense

8,450

11,878

13,525

EBITDA

50,158

44,823

39,946

Stock based compensation

1,668

1,597

1,224

Adjusted EBITDA

$

51,826

$

46,420

$

41,170



As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA increased $5.4 million, or 11.6%, to $51.8 million in fiscal 2018 compared to $46.4 million in fiscal 2017. As a percentage of net sales, Adjusted EBITDA decreased 70 basis points to 9.1% of net sales in fiscal 2018 összehasonlítva 9.8% of net értékesítés in fiscal 2017.



As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA increased $5.3 million, or 12.8%, to $46.4 million in fiscal 2017 compared to $41.2 million in fiscal 2016. As a percentage of net sales, Adjusted EBITDA decreased 110 basis points to 9.8% of net sales in fiscal 2017 compared to 10.9% of net értékesítés in fiscal 2016.

Liquidity and Capital Resources

General

Our business relies on cash from operating activities et credit facility as our primary sources of liquidity. Effective May 17, 2018, we entered into a new credit facility which provides for borrowings of up to $80.0 million on a revolving line of credit and an additional $50.0 million in a delayed draw term loan. The $80.0 million revolving line of credit matures on May 17, 2023 and we have the option to draw in various amounts on the $50.0 million term loan through May 17, 2020, with a maturity on May 17, 2023. la primary cash needs have been for inventory, marketing and advertising, payroll, store leases, et capital expenditures associated with opening new stores, infrastructure and information technology. The most significant components of our working capital are cash, inventory, accounts payable and other current liabilities.


We expect to spend approximately $40.0 million to $45.0 millió ban ben fiscal 2019 on capital expenditures, net of proceeds from finance lease obligations, including a total of hozzávetőlegesen, körülbelül $30.0 million to $32.0 million for new retail store expansion. We elvár capital expenditures of $2.0 million and starting inventory of $0.5 millió to open a new store. We anticipate nyílás 15 üzletek in fiscal 2019. Nál nél February 3, 2019, our working capital was $65.6 million, which includes cash of $0.7 million. Due to the seasonality of our business, a significant amount of cash from operating activities is generated during the fourth quarter of our fiscal year. During the first three quarters of our fiscal year, we typically are net users of cash in our operating activities as we acquire inventory in anticipation of our peak selling season, which occurs in the fourth quarter of our fiscal year. We also use cash in our investing activities for capital expenditures throughout all four quarters of our fiscal year.

Cash Flow Analysis

A summary of operating, investing and financing activities is shown in the following table.









Fiscal Year Ended



February 3, 2019

January 28, 2018

January 29, 2017

(in thousands)

Net cash provided by operating activities

$

31,095

$

29,868

$

20,253

Net cash used in investing activities

(53,735)

(53,022)

(28,906)

Net cash provided by (used in) financing activities

18,642

4,760

(3,743)

Decrease in cash and restricted cash

$

(3,998)

$

(18,394)

$

(12,396)

Net Cash Provided by Operating Activities

Operating activities consist primarily of net income adjusted for non-cash items that include depreciation and amortization, loss on disposal of property, equipment and other assets, stock-based compensation and the effect of changes in assets and liabilities.

For fiscal 2018, net cash provided by operating activities was $31.1 millió, which consisted of net income of $2troisième2 million, non-cash depreciation and amortization of $12.6 millió, amortization of stock-based compensation of $1.7 millió. deferred income taxes of $8.0 millió et loss on disposal of property and equipment of $0.2 million, offset by cash used in operating assets and liabilities of $14.5 million. The cash used in operating assets and liabilities of $14.5 million primarily consisted of a $11.0 million increase in inventory due to growth and supply of inventory for our new retail stores in the first quarter of fiscal 2019 and $5.6 million increase in prepaid expense, coupled with a $7.6 million decrease in income taxes payable, which was partially offset by increases in trade accounts payable and accrued expenses and deferred rent obligations of $10.3 million and $7.0 million, respectively. The increase in trade accounts payable and accrued expenses were primarily due to an increase in inventory and timing of payments.

For fiscal 2017, net cash provided by operating activities was $29.9 millió, which consisted of net income of $23.6 million, non-cash depreciation and amortization of $7.3 million, amortization of stock-based compensation of $1.6 millió and deferred income taxes of $0.5 million, offset by cash used in operating assets and liabilities of $3.2 million. The cash used in operating assets and liabilities of $3.2 million primarily consisted of a $17.6 million increase in inventory due to growth and supply of inventory for our new retail stores in the first quarter of fiscal 2018. et un $2.3 million increase in prepaid expense. partially offset by increases in trade accounts payable and accrued expenses and deferred rent obligations of $6.4 million and $7.4 millió. respectively, coupled with an increase in income taxes payable of $2.4 millió. The increase in trade accounts payable and accrued expenses were primarily due to an increase in inventory and timing of payments.

For fiscal 2016, net cash provided by operating activities was $20.3 million, which consisted of net income of $21.5 million, non-cash depreciation and amortization of $4.7 millió, amortization of stock-based compensation of $1.2 million and deferred income taxes of $1.5 million, offset by cash used in operating assets and liabilities of $8.7 million. The cash used in operating assets and liabilities of $8.7 million primarily consisted nak,-nek un $14.4 million increase in leltár due to growth and supply of inventory for our new retail stores in the first quarter of fiscal 2017. coupled with a $3.0 million decrease in trade accounts payable, primarily due to timing of payments, which was partially offset by an increase in income taxes payable of $3.9 million, as a result of being a “C” corporation for the entire fiscal year. and accrued expenses of $4.8 million. primarily due nak nek increases in deferred revenue and unpaid purchases of property and equipment.

Net Cash Used in Investing Activities

Investing activities consist primarily of capital expenditures for growth related to new stores, information technology and enhancements for our distribution and corporate facilities.


For fiscal 2018, net cash used in investing activities was $53.7 million, primarily driven by capital expenditures of $53.0 million, due mainly to the opening of 15 new stores, abien investments in information technology and the Belleville, Wisconsin distribution center.

For fiscal 2017, net cash used Jen investing activities was $53.0 million, primarily driven by capital expenditures of $46.5 million, due mainly to the opening of 15 new stores, and investments in information technology related to our order management system and e-commerce platform et un $6.3 million purchase of un available-for-sale security.

For fiscal 2016, net cash used in investing activities was $28.9 million, primarily driven by capital expenditures of $28.7 million for the opening of seven new stores. expansion of our Belleville distribution center, and investments ban ben information technology.

Net Cash Provided by (Used in) Financing Activities

Financing activities consist primarily of borrowings and payments related to our revolving line of credit. long-term debts. proceeds from finance lease obligations as well as noncontrolling interest in variable interest entities. Effective December 31, 2018, the Company deconsolidated Schlecht Retail Ventures LLC (“SRV”). Prior to the deconsolidation of SRV. financing activities also consisted of distributions to holders of la noncontrolling interest in mi variable interest entity SRV et capital contributions to SRV. See Note 6 “Variable Interest Entities,” included in this Annual Report on Form 10-K for further information.

For fiscal 2018, net cash provided by financing activities was $18.6 million, which included hitelfelvétels of $130.1 millió on our revolving line of credit to support our capital expenditures discussed above and working capital needs, offset by payments of $113.5 million on our revolving line of credit et proceeds of $2.3 millió tól től finance lease obligations in connection with our build-to-suit lease transactions.

For fiscal 2017, net cash provided by financing activities was $4.8 million, which included hitelfelvételek of $88.9 million on our revolving line of credit to support our capital expenditures discussed above and working capital needs, offset by payments of $88.9 million on our revolving line of credit. proceeds of $3.9 millió from finance lease obligations in connection with our build-to-suit lease transactions, $0.8 million ban ben proceeds from long-term debt, and $0.8 million for capital contributions to SRV.

For fiscal 2016, net cash used in financing activities was $3.7 million, primarily consisting of uses of $4.2 millió payments on long-term debt, offset by proceeds of $0.7 million for capital contributions to variable interest entities.

Line of Credit

On September 29, 2017, we entered into a first amendment to the Amended and Restated Loan Agreement dated as of October 7, 2016 (the “Amended and Restated Agreement”), providing for borrowing availability of up to $60.0 million from September 29, 2017 through July 31, 2019. Effective November 1, 2017, we entered into a second amendment to the Amended and Restated Agreement, providing for borrowing availability of up to $80.0 million from November 1, 2017 through December 31, 2017 and borrowing availability of up to $60.0 million from January 1, 2018 through July 31, 2019. The Amended and Restated Agreement was scheduled to mature on July 31, 2019, and bérc interest, payable monthly, at a rate equal to the adjusted LIBOR rate, as defined in the Amended and Restated Agreement. The Amended and Restated Agreement volt secured by essentially all Company assets and required that we maintain compliance with certain financial and non-financial covenants, including minimum tangible net worth and a minimum trailing twelve month EBITDA. In addition, the Amended and Restated Agreement did not contain borrowing base limits.

Effective May 17, 2018, we entered into a new credit agreement and subsequently terminated our Amended and Restated Agreement. The outstanding balance of $27.5 million under the Amended and Restated Agreement was paid off with borrowings under the new credit agreement. The new credit agreement is secured by essentially all Company assets and requires that we maintain compliance with certain financial and non-financial covenants, including a trailing twelve month maximum rent adjusted leverage ratio and minimum fixed charge coverage ratio. See Note 4 “Debt and Line of Credit,” included in this Annual Report on Form 10-K for further information.

As of and for the fiscal year ended February 3, 2019, we were in compliance with all financial and non-financial covenants.






Contractual Obligations

We enter into long term contractual obligations and commitments in the normal course of business. As of February 3, 2019, our contractual cash obligations were as follows:













Maturing in:



2020

2022

2024



nak nek

nak nek

et



Teljes

2019

2021

2023

après

(in thousands)

Revolving line of credit

$

16,542

$

$

$

16,542

$

Debt (1)

30,237

500

1,192

1,473

27,072

Operating leases (2)

190,851

15,745

31,631

31,377

112,098

Teljes

$

237,630

$

16,245

$

32,823

$

49,392

$

139,170

_____________________________

(1)

Consists of notes következtében the TRI consolidation along with the capital lease obligations that represent minimum lease payments, including imputed interest not reflected in the Consolidated Statements of Financial Position and Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

(2)

Our store leases generally have initial lease terms of 5-15 years and include renewal options and rent escalation provisions.

Off-Balance Sheet Arrangements

We are not a party to any off balance sheet arrangements, except for operating leases, as discussed in “Contractual Obligations” section above.

Critical Számvitel Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported in our consolidated financial statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We evaluate our accounting policies, estimates, and judgments on an on-going basis. We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions and such differences could be material to the consolidated financial statements.

We evaluated the development and selection of our critical accounting policies and estimates and believe that the following involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and financial position, and are therefore discussed as critical. With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can potentially have a materially favorable or unfavorable impact on subsequent results of operations. However, our historical results for the periods presented in the consolidated financial statements have not been materially impacted by such variances. More information on all of our significant accounting policies can be found in Note 2, “Summary of Significant Accounting Policies” of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Revenue Recognition

For fiscal 2018. we recognized revenue from direct sales upon shipment of the product and from retail sales at the point of sale. This represents the point at which the customer obtains control of the product and has the ability to direct the use of the product.

parce que fiscal 2017 and prior periods, we recognized revenue from direct sales upon customer receipt of the product and from retail sales at the point of sale.

We recognized shipping and handling fees as revenue included in net sales when generated from a customer order upon customer receipt of the product. Costs of shipping and handling are included in selling, general and administrative expenses.

Sales tax collected is not recognized as revenue as it is ultimately remitted to governmental authorities.

We reserve for projected merchandise returns based on both historical and actual experience, as well as various other assumptions that we believe to be reasonable. Actual merchandise returns are monitored regularly and have not been materially


different from the estimates recorded. Product returns often represent merchandise that can be resold. Amounts refunded to customers are generally made by issuing the same payment tender as used in the original purchase. Merchandise exchanges of the same product and price are not considered merchandise returns and are therefore excluded when calculating the sales returns reserve.

Inventories

Our inventories are composed of finished goods and are stated at the lower of cost and net realizable value, with cost determined using the first-in, first-out method. Net realizable value is defined as the "estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.” To determine if the value of inventory should be marked down below original cost, we consider current and anticipated demand, customer preference and the inventory’s age. The inventory value is adjusted periodically to reflect current market conditions, which requires our judgments that may significantly affect the ending inventory valuation, as well as gross margin. The significant estimates used in inventory valuation are obsolescence (including excess and slow-moving inventory and lower of cost or market reserves) and estimates of inventory shrinkage. We adjust our inventory for obsolescence based on historical trends, aging reports, specific identification and our estimates of future retail sales prices.

Due to these factors, our obsolescence and shrinkage reserves contain uncertainties. Both estimates have calculations that require us to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends. If actual observed obsolescence or periodic updates of our shrinkage estimates differ from our original estimates, we adjust our inventory reserves accordingly throughout the period. We do not believe that changes in the assumptions used in these estimates would have a significant effect on our net income or inventory balances. We have not made any material changes to our assumptions included in the calculations of the obsolescence and shrinkage reserves during the periods presented, nor have we recorded significant adjustments related to the physical inventory process.

Long-Lived Assets

Long-lived assets, such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of an asset, a product recall or an adverse action or an assessment by a regulator. If the sum of the estimated undiscounted future cash flows related to the asset is less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, usually determined by the estimated discounted cash flow analysis of the asset. Impairment charges are included in selling, general and administrative expenses.

We evaluate long-lived tangible assets at an individual store level, which is the lowest level at which independent cash flows can be identified. We evaluate corporate assets or other long-lived assets that are not store-specific at the consolidated level.

Since there is typically no active market for our long-lived tangible assets, we estimate fair values based on the expected future cash flows. We estimate future cash flows based on store-level historical results, current trends, and operating and cash flow projections. Our estimates are subject to uncertainty and may be affected by a number of factors outside our control, including general economic conditions and the competitive environment. While we believe our estimates and judgments about future cash flows are reasonable, future impairment charges may be required if the expected cash flow estimates, as projected, do not occur or if events change requiring us to revise our estimates.

Stock-Based Compensation – Private Company Equity Grants

We il y a problémad restricted shares of our Class B common stock to key employees, executives and board members under restricted stock agreements. These issuances generally vest evenly over a period ranging from two to five years from the grant date and become fully vested on the applicable anniversary date of each restricted stock agreement, unless otherwise stated in the terms of each individual award. Prior to November 19, 2015, we were a private company with no active public market for our Class B common stock. The fair value of our Class B common stock was measured on September 30, 2014, December 31, 2013 and December 31, 2012 for our fiscal years 2015, 2014 and 2013, respectively. The restricted stock value was based on the estimated fair value of our Class B common stock on the grant date, which may differ from the fair value measure dates above. In the absence of a public trading market, we considered numerous objective and subjective factors to determine our best estimate of the fair value of the restricted shares of our Class B common stock on the grant date. Our estimate of this stock-based compensation was equivalent to the fair value of our Class B common stock that was ultimately expected to vest. The stock-based compensation is recognized as compensation expense over the requisite service period or a sale or change in control of our Company if such event occurs prior to the completion of the service period.


Our estimate of pre-vesting forfeitures, or forfeiture rate, was based on our internal analysis, which included the award recipients’ positions within the company and the vesting period of the awards. As such, we estimated the forfeiture rate was zero, which resulted in our recording the gross value of the awards as stock-based compensation expense in our consolidated statements of income. We will reassess the forfeiture rate assumption in future periods.

Determination of Fair Value of Class B Common Stock on Grant Date. When we were a private company with no active public market for our Class B common stock, we determined the estimated per share fair value of our Class B common stock on the valuation date using a valuation consistent with the requirements of the IRS (Revenue Ruling 59-60), the Department of Labor (Proposed Regulation—2510.3-18(b)(4)(ii)(B)) and Uniform Standards of Professional Appraisal Practice. In conducting this valuation, we considered all objective and subjective factors that we believed to be relevant, including our best estimate of our business condition, prospects and operating performance. Within this contemporaneous valuation performed by us, a range of factors, assumptions and methodologies were used. The significant factors included:

·

outlook and condition of the economy, the industry and our company;

·

our financial condition;

·

our earnings capacity and future prospects;

·

our dividend paying capacity;

·

historic sales of our Class B common stock and size of the block of Class B common stock to be valued;

·

market prices of publicly traded securities of companies engaged in the same or similar industry classification;

·

prices, terms and conditions affecting past sales of similar Class B common stock;

·

marketability and liquidity considerations of our Class B common stock;

·

physical condition, remaining life expectancy and functional and economic utility of our property and equipment; et

·

relative risk of the investment.

After considering the information presented by our management, our board of directors rendered its final fair value determination.

Class B Common Stock Valuation Methodologies. For the valuation of our Class B common stock, management estimated on the valuation date, our common equity value on a continuing operations basis, primarily using the income and market comparable approaches. The common equity value is the difference between the business enterprise value and debt value after adjustment for a marketability and liquidity discount of five percent.

The income approach utilized the discounted cash flow (“DCF”) methodology by discounting the anticipated cash flow stream from business operations. This valuation analysis involved a discrete projection of operating cash flow and a residual value calculation at the end of the projection. The discounted cash flow was based on a detailed projection of sales, cost of sales, operating expenses, depreciation, taxes, capital expenditures and working capital changes. Both the projected cash flows and residual value were discounted to present value based on a weighted average cost of capital calculation.

The market comparable approach utilizes earnings, sales and equity price ratios from comparable transactions. This was a process of collecting relevant market data, adjusting for comparability differences and applying price multipliers to the earnings, sales and operating equity of the company. Our market comparable analysis derived values based on stock transactions involving publicly traded companies because of the availability of complete and consistent information. Comparable companies were selected after a database search based on standard industrial codes of publicly traded companies. Earnings multipliers are a function of earnings growth and earnings volatility. Earnings multipliers derived for us were below the averages for the comparable companies because of our higher asset utilization, smaller size and higher return on assets.

We believe that the procedures employed in the DCF and market comparable methodologies were reasonable and consistent with generally accepted practices.

Income Taxes

We account for income taxes and the related accounts using the liability method in accordance with ASC Topic 740, Income Taxes. Under this method, we accrue income taxes payable or refundable and recognize deferred tax assets and liabilities based on differences between U.S. GAAP and tax bases of assets and liabilities. We measure deferred tax assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse, and recognize the effect of a change in enacted rates in the period of enactment.


We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established if it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

We létrehozni assets and liabilities for uncertain tax positions taken or expected to be taken in income tax returns, using a more-likely-than-not recognition threshold. We recognize penalties and interest related to uncertain tax positions as income tax expense.

See Note 9 “Income Taxes,” of Notes to Consolidated Financial Statements included in this Annual Report on Form 10‑K.

Recently Issued Accounting Pronouncements

Leases

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and has since amended the standard with Accounting Standards Update 210-01, Leases: Land Easement Practical Expedient for Transition to Topic 842; Accounting Standards update 2018-10, Codification Improvements to Topic 842, Leases; Accounting Standards Update 2018-11, Leases: Targeted Improvements; and Accounting Standards Update 2018-20, Leases: Narrow-Scope Improvements for Lessors. ASU 2016-02, as amended, requires lessees to record a right-of-use asset and lease liability for almost all leases. The Company will adopt ASU 2016-02, as amended, using la current period adjustment processus on February 4, 2019, the first day of the Company’s first quarter for the fiscal year ending February 2, 2020, the Company’s fiscal year 2019. Under this method, a cumulative effect adjustment to the opening balance of retained earnings is recognized upon adoption and the guidance is applied prospectively. la Company has végrehajtott a new lease management system, processes and controls to adopt ASU 2016-02 and assist in the application of the new standard. The Company is currently evaluating the full effect that la adoption of ASU 2016-02 will have on its financial condition, results of operations and disclosures. The Company conducts its retail operations through leased stores and therefore, upon adoption, the Company expects to have an increase in assets and liabilities on its consolidated financial statements, due to recording of right-to-use assets and the corresponding lease liabilities, which is expected to be material.





ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Risk Factors

We are subject to interest rate risk in connection with borrowings under our revolving line of credit, which bears interest at a rate equal to the adjusted LIBOR rate, as defined in the Amended and Restated Agreement (effective ratio nak,-nek 6.25% nál nél February 3, 2019). As of February 3, 2019. ott volt $16.5 million outstanding under the revolving line of credit. Based on the average interest rate on the revolving line of credit during fiscal 2018, and to the extent that borrowings were outstanding, we do not believe that a 10% change in the interest rate would have a material effect on our consolidated results of operations or financial condition.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial. We cannot assure you our business will not be affected in the future by inflation.

Foreign Exchange Rate Risk

We source a substantial majority of our merchandise from various suppliers in Asia and the vast majority of purchases are denominated in U.S. dollars. We do not hedge foreign currency risk using any derivative instruments, and historically we have not been impacted by changes in exchange rates.








ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Index to Consolidated Financial Statements




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of Directors and Shareholders

Duluth Holdings Inc.

Opinion on the financial statements



We have audited the accompanying consolidated balance sheets of Duluth Holdings Inc. a Wisconsin corporation and subsidiary and affiliates (the “Company”) as of February 3, 2019 and January 28, 2018, and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended February 3, 2019, and the related notes and schedule (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 3, 2019 and January 28, 2018, and the results of its operations and its cash flows for each of the three years in the period ended February 3, 2019, in conformity with accounting principles generally accepted in the United States of America.



Basis for opinion



These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the auditing standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2002.





Chicago, Illinois

April 19, 2019








DULUTH HOLDINGS INC.

Consolidated Balance Sheets

(Amounts in thousands)











February 3, 2019

January 28, 2018

ASSETS

Current Assets:

Cash

$

731

$

2,865

Accounts receivable

28

52

Other receivables

4,611

273

Inventory, less reserve for excess and obsolete items

nak,-nek $2,420 et $1,866, respectively

97,685

89,548

Prepaid expenses & other current assets

12,640

7,642

Prepaid catalog costs

2,503

1,446

Total current assets

118,198

101,826

Property and equipment, net

167,109

109,705

Restricted cash

2,354

4,218

Available-for-sale security

6,295

6,323

Goodwill

402

402

Other assets, net

2,401

628

Total assets

$

296,759

$

223,102

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Trade accounts payable

$

25,363

$

17,320

Accrued expenses and other current liabilities

26,530

25,261

Income taxes payable

218

7,631

Current maturities of long-term debt

500

84

Total current liabilities

52,611

50,296

Finance lease obligations under build-to-suit leases

23,034

26,578

Long-term debt, less current maturities

29,737

1,424

Long-term line of credit

16,542

Deferred tax liabilities

9,722

2,100

Deferred rent obligations, less current maturities

5,003

3,355

Total liabilities

136,649

83,753

Commitments and contingencies

Shareholders' equity:

Preferred stock, pas par value; 10,000 shares authorized; pas megoszt
issued or kiemelkedő as of February 3, 2019 and January 28, 2018

Common stock (Class A), pas par value; 10,000 shares authorized;
3,364 megoszt kiadott et kiemelkedő que February 3, 2019 et
January 28, 2018

Common stock (Class B), pas par value; 200,000 shares authorized;

29,215 shares issued and 29,210 shares outstanding as of February 3, 2019 and

29,101 shares issued and 29,098 outstanding as of January 28, 2018

Treasury stock, at cost; 5 et 3 shares as of February 3, 2019 and
January 28, 2018, respectively

(92)

(57)

Capital stock

89,849

88,043

Retained earnings

70,592

48,084

Total shareholders' equity of Duluth Holdings Inc.

160,349

136,070