DULUTH HOLDINGS INC.

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTER ENDED ~~October 28, 2018~~ May 5, 2019

INDEX



	Part I—Financial Information	Page
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of ~~October 28, 2018~~May 5, 2019 and ~~January 28, 2018~~February 3, 2019 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~October 28,~~May 5, 2019 and April 29, 2018 ~~and October 29, 2017~~ (Unaudited)	45
	Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~October 28, 2018~~May 5, 2019 and ~~October~~April 29, ~~2017 (Unaudited)~~	5
	~~Condensed Consolidated Statement of Shareholders’ Equity for the nine months ended October 28,~~ 2018 (Unaudited)	6
	Condensed Consolidated Statement of Shareholders’ Equity for the ~~nine~~three months ended ~~October 29, 2017~~May 5, 2019 (Unaudited)	7
	Condensed Consolidated Statement of Shareholders’ Equity for the three months ended April 29, 2018 (Unaudited)	8
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~October 28,~~May 5, 2019 and April 29, 2018 ~~and October 29, 2017~~ (Unaudited)	89
	Notes to Condensed Consolidated Financial Statements (Unaudited)	910
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2019
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2926
Item 4.	Controls and Procedures	3026
	Part II—Other Information
Item 1.	Legal Proceedings	3027
Item 1A.	Risk Factors	3027
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3027
Item 6.	Exhibits	3128

Signatures		3229

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DULUTH HOLDINGS INC.

Condensed Consolidated Balance Sheets - Assets

(Unaudited)

(Amounts in thousands)

October 28, 2018

January 28, 2018
ASSETS

Current Assets:

Cash

$
2,500

$
2,865
Accounts receivable

339

52
Other receivables

2,827

273
Inventory, less reserve for excess and obsolete items
  of $2,972 and $1,866, respectively

131,448

89,548
Prepaid expenses & other current assets

11,975

7,642
Deferred catalog costs

1,137

1,446
Total current assets

150,226

101,826
Property and equipment, net

165,885

109,705
Restricted cash

693

4,218
Available-for-sale security

6,323

6,323
Goodwill

402

402
Other assets, net

988

628
Total assets

$
324,517

$
223,102
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Trade accounts payable

$
34,200

$
17,320
Accrued expenses and other current liabilities

30,715

25,261
Income taxes payable

—

7,631
Current maturities of capital lease obligations

165

4
Current maturities of long-term debt

80

80
Total current liabilities

65,160

50,296
Long-term line of credit

65,000

—
Capitalized lease obligations, less current maturities

27,578

31
Finance lease obligations under build-to-suit leases

17,330

26,578
Deferred rent obligations, less current maturities

3,892

3,355
Deferred tax liabilities

1,573

2,100
Long-term debt, less current maturities

1,333

1,393
Total liabilities

181,866

83,753
Commitments and contingencies

Shareholders' equity:

Preferred stock, no par value; 10,000 shares authorized; no shares
   issued or outstanding as of October 28, 2018 and January 28, 2018

—

—
Common stock (Class A), no par value; 10,000 shares authorized;
   3,364 shares issued and outstanding as of October 28, 2018 and January 28, 2018

—

—
Common stock (Class B), no par value; 200,000 shares authorized;
   29,228 shares issued and 29,223 shares outstanding as of October 28, 2018 and
29,101 shares issued and 29,098 shares outstanding as of January 28, 2018

—

—
Treasury stock, at cost; 5 and 3 shares as of October 28, 2018 and
   January 28, 2018, respectively

(92)

(57)
Capital stock

89,335

88,043
Retained earnings

49,972

48,084
Total shareholders' equity of Duluth Holdings Inc.

139,215

136,070
Noncontrolling interest

3,436

3,279
Total shareholders' equity

142,651

139,349
Total liabilities and shareholders' equity

$
324,517

$
223,102



	May 5, 2019		February 3, 2019
ASSETS
Current Assets:
Cash	$	992	$	731
Accounts receivable		359		28
Other receivables		8,292		4,611
Inventory, less reserve for excess and obsolete items of $2,574 and $2,420, respectively		104,289		97,685
Prepaid expenses & other current assets		11,977		12,640
Prepaid catalog costs		202		2,503
Total current assets		126,111		118,198
Property and equipment, net		136,652		167,109
Operating lease right-of-use assets		134,956		—
Finance lease right-of-use assets		10,610		—
Restricted cash		1,578		2,354
Available-for-sale security		6,267		6,295
Goodwill		402		402
Other assets, net		2,354		2,401
Total assets	$	418,930	$	296,759

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

DULUTH HOLDINGS INC

Condensed Consolidated Balance Sheets – Liabilities and Equity

(Unaudited)

(Amounts in thousands)



	May 5, 2019		February 3, 2019
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable	$	26,710	$	25,363
Accrued expenses and other current liabilities		25,080		26,530
Income taxes payable		—		218
Current portion of operating lease liabilities		10,103		—
Current portion of finance lease liabilities		315		—
Current maturities of long-term debt		510		500
Total current liabilities		62,718		52,611
Long-term debt, less current maturities		29,576		29,737
Finance lease obligations under build-to-suit leases		—		23,034
Operating lease liabilities, less current maturities		118,475		—
Finance lease liabilities, less current maturities		8,670		—
Long-term line of credit		39,240		16,542
Deferred tax liabilities		9,420		9,722
Deferred rent obligations, less current maturities		—		5,003
Total liabilities		268,099		136,649
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 10,000 shares authorized; no shares issued or outstanding as of May 5, 2019 and February 3, 2019		—		—
Common stock (Class A), no par value; 10,000 shares authorized; 3,364 shares issued and outstanding as of May 5, 2019 and February 3, 2019		—		—
Common stock (Class B), no par value; 200,000 shares authorized; 29,358 shares issued and 29,339 shares outstanding as of May 5, 2019 and 29,215 shares issued and 29,210 shares outstanding as of February 3, 2019		—		—
Treasury stock, at cost; 19 and 5 shares as of May 5, 2019 and February 3, 2019, respectively		(369)		(92)
Capital stock		90,416		89,849
Retained earnings		61,096		70,592
Total shareholders' equity of Duluth Holdings Inc.		151,143		160,349
Noncontrolling interest		(312)		(239)
Total shareholders' equity		150,831		160,110
Total liabilities and shareholders' equity	$	418,930	$	296,759

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

DULUTH HOLDINGS INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except per share figures)

Three Months Ended

Nine Months Ended

October 28, 2018

October 29, 2017

October 28, 2018

October 29, 2017
Net sales

$
106,701

$
83,729

$
317,561

$
253,642
Cost of goods sold (excluding depreciation
  and amortization)

45,730

36,302

138,410

108,649
Gross profit

60,971

47,427

179,151

144,993
Selling, general and administrative expenses

63,534

48,039

172,075

137,467
Operating (loss) income

(2,563)

(612)

7,076

7,526
Interest expense

1,583

661

3,638

1,199
Other income, net

3

73

168

175
(Loss) income before income taxes

(4,143)

(1,200)

3,606

6,502
Income tax (benefit) expense

(1,067)

(454)

913

2,480
Net (loss) income

(3,076)

(746)

2,693

4,022
Less: Net income attributable to noncontrolling interest

74

70

157

199
Net (loss) income attributable to controlling interest

$
(3,150)

$
(816)

$
2,536

$
3,823
Basic earnings per share (Class A and Class B):

Weighted average shares of
   common stock outstanding

32,098

31,861

32,065

31,837
Net (loss) income per share attributable
   to controlling interest

$
(0.10)

$
(0.03)

$
0.08

$
0.12
Diluted earnings per share (Class A and Class B):

Weighted average shares and
   equivalents outstanding

32,098

31,861

32,402

32,297
Net (loss) income per share attributable
   to controlling interest

$
(0.10)

$
(0.03)

$
0.08

$
0.12

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~Table of Contents~~

~~DULUTH HOLDINGS INC.~~

~~Condensed Consolidated Statements of Comprehensive Income~~

~~(Unaudited)~~

~~(Amounts in thousands)~~

Three Months Ended

Nine Months Ended

October 28, 2018

October 29, 2017

October 28, 2018

October 29, 2017
Net (loss) income

$
(3,076)

$
(746)

$
2,693

$
4,022
Other comprehensive income

—

—

—

—
Comprehensive (loss) income

(3,076)

(746)

2,693

4,022
Comprehensive income attributable
to noncontrolling interest

74

70

157

199
Comprehensive (loss) income attributable
to controlling interest

$
(3,150)

$
(816)

$
2,536

$
3,823


	Three Months Ended
	May 5, 2019		April 29, 2018
Net sales	$	114,244	$	100,207
Cost of goods sold (excluding depreciation and amortization)		53,326		44,267
Gross profit		60,918		55,940
Selling, general and administrative expenses		70,609		56,197
Operating loss		(9,691)		(257)
Interest expense		841		821
Other income, net		204		163
Loss before income taxes		(10,328)		(915)
Income tax benefit		(2,683)		(232)
Net loss		(7,645)		(683)
Less: Net (loss) income attributable to noncontrolling interest		(73)		8
Net loss attributable to controlling interest	$	(7,572)	$	(691)
Basic loss per share (Class A and Class B):
Weighted average shares of common stock outstanding		32,281		32,046
Net loss per share attributable to controlling interest	$	(0.23)	$	(0.02)
Diluted loss per share (Class A and Class B):
Weighted average shares and equivalents outstanding		32,281		32,046
Net loss per share attributable to controlling interest	$	(0.23)	$	(0.02)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

DULUTH HOLDINGS INC.

Condensed Consolidated ~~Statement~~Statements of ~~Shareholders’ Equity~~Comprehensive Income

(Unaudited)

(Amounts in thousands)

Nine-Months Ended October 28, 2018

Noncontrolling

Capital stock

interest in

Total

Treasury

Retained

variable interest

shareholders'

Shares

Amount

stock

earnings

entity

equity
Balance at January 28, 2018

32,462

$
88,043

$
(57)

$
48,084

$
3,279

$
139,349
Cumulative effect from adoption of
ASC 606 (Footnote 1)

—

—

—

(648)

—

(648)
Balance at January 29, 2018

32,462

$
88,043

$
(57)

$
47,436

$
3,279

$
138,701
Issuance of common stock

106

—

—

—

—

—
Amortization of stock-based compensation

—

409

—

—

—

409
Restricted stock surrendered for taxes

(2)

—

(35)

—

—

(35)
Net (loss) income

—

—

—

(691)

8

(683)
Balance at April 29, 2018

32,566

$
88,452

$
(92)

$
46,745

$
3,287

$
138,392
Issuance of common stock

20

—

—

—

—

—
Amortization of stock-based compensation

—

449

—

—

—

449
Net income

—

—

—

6,377

75

6,452
Balance at July 29, 2018

32,586

$
88,901

$
(92)

$
53,122

$
3,362

$
145,293
Issuance of common stock

3

—

—

—

—

—
Restricted stock forfeitures

(2)

—

—

—

—

—
Amortization of stock-based compensation

—

434

—

—

—

434
Net (loss) income

—

—

—

(3,150)

74

(3,076)
Balance at October 28, 2018

32,587

$
89,335

$
(92)

$
49,972

$
3,436

$
142,651


	Three Months Ended
	May 5, 2019		April 29, 2018
Net loss	$	(7,645)	$	(683)
Other comprehensive income		—		—
Comprehensive loss		(7,645)		(683)
Comprehensive (loss) income attributable to noncontrolling interest		(73)		8
Comprehensive loss attributable to controlling interest	$	(7,572)	$	(691)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

DULUTH HOLDINGS INC.

Condensed Consolidated Statement of Shareholders’ Equity

(Unaudited)

(Amounts in thousands)

Nine-Months Ended October 29, 2017

Noncontrolling

Capital stock

interest in

Total

Treasury

Retained

variable interest

shareholders'

Shares

Amount

stock

earnings

entity

equity
Balance at January 29, 2017

32,376

$
86,446

$
—

$
24,733

$
2,609

$
113,788
Issuance of common stock

73

—

—

—

—

—
Restricted stock forfeitures

(7)

—

—

—

—

—
Amortization of stock-based compensation

—

324

—

—

—

324
Capital contributions

—

—

—

—

269

269
Net income

—

—

—

355

60

415
Balance at April 30, 2017

32,442

$
86,770

$
—

$
25,088

$
2,938

$
114,796
Issuance of common stock

29

—

—

—

—

—
Restricted stock forfeitures

(1)

—

—

—

—

—
Amortization of stock-based compensation

—

293

—

—

—

293
Capital contributions

—

—

—

—

525

525
Net income

—

—

—

4,284

69

4,353
Balance at July 30, 2017

32,470

$
87,063

$
—

$
29,372

$
3,532

$
119,967
Issuance of common stock

7

—

—

—

—

—
Restricted stock forfeitures

(13)

—

—

—

—

—
Amortization of stock-based compensation

—

569

—

—

—

569
Restricted stock surrendered for taxes

(3)

—

(57)

—

—

(57)
Distributions

—

—

—

—

(400)

(400)
Net (loss) income

—

—

—

(816)

70

(746)
Balance at October 29, 2017

32,461

$
87,632

$
(57)

$
28,556

$
3,202

$
119,333


	Three Months Ended May 5, 2019
								Noncontrolling
	Capital stock							interest in		Total
				Treasury		Retained		variable interest		shareholders'
	Shares	Amount		stock		earnings		entity		equity
Balance at February 3, 2019	32,574	$	89,849	$	(92)	$	70,592	$	(239)	$	160,110
Cumulative effect from adoption of ASC 842	—		—		—		(1,924)		—		(1,924)
Balance at February 4, 2019	32,574		89,849		(92)		68,668		(239)		158,186
Issuance of common stock	149		134		—		—		—		134
Stock-based compensation	—		433		—		—		—		433
Restricted stock forfeitures	(6)		—		—		—		—		—
Restricted stock surrendered for taxes	(15)		—		(277)		—		—		(277)
Net loss	—		—		—		(7,572)		(73)		(7,645)
Balance at May 5, 2019	32,703	$	90,416	$	(369)	$	61,096	$	(312)	$	150,831

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

DULUTH HOLDINGS INC.

Condensed Consolidated Statement of Shareholders’ Equity

(Unaudited)

(Amounts in thousands)


	Three Months Ended April 29, 2018
								Noncontrolling
	Capital stock							interest in		Total
				Treasury		Retained		variable interest		shareholders'
	Shares	Amount		stock		earnings		entity		equity
Balance at January 28, 2018	32,462	$	88,043	$	(57)	$	48,084	$	3,279	$	139,349
Cumulative effect from adoption of ASC 606	—		—		—		(648)		—		(648)
Balance at January 29, 2018	32,462	$	88,043	$	(57)	$	47,436	$	3,279	$	138,701
Issuance of common stock	106		—		—		—		—		—
Restricted stock surrendered for taxes	(2)		—		(35)		—		—		(35)
Stock-based compensation	—		409		—		—		—		409
Net (loss) income	—		—		—		(691)		8		(683)
Balance at April 29, 2018	32,566	$	88,452	$	(92)	$	46,745	$	3,287	$	138,392

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

DULUTH HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)


	Nine Months Ended				Three Months Ended

	October 28, 2018		October 29, 2017		May 5, 2019		April 29, 2018
Cash flows from operating activities:
Net income	$	2,693	$	4,022
Net loss					$	(7,645)	$	(683)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		8,187		5,104		4,392		2,309
Stock based compensation		1,305		1,186		474		409
Deferred income taxes		(150)		(60)		(302)		40
Changes in operating assets and liabilities:
Accounts receivable		(287)		(17)		(331)		22
Other receivables		(2,554)		(1,320)		(3,681)		(308)
Inventory		(44,776)		(57,020)		(6,604)		(10,363)
Prepaid expense & other current assets		(4,951)		(3,136)		2,577		(1,527)
Deferred catalog costs		(1,416)		(1,006)		2,301		(814)
Trade accounts payable		19,126		18,665		1,221		(1,441)
Income taxes payable		(7,780)		(5,225)		(218)		(421)
Accrued expenses and deferred rent obligations		7,101		3,850		(5,295)		1,790
Net cash used in operating activities		(23,502)		(34,957)		(13,111)		(10,987)
Cash flows from investing activities:
Purchases of property and equipment		(45,878)		(37,501)		(8,015)		(14,000)
Capital contributions towards build-to-suit stores						(1,788)		—
Principal receipts from available-for-sale security						28		—
Change in other assets		(439)		(6,323)		13		43
Purchases of other assets		—		(85)
Net cash used in investing activities		(46,317)		(43,909)		(9,762)		(13,957)
Cash flows from financing activities:
Proceeds from line of credit		100,982		76,476		70,172		37,464
Payments on line of credit		(35,982)		(26,375)		(47,474)		(16,214)
Proceeds from long term debt		—		800
Payments on long term debt		(60)		(34)		(119)		(19)
Payments on capital lease obligations		(4)		(14)
Payments on finance lease obligations						(37)		(1)
Change in bank overdrafts		—		2,930		—		478
Distributions to holders of noncontrolling interest in variable interest entity		—		(400)
Proceeds from finance lease obligations		941		2,358		—		266
Capital contributions to variable interest entity		—		794
Shares withheld for tax payments on vested restricted shares		(35)		(57)		(277)		(35)
Other		87		38		93		24
Net cash provided by financing activities		65,929		56,516		22,358		21,963
Decrease in cash and restricted cash		(3,890)		(22,350)		(515)		(2,981)
Cash and restricted cash at beginning of period		7,083		25,477		3,085		7,083
Cash and restricted cash at end of period	$	3,193	$	3,127	$	2,570	$	4,102
Supplemental disclosure of cash flow information:
Interest paid	$	3,362	$	947	$	986	$	737
Income taxes paid	$	10,055	$	8,950	$	2,179	$	149
Supplemental disclosure of non-cash information:
Property and equipment acquired through capital lease	$	27,711	$	—
Property and equipment acquired under build-to-suit leases	$	3,583	$	12,739	$	—	$	7,331
Unpaid liability to acquire property and equipment	$	3,001	$	4,144	$	846	$	2,507

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

A. Nature of Operations

Duluth Holdings Inc. (“Duluth Trading” or the “Company”), a Wisconsin corporation, is a lifestyle brand of men’s and women’s casual wear, workwear and accessories sold exclusively through the Company’s own direct and retail channels. The direct segment, consisting of the Company’s website and catalogs, offers products nationwide. In 2010, the Company added retail to its omni-channel platform with the opening of its first store. Since then, Duluth Trading has expanded its retail presence, and as of ~~October 28, 2018,~~May 5, 2019, the Company operated 4048 retail stores and three outlet stores. The Company’s products are marketed under the Duluth Trading brand, with the majority of products being exclusively developed and sold as Duluth Trading branded merchandise.

The Company has two classes of authorized common stock: Class A common stock and Class B common stock. The rights of holders of Class A common stock and Class B common stock are identical, except for voting and conversion rights. Each share of Class A common stock is entitled to ten votes per share and is convertible at any time into one share of Class B common stock. Each share of Class B common stock is entitled to one vote per share. The Company’s Class B common stock trades on the NASDAQ Global Select Market under the symbol “DLTH.”

B. Basis of Presentation

The condensed consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). The Company consolidates ~~Schlecht Retail Ventures~~TRI Holdings, LLC (“~~SRV”~~TRI”) as a variable interest entity (see Note 6 “Variable Interest Entity”) for further information). All intercompany balances and transactions have been eliminated.

The Company’s fiscal year ends on the Sunday nearest to January 31 of the following year. Fiscal ~~2018~~2019 is a ~~53-week~~52-week period and ends on February ~~3, 2019.~~2, 2020. Fiscal ~~2017~~2018 was a ~~52-week~~53-week period and ended on ~~January 28, 2018.~~February 3, 2019. The three ~~and nine~~ months of fiscal ~~2018~~2019 and fiscal ~~2017~~2018 represent the Company’s ~~13 and 39-week~~13-week periods ended ~~October 28,~~May 5, 2019 and April 29, 2018, ~~and October 29, 2017,~~ respectively.

The accompanying condensed consolidated financial statements as of and for the three ~~and nine~~ months ended ~~October 28,~~May 5, 2019 and April 29, 2018 ~~and October 29, 2017~~ have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations as of and for the three ~~and nine~~ months ended ~~October 28, 2018~~May 5, 2019 and ~~October~~April 29, ~~2017.~~2018. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the fiscal year ended ~~January 28, 2018.~~February 3, 2019.

C. Seasonality of Business

The Company’s business is affected by the pattern of seasonality common to most retail apparel businesses. Historically, the Company has recognized a significant portion of its revenue and operating profit in the fourth fiscal quarter of each year as a result of increased sales during the holiday season.

D. Restricted Cash ~~and Reconciliation of cash and restricted cash to the condensed statement of cash flows~~

The Company’s restricted cash is held in escrow accounts and is used to pay a portion of the construction loans entered into by third party landlords (the “Landlords”) in connection with the Company’s retail store leases. The restricted cash is disbursed based on the escrow agreements entered into by and among the Landlords, the Company and the escrow agent.

The following table provides a reconciliation of cash and restricted cash reported within the Condensed Consolidated Balance Sheet that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows.


	~~October 28, 2018~~
~~(in thousands)~~
~~Cash~~	$	~~2,500~~
~~Restricted cash~~		~~693~~
~~Total cash and restricted cash shown in the condensed consolidated statement of cash flows~~	$	~~3,193~~

~~Table of Contents~~

~~DULUTH HOLDINGS INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~E. Build-to-Suit Lease~~

The Company may at times be involved in the construction of stores to be leased by the Company and, depending on the extent to which the Company is involved, the Company may be deemed the owner of the leased premises for accounting purposes during the store construction period. For leases of property of which the Company is deemed to be the owner during the construction period, upon commencement of the construction project, the Company is required to capitalize the cash and non-cash assets contributed by the landlord for construction as property and equipment on the Company’s Condensed Consolidated Balance Sheets. Upon the completion of the construction project, the Company performs an analysis on the lease to determine if the Company qualifies for sale-leaseback treatment. For those qualifying leases, the finance lease obligation and the associated property and equipment are removed and the difference is reclassified to either prepaid or deferred rent and amortized over the lease term as an increase or decrease to rent expense. If the lease does not qualify for sale-leaseback treatment, the finance lease obligation is amortized over the lease term based on the rent payments in the lease agreement and the associated property and equipment are depreciated over the estimated useful life.

As of October 28, 2018, the Company capitalized $33.1 million in property and equipment and $0.8 million in accumulated depreciation and recorded a $17.3 million non-current liability related to build-to-suit transactions in which the Company is considered the owner for accounting purposes. As of January 28, 2018, the Company capitalized $36.5 million in property and equipment and $0.3 million in accumulated depreciation and recorded a $26.6 million non-current liability related to build-to-suit transactions in which the Company is considered the owner for accounting purposes.

F. Significant Accounting Policies

Except as disclosed below, there have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended ~~January 28, 2018.~~

~~Recently Adopted Accounting Pronouncements~~

~~On January 29, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ~~(“ASC 606”), which supersedes the revenue recognition requirements in ASC Topic 605,~~ ~~Revenue Recognition~~. ASC 606 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 also requires disclosure of the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASC 606 utilizing the modified retrospective approach, with the cumulative effect of initially applying the new standard recognized in retained earnings. As such, the comparative prior period information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of ASC 606 had the following effect beginning with the Company’s January 29, 2018 financial statements: (1) revenues on direct sales are recognized upon shipment, which is when the customer obtains control of the product and reflects the consideration the Company expects to be entitled to in exchange for the product; (2) catalog costs are expensed upon receipt by customers; and (3) the estimated cost of inventory associated with sales returns reserve is presented within prepaid expense and other current assets rather than netted in product returns reserve within accrued expenses and other current liabilities on the condensed consolidated balance sheets. The adoption of ASC 606 did not have a material impact on the Company’s condensed consolidated financial statements.

~~On January 29, 2018, the Company adopted ASU No. 2016-08,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ (“ASC 230”), which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. As a result of the adoption of ASC 230, the Company no longer discloses changes in restricted cash on the statement of cash flows and discloses a reconciliation to the total cash and restricted cash balances on the condensed consolidated balance sheets (see item D above).

~~On January 29, 2018, the Company adopted ASU No. 2016-01,~~ ~~Financial Instruments (Subtopic 825-10)~~ (“ASC 825-10”), which amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. The most significant impact relates to the accounting for equity instruments. The adoption of ASC 825-10 did not have a material impact on the Company’s condensed consolidated financial statements.February 3, 2019.

Table of Contents

DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

~~G. Reclassifications~~Recently Adopted Accounting Pronouncements

~~As discussed above~~On February 4, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”) and related amendments. ASC 842 requires lessees to (i) recognize a right-of-use asset and a lease liability that is initially measured at the present value of the remaining lease payments, on the consolidated balance sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease related cash payments within operating and financing activities.

The Company adopted ASC 842 utilizing the optional transition method, which allows guidance to be initially applied at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings. The Company elected the package of practical expedients, which allows the Company to forgo reassessing prior conclusions on lease definition, classification and initial direct costs related to existing leases as of the adoption date. The Company elected not to recognize short-term leases on the consolidated balance sheets and all non-lease components, such as common area maintenance, were excluded.

The Company’s existing lease arrangements consist of both operating leases and build-to-suit leases. Under ASC 842, the Company is still required to evaluate whether it is deemed to be the owner of the leased property for accounting purposes during the store construction period, however, the prescriptive rules under ASC 840 have been removed. The Company evaluated its existing build-to-suit leases as of the adoption date and determined that the Company is not the owner of the leased premises during the construction period, which resulted in the ~~significant accounting policies section, with~~derecognition of its build-to-suit assets and liabilities that were previously reported on the Company’s consolidated balance sheets. As of February 4, 2019, substantially all of the previous build-to-suit leases are classified as operating leases.

The impact of the adoption was a $121.8 million right-of-use asset (“ROU asset”) with an offsetting $115.5 million lease liability, which is net of ~~ASC 230,~~$4.9 million of previously recognized straight-line operating lease adjustments on existing leases and $11.2 million of unamortized initial direct costs. The lease liabilities at February 4, 2019 reflect remaining lease payments discounted using an incremental borrowing rate based on the ~~prior year cash flows from investing activities have been reclassified:~~


	~~October 29, 2017~~
~~(in thousands)~~
~~Net cash used in investing activities:~~
~~As previously reported~~	$	~~(44,643)~~
~~Reclassification based on adoption of ASC 230~~		~~734~~
~~As reclassified~~	$	~~(43,909)~~

remaining lease term (the “Discount”), as an implicit rate was not readily determinable for any of the Company’s existing leases. See Note 2 “Leases,” for further information.

2. ~~REVENUES~~LEASES

Effective ~~January 29, 2018,~~February 4, 2019, the Company adopted ASC ~~606 using~~842, which resulted in a recognition of ROU assets and lease liabilities related to leases on the ~~modified retrospective method.~~Company’s consolidated balance sheets. The ~~comparative information presented in~~Company determines if an arrangement is, or contains, a lease at inception. ROU assets represent the ~~condensed consolidated financial statements is not restated~~right to use an underlying asset for the lease term and ~~is reported under~~lease liabilities reflect the ~~accounting standards in effect for those periods presented. See Note 1 under “Significant Accounting Policies” for a discussion~~obligation to make lease payments arising from the lease. At any given time during the lease term, the lease liability represents the present value of the ~~significant changes resulting from~~remaining lease payments and the ~~adoption~~ROU asset is measured at the amount of ~~ASC 606.~~ the lease liability, adjusted for pre-paid rent, unamortized initial direct costs and the remaining balance of lease incentives received. Both the lease ROU asset and liability are reduced to zero at the end of the lease.

The ~~Company’s revenue primarily consists~~Company leases retail space under non-cancelable lease agreements, which expire on various dates through 2036. Substantially all of ~~the sale~~these arrangements are store leases. Store leases generally have initial lease terms ranging from five to fifteen years with renewal options and rent escalation provisions. The Company does not record leases with a lease term of ~~apparel, footwear and hard goods. For~~12 months or less on the Company’s ~~direct segment, revenues are recognized upon shipment, which is when~~consolidated balance sheets.

When calculating the ~~customer obtains control of~~lease liability on a discounted basis, the product and has the ability to direct the use of the product, including, among other options, the ability to redirect the product to a different shipping destination. For the Company’s retail segment, revenues are recognized at the point of sale.Company applies its estimated Discount. The Company ~~provides the customer the right of return~~bases this Discount on ~~the product and revenue is adjusted based on an estimate of the expected returns based on historical rates~~a collateralized interest rate as well as ~~events~~publicly available data for instruments with similar characteristics.

In addition to rent payments, leases for retail space contain payments for real estate taxes, insurance costs, common area maintenance, and utilities that ~~may cause changes to historical rates.~~are not fixed. The Company ~~considers the sale of products in either the direct or retail segment~~accounts for these costs as variable payments and does not include such costs as a single performance obligation. Shipping and processing revenue generated from customer orders are included as a component of net sales and shipping and processing expense, including handling expense, is included as a component of selling, general and administrative expenses. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses.lease component.

The Company’s contract liabilities primarily consist of gift card liabilities and are recorded in accrued expenses and other current liabilities under deferred revenue (see Note 4 “Accrued Expenses and Other Current Liabilities”) on the Company’s condensed consolidated balance sheets. Upon the issuance of a gift card, a liability is established for its cash value. The gift card liability is relieved and revenues on gift cards are recorded at the time of redemption by the customer. Based on historical redemption patterns, gift cards are generally redeemed within one year and gift card breakage is not material.

~~The following table presents the impact of the adoption of ASC 606 on the Company’s condensed consolidated balance sheets as of January 29, 2018, the first day of fiscal 2018:~~

January 28, 2018

Adjustments due to ASC 606

January 29, 2018
(in thousands)

Inventory, net

$
89,548

$
(629)

$
88,919
Prepaid expenses & other current assets

7,642

1,073

8,715
Deferred catalog costs

1,446

(1,365)

81
Total current assets

101,826

(921)

100,905
Total assets

223,102

(921)

222,181

Accrued expenses and other current liabilities

25,261

(45)

25,216
Income taxes payable

7,631

149

7,780
Total current liabilities

50,296

104

50,400
Deferred tax liabilities

2,100

(377)

1,723
Total liabilities

83,753

(273)

83,480
Total shareholders' equity

139,349

(648)

138,701
Total liabilities and shareholders' equity

223,102

(921)

222,181

Table of Contents

DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

The ~~following tables present the effects~~expense components of the ~~adoption of ASC 606~~Company’s leases reflected on the Company’s ~~condensed~~ consolidated ~~balance sheets as of October 28, 2018 and the Company’s condensed consolidated statements~~statement of operations ~~for the three and nine months ended October 28, 2018:~~were as follows:

October 28, 2018

As Reported

Adjustments due to ASC 606

Balances without Adoption of ASC 606
(in thousands)

Inventory, net

$
131,448

$
1,998

$
133,446
Prepaid expenses & other current assets

11,975

(396)

11,579
Deferred catalog costs

1,137

91

1,228
Total current assets

150,226

1,693

151,919
Total assets

324,517

1,693

326,210

Accrued expenses and other current liabilities

30,715

3,501

34,216
Total current liabilities

65,160

3,501

68,661
Deferred tax liabilities

1,573

(470)

1,103
Total liabilities

181,866

3,031

184,897
Total shareholders' equity

142,651

(1,338)

141,313
Total liabilities and shareholders' equity

324,517

1,693

326,210


			Three Months Ended
	Consolidated Statement of Operations		May 5, 2019
(in thousands)
Finance lease
Amortization of right-of-use assets	Selling, general and administrative expenses	$	78
Interest on lease liabilities	Interest expense		59
Total finance lease expense		$	137
Operating lease expense	Selling, general and administrative expenses	$	3,678
Amortization of build-to-suit leases capital contribution	Selling, general and administrative expenses		214
Variable lease expense	Selling, general and administrative expenses		1,612
Total lease expense		$	5,641

Other information related to leases were as follows:

October 28, 2018

Three Months Ended

Nine Months Ended

As Reported

Adjustments due to ASC 606

Balances without Adoption of ASC 606

As Reported

Adjustments due to ASC 606

Balances without Adoption of ASC 606
(in thousands)

Net sales

$
106,701

$
(2,097)

$
104,604

$
317,561

$
(3,711)

$
313,850
Cost of goods sold (excluding depreciation
  and amortization)

45,730

(1,212)

44,518

138,410

(2,117)

136,293
Gross profit

60,971

(885)

60,086

179,151

(1,594)

177,557
Selling, general and administrative expenses

63,534

(139)

63,395

172,075

1,090

173,165
Operating (loss) income

(2,563)

(746)

(3,309)

7,076

(2,684)

4,392
Interest expense

1,583

—

1,583

3,638

—

3,638
Other income, net

3

—

3

168

—

168
(Loss) income before income taxes

(4,143)

(746)

(4,889)

3,606

(2,684)

922
Income tax (benefit) expense

(1,067)

(194)

(1,261)

913

(698)

215
Net (loss) income

(3,076)

(552)

(3,628)

2,693

(1,986)

707
Less: Net income attributable
  to noncontrolling interest

74

—

74

157

—

157
Net (loss) income attributable
  to controlling interest

$
(3,150)

$
(552)

$
(3,702)

$
2,536

$
(1,986)

$
550


			Three Months Ended
			May 5, 2019
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases			40
Operating cash flows from finance leases			59
Operating cash flows from operating leases			3,408

Right-of-use assets obtained in exchange for lease liabilities:
Finance leases			3,985
Operating leases			24,992

Weighted-average remaining lease term (in years):
Finance leases			16
Operating leases			11

Weighted-average discount rate:
Finance leases			4.5%
Operating leases			4.3%

Future minimum lease payments under the non-cancellable leases are as follows as of May 5, 2019:


Fiscal year		Finance		Operating
(in thousands)
2019 (remainder of fiscal year)	$	533	$	11,446
2020		710		15,015
2021		710		14,169
2022		710		14,295
2023		732		14,461
Thereafter		9,450		95,321
Total future minimum lease payments	$	12,845	$	164,707
Less – Discount		3,860		36,129
Lease liability	$	8,985	$	128,578

Table of Contents

DULUTH HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)

Prior to the adoption of ASC 842, the minimum lease payments under non-cancellable operating leases were as follows as of February 3, 2019:


	Operating Leases
	Related
Fiscal year	party		Other		Total
(in thousands)
2019	$	147	$	15,598	$	15,745
2020		144		16,013		16,157
2021		147		15,327		15,474
2022		149		15,444		15,593
2023		136		15,648		15,784
Thereafter		—		112,098		112,098
Total future minimum lease payments	$	723	$	190,128	$	190,851

3. DEBT AND LINE OF CREDIT

Debt consists of the following:


	October 28, 2018		January 28, 2018		May 5, 2019		February 3, 2019
(in thousands)
SRV Mortgage Term A Note	$	660	$	690
SRV Mortgage Term B Note		753		783
TRI Senior Secured Note					$	26,586	$	26,705
TRI Note						3,500		3,500
Capital lease obligations						—		32
	$	1,413	$	1,473	$	30,086	$	30,237
Less: current maturities		80		80		510		500
Long-term debt	$	1,333	$	1,393	$	29,576	$	29,737

Line of credit	$	65,000	$	—	$	39,240	$	16,542

~~SRV~~TRI entered into a ~~mortgage~~senior secured note (“~~SRV Term A~~TRI Senior Secured Note”) with an original balance of ~~$0.8~~$26.7 million. The ~~SRV Term A~~TRI Senior Secured Note ~~was~~is scheduled to mature on October 15, 2038 and requires installment payments with an interest rate of 4.95%. See Note 6 “Variable Interest Entities” for further information.

TRI entered into a promissory note (“TRI Note”) with an original balance of $3.5 million. The TRI Note is scheduled to mature in ~~September 2017~~November 2038 and ~~required monthly~~requires annual interest payments at a rate of ~~$3,300 plus interest at 3.1%~~3.05%, with a final balloon payment due in September 2017. On July 20, 2017, SRV refinanced the SRV Term A Note, which extended the maturity date to September 2022, with a final balloon payment in September 2022, and changed the interest rate to 3.69%. The required monthly payments of $3,300 did not change.

On July 20, 2017, SRV entered into a mortgage note (“SRV Term B Note”) with an original balance of $0.8 million. The SRV Term B Note matures in September 2022 and requires monthly payments of $3,300 plus interest at 3.69%, with a final balloon payment in September 2022.

~~The SRV Term A Note and SRV Term B Note are guaranteed by the Company’s majority shareholder and collateralized by certain real property owned by SRV in Mt. Horeb, Wisconsin.~~November 2038.

On ~~September 29, 2017,~~May 17, 2018, the Company 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, the Company 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 bore 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 was secured by essentially all Company assets and required the Company to 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, the Company terminated its Amended and Restated Agreement and entered into a new~~ credit agreement (the “Credit Agreement”) which provides for borrowing availability of up to $80.0 million in revolving credit (the “Revolver”), and borrowing availability of up to $50.0 million in a delayed draw term loan (“DDTL”), for a total credit facility of $130.0 million. The $80.0 million revolving credit matures on May 17, 2023. The $50.0 million DDTL is available to draw upon in differing amounts through May 17, 2020, and matures on May 17, 2023. ~~The outstanding balance of $27.5 million under the Amended and Restated Agreement was paid off with borrowings under the Credit Agreement.~~ The Credit Agreement is secured by essentially all Company assets and requires the Company to maintain compliance with certain financial and non-financial covenants, including a maximum rent adjusted leverage ratio and a minimum fixed charge coverage ratio as defined in the Credit Agreement. At the Company’s option, the interest rate applicable to the Revolver or DDTL will be a floating rate equal to: (i) the base rate plus a margin of 25 to 100 basis points (“bps”), based upon the Company’s rent adjusted leverage ratio, or (ii) a fixed rate for a one-, two-, three- or six-month interest period equal to LIBOR for such interest period plus a margin of 125 to 200 bps, based upon the Company’s rent adjusted leverage ratio (effective rate of ~~3.8%~~4.0% at ~~October 28, 2018)~~May 5, 2019). In addition, outstanding balances under the DDTL require quarterly principal payments with a final balloon payment at maturity.

~~As of October 28, 2018 and for the nine months then ended, the Company was in compliance with all financial and non-financial covenants for all debts discussed above.~~

As of May 5, 2019 and for the three months then ended, the Company was in compliance with all financial and non-financial covenants for all debts discussed above.

ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., an exit price). The exit price is based on the amount that the holder of the asset or liability would receive or need to pay in an actual transaction (or in a hypothetical transaction if an actual transaction does not exist) at the measurement date. ASC 820 describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last unobservable, as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of the Company’s available-for-sale security was valued based on a discounted cash flow method (Level 3), which incorporates the U.S. Treasury yield curve, credit information and an estimate of future cash flows. As of May 5, 2019, the carrying value of the Company’s available-for-sale security approximates its fair value.

The ~~carrying value of the Company’s available-for-sale security was valued based on a discounted cash flow method (Level 3).~~

~~The~~ following table presents future principal receipts related to the Company’s available-for-sale security by contractual maturity as of ~~October 28, 2018.~~May 5, 2019. Cost and estimated fair value are equal.

Based upon the criteria set forth in ASC 810, Consolidation, the Company has determined that it was the primary beneficiary of one variable interest entity (“VIE”) as of ~~October 28, 2018~~May 5, 2019 and ~~January 28, 2018,~~February 3, 2019, as the Company absorbs significant economics of the entity and has the power to direct the activities that are considered most significant to the entity.

The Company leases ~~certain retail store facilities and office buildings~~the Company’s headquarters in Mt. Horeb, Wisconsin from ~~SRV,~~TRI. In conjunction with the lease, the Company invested $6.3 million in a ~~VIE~~trust (see Note 5 “Investment” for further information) that loaned funds to TRI for the construction of the Company’s headquarters. TRI is a Wisconsin limited liability company whose primary purpose and activity is to own this real property. ~~SRV is a Wisconsin limited liability company that is owned by the majority shareholder of the Company.~~ The Company considers itself the primary beneficiary for ~~SRV~~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 ~~a majority of SRV’s expected residual returns based on the activity of SRV.~~benefits that are significant to TRI. As the Company is the primary beneficiary, it consolidates ~~SRV~~TRI and the ~~leases are~~lease is eliminated in consolidation. The Company does not consolidate the trust as the Company is not the primary beneficiary.

The condensed consolidated balance sheets include the following amounts as a result of the consolidation of ~~SRV~~TRI as of ~~October 28, 2018~~May 5, 2019 and ~~January 28, 2018:~~February 3, 2019:

On August 18, 2017, the Company entered into a lease agreement with TRI Holdings, LLC (“TRI”), the developer of the Company’s headquarters in Mt. Horeb, Wisconsin. The Company took occupancy of the newly constructed headquarters on October 15, 2018. The Company’s headquarters lease is recorded as a capitalized lease on the Company’s Condensed Consolidated Balance Sheets. In conjunction with the lease, the Company invested $6.3 million in a trust (see Note 5 “Investment”) that loaned funds to TRI for the construction of the Company’s future headquarters.

Earnings (loss) per share is computed under the provisions of ASC 260, Earnings Per Share. Basic earnings (loss) per share is based on the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is based on the weighted average number of common shares plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding restricted stock. The reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share calculation is as follows:

The computation of ~~dilutive~~diluted earnings (loss) per share for the three months ended ~~October 28,~~May 5, 2019 and April 29, 2018, ~~and October 29, 2017,~~ excluded 0.3 million and 0.4 million shares of unvested restricted stock, respectively, because their inclusion would be anti-dilutive due to a net loss.

The Company accounts for its stock-based compensation plan in accordance with ASC 718, Stock Compensation, which requires the Company to measure all share-based payments at grant date fair value and recognize the cost over the requisite service period of the award.

Total stock compensation expense associated with restricted stock recognized by the Company was $0.4 million ~~and $1.3 million~~ for the three ~~and nine~~ months ended ~~October 28, 2018, respectively,~~May 5, 2019 and ~~$0.6 million and $1.2 million for the three and nine months ended October~~April 29, ~~2017, respectively.~~2018. The Company’s total stock compensation expense is included in selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.

A summary of the activity in the Company’s unvested restricted stock during the ~~nine~~three months ended ~~October 28, 2018~~May 5, 2019 is as follows:

At ~~October 28, 2018,~~May 5, 2019, the Company had unrecognized compensation expense of ~~$3.2~~$4.5 million related to the restricted stock awards, which is expected to be recognized over a weighted average period of ~~2.3~~3.0 years.

The Company has two operating segments, which are also its reportable segments: direct and retail. The direct segment includes net sales from the Company’s website and catalogs. The retail segment includes net sales from the Company’s retail and outlet stores. These two operating segments are components of the Company for which separate financial information is available and for which operating results are evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources and in assessing performance of the segments.

Income tax expense, and corporate expenses, which include but are not limited to: human resources, legal, finance, information technology, design and other corporate-related expenses are included in the Company’s direct segment. Interest expense, depreciation and amortization, and property and equipment expenditures, are recognized in each segment. Advertising expenses are generally included in the Company’s direct segment, except for specific store advertising, which is included in the Company’s retail segment.

Net sales outside of the United States were insignificant. Variable allocations of assets are not made for segment reporting. The Company does not have any assets outside of the United States.

The provision for income taxes for the interim period is based on an estimate of the annual effective tax rate adjusted to reflect the impact of discrete items. Management judgment is required in projecting ordinary income to estimate the Company’s annual effective tax rate. The effective tax rate related to controlling interest was ~~25%~~26% and ~~27%~~25% for the three ~~and nine~~ months ended ~~October 28,~~May 5, 2019 and April 29, 2018, ~~respectively and 36% and 39% for the three and nine months ended October 29, 2017,~~ respectively. ~~The decrease in the Company’s effective tax rate was primarily due to U.S. tax reform, which was effective January 1, 2018.~~ The income from ~~SRV~~TRI was excluded from the calculation of the Company’s effective tax rate, as ~~SRV~~TRI is a limited liability company and not subject to income taxes.

During the three months ended May 5, 2019, there have been no new recent accounting pronouncements that are of significance, or potential significance, to the Company.

The Company has evaluated subsequent events through the date which these condensed consolidated financial statements were available to be issued and has determined that it does not have any material subsequent events to disclose in these condensed consolidated financial statements.

~~Table of Contents~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the financial statements and related notes of Duluth Holdings Inc. included in Item 1of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended ~~January 28,~~ February 3, 2019 (“2018 ~~(“2017~~ Form 10-K”).

The three ~~and nine~~ months of fiscal ~~2018~~2019 and fiscal ~~2017~~2018 represent our ~~13 and 39-week~~13-week periods ended ~~October 28,~~May 5, 2019 and April 29, 2018, ~~and October 29, 2017,~~ respectively.

Unless the context indicates otherwise, the terms the “Company,” “Duluth,” “Duluth Trading,” “we,” “our,” or “us” are used to refer to Duluth Holdings Inc.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. All statements other than statements of historical or current facts included in this Quarterly Report on Form 10-Q are forward-looking statements. Forward looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “could,” “estimate,” “expect,” “project,” “plan,” “potential,” “intend,” “believe,” “may,” “might,” “will,” “objective,” “should,” “would,” “can have,” “likely,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenue, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described under Part I, Item 1A “Risk Factors,” in our ~~2017~~2018 Form 10-K and other SEC filings, which factors are incorporated by reference herein. These risks and uncertainties include, but are not limited to, the following: our ability to maintain and enhance a strong brand image; our ability to successfully open new stores; effectively adapting to new challenges associated with our expansion into new geographic markets; generating adequate cash from our existing stores to support our growth; the inability to maintain the performance of a maturing store portfolio; the impact of changes in corporate tax regulations; identifying and responding to new and changing customer preferences; the success of the locations in which our stores are located; our ability to attract and retain customers in the various retail venues and locations in which our stores are located; competing effectively in an environment of intense competition; our ability to adapt to significant changes in sales due to the seasonality of our business; price reductions or inventory shortages resulting from failure to purchase the appropriate amount of inventory in advance of the season in which it will be sold; increases in costs of fuel or other energy, transportation or utility costs and in the costs of labor and employment; failure of our information technology systems to support our current and growing business, before and after our planned upgrades; and other factors that may be disclose in our SEC filings or otherwise. Moreover, we operate in an evolving environment, new risk factors and uncertainties emerge from time to time and it is not possible for management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements.

We undertake no obligation to update or revise these forward-looking statements, except as required under the federal securities laws.

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 represented ~~56.1%~~57.5% and ~~58.8%~~66.1% of our consolidated net sales for the three ~~and nine~~ months ended ~~October 28,~~May 5, 2019 and April 29, 2018, ~~respectively, and 64.7% and 69.2% of our consolidated net sales for the three and nine months ended October 29, 2017,~~ respectively. In 2010, we added retail to our omni-channel platform with the opening of our first store. Since then, we have expanded our retail presence, and as of ~~October 28, 2018,~~May 5, 2019, we operated 4048 retail stores and three outlet stores. Net sales for our retail segment represented ~~43.9%~~42.5% and ~~41.2%~~33.9% of our consolidated net sales for the three ~~and nine~~ months ended ~~October 28,~~May 5, 2019 and April 29, 2018, ~~and 35.3% and 30.8% of consolidated net sales for the three and nine months ended October 29, 2017,~~ respectively.

We offer a comprehensive line of innovative, durable and functional products, 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.

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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 3537 consecutive quarters through ~~October 28, 2018;~~May 5, 2019;

Net sales in fiscal ~~2018 third~~2019 first quarter increased by ~~27.4%~~14.0% over the prior year ~~third~~first quarter to ~~$106.7 million and net sales in the first nine months of fiscal 2018 increased by 25.2% over the first nine months of the prior year to $317.6~~$114.2 million;

Net loss of ~~$3.2~~$7.6 million in fiscal ~~2018 third~~2019 first quarter compared to the prior year ~~third~~first quarter net loss of ~~$0.8 million and net income in the first nine months of fiscal 2018 decreased by 33.7% over the first nine months of the prior year to $2.5~~$0.7 million;

Adjusted EBITDA of $(4.4) million in fiscal ~~2018 third~~2019 first quarter ~~decreased by 45.8% over~~compared to the prior year ~~third~~first quarter ~~to $1.0 million and adjusted~~Adjusted EBITDA ~~in the first nine months~~ of ~~fiscal 2018 increased by 19.6% over the first nine months of the prior year to $16.7~~$2.6 million;

We opened ~~four~~five new stores in fiscal ~~2018 third~~2019 first quarter, ~~and 12 new stores in the first nine months of fiscal 2018,~~ adding approximately ~~211,000~~78,000 of gross square ~~footage in fiscal 2018;~~footage; and

Our retail stores have achieved and are expected to continue to achieve an average payback of less than two years.

See “Reconciliation of Net Income to 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.

Our business is seasonal, and as a result, our net sales fluctuate from quarter to quarter, which often affects the comparability of our results between quarters. Net sales are historically higher in the fourth quarter of our fiscal year due to the holiday selling season.

We are pursuing several strategies to continue our growth, including building brand awareness to continue customer acquisition, ~~accelerating~~continuing 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 shipment of the product and retail sales are recognized at the point of sale. We also use net sales as one of the key financial metrics 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; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost and net realizable reserves; inbound freight; and freight from our distribution centers to our retail stores. The primary drivers of the costs of individual goods are raw material costs. Depreciation and amortization are excluded from gross profit. 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 trend is expected 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.

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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, rent/occupancy and payroll costs. 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.

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Results of Operations

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


	Three Months Ended						Nine Months Ended						Three Months Ended
	October 28, 2018			October 29, 2017			October 28, 2018			October 29, 2017			May 5, 2019			April 29, 2018
(in thousands)
Direct net sales	$	59,827		$	54,146		$	186,872		$	175,588		$	65,701		$	66,212
Retail net sales		46,874			29,583			130,689			78,054			48,543			33,995
Net sales		106,701			83,729			317,561			253,642			114,244			100,207
Cost of goods sold (excluding depreciation and amortization)		45,730			36,302			138,410			108,649			53,326			44,267
Gross profit		60,971			47,427			179,151			144,993			60,918			55,940
Selling, general and administrative expenses		63,534			48,039			172,075			137,467			70,609			56,197
Operating (loss) income		(2,563)			(612)			7,076			7,526
Operating loss														(9,691)			(257)
Interest expense		1,583			661			3,638			1,199			841			821
Other income, net		3			73			168			175			204			163
(Loss) income before income taxes		(4,143)			(1,200)			3,606			6,502
Income tax (benefit) expense		(1,067)			(454)			913			2,480
Net (loss) income		(3,076)			(746)			2,693			4,022
Less: Net income attributable to noncontrolling interest		74			70			157			199
Net (loss) income attributable to controlling interest	$	(3,150)		$	(816)		$	2,536		$	3,823
Loss before income taxes														(10,328)			(915)
Income tax benefit														(2,683)			(232)
Net loss														(7,645)			(683)
Less: Net (loss) income attributable to noncontrolling interest														(73)			8
Net loss attributable to controlling interest													$	(7,572)		$	(691)
Percentage of Net sales:
Direct net sales		56.1	%		64.7	%		58.8	%		69.2	%		57.5	%		66.1	%
Retail net sales		43.9	%		35.3	%		41.2	%		30.8	%		42.5	%		33.9	%
Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold (excluding depreciation and amortization)		42.9	%		43.4	%		43.6	%		42.8	%		46.7	%		44.2	%
Gross profit		57.1	%		56.6	%		56.4	%		57.2	%		53.3	%		55.8	%
Selling, general and administrative expenses		59.5	%		57.4	%		54.2	%		54.2	%		61.8	%		56.1	%
Operating (loss) income		(2.4)	%		(0.7)	%		2.2	%		3.0	%
Operating loss														(8.5)	%		(0.3)	%
Interest expense		1.5	%		0.8	%		1.1	%		0.5	%		0.7	%		0.8	%
Other income, net		0.0	%		0.1	%		0.1	%		0.1	%		0.2	%		0.2	%
(Loss) income before income taxes		(3.9)	%		(1.4)	%		1.1	%		2.6	%
Income tax (benefit) expense		(1.0)	%		(0.5)	%		0.3	%		1.0	%
Net (loss) income		(2.9)	%		(0.9)	%		0.8	%		1.6	%
Less: Net income attributable to noncontrolling interest		0.1	%		0.1	%		0.0	%		0.1	%
Net (loss) income attributable to controlling interest		(3.0)	%		(1.0)	%		0.8	%		1.5	%
Loss before income taxes														(9.0)	%		(0.9)	%
Income tax benefit														(2.3)	%		(0.2)	%
Net loss														(6.7)	%		(0.7)	%
Less: Net (loss) income attributable to noncontrolling interest														(0.1)	%		-	%
Net loss attributable to controlling interest														(6.6)	%		(0.7)	%

Three Months Ended ~~October 28, 2018~~May 5, 2019 Compared to Three Months Ended ~~October~~April 29, ~~2017~~2018

Net sales increased ~~$23.0~~$14.0 million, or ~~27.4%~~14.0%, to ~~$106.7~~$114.2 million in the three months ended ~~October 28, 2018~~May 5, 2019 compared to ~~$83.7~~$100.2 million in the three months ended ~~October~~April 29, ~~2017,~~2018, driven by ~~gains~~an increase in ~~both direct and~~the retail ~~segments~~segment of ~~$5.7~~$14.5 million, or ~~10.5%~~42.8%, ~~and $17.3~~partially offset by a decrease in the direct segment of $0.5 million, or ~~58.4%~~0.8%, ~~respectively,~~ with gains across virtually all product categories and in both ~~the~~our men’s and women’s ~~businesses.~~business. The decrease in the direct segment net sales has continued into the first five weeks of the second quarter. Our website visits increased ~~26%~~14% in the three months ended ~~October 28, 2018~~May 5, 2019 compared to the three months ended ~~October~~April 29, ~~2017.~~2018. The increase in retail net sales was ~~primarily due to having 43~~driven by new stores ~~in the three months ended October 28, 2018~~with 51 stores as of May 5, 2019 compared to 2633 stores ~~in the three months ended October~~as of April 29, ~~2017.~~2018, partially offset by existing stores.

Gross profit increased ~~$13.5~~$5.0 million, or ~~28.6%~~8.9%, to ~~$61.0~~$60.9 million in the three months ended ~~October 28, 2018~~May 5, 2019 compared to ~~$47.4~~$55.9 million in the three months ended ~~October~~April 29, ~~2017.~~2018. As a percentage of net sales, gross margin ~~increased 50~~decreased 250 basis points to ~~57.1%~~53.3% of net sales in the three months ended ~~October 28, 2018,~~May 5, 2019, compared to ~~56.6%~~55.8% of net sales in the three months ended ~~October~~April 29, ~~2017.~~2018. The ~~increase~~decrease in gross margin rate was primarily attributable to ~~an increase~~a decrease in product ~~margin, partially offset by~~margins due to product mix on recent clearance activity, coupled with a ~~decline~~slight decrease in shipping revenues.

Selling, general and administrative expenses increased ~~$15.5~~$14.4 million, or ~~32.3%~~25.6%, to ~~$63.5~~$70.6 million in the three months ended ~~October 28, 2018~~May 5, 2019 compared to ~~$48.0~~$56.2 million in the three months ended ~~October~~April 29, ~~2017.~~2018. Selling, general and administrative expenses as a percentage of net sales increased ~~210~~570 basis points to ~~59.5%~~61.8% in the three months ended ~~October 28, 2018,~~May 5, 2019, compared to ~~57.4%~~56.1% in the three months ended ~~October~~April 29, ~~2017.~~2018. The increase in selling, general and administrative expenses was attributable to an increase of ~~$4.9~~$2.5 million in advertising and marketing costs, ~~$4.4~~$2.9 million in selling expenses and ~~$6.2~~$9.0 million in general and administrative expenses.

As a percentage of net sales, advertising and marketing costs ~~increased 20~~decreased 50 basis points to ~~20.4%~~21.1% in the three months ended ~~October 28, 2018,~~May 5, 2019, compared to ~~20.2%~~21.6% in the three months ended ~~October~~April 29, ~~2017.~~2018. The 2050 basis point ~~increase~~decrease in advertising and marketing costs as a percentage of net sales was primarily attributable to ~~an increase~~advertising leverage gained from a higher mix of 140 basis point in television advertising due to an earlier start in Women’s television advertising as compared to the prior year quarter, offset by a decrease of 140 basis points in catalog costs due to a planned decrease in catalog spend as a percentage of netretail sales.

As a percentage of net sales, selling expenses increased 7050 basis points to ~~16.5%~~16.6% in the three months ended ~~October 28, 2018,~~May 5, 2019, compared to ~~15.8%~~16.1% in the three months ended ~~October~~April 29, ~~2017,~~2018, primarily due to an increase in customer service due to our growth in retail, partially offset by a decrease in shipping expenses due to leverage from an increase in the proportion of retail net sales.

As a percentage of net sales, general and administrative expenses increased ~~120~~570 basis points to ~~22.6%~~24.1% in the three months ended ~~October 28, 2018,~~May 5, 2019, compared to ~~21.4%~~18.4% in the three months ended ~~October~~April 29, ~~2017.~~2018. The ~~120~~570 basis point increase was primarily attributable to an increase in ~~information~~occupancy and equipment cost due to growth in the number of retail stores, an increase in depreciation expense due to investments in technology ~~support~~ and ~~outside services,~~corporate facilities, and an increase in ~~depreciation as a result of more stores.~~

~~Corporate expenses are included~~personnel cost due to an increase in ~~our direct segment and~~headcount to support 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 portiongrowth of the ~~lease expense is included in interest expense.~~business.

Income tax benefit was ~~$8.4 million in the three months ended October 28, 2018 compared to~~ $2.7 million in the three months ended ~~October 29, 2017. Direct segment operating loss as a percentage of direct net sales decreased 890 basis points to (14.0)% in the three months ended October 28, 2018~~May 5, 2019, compared to (5.1)% in the three months ended October 29, 2017. The 890 basis point decreased was primarily due to an increase of 100 basis points in direct gross margins, coupled with an increase in selling expenses of 200 basis points due to increased distribution costs, an increase of 330 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, and an increase of 460 basis points in advertising and marketing costs primarily due to an increase in television advertising as discussed above.

~~Retail segment operating income increased $3.7 million to $5.8~~$0.2 million in the three months ended ~~October 28,~~April 29, 2018. Our effective tax rate related to controlling interest was 26% and 25% for the three months ended May 5, 2019, and April 29, 2018, ~~compared to $2.1~~respectively.

Net loss was $7.6 million, in the three months ended October 29, 2017. Retail segment operating income as a percentage of retail net sales increased 520 basis points to 12.4% in the three months ended October 28, 2018 compared to 7.2% in the three months ended October 29, 2017. The 520 basis point increase was due to a decrease of 530 basis points in selling, general and administrative expenses due to leverage gained from higher retail net sales offset by a decrease of 10 basis points in retail gross margins

~~Interest expense was $1.6 million in the three months ended October 28, 2018,~~May 5, 2019 compared to $0.7 million in the three months ended ~~October~~April 29, 2017. The increase in interest expense was primarily attributable to the addition of our headquarters building, coupled with a higher outstanding debt balance during the quarter as compared to the prior year.

~~Income tax benefit was $1.1 million in the three months ended October 28,~~ 2018, compared to $0.5 million in the three months ended October 29, 2017. Our effective tax rate related to controlling interest was 25% for the three months ended October 28, 2018, compared to 36% for the three months ended October 29, 2017, respectively. The decrease in our effective tax rate was primarily due to the U.S. tax reform, which was effective January 1, 2018.

~~Net loss was $3.2 million, in the three months ended October 28, 2018 compared to $0.8 million in the three months ended October 29, 2017, primarily due to the factors discussed above.~~

~~Nine Months Ended October 28, 2018 Compared to Nine Months Ended October 29, 2017~~

Net sales increased $63.9 million, or 25.2%, to $317.6 million in the nine months ended October 28, 2018 compared to $253.6 million in the nine months ended October 29, 2017, driven by gains in both direct and retail segments of $11.3 million, or 6.4%, and $52.6 million, or 67.4%, respectively, with gains across virtually all product categories and in both the men’s and women’s businesses. Our website visits increased 18% in the nine months ended October 28, 2018 compared to the nine months ended October 29, 2017. The increase in retail net sales was primarily attributable to the same factors discussed above for the three months ended October 28, 2018 compared to the three months ended October 29, 2017.

Gross profit increased $34.2 million, or 23.6%, to $179.2 million in the nine months ended October 28, 2018 compared to $145.0 million in the nine months ended October 29, 2017. As a percentage of net sales, gross margin decreased 80 basis points to 56.4% of net sales in the nine months ended October 28, 2018, compared to 57.2% of net sales in the nine months ended October 29, 2017. The decrease in gross margin rate was primarily attributable to the continued decline in shipping revenue and an increase in freight cost related to transporting inventory to our retail stores due to geographic expansion.

Selling, general and administrative expenses increased $34.6 million, or 25.2%, to $172.1 million in the nine months ended October 28, 2018 compared to $137.5 million in the nine months ended October 29, 2017. Selling, general and administrative expenses as a percentage of net sales remained flat at 54.2% in both the nine months ended October 28, 2018 and the nine months ended October 29, 2017. Within selling, general and administrative there was an increase of $6.3 million in advertising and marketing costs, $12.4 million in selling expenses and $15.9 million in general and administrative expenses.

As a percentage of net sales, advertising and marketing costs decreased 220 basis points to 18.7% in the nine months ended October 28, 2018, compared to 20.9% in the nine months ended October 29, 2017. The 220 basis point decrease in advertising and marketing costs as a percentage of net sales was primarily attributable to a decrease of 200 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 sales as compared to the nine months ended October 29, 2017.

As a percentage of net sales, selling expenses increased 90 basis points to 15.7% in the nine months ended October 28, 2018, compared to 14.8% in the nine months ended October 29, 2017, primarily due to an increase in customer service due to our growth in retail, partially offset by a decrease 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 130 basis points to 19.8% in the nine months ended October 28, 2018, compared to 18.5% in the nine months ended October 29, 2017. The 130 basis point increase was primarily attributable to the same factors discussed above for the three months ended October 28, 2018 compared to the three months ended October 29, 2017.

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 $9.4 million in the nine months ended October 28, 2018 compared to operating income of $0.2 million in the nine months ended October 29, 2017. Direct segment (loss) income as a percentage of direct net sales decreased 510 basis points to (5.0)% in the nine months ended October 28, 2018 compared to 0.1% in the nine months ended October 29, 2017. The 510 basis point decline was primarily due to a decline of 70 basis points in direct gross margins, coupled with an increase in selling, general and administrative expenses of 440 basis points was primarily attributable to the same factors discussed nine months ended October 28, 2018 compared to the nine months ended October 29, 2017.

Retail segment operating income increased $9.1 million to $16.4 million in the nine months ended October 28, 2018 compared to $7.3 million in nine months ended October 29, 2017. Retail segment operating income as a percentage of retail net sales increased 330 basis points to 12.6% in the nine months ended October 28, 2018 compared to 9.3% in the nine months ended October 29, 2017. The 330 basis point increase was primarily due to a decrease in selling, general and administrative expenses of 370 basis points attributable to the same factors discussed above for the nine months ended October 28, 2018 compared to the nine months ended October 29, 2017 offset by a decline of 40 basis points in retail gross margins.

Interest expense was $3.6 million in the nine months ended October 28, 2018, compared to $1.2 million in the nine months ended October 29, 2017. The increase in interest expense was primarily attributable to the addition of our headquarters building, an increase in our build-to-suit retail stores, and a higher outstanding debt balance during the quarter as compared to the prior year.

Income tax expense was $0.9 million in the nine months ended October 28, 2018, compared to income tax expense of $2.5 million in the nine months ended October 29, 2017. Our effective tax rate related to controlling interest was 27% for the nine months ended October 28, 2018 compared to 39%, for the nine months ended October 29, 2017, respectively.

~~Net income decreased $1.3 million, or 33.7% to $2.5 million, in the nine months ended October 28, 2018 compared to net income of $3.8 million in the nine months ended October 29, 2017,~~ primarily due to the factors discussed above.

The following table presents reconciliations of net income to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S. 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.

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA decreased ~~$0.8~~$7.0 million ~~or 45.8%,~~ to ~~$1.0~~$(4.4) million in the three months ended ~~October 28, 2018~~May 5, 2019 compared to ~~$1.9~~$2.6 million in the three months ended ~~October~~April 29, ~~2017.~~2018. As a percentage of net sales, Adjusted EBITDA decreased ~~130~~650 basis points to ~~0.9%~~(3.9)% of net sales in the three months ended ~~October 28, 2018~~May 5, 2019 compared to ~~2.2%~~2.6% of net sales in the three months ended ~~October~~April 29, ~~2017.~~

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA increased $2.7 million, or 19.6%, to $16.7 million in the nine months ended October 28, 2018 compared to $14.0 million in the nine months ended October 29, 2017. As a percentage of net sales, Adjusted EBITDA decreased 20 basis points to 5.3% of net sales in the nine months ended October 28, 2018 compared to 5.5% of net sales in the nine months ended October 29, 2017.2018.

Our business relies on cash from operating activities and a credit facility as our primary sources of liquidity. ~~Effective~~On 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. Our primary cash needs have been for inventory, marketing and advertising, payroll, store leases, 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 ~~$50.0~~$40.0 million to ~~$55.0~~$45.0 million in fiscal ~~2018~~2019 on capital expenditures, ~~net of proceeds from finance lease obligations,~~ including a total of approximately ~~$27.0~~$30.0 million to $32.0 million for new retail store expansion and remodels. We expect capital expenditures of approximately $2.0 million and starting inventory of $0.5 million to open a new store. At ~~October 28, 2018,~~May 5, 2019, our net working capital was ~~$85.1~~$63.4 million, including ~~$2.5~~$1.0 million of cash. 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.

We believe that our cash flow from operating activities and the availability of cash under our revolving line of credit will be sufficient to cover working capital requirements and anticipated capital expenditures and for funding our growth strategy for the foreseeable future.

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

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

While our cash flows from operations for the ~~nine~~three months ended ~~October 28, 2018~~May 5, 2019 is negative, primarily driven by the seasonal nature of our business, we expect cash flows from operations for the full year fiscal ~~2018~~2019 to be positive from normal operating performance and seasonal reductions in working capital during the fourth quarter of our fiscal year, which is consistent with previous full fiscal years.

For three months ended May 5, 2019, net cash used in operating activities was $13.1 million, which primarily consisted of net loss of $7.6 million, non-cash depreciation and amortization of $4.4 million and stock based compensation of $0.5 million, offset by cash used in operating assets and liabilities of $10.0 million. The cash used in operating assets and liabilities of $10.0 million primarily consisted of a $6.6 million increase in inventory, primarily due to the increase in the number of retail stores, a $5.3 million decrease in accrued expenses and deferred rent obligations and a $2.6 million increase in prepaid expense and other current assets due to the adoption of the new lease accounting standard, a $2.3 million decrease in deferred catalog

costs due to a shift in timing of early spring catalogs, and a $1.2 million increase in trade accounts payable due to timing of payments.

For ~~nine~~the three months ended ~~October 28,~~April 29, 2018, net cash used in operating activities was ~~$23.5~~$11.0 million, which primarily consisted of net ~~income~~loss of ~~$2.7~~$0.7 million, non-cash depreciation and amortization of ~~$8.2~~$2.3 million and stock based compensation of ~~$1.3~~$0.4 million, offset by cash used in operating assets and liabilities of ~~$35.5~~$13.1 million. The cash used in operating assets and liabilities of ~~$35.5~~$13.1 million primarily consisted of a $44.8 million increase in inventory, primarily due to our sales increase and inventory for the opening of new retail stores during fiscal 2018 and our peak season, which was partially offset by an increase of $19.1 in trade accounts payable primarily due to timing of payments and an increase of $7.1 in accrued expenses and deferred rent obligations.

For the nine months ended October 29, 2017, net cash used in operating activities was $35.0 million, which consisted of net income of $4.0 million, non-cash depreciation and amortization of $5.1 million and stock based compensation of $1.2 million, offset by cash used in operating assets and liabilities of $45.2 million. The cash used in operating assets and liabilities of $45.2 million primarily consisted of a $57.0$10.4 million increase in inventory, primarily due to the increase in the number of our retail stores, a $1.5 million increase in prepaid expenses and ~~building up our~~other current assets due to growth and adoption of the revenue standard as a result of the increase in estimated expected inventory ~~for the peak holiday season, which was partially offset by an increase~~returns, and a $1.4 million decrease in trade accounts payable ~~of $18.7 million~~ primarily due to timing of payments.

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

For the ~~nine~~three months ended ~~October 28, 2018,~~May 5, 2019, net cash used in investing activities was ~~$46.3~~$9.8 million and was primarily driven by capital expenditures of ~~$45.9~~$8.0 million for new retail stores and retail store build-out, as well as investments in information ~~technology.~~technology, and $1.8 million of capital contributions towards our build-to-suit stores.

For the ~~nine~~three months ended ~~October~~April 29, ~~2017,~~2018, net cash used in investing activities was ~~$43.9~~$14.0 million, ~~and~~which was also primarily driven by capital expenditures of ~~$37.5~~$14.0 million for ~~the opening of ten~~ new retail stores and retail store build-out, as well as investments in information ~~technology and a $6.3 million purchase of an available-for-sale security.~~technology.

Financing activities consist primarily of borrowings and payments related to our revolving line of credit and other long-term debts, as well as distributions to holders of the noncontrolling interest in our variable interest entity ~~Schlecht Retail Ventures~~TRI Holdings, LLC (“~~SRV”~~TRI”), proceeds from finance lease obligations and capital contributions to ~~SRV.~~TRI.

For the ~~nine~~three months ended ~~October 28,~~May 5, 2019, net cash provided by financing activities was $22.4 million, primarily consisting of proceeds of $22.7 million, net from our revolving line of credit to fund working capital.

For the three months ended April 29, 2018, net cash provided by financing activities was ~~$65.9~~$22.0 million, primarily consisting of proceeds of ~~$65.0~~$21.3 million, net from our revolving line of credit to fund working capital and capital expenditures, $0.5 million in change in bank overdraft and ~~$1.0~~$0.3 million from finance lease obligations in connection with our build-to-suit lease transactions.

For the nine months ended October 29, 2017, net cash provided by financing activities was $56.5 million, primarily consisting of proceeds of $50.1 million, net from our revolving line of credit, $0.8 million from long-term debt, $2.9 million in change in bank overdraft, $2.4 million from our finance lease obligations in connection with our build-to-suit lease transactions and $0.8 million for capital contributions to SRV.

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, the Company 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 bore 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 was secured by essentially all Company assets and required the Company to 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 3 “Debt and Line of Credit,” ~~included in this Quarterly Report on Form 10-Q~~ for further information.

As of ~~October 28, 2018~~May 5, 2019 and for the ~~nine~~three months then ended, the Company was in compliance with all financial and non-financial covenants for all debts discussed above and expects to be in compliance for the remainder of fiscal ~~2018.~~2019.

There have been no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the fiscal year ended ~~January 28, 2018.~~February 3, 2019.

We are not a party to any material off-balance sheet ~~arrangements, except for operating leases.~~arrangements.

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the related disclosures of

contingent assets and liabilities at the date of the financial statements. 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.

As of the date of this filing, there were no significant changes to any of the critical accounting policies and estimates described in our ~~2017~~2018 Form 10-K, except as discussed below.

On ~~January 29, 2018,~~February 4, 2019, we adopted authoritative guidance related to ~~revenue recognition from contracts with customers~~leases using the ~~modified retrospective (cumulative-effect) approach.~~optional transition method and elected the package of practical expedients. As such, the comparative prior period information has not been restated and continues to be reported under the accounting standards in effect for those periods. Beginning with the first quarter of fiscal ~~2018,~~2019, our financial results reflect adoption of the standard.

~~On January 29, 2018, we adopted authoritative guidance related to~~restricted cash, which requires companies to include restricted cash in total cash and cash equivalents on the statement of cash flows. As a result, we no longer disclose the changes in restricted cash on the statement of cash flows and disclose a reconciliation to the total cash and restricted cash balances on the condensed consolidated balance sheets.

On January 29, 2018, we adopted authoritative guidance related to financial instruments, which amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. The most significant impact relates to the accounting for equity instruments. The adoption did not have a material impact on our condensed consolidated financial statements.

See Note 1 “Nature of Operations and Basis of Presentation,” of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1, of this quarterly report on Form 10-Q for further information regarding recently adopted accounting pronouncements.

See Note 12 “Recent Accounting Pronouncements,” of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1, of this quarterly report on Form 10-Q for information regarding recent accounting pronouncements.

There have been no significant changes in the market risks described in our ~~2017~~2018 Form 10-K. See Note 3 “Debt and Line of Credit,” of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1, of this quarterly report on Form 10-Q, for disclosure on our interest rate related to our line of credit.

Section 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires management of an issuer subject to the Exchange Act to evaluate, with the participation of the issuer’s principal executive and principal financial officers, or persons performing similar functions, the effectiveness of the issuer’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of each fiscal quarter. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~such date,~~May 5, 2019, as a result of the material weakness in our internal control over financial reporting discussed below and in the Company’s Annual Report on Form 10-K, for the year ended February 3, 2019, our disclosure controls and procedures were not effective.

As disclosed in our 2018 Form 10-K, management concluded that a material weakness existed in our internal control over financial reporting. Specifically we determined that due to the lack of sufficient resources throughout the year, we did not design and implement effective internal control activities to timely detect and resolve issues resulting from converting to a new order management system, nor did we consistently execute certain account reconciliations and analyses timely during fiscal 2018.

Management has developed certain remediation steps to address the material weakness discussed above and to improve internal control over financial reporting. The Company is taking steps to correctly allocate resources as needed and to further automate and enhance the reconciliation process. The material weakness will not be considered remediated until applicable remedial controls operate for a sufficient period of time and management has concluded that these controls are operating effectively.

Management has concluded that, notwithstanding the material weakness described above, the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the date, and for the periods presented, in conformity with U.S. GAAP.

We implemented the new lease accounting standard as of February 4, 2019. As a result, we implemented changes to our processes and internal control over financial reporting to ensure compliance with the new accounting and disclosure rules. There ~~was~~were no ~~change~~other changes in our internal control over financial reporting (as defined in Rule 13a-15(d) and 15d-15(d) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

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.

We operate in a rapidly changing environment that involves a number of risks that may have a material adverse effect on our business, financial condition and results of operations. For a detailed discussion of the risks that affect our business, please refer to the section entitled “Risk Factors” in our ~~2017~~2018 Form 10-K or other SEC filings. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form ~~10-K, except as discussed below.~~10-K.

We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our customers would have to pay for our products and could have an adverse effect on our business, financial condition 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 did not sell any equity securities during the quarter ended ~~October 28, 2018,~~May 5, 2019, which were not registered under the Securities Act.

The following table contains information of shares acquired from employees in lieu of amounts required to satisfy minimum tax withholding requirements upon the vesting of the employees’ restricted stock during the quarter ended May 5, 2019.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Wisconsin	39-1564801
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

201 East Front Street Mount Horeb, Wisconsin	53572
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class B Common Stock, No Par Value	DLTH	NASDAQ Global Select Market


Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☑


	October 28, 2018		January 28, 2018		May 5, 2019		February 3, 2019
(in thousands)
Salaries and benefits	$	2,750	$	5,370	$	3,469	$	2,328
Deferred revenue		4,860		7,285		7,330		10,485
Freight		2,446		4,062		2,514		4,141
Product returns		1,354		1,080		911		2,088
Catalog costs		479		839		82		503
Unpaid purchases of property & equipment		3,001		2,028		846		433
Accrued advertising		8,834		1,011		5,652		389
Other		6,991		3,586		4,276		6,163
Total accrued expenses and other current liabilities	$	30,715	$	25,261	$	25,080	$	26,530


	Estimated
	Fair Value
(in thousands)
Within one year	$	~~113~~120
After one year through five years		~~801~~844
After five years through ten years		~~1,291~~1,349
After ten years		~~4,118~~3,954
Total	$	~~6,323~~6,267


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Nine-Months Ended October 28, 2018
								Noncontrolling
	Capital stock							interest in		Total
				Treasury		Retained		variable interest		shareholders'
	Shares	Amount		stock		earnings		entity		equity
Balance at January 28, 2018	32,462	$	88,043	$	(57)	$	48,084	$	3,279	$	139,349
Cumulative effect from adoption of ASC 606 (Footnote 1)	—		—		—		(648)		—		(648)
Balance at January 29, 2018	32,462	$	88,043	$	(57)	$	47,436	$	3,279	$	138,701
Issuance of common stock	106		—		—		—		—		—
Amortization of stock-based compensation	—		409		—		—		—		409
Restricted stock surrendered for taxes	(2)		—		(35)		—		—		(35)
Net (loss) income	—		—		—		(691)		8		(683)
Balance at April 29, 2018	32,566	$	88,452	$	(92)	$	46,745	$	3,287	$	138,392
Issuance of common stock	20		—		—		—		—		—
Amortization of stock-based compensation	—		449		—		—		—		449
Net income	—		—		—		6,377		75		6,452
Balance at July 29, 2018	32,586	$	88,901	$	(92)	$	53,122	$	3,362	$	145,293
Issuance of common stock	3		—		—		—		—		—
Restricted stock forfeitures	(2)		—		—		—		—		—
Amortization of stock-based compensation	—		434		—		—		—		434
Net (loss) income	—		—		—		(3,150)		74		(3,076)
Balance at October 28, 2018	32,587	$	89,335	$	(92)	$	49,972	$	3,436	$	142,651


	Nine-Months Ended October 29, 2017
								Noncontrolling
	Capital stock							interest in		Total
				Treasury		Retained		variable interest		shareholders'
	Shares	Amount		stock		earnings		entity		equity
Balance at January 29, 2017	32,376	$	86,446	$	—	$	24,733	$	2,609	$	113,788
Issuance of common stock	73		—		—		—		—		—
Restricted stock forfeitures	(7)		—		—		—		—		—
Amortization of stock-based compensation	—		324		—		—		—		324
Capital contributions	—		—		—		—		269		269
Net income	—		—		—		355		60		415
Balance at April 30, 2017	32,442	$	86,770	$	—	$	25,088	$	2,938	$	114,796
Issuance of common stock	29		—		—		—		—		—
Restricted stock forfeitures	(1)		—		—		—		—		—
Amortization of stock-based compensation	—		293		—		—		—		293
Capital contributions	—		—		—		—		525		525
Net income	—		—		—		4,284		69		4,353
Balance at July 30, 2017	32,470	$	87,063	$	—	$	29,372	$	3,532	$	119,967
Issuance of common stock	7		—		—		—		—		—
Restricted stock forfeitures	(13)		—		—		—		—		—
Amortization of stock-based compensation	—		569		—		—		—		569
Restricted stock surrendered for taxes	(3)		—		(57)		—		—		(57)
Distributions	—		—		—		—		(400)		(400)
Net (loss) income	—		—		—		(816)		70		(746)
Balance at October 29, 2017	32,461	$	87,632	$	(57)	$	28,556	$	3,202	$	119,333


	January 28, 2018		Adjustments due to ASC 606		January 29, 2018
(in thousands)
Inventory, net	$	89,548	$	(629)	$	88,919
Prepaid expenses & other current assets		7,642		1,073		8,715
Deferred catalog costs		1,446		(1,365)		81
Total current assets		101,826		(921)		100,905
Total assets		223,102		(921)		222,181

Accrued expenses and other current liabilities		25,261		(45)		25,216
Income taxes payable		7,631		149		7,780
Total current liabilities		50,296		104		50,400
Deferred tax liabilities		2,100		(377)		1,723
Total liabilities		83,753		(273)		83,480
Total shareholders' equity		139,349		(648)		138,701
Total liabilities and shareholders' equity		223,102		(921)		222,181


	October 28, 2018
	As Reported		Adjustments due to ASC 606		Balances without Adoption of ASC 606
(in thousands)
Inventory, net	$	131,448	$	1,998	$	133,446
Prepaid expenses & other current assets		11,975		(396)		11,579
Deferred catalog costs		1,137		91		1,228
Total current assets		150,226		1,693		151,919
Total assets		324,517		1,693		326,210

Accrued expenses and other current liabilities		30,715		3,501		34,216
Total current liabilities		65,160		3,501		68,661
Deferred tax liabilities		1,573		(470)		1,103
Total liabilities		181,866		3,031		184,897
Total shareholders' equity		142,651		(1,338)		141,313
Total liabilities and shareholders' equity		324,517		1,693		326,210


		Weighted			Weighted
		average			average
		fair value			fair value
	Shares	per share		Shares	per share
Outstanding at January 28, 2018	536,471	$	7.60
Outstanding at February 3, 2019				321,657	$	14.29
Granted	128,501		18.33	141,805		18.10
Vested	(200,604)		5.18	(42,662)		19.19
Forfeited	(1,531)		19.61	(5,682)		18.71
Outstanding at October 28, 2018	462,837	$	11.27
Outstanding at May 5, 2019				415,118	$	15.03


				Total number	Approximate dollar
				of shares purchased	value of shares that
	Total number			as part of publicly	may yet to be
	of shares	Average price		announced plans	purchased under the
Period	purchased	paid per share		or programs	plans or programs
February 4 - March 3, 2019	—	$	—	—	$	—
March 4 - April 7, 2019	12,380		22.28	—		—
April 8 - May 5, 2019	2,143		17.08	—		—
Total	14,523	$	22.55	—	$	—

~~Exhibit No.~~
~~10.1~~Exhibit No.	~~Form of First Amendment dated October 15, 2018 to Employment Agreement between Duluth Holdings Inc. and Al Dittrich dated August 5, 2015.~~ *
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as amended.*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended.*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS	XBRL Instance Document**
101.SCH	XBRL Taxonomy Extension Schema Document**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF	XBRL Taxonomy Extension Definition Document**
101.LAB	XBRL Taxonomy Extension Label Linkbase Document**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document**


*	Filed herewith
**	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”


	October 28, 2018		January 28, 2018		May 5, 2019		February 3, 2019
(in thousands)
Land and land improvements	$	3,055	$	3,055	$	4,486	$	4,486
Leasehold improvements		30,166		20,985		37,118		32,765
Buildings		73,943		33,906		36,475		71,469
Vehicles		161		177		161		161
Warehouse equipment		11,293		5,850		13,058		13,051
Office equipment and furniture		33,929		22,161		39,732		36,473
Computer equipment		4,700		3,573		5,828		5,072
Software		19,237		7,540		25,370		24,939
		176,484		97,247		162,228		188,416
Accumulated depreciation and amortization		(30,799)		(22,739)		(37,900)		(34,203)
		145,685		74,508		124,328		154,213
Construction in progress		20,200		35,197		12,324		12,896
Property and equipment, net	$	165,885	$	109,705	$	136,652	$	167,109


Date: June~~December 7, 2018~~ 14, 2019
	DULUTH HOLDINGS INC. (Registrant)
		/s/ DAVID LORETTA
		David Loretta
		Senior Vice President and Chief Financial Officer
		(On behalf of the Registrant as Principal Financial Officer and Principal Accounting Officer)