Good day, and welcome to the Duluth Holdings Inc. First Quarter 2025 Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference call over to Ms. Nitza McKee. Ms. McKee, the floor is yours, ma'am.

Thank you, and welcome to today's call to discuss Duluth Trading's first quarter financial results. Our earnings release, which was issued this morning, is available on our Investor Relations website at ir.duluthtrading.com under Press Releases. I'm here today with Stephanie Pugliese, President and Chief Executive Officer; and Heena Agrawal, Senior Vice President and Chief Financial Officer. On today's call, management will provide prepared remarks and then open the call for questions. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified by the use of words such as estimate, anticipate, expect and similar phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. And with that, I will turn the call over to Stephanie Pugliese, President and Chief Executive Officer. Stephanie?

Good morning, everyone, and thank you joining us today. First, I want to thank Steve Schlecht, not only for his leadership, but for his unwavering commitment to the Duluth brand over many years. His vision and passion have been a driving force behind this extraordinary company, and I am truly honored to once again have his support as I return to lead Duluth Trading. I'm back at Duluth because of my belief in this brand and its potential. Our customers have a deep affection for Duluth and they genuinely want us to succeed. What sets us apart in the marketplace is our unique blend of high-quality solution-based products infused with our brand attributes, authentic, humorous, hardworking and humble. Our products and our brand evoke an emotional connection that is truly distinctive in today's crowded retail landscape. Returning to Duluth has been really energizing. I've been reconnecting with familiar faces who have a long-standing commitment to this brand and continue to drive excellence while also discovering new talent throughout the organization. This team gives me confidence as we build on our strengths and implement initiatives necessary to deliver sustainable, profitable growth. I am leading with a sense of urgency, clarifying direction and taking action. Our operating model and processes need to be simplified quickly to restore financial health in the business. We will then position Duluth for long-term profitable growth. There are ultimately three key areas we will focus on to drive our business forward. First, brand awareness. Reinvigorating our distinctive voice and storytelling capabilities that have historically differentiated Duluth in the marketplace to drive customer acquisition and retention. Second, solution-based products and product innovation. Our year-round core product is foundational to our business, enhanced by new innovative solutions. This quarter, we saw success in products like Men's Flex Fire Hose…

Thanks, Stephanie, and welcome back. In 2025, our key priorities are to reset promotions, restore price integrity, improve inventory management and strengthen operational execution. I will provide an update on our first quarter progress in these areas as well as discuss the impact of tariffs, our mitigation strategies, the rightsizing of our cost structure and the steps we've taken to manage cash and liquidity amidst macroeconomic uncertainty. Today, we reported first quarter 2025 net sales of $102.7 million, down 12% versus last year. Our reported EPS loss is $0.45, and adjusted EPS loss is $0.32. Adjustments to EPS totaled $4.5 million, including a $4.1 million increase in our deferred tax valuation allowance and $0.4 million in net impairment expenses. Adjusted EBITDA for the quarter was minus $3.8 million. Starting with the top line. Our Q1 net sales declined 12% and declined 10.2%, excluding the wholesale shipment shift from Q1 to Q2 versus last year. As part of resetting promotions, we reduced the number of days on promotion by 35% and reduced the depth of promotions from 25% to 20% on average. Direct channel sales, excluding wholesale, fell 14.6% as web traffic declined with conversion being roughly flat, partially offset by higher AOV. Mobile sales penetration increased by 200 basis points and mobile conversion continued to trend upwards. Retail store sales and profitability trends improved as we pulled back on promotions. Retail sales declined 2.6% as lower traffic was partially offset with improved shopper conversion. While we are continuing to fine-tune and reduce the frequency of promotions, we are seeing success with shallower promotions driven by higher AOV and improved retail sales trends and profitability. Gross profit margin rate declined by 80 basis points to last year from greater clearance penetration and deeper discounting during February's Big Dam clearance event. In…

[Operator Instructions] The first question we have will come from Janine Stichter of BTIG.

Welcome, Stephanie.

Thank you.

I was hoping you could speak a bit more about one of the first things you mentioned around building brand awareness. I think you said marketing leverage during the quarter, but -- how should we think about marketing going forward? Could we potentially see some of the savings that you're finding in other areas reinvested back into marketing? And just maybe some more color on broadly how you think about driving brand awareness.

Sure, sure. So I think one of the biggest things that we're starting to evaluate and starting to see some initial success with is the investment in the marketing funnel overall, particularly in the upper part of the funnel, which is driving brand awareness. An example, just recently, yesterday, we were featured on Good Morning America for Father's Day. So those opportunities to get our name and our voice and our products, quite frankly, out a little bit further than even some of the traditional marketing ways are places that we are looking to utilize and invest in. The team has started that work. We started to see a little bit of the progress that's being made. We're doing more testing in second quarter as we look at driving not only awareness but visits to both our website and our stores. And ultimately, Phase 1 is -- of that is reevaluating the marketing funnel to be able to create that awareness. And then as we continue to find savings and expense reductions in other areas of the business and see the return on the marketing investment improve, that's where we'll start to ship those dollars. But we're just at the beginning of that phase.

Great. That's helpful. And then maybe one more just around the promotional reduction you're seeing. Maybe speak a bit more about what you're seeing from the consumer as you pull back on promotions. I think you said in March and April into May. And then -- how to think about what kind of price increases we might be seeing and your expectations around how the consumer might respond on that?

Sure. So -- what we saw as we kind of came through first quarter was sequential improvement in our gross margin rate. And really in the months of March and April was where we started to see the beginning benefits, if you will, of the promotional pullback. From a customer perspective, one of the things that we continue to look at is how we maximize customer retention and acquisition, not only through our marketing activities, but also through the promotional cadence that we have. As Heena mentioned, we haven't pulled back dramatically on promotions. We pulled back on some of the length of time of promotions and, to a certain extent, the depth of promotions, but we'll continue to balance that. Watch not only the top line and gross margin results but also the customer retention and acquisition results. And continue to pull different levers whether that is promotional activity, things like free shipping and/or upper to lower funnel marketing activities to maximize across both financial results and customer file results, if you will. In terms of the pricing -- the increase in prices, we are mitigating some of the expected tariff implications with select price increases. They are in areas where we know that we have a unique product in the marketplace that obviously you can only get within our own channels. And -- so we're selecting those products that we feel like we have the pricing elasticity to do so. That said, we're being really cognizant of the fact of continuing to offer a good portion of our product assortment that is in value prices and particularly when you consider the innovation and the quality that we put behind our products, we believe that value equation will help us as we balance on pricing in the future.

Yes. And just...

To add on the promotions piece, Janine, we are seeing a lot of green shoots, especially as we reduce the depth of the offers. We are seeing positive trends in conversion, in higher full price sales and especially on our store channel, we are seeing better trends, both in terms of top line and profitability. When it comes to frequency, we are refining it. And as we refine the frequency, we are seeing that sequential trends as we go from March to April to May.

I'm not sure if we've lost the line. We are having some difficulty hearing. So I'm assuming that there are no more questions, and just wanted to share some closing remarks for everyone. So in closing, we're approaching our work in phases. First, taking decisive actions to simplify the business, reduce our expense structure and continue to optimize the investments we've made in infrastructure. And then second, we're focusing on the key areas of brand awareness, solution-based products and product innovation and customer service. I will be conducting an in-depth review of our brand and product portfolio as we look to invigorate the Duluth business overall and in the longer term, capture the full potential of the brand. As we move forward, our priority will be to execute with a simplified framework. I'm confident that by clarifying our priorities and doubling down on what makes Duluth truly special, which is our solution-based products and customer-centric philosophy that we can once again achieve profitable growth and deliver value to our shareholders over the long term. I'm thrilled to work alongside this talented team to write the next chapter for Duluth, as I look forward to sharing more details on our progress on future calls. But for right now, I'm focused on aligning our organization around these priorities to drive our sustainable results. Thank you all for your continued interest and support, and I look forward to updating you on our progress in the quarters ahead. Thank you.

And we thank you, ma'am, for your time today also. The conference call is now concluded. At this time, you may disconnect your lines. Thank you. Take care, and have a great day, everyone.