Good day, and welcome to the Duluth Holdings Inc. Second Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Chris Steffes with Duluth Investor Relations. Please go ahead, sir.

Thank you, and welcome to today's call to discuss Duluth Trading second quarter financial results. Our earnings release, which was issued this morning, is available on our Investor Relations website at ir.duluthtrading.com under News 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.

Good morning, everyone, and thank you for joining us today. We are encouraged by our second quarter results, demonstrating positive momentum in our initial turnaround efforts. Our team has worked tirelessly and made improvements across several critical areas of the business. This includes promotional reset, cost control, tariff mitigation and a disciplined approach to inventory management. Our strategic and operational efforts have begun to yield tangible benefits leading to an enhanced gross margin, reduced expenses and lower inventory levels, which played out in our Q2 results. As we reduced the depth of promotional activity, we anticipated that our top line revenue would contract year-over-year. Yet despite a sales decline of 7% versus last year, we delivered gross margin improvement and SG&A leverage, which drove a $1.5 million increase in adjusted EBITDA, reaching $12 million or 9% of sales. We concluded the quarter with a strong liquidity of $73 million and a 12% reduction in inventory compared to last year, meeting our expectations of sequential inventory improvement each quarter. Let me elaborate further on each of the areas of improvement. Starting with an update on the resetting of our promotional cadence. We have reduced the depth of our promotions to strategically elevate full-price sales increase our average unit retails and drive improved profitability. We are intentionally shifting our focus towards higher quality sales. At the same time, we know that we are operating in a dynamic environment. We will continue to test, read and react to pricing initiatives throughout the second half of the year, to meet customers' needs and manage higher profitability. As mentioned last quarter, we also quickly began to rightsize the cost structure and alleviate pressure from tariffs. I am pleased to report that we are on track to realize $10 million in cost savings in fiscal 2025.…

Thanks, Stephanie, and good morning. Echoing Stephanie's comments, we are pleased with our Q2 results, which represent an important step forward in our turnaround efforts. As stated on our last 2 calls, our primary focus this year is to reset our promotional cadence to restore price integrity, improve inventory management and strengthen operational execution. In April, as new tariffs were announced, we responded proactively with mitigation actions. In addition, we initiated cost reduction efforts and implemented steps to manage cash flow and liquidity during this period of macroeconomic uncertainty. I am proud of the team's unwavering commitment to the goals we established at the start of this year and their agility in developing solutions to mitigate macro headwinds. Now to provide an update on our second quarter results and progress in these areas. Today, we reported second quarter 2025 net sales of $131.7 million, down 7%, with gross margin expansion of 240 basis points versus last year to 54.7% and SG&A leverage, driven by cost reductions. Our reported EPS is $0.04, and adjusted EPS is $0.03 a favorable to last year by $0.05. Adjustments to EPS include restructuring charges of $0.7 million net of tax and tax valuation allowance of negative $0.9 million. Adjusted EBITDA for the quarter increased by $1.5 million versus last year to $12 million or 9.1% of sales. Starting with the top line as we reset our promotional depth to drive greater profitability, our Q2 net sales declined 7% versus last year and declined 9.8%, excluding the wholesale shipment shift from Q1 to Q2 this year. Direct channel sales, excluding wholesale, saw an 18% decrease primarily due to a decline in web traffic resulting from the promotional reset partially offset by a higher average order value. Mobile sales penetration continued to improve, increasing by 100 basis…

[Operator Instructions] And the first question will come from Jonathan Komp with Baird.

Stephanie, I want to follow up, if you could maybe share more on some of the specific metrics that you're looking at and the team is looking at as you decide the appropriate level of pullback in your promotional activity. And then as you look forward into the key selling period in fall and surrounding holiday, just any thoughts on your confidence level of being able to maintain more discipline on the promotional side given some of the results you saw here in the quarter?

Sure. So let me start with the question around the key metrics that we're looking at. Gross margin dollars are the primary measure that we are looking at because we know, John, that obviously that drives all of the dollars then below that line on the P&L through the discipline that we've been able to very quickly enact in the business around SG&A leverage, it's given us the ability to continue what we started in first quarter around the promotional pullback knowing that there will be a contraction of sales, but ultimately, the profitability is our first and foremost objective for this year to get us to that -- the EBITDA that we just reinforced on the bottom line for the year. In terms of as we look forward and the confidence that we have in the fourth quarter. As we said in first quarter, actually and reiterated today, we are seeing success in the pullback of the depth of promotion we are still -- in terms of the frequency of promotion. We're still pretty consistent to where we've been in the past. So the ultimate gross margin dollars that we're generating are due to the pullback in depth. And that's the plan that we have as we go forward for the balance of this quarter and then into fourth quarter. And the fact that we've seen the success so far this year in the first 2 quarters is what gives us a lot of confidence there.

Yes, that's encouraging to hear. Maybe a question then on gross margin. Just given some of the dynamics with the tariff impacts ramping up, but obviously, some benefits from the activity you just mentioned and then the pricing that you're putting in place. Just any further color on the ability to continue the gross margin rate expansion and especially in the fourth quarter, I know it looks like quite an easy comparison, but just any more color on the back half gross margin rate expectation?

Yes, Jonathan, this is Heena. I'll take that question. So we implemented price increases in 2 waves, starting July 25 and August 8. And what we are seeing so far is it is meeting our sales expectations from a price and unit elasticity standpoint. So we are going to continue to mitigate the impact of tariffs on the -- from our pricing activities. We've also had vendor negotiations to fulfill some of the cost increases. And then we are managing the timing of our receipts. In addition to that, the SG&A cost reductions are definitely helping from an overall P&L standpoint. So we feel very good about the second half and our ability to meet our gross margin requirements. There will be some differentiation between Q3 and Q4, we'll see a bigger ramp up in Q4 versus in Q3 where these tariff impacts are just beginning to take hold.

Okay. Great. Two other questions for me. Just on the SG&A, the cost savings that you're targeting, the $10 million to be achieved in fiscal 2025. Any further color just how much you achieved in the second quarter and then how the savings will ramp here looking forward?

Yes. I mean what we can say is the $10 million is primarily coming from 2 areas. One is headcount that we had announced on June 4 and then the other is controllable expenses like consulting, travel and also some depreciation and amortization. So we started seeing the benefits of that in Q2. I would say we are about 1/3 of the way there already. So we feel very good about the $10 million for the rest of the year -- for the entire year.

Okay. And then last question for me. Just stepping back, bigger picture. As you think about reestablishing appropriate margin targets for the business, just I'm curious what you'd need to see in order to be able to share more detail on an appropriate levels of margin for the business or longer-term expectations around the profitable sales base you need to get back to more reasonable annual profitability levels?

So I'll take that one, Jon. I think the primary thing for the balance of this year is the -- 2 things, really, are the manageable expenses, as Heena just talked about a moment ago, and the resetting of price integrity. And part of that resetting of price integrity is certainly the promotional cadence that we just talked about. But the other part is the inventory management and within inventory management, SKU and style productivity. So the balance of this year, as we know, we are still in the process of rightsizing that inventory. As we move forward into 2026, as we talked about in the last quarter's call, we are planning and actually executing to a 20% decrease in SKU and style count. So as we get to that point where our assortment is rationalized, our expense plan, if you will, is rationalized. That's where we will have the ability to really create a strong margin profile for the business. So at this point, our focus is executing really well the balance of the year. both in all of the things we just talked about around the margin profile and also obviously operationally and for our customers. And then as we move forward to 2026, that's where we start to really start implementing those key KPIs around SKU productivity around promotional cadence and around inventory management that will lead to a stronger margin profile long term.

This will conclude our question-and-answer session as well as our conference call for today. Thank you for your participation. You may now disconnect.