Good morning, and welcome to the Duluth Holdings Third Quarter Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Steffes with Duluth Investor Relations. Please go ahead.

Thank you, and welcome to today's call to discuss Duluth Trading's third 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 am 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. Earlier this year, we outlined a plan to reset the business, focusing on improving gross margin through reducing promotional depth, controlling costs and inventory levels and being more effective operation, all with the goal of delivering on our responsibility to our customers and shareholders. I am proud of the team's commitment to these efforts, and as evidenced by our Q3 results, they are yielding benefits. We are pleased to have delivered a consecutive quarter of improved profitability, building upon our earlier progress from Q2. Let me elaborate further on the areas of improvement. Building upon the momentum we established in the second quarter, we saw success with our pricing strategies by focusing on the balance of promotional frequency and depth. We reduced our global promotional days by more than half compared to last year. And while year-over-year sales declines were consistent with our Q1 and Q2 results, we experienced higher profitability per unit sold. Furthermore, to mitigate the impact of tariffs, we raised prices on select products in July and August. And in Q3, we maintained the sales volume on those styles, further reflecting our improving ability to strategically balance demand and retail. Now let me provide an update on some of our third quarter product wins. Within men's, denim was a strong performer for us, and our decision to amplify this Duluth core product through national advertising led to a 9% growth in sales at higher margins. Men's AKHG was also positive, driven by innovations like After Sweat, AlpineFlex Pants and Renew Bamboo. Within women's, our Heirloom Garden collection continues to be a foundational part of our wardrobe. And we were also pleased with the results of our relaunch of another core Duluth staple, women's denim featuring asset management…

Good morning, everyone. Echoing Stephanie's comments, we are pleased with our Q3 and peak results. At the beginning of this year, we set clear goals to reset our promotions, restore price integrity, improve cash and inventory management and strengthen operational execution. In addition, we successfully mitigated the impact of tariffs through a combination of targeted price increases and cost reduction. By staying disciplined on these goals throughout the year and mitigating macro headwinds with agility, this team has delivered consecutive quarters of gross margin expansion and SG&A leverage. In addition, we have maintained healthy liquidity and lower borrowing costs by effectively managing working capital and moving to an asset-based lending facility. This quarter, our inventory balance improved sequentially and is down 17% versus last year. We ended the third quarter with a strong liquidity position of over $88 million. I couldn't be prouder of the team's unwavering commitment to our goals and their agility in developing solutions to navigate tariff pressures. We are successfully executing Phase 1 of our turnaround, significantly improving our financial position with enhanced profitability, free cash flow and liquidity. Building on this strong foundation, our turnaround strategy will continue its momentum focusing on 2 key areas: reinvigorating our customer base and streamlining our product selection to emphasize our core offerings. Now to provide a more in-depth update on our third quarter results and peak performance. Today, we reported third quarter 2025 net sales of $114.9 million, down 9.6%, with gross margin expansion of 150 basis points versus last year to 53.8% and SG&A leverage driven by cost reductions. Our reported EPS loss is $0.29 and adjusted EPS loss is $0.23, favorable to last year by $0.21. Adjustments to EPS include tax valuation allowance of $2 million. Adjusted EBITDA for the quarter is negative $0.7 million, an…

[Operator Instructions] The first question today comes from Jonathan Komp with Baird.

Yes. Stephanie, maybe stepping back, a bigger picture question. You referenced some encouraging customer and profitability metrics. How are you assessing the progress on your strategy to be more profitable and prioritize higher-value transactions? What are the key metrics that you focus on the most? And how do you expect that to play out into the holiday period, which typically is more promotional for the industry?

Jon, thanks for the question. So we look at some metrics that I think everyone would be familiar with around order transactions. So average order values being up year-over-year, our gross margin rate being up year-over-year. And we're also looking at longer term, our sales per customer or revenue per customer over a period of time. And so what we're seeing and we're encouraged by is our average order values continue to be stronger year-over-year. We are achieving the sales that we have with relatively fewer units. And so it's making the whole machine, if you will, more efficient. When we look at customers and how we are thinking about them or how we're -- what the reaction we're seeing in fourth quarter, you're right, fourth quarter tends to be and is more promotional than other quarters. But we're seeing those same dynamics kind of play through quarter-to-quarter. So we're encouraged by the fact that at the end of the day, while our revenues are down and they've been consistently tracking, if you will, to the down 10% or so year-over-year, it continues to be at a higher quality rate of sale, both on the customer level and on the order metrics.

And maybe one follow-up. I know last year, there was some execution and operational challenges. Just any thoughts as you cycle over some of those periods, how the business is performing? And then maybe stepping back, how long are you thinking that roughly down 10% type run rate continues? Or said differently, when do you start to cycle some of the factors that could start to mitigate those sales declines?

Sure. So let me start with some of the proof points, if you will, that we have around our operations. And the comment that I made in our prepared remarks about being smoother, right, in Q4. So just to highlight some numbers, our Adairsville fulfillment center has shipped over 60% of our units to customers so far in this quarter, which is a 20-point increase in terms of percent of total to last year. And we know that when we ship from that facility, we're more efficient and are able to get the packages to our customers faster in many cases and fulfill that obligation that we have to our customers. We have -- our on-time delivery this year has been above 90%. Wait time in our call center calls has been less than 5 minutes on average. And our retail in stocks on Black Friday were 97%. So all of those numbers are numbers that the team is really proud of, most importantly because they serve our customer better than we have in prior years. So those are the places where when I talk about fulfilling promises to customers, it's about building relationships and long-term credibility with the people that we serve. And those numbers, I think, really exemplify the work that the team has done to build that relationship with our customers long term. To answer the second part of your question around the sales declines, we're in this -- for the past 2 quarters since I've been back, the focus of the business has really been around creating a more stable base for long-term growth. And that has been focused around things that we've already talked about, the promotional reset and creating higher value customer interactions as well as orders, cutting costs in the other parts of the business so that we can be more efficient and productive on the bottom line longer term, smoother operations that I just mentioned. And then as we look forward, we know that in order to build the -- continue to build the base for long-term growth, the next part of this is focusing our assortment. As we've talked about before, we have -- we are planning in both spring and fall of 2026 a 20% reduction in our SKUs and styles so that we can be more effective in our messaging, and we can be clearer to our existing customers and future customers what this business stands for and we're able to continue to invest in marketing to help us stand out in the marketplace. So those are the things that we are focusing on right now. I'm proud of the fact that we have strengthened the base and the cost, kind of the cost structure of the business is coming more in line, certainly still have work to do there. But I think that it gives us at least the platform for the future growth that we can build on.

And I would add that as we look at our last 2 quarters' performance, our retail portfolio, we saw a positive comp in Q2 and flat to slightly positive in this quarter. So we see a more stable environment in retail as we reset the promotions. On the online side, there is a greater elasticity with the promotional reset. But we are continuing to see the impact of various marketing efforts around increased traffic that we hope to capitalize on as we move forward.

Okay. Great. Maybe just 2 last ones from me then, Heena. On the fourth quarter implied adjusted EBITDA looks significantly higher year-over-year, maybe as much as double year-over-year. Could you just highlight the factors driving that improvement?

Yes. As we've been doing the promotional resets, the biggest reset is really coming from the Black Friday Cyber Week, 50% off that we had last year that we did not comp this year, and it was down to 30%, with some 50% Dam Busters. And that's really what's driving the gross margin improvement and gross margin dollar improvement. In addition, because of the smoother operations and how the team has worked on positioning inventory, leveraging and maximizing Adairsville, we are also seeing a greater flow through on the contribution line. And on top of that, the cost savings estimate that we had of $10 million is expected to exceed and be at $12 million. So all of those factors are coming together, and the greatest impact is in Q4 that we are seeing, which is driving that higher adjusted EBITDA in the Q4 estimate versus last year.

Okay. Great. And then just last one, balance sheet. I might have missed this in your remarks, Heena. Did you mention having fully paid down the line of effectively 0 debt currently in the fourth quarter here? Just to clarify that. And then any commentary you have looking forward on capital needs.

Yes, we are -- we have had a successful peak and it's been more profitable and smoother, and that's helped us pay down our debt fully. As of this week, we are out of our credit line, and we have liquidity of approximately $125 million. So we are looking forward to continuing that momentum through the end of the fiscal.

The next question comes from Dylan Carden with William Blair.

This is Marcus Belanger on for Dylan. During the quarter, I believe you said you cut days of sales in half. So can you tell us the overall depth of promotional activity or maybe what your percentage of full-price sales were? And then how far do you think you are from an optimal level of promo?

So I will -- I'll take the second part first, Marcus, around how far we think we are from optimal promotion. At the end of the day, this has been a huge reset for the business. And I just want to highlight one number when you look at the gross margin improvement year-over-year that we saw in Q3, considering the fact that as we reported in last quarter, we came in with significantly more clearance inventory coming out of Q2, and it was the first quarter where tariffs were a part of the gross margin. For the team to be able to achieve 150 basis point improvement, I think, is kind of shows how far along the journey that we've come so far. We do still think there's continued promotional reset as we go into early next year, for example, in the February time period, we were up against a very heavy promotional time or clearance time in our Big Dam Birthday event last year. So that's a place that you will continue to see promotional resets, and we'll be tweaking that along the way. So our goal ultimately is to provide the best value for our customer to recognize that there are times of the year where value is a driver, like fourth quarter that we talked about just a few minutes ago, but to really build back in full price as a core premise of our business outside of those big promotional kind of milestone moments, if you will. So that's how we're looking at the business overall. And we'll continue to refine and tweak those as we go forward.

And Marcus, just to add, to clarify the number of days of promotion we were on in Q3 is what was cut in half. And to Stephanie's point, we are looking to continue resetting promotions. And this time, as we look forward, it's going to come more through reduction in markdowns as we've improved our assortment and inventory buying receipts. We expect to have higher sell-throughs on our products, which will reduce the markdowns and the discount that you see on our products. So we will continue on the promotional reset, but entering kind of Phase 2 where we have greater emphasis on markdowns and higher sell-throughs through a tighter assortment and buying.

This concludes our question-and-answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.