Duluth Trading Raises 2026 Adjusted EBITDA Guidance as Profitability Improves

Duluth Holdings Inc. (NASDAQ:DLTH) reported sharply higher second-quarter earnings and stronger underlying gross margins despite lower sales, prompting the company to raise its fiscal 2026 Adjusted EBITDA outlook.

Key Investor Takeaways

• Duluth Holdings Inc. (NASDAQ:DLTH) reported second-quarter net income of $18.4 million, up from $1.3 million a year earlier, although results included $16.3 million of tariff refunds.
• Adjusted EBITDA increased to $27.0 million from $12.0 million, while reported and adjusted EPS reached $0.50, including a $0.44 benefit from tariff refunds.
• Underlying gross margin improved to 59.6% excluding tariff refunds, up 490 basis points year over year, supported by reduced promotions and lower product costs.
• Net sales fell 7.8% to $121.4 million, highlighting continued pressure on customer traffic even as profitability and inventory management improved.
• Duluth Trading raised fiscal 2026 Adjusted EBITDA guidance to $38 million-$42 million from $28 million-$32 million while maintaining its $540 million-$560 million sales forecast.

Why DLTH Stock Is in Focus

Duluth Trading delivered substantially higher second-quarter profitability while maintaining its full-year revenue expectations and raising its Adjusted EBITDA guidance.

Net income climbed to $18.4 million from $1.3 million in the comparable quarter, while Adjusted EBITDA more than doubled to $27.0 million from $12.0 million. Those figures benefited significantly from $16.3 million of tariff refunds, making the underlying operating performance particularly important for investors.

Excluding those refunds, gross margin reached 59.6%, representing a 490-basis-point improvement from the prior year. Management attributed the increase primarily to higher average unit retail prices resulting from reduced promotional activity and improved product costs from direct-to-factory sourcing.

Inventory also declined $22.9 million, or 15.5%, from a year earlier. Duluth finished the quarter with $26.8 million in cash, approximately $96 million of net liquidity and no outstanding debt under its $70 million asset-based lending facility.

Why This Matters for Investors

The quarter presents investors with two contrasting trends: weaker sales but substantially better margin discipline.

Net sales declined 7.8% to $121.4 million, with direct-to-consumer revenue falling 11.5% to $70.1 million because of lower web traffic and conversion following reduced promotional activity. Retail store revenue decreased 2.4% to $51.3 million as lower traffic outweighed higher average order values and the contribution from two newer stores.

However, reducing promotional intensity appears to be supporting profitability. The 490-basis-point underlying gross margin expansion suggests Duluth is generating better economics from the sales it retains, while lower inventory could reduce the need for future discounting and improve working-capital efficiency.

There are still cost pressures to monitor. SG&A increased 1.1% to $69.5 million and rose to 57.3% of sales from 52.2%, partly because of higher advertising and shipping expenses.

The raised Adjusted EBITDA outlook provides the clearest change to the full-year narrative. Duluth now expects $38 million to $42 million, compared with its previous $28 million to $32 million range. The revised forecast includes tariff refunds, however, so investors may continue focusing on whether underlying margin improvements persist without that benefit.

What to Watch Next

Sales trends remain a key metric for the second half. Duluth maintained its fiscal 2026 revenue guidance of $540 million to $560 million despite the second-quarter decline, making traffic, web conversion and customer response to its less promotional strategy important indicators.

Investors can also watch whether gross margin improvements from pricing and direct-to-factory sourcing continue, alongside further inventory reductions and progress with new products including Hellbent work pants, No Quit utility shirts and Heirloom prints.

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