I think, candidly, that as promotional as the marketplace is today and as sensitive to price and discretionary spend that the consumer is as well. That the level of promoting we’re doing today is such that the brand is not being compromised longer term. And importantly, I think that’s why we’re putting so much energy into the service we provide consumers, whether it’s click to doorbell speed or in our stores. Our metrics in the stores continue to be solid are measurable KPIs, whether it’s conversion or units per transaction continue to be positive year-over-year. Stores continue to be cash flow positive and four-wall profitable in the mid-teens. And so we know that customers are coming to us. Secondarily, the investments we’re making in product innovation and sourcing.
That’s the core of who Duluth is, and that’s at the heart of our DNA. And so we’re going to continue to invest in bringing really high-quality problem-solving products that are leading the marketplace, bring those to market. And we believe that the price value of the products we make our goods will withstand the test of time relative to price promoting.
Dylan Carden: Great. And then I’m kind of curious the drag from not having the inventory in spring summer goods in the front part of the quarter, was that — was that simply just poor management on inventory? Or did you pull back too quickly? Was that weather related? Just kind of trying to understand, particularly if you can maybe even size the drag that you estimate that, that had?
Sam Sato: Yes. So a couple of things I’ll say there. Again, Dylan, pretty complex answer to what seems like a simple question. At a high level, I’ll start with saying philosophically, we talked about this for a little while now. We’re going to continue to reduce inventories and get our stock-to-sales ratios in line. I think our turns are slower than I want them to be. And obviously, there’s all kinds of benefits that comes with faster turns, not least of which is greater profitability and cash flow, but also the expectations around sell-throughs and those types of things increase. And so at a high level, that’s why the inventories are down, and they’ll continue to be down as we move into the next couple of years. In terms of spring/summer goods or previous seasons carryover, it was largely based on greater sell-throughs during the season.
So we typically have excess inventory that we carry over from season to season that will sell in the following season. And because of some of the price sensitivities that were happening and that shift we started to see into this promotional bucket, we were selling more units. So if you go back and look at our comments on the last couple of calls, unit sales were up. And so we’re selling through more goods. And what ends up happening is the total sell-through for the season is just higher, which limits our carryover. So it’s a little bit of a double-edged sword because in a perfect world, you’d want to sell everything at 100% at full price. And not have any markdowns into the next season. But simultaneously, it then forces you to be better planning in terms of your receipts for the following season’s goods.
And so one of the things we’re starting to institute, as you’ve heard now a couple of fall seasons is we’re starting to move or seasons. We’re starting to move that next season’s goods up earlier to start setting our floors earlier. So for instance, this fall, we started to receive goods in July, we typically will set up in late August, and we brought certain items in earlier. And I think that that’s the right way to run the business, a little early receipts on the next season’s goods and not rely on carryover of previous seasons products.
Dylan Carden: Great. And then final one for me. The new distribution capacity in Georgia, can you remind us as far as expanding out some of the wholesale that’s not part of this initiative, right? That would come later?
Sam Sato: Well, it is connected. So the capabilities of Adairsville allows us absolutely to expand into wholesale. The other component, though, is really about the work we’re doing with product innovation and sourcing. So the ability for us to develop products on a faster time line with greater IMU efficiencies. That plays a role. And then there’s an organizational requirement to really I think, optimize wholesale opportunity. And so we’re building the parts for it and ultimately will come together, but all of these things we’re doing are with the broader intention of wholesale acquisition expansion into more stores, as an example, all of the technological and logistical things and then product development initiatives all are with those types of considerations in mind.
Dylan Carden: So could you see wholesale that relationship expand into next year? Or is that too early to call?
Sam Sato: Yes, I think that that’s probably a bit early. Never say never. In fact, we are now testing with Costco. We see that as an opportunity to provide key items to a company that’s got very similar has a number of similar customers to dilute, and it becomes a bit of a gateway item to broaden our customer base. The initial test we ran was in was in summer in a very small base, did really well. They’ve come back for this period right now. And then we’re looking to expand with them as we go into next year. And their model requires a much less reliance on a organizational structure to support them. And so given the way we’re testing with them, we think that there’s an opportunity for us to continue to build our brand awareness and a business with a retailer that’s got millions of customers, of which we see great overlap with Duluth.
Operator: This concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today’s presentation, and you may now disconnect.
