杜魯斯貿易 (DLTH) 2026 財年第二季法說會：利潤率擴張與調升 EBITDA 財測指引

重點總覽

• 由於 Duluth Trading 繼續進行促銷調整並年化上一年的提價影響，淨銷售額年減 7.8% 至 1.214 億美元。
• 報告毛利率擴增 1,810 個基點至 72.8%。若扣除 1,600 萬美元的關稅退款，毛利率為 59.6%，上升 490 個基點。
• 調整後 EBITDA 從 1,200 萬美元增加至 2,700 萬美元。若扣除關稅退款，調整後 EBITDA 為 1,070 萬美元，占銷售額的 8.8%。
• 庫存下降 15.5% 至 1.252 億美元，清倉庫存金額下降 43.1%，反映出 SKU 優化與動銷率提升。
• 管理層將全年調整後 EBITDA 指引從 2,800 萬至 3,200 萬美元上調至 3,800 萬至 4,200 萬美元（包含關稅退款收益），同時維持淨銷售額指引為 5.4 億至 5.6 億美元。
• 管理層預計第三季銷售趨勢將較第二季改善，第四季表現將更為強勁，不過與去年同期清倉活動的基期相比，將對第三季營收帶來壓力。

關鍵財務數據

業務與營運表現

Duluth Trading 將基礎毛利率的改善歸因於平均單件零售價（AUR）提升、大幅折扣減少以及工廠直採成本節約。平均單件零售價上漲近 6%。這些收益部分被較高的燃料成本與承運商附加費所抵消。

在促銷調整與價格調漲後，轉換率下降對直營 D2C 銷售帶來壓力。平均訂單金額（AOV）成長 2.4% 及網站流量增加 10% 提供部分抵消。行動端銷售滲透率提升 90 個基點。

包含 66 家門市的零售網絡表現繼續優於直營管道。第二季門市銷售額下降 2.4%，客流量與轉換率下降被較佳的庫存供貨率及平均訂單金額 6% 的成長部分抵消。上半年零售銷售額與去年同期持平。

男裝產品銷售額成長 0.5%，受貼身層產品與梭織下裝（包含 DuluthFlex Fire Hose 和 Double Flex Denim）支撐。女裝銷售額下降 15%，主要因 SKU 優化及清倉銷售減少所致。AKHG 銷售額下降 26%，係因公司退出泳裝等低毛利品類。管理層表示 AKHG 僅占整體產品組合相對較小的部分。

包含 Flex Fire Hose、Heirloom Bibs 與 Buck Naked Underwear 在內的核心產品表現繼續優於整體業務。管理層亦報告秋季系列初期動銷強勁，且 7 月中旬在 Amazon 的批發上線迎來良好的初始動能。

庫存品質改善，當季常規商品占季末庫存的 85.4%，清倉商品占 14.6%。清倉庫存金額下降 43.1%，件數下降 46.6%。優先配置 Adairsville 樞紐中心及門市庫存，使現貨率提升超過 600 個基點。

履約網絡在過去兩年中已從四個中心縮減至兩個。Adairsville 在第二季處理總件數的 75%，上升 230 個基點，而整體網絡的每件可變成本下降近 25%。

管理層指引

Duluth Trading 維持 2026 財年淨銷售額指引為 5.4 億至 5.6 億美元。管理層預計下半年銷售成長率介於下降 2% 至成長 2% 之間。

全年調整後 EBITDA 指引從 2,800 萬至 3,200 萬美元上調至 3,800 萬至 4,200 萬美元。修訂後的區間包含 1,630 萬美元的關稅退款利益，但被戰略性成長投資與較高的燃料費用部分抵消。

管理層預計第三季銷售趨勢將較第二季改善，第四季將進一步改善。第三季將面臨去年同期低毛利率清倉活動帶來的較高基期挑戰。管理層預期實體零售與線上銷售皆將改善，且線上管道在第四季的復甦更為顯著。

下半年假設的關稅率約為 15%-16%，其中第三季為 12.5%，第四季回升至較高水準。預計行銷支出將在第三季加速，而運輸成本仍為逆風因素。

全年資本支出指引維持約 1,200 萬美元，主要用於支援 Manhattan Active Omni 履約軟體、Apple Pay 及維護性投資。

風險與關注焦點

• 去年同期的清倉活動將對第三季營收基期帶來逆風，即使折扣減少有助於支撐毛利率與庫存品質。
• 燃料價格上漲與承運商附加費正在對運輸成本及可變成本造成壓力。
• 顧客群在促銷調整期間有所萎縮，儘管管理層報告平均訂單金額、每位顧客銷售額、留存率及流失顧客激活率均有提升。
• 隨著 Duluth Trading 優化 SKU 並退出低毛利品類，女裝與 AKHG 銷售依然承壓。
• 管理層正保留部分現金儲備，以因應總體經濟與供應鏈的不確定性（包括關稅率的變化）。

分析師問答焦點

管理層表示，AKHG 並未對核心男裝與女裝服飾業務造成重大拖累，因為它僅占產品組合較小的一部分。公司已將該品牌精簡至特定的核心產品，並看好其長期重建的潛力。

關於季度銷售趨勢，管理層表示第三季應會較第二季改善，但仍低於第四季。預期中的進展反映了今年晚些時候更具可比性的促銷活動、定價、行銷與庫存狀況。

管理層亦認為，透過持續優化 SKU 與加強非核心產品動銷，有進一步提高庫存周轉率的空間。同時，公司計劃保持核心產品持續有現貨的狀態，以捕捉實體門市與電商的需求。

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管理層陳述

Operator

[Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Chris Steffes with Duluth Trading Company Investor Relations. Please go ahead.

Chris Steffes

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.

Stephanie Pugliese

Good morning everyone, and thank you for joining us to discuss our second quarter fiscal 2026 results. I'm incredibly proud of our team for delivering another quarter of improved profitability and free cash flow. This accomplishment is a direct reflection of the team's commitment to operational rigor and financial discipline. By staying focused on our core priorities, we have not only stabilized our margins, but also generated the financial flexibility required to accelerate our strategic initiatives.

Our goals for Q2 were clear. We aim to drive improved profitability, maintain strength in our operational execution, deploy a marketing strategy focused on driving brand awareness and consideration, reduce our promotional reliance, and achieve a clean, healthy inventory position. I am pleased to report that we executed against each of these pillars effectively. Our operational excellence this quarter was most visible in our margin improvement and inventory management.

We executed a deliberate cleanup of clearance inventory, which is now down 43% compared to last year. This wasn't just about liquidating old stock. It was a reflection of the fundamental shift in our merchandising philosophy over the past year and a half. We have moved away from a broad assortment, discount-heavy approach toward a hero core product strategy. By reducing the total number of SKUs and focusing our buys on proven winners, we have created a leaner, more agile inventory position. This reduction in clearance reliance has a double benefit. It cleans up our balance sheet and protects our brand equity by reducing the need for the deep site-wide discounts that characterized previous years.

And the reduction in deep discounting this quarter allowed us to deliver nearly 500 basis points of operational gross margin improvement year over year. Turning to our marketing efforts. During the quarter, we saw strong response across our paid media channels such as Connected TV, Meta, and Search. In addition, our premium audio integrations, including host-read spots with Conan O'Brien, drove significant engagement and last-click revenue. We also continued our Max Gluteus campaign, tailored specifically for the folks who work their ****s off while leveraging key sports partnerships, including investments in the NHL playoffs.

And this coming month, to showcase our expansive Fire Hose collection, our marketing campaign will be featured across linear and CTV broadcasts during upcoming college football matchups. No fabric embodies the Duluth DNA quite like Fire Hose. And we're proud to reinforce our legacy, engage our customers, and spotlight the unmatched durability of these products. We continue to apply input from marketing results to go-forward actions. Key learnings from Mothers' Day and Prime Week enforced the critical need for full funnel media coordination and continuous brand messaging.

And we are applying these insights to the second half of the year.

Maintaining top of funnel brand presence ensures our hero products remain visible across all channels and create sales momentum leading into key promotional moments. We are ramping up our upper funnel brand investments in the third quarter to prime demand ahead of peak and capture early transitional shoppers. This will be coupled with amplified product storytelling across key events like Fall Grind Days and our Big Dam Birthday. Further, we are investing in AI capabilities across organic and paid media to maximize our discoverability and optimize our digital footprint.

All of these efforts center on growing our brand presence and ultimately increasing the customer fan base. As previously shared, our total customer base has contracted as we've reset promotions. We are investing in the underlying health of our customer file, and we have some proof points that we are building on. In Q2, customer average order value and sales per customer continue to improve over prior year, and through the first half of the year, retention rates increased and our Net Promoter Score is up 11%. Our reactivation campaigns are working and we re-engaged 9% more lapsed buyers in the quarter versus last year.

In addition to our efforts in our own stores and e-commerce to build awareness and engagement, our growth initiatives, like the Amazon wholesale launch, are showing positive early results, giving us confidence in growing awareness and acquisition in the long term and in new ways. Central to our continued success is our Build to Last strategic roadmap. We have completed the Seal the Foundation phase, which focused on stabilizing the business through rigorous margin protection and cost control. We addressed structural inefficiencies, right-sized our overhead, and established a leaner operating model that can better weather macroeconomic volatility.

As we move to Frame the Structure, we have more work to do, and we are shifting our focus to scalable growth. This next phase involves continuing the discipline we have put in place while investing in our customers, our core products, and our brand reach. We are beginning to build the systems and channels, leaning into our store performance, improving our own e-commerce experience, and piloting a wholesale presence that will create long-term profitable growth. We are no longer just fixing the basics. We are constructing the framework for Duluth's future as a multi-channel, durable, and functional work apparel leader, and it all starts with the products that our customers love.

Our focus on Core First is anchored in our product innovation and technical design philosophy. Core products like Flex Fire Hose, Heirloom Bibs, and Buck Naked Underwear continued to outperform the overall pace of the business last quarter. And new products like our Hellbent Work Pants and No Quit Utility Shirts are not just additions to the assortment. They represent the importance of our functional design. Our philosophy is built on solution-based workwear, identifying a specific pain point for the person who works their ****s off and solving it with superior fabric and construction.

The Hellbent line, for instance, utilizes advanced abrasion-resistant materials and articulated patterning that allows for maximum mobility without sacrificing durability. These innovative, durable products justify a premium price point and reinforce our value equation, that Duluth gear is an investment that lasts longer and performs better than the competition.

To support this product-led growth, we are continuing to evolve our marketing into a more sophisticated, full-funnel engine. We are balancing top of funnel brand awareness through high impact professional and college sports partnerships and premium audio integrations with lower funnel conversion efforts.

We are investing in AI-driven search capabilities so that when customers ask for items like the Best Work Pants, Duluth will ultimately be the first answer they see. Furthermore, our Duluth DieHards pilot is providing us with a wealth of actionable data. We are Learning how our most valuable customers interact with us across channels, allowing us to personalize content and offers to drive higher lifetime value and retention.

Now looking toward the back half of the year. We are excited about the opportunities in front of us to improve our sales trends and strengthen our customer file. Early sell-throughs from our fall lineup are strong.

Equally important, demand for our core products remains robust at higher margins. While we expect last year's heavy volume of low margin clearance sales will temporarily weigh on Q3 top line results, we are reiterating sales guidance for the full year. Our priority for Duluth now is to increase our voice in the marketplace through full funnel marketing, reaching new brand fans via new channels, and by delighting our customers at every interaction.

For this reason, through the remainder of this year, we will invest some of the additional cash from tariffs on the customer experience, improving our visibility with AI Search, strengthening our store team's ability to serve customers well, and telling our story of functional, durable workwear throughout the full funnel.

These investments are not just about the remainder of 2026, they are about positioning Duluth for sustained profitable growth for years to come. We are focused on delivering the back half of the year while setting our eyes on the Raise the Roof phase of our strategy in 12 to 18 months. We will continue to explore and invest in setting the stage for additional customer reach, specifically understanding our store potential and wholesale opportunities, and we will report on our progress in quarters to come.

In closing, we are prepared and energized to deliver on the balance of the year, to delight our customers this holiday season, to continue along our Build to Last strategic path, and to bring long-term profitable growth to this amazing brand. I'm grateful for the talented team we have to bring this to fruition. I will now pass the call over to Heena to provide more detail on our financial performance.

Heena Agrawal

Good morning everyone, and thank you, Stephanie. I am pleased to report our financial performance for the second quarter of fiscal 2026. Over the past 18 months, our team has successfully restored price integrity by completing a promotional reset. Through disciplined inventory and cash management, alongside enhanced integrated planning and execution, we have established operational stability. Our strategic focus, operational consistency, and agility in navigating macroeconomic headwinds have now driven 5 straight quarters of year-over-year gains in both net income margin and free cash flow.

Our results this quarter demonstrate continued underlying margin expansion, structural profitability, and a more robust balance sheet. Let me share our financial results and provide our updated outlook for the full fiscal year, starting with our results for the second quarter of 2026 with comparisons to prior year. As we continued our promotional reset and annualized price increases from 2025, we reported net sales of $121.4 million, down 7.8%, with improving quality of sales, underlying gross margin excluding tariff refunds, expanded by 490 basis points, and expanded by 1,810 basis points, including the impact of refunds.

Our net income improved by $17.1 million to $18.4 million. Our reported and adjusted diluted EPS was $0.50. These results include $16.3 million in tariff refunds received during the period, contributing $0.44 per share. Adjusted EBITDA was $27.0 million, an improvement of $15 million compared to $12 million in Q2 of last year. Excluding the impact of tariff refunds, adjusted EBITDA was $10.7 million at 8.8% of sales, driven by our continued focus on profitable sales coupled with lower overhead and enhanced variable cost productivity, partially offset by fuel cost increases and higher advertising investments.

Looking closer at our top line metrics for the quarter, as we continued our promotional reset and annualized our pricing strategy, net sales declined 7.8% to $121.4 million. Excluding the impact of wholesale, net sales decreased 5.4%. During the first half, net sales decreased by 6.2%, which was at the high end of our guidance range of minus 6% to minus 10%. Our direct-to-consumer net sales, excluding wholesale, were $69.5 million, a decrease of 7.6% as we completed our promotional reset and annualized price increases, resulting in lower conversions.

However, a 2.4% gain in average order value and 10% higher site traffic driven by increased marketing investment partially offset this decline. In addition, mobile sales penetration increased by 90 basis points. Our network of 66 retail stores delivered net sales of $51.3 million, a decrease of 2.4%. Retail store sales were impacted by lower traffic and conversion, partially offset by improved inventory availability and 6% higher average order values. Retail continued to outperform the direct channel, delivering flat year-on-year sales for the first half.

Regarding our newest distribution channel, Amazon, Duluth products have gained strong momentum since our mid-July launch, generating consistent week-over-week acceleration in sales. Men's product sales increased 0.5%, driven by strong cold demand in first layer and woven bottoms, including, DuluthFlex Fire Hose and Double Flex Denim. Women's product sales declined 15%, driven largely by strategic SKU rationalization and reduced clearance sales, while gross margin continued to expand. AKHG brand sales declined 26% as we exited low margin categories such as swimwear to improve gross margin, while cooling UPF selections and Shoreside woven bottoms delivered strong sell-throughs.

With fewer promotions and increased average prices, gross margin rate expanded across product categories and sales channels. In addition, excluding the impact of tariff refunds, underlying gross profit dollars grew in both the second quarter and the first half of 2026.

Gross margin rate expanded by 1,810 basis points to 72.8% of net sales. Excluding $16.0 million of tariff refunds, our Q2 gross margin was 59.6%, expanding by 490 basis points. This expansion was driven by our pricing and promotional reset, with average unit retails increasing by nearly 6%, along with cost savings from our direct-to-factory sourcing initiative.

These gains were partially offset by the impact of fuel price increases and carrier surcharge costs. For the first half of the year, underlying gross margin excluding tariff refunds was 58.7%, an expansion of 520 basis points versus prior year. Selling, general, and administrative expenses in the second quarter were $69.5 million, up $0.7 million or 1.1% compared to last year, deleveraging by 510 basis points to 57.3% due to a decline in sales. Advertising costs represented 10.9% of sales, an increase of 200 basis points, with an investment in increasing brand awareness.

Shipping and variable costs deleveraged by 60 basis points driven by higher fuel costs and carrier surcharges partially offset by continued savings from consolidating the fulfillment center network with the closure of Salt Lake City Fulfillment Center and store labor efficiencies. Overhead Corporate expenses were flat and deleveraged by 250 basis points, largely due to the decrease in sales and acceleration of incentive compensation accruals. Our ongoing operational discipline demonstrated by structural gains in fulfillment efficiency and prudent overhead management helped moderate deleveraging pressures and provided the flexibility to accelerate our brand-building initiative.

Inventory at the end of the second quarter was $125.2 million, a reduction of $22.9 million or 15.5% compared to prior year. Our inventory mix at quarter end was also healthier with 85.4% in current products and 14.6% in clearance goods versus 22.2% in the second quarter last year.

Overall clearance inventory dollars were down 43.1%, while units decreased 46.6%, primarily driven by right-sized buying and higher sell-through rates in seasonal spring-summer clearance items. Year-over-year inventory improved for the fifth straight quarter due to enterprise planning and SKU rationalization.

In addition, prioritizing inventory at our Adairsville Hub and retail stores improved in-stock levels by over 600 basis points. Our capital expenditures for the first half were $5.7 million compared to $9.7 million in the prior year, with investments primarily in the final phases of Manhattan Omni fulfillment software. We ended the second quarter with a stronger balance sheet and liquidity position. Cash and cash equivalents stood at $26.8 million with 0 debt on our asset-based lending facility versus $32.5 million of debt on the facility at the same time last year. This resulted in a net liquidity position of approximately $96.1 million.

Combined with our improved profitability, continued working capital discipline, and capital expenditure guidance, the business generated free cash flow of $13.0 million by the end of the second quarter, an improvement of $41 million compared to the same period last year. We continue to optimize our store fleet to maximize omni-channel sales in priority markets and improve profitability of the overall store portfolio. We have finalized 5 of our 7 store lease renewals for this year, with the remaining 2 under negotiation. Looking ahead, 10 store leases are scheduled for renewal in 2027.

Productivity across our store portfolio continues to trend upward, marked by an 80 basis point expansion in Q2 adjusted EBITDA margin and a 290 basis point gain year-to-date. Building on the 360 basis point expansion, achieved in the first half of last year, this reflects a cumulative 650 basis point margin expansion over a 2-year period across the first 6 months. Looking ahead to 2028 and beyond, as we lay the groundwork for our Raise the Roof growth phase, we are investing to refine and optimize the size and layout of our next-generation store format. Our supply chain transformation continues to deliver structural cost savings.

In the last 2 years, we have consolidated the logistics network from 4 fulfillment centers to 2. This has allowed us to maximize the return on our investments in the fully automated Adairsville Fulfillment Center, which crosses 75% of total units in Q2, an increase of 230 basis points from last year, while reducing our overall network variable cost per unit by nearly 25%. At the same time, optimizing our carrier network has allowed us to sustain nationwide click-to-delivery speed while partially offset the impact of rising fuel expenses and surcharges.

Looking ahead to full year fiscal 2026, we are updating our financial outlook by raising our Adjusted EBITDA guidance while maintaining our overall net sales expectations. We are increasing our full year Adjusted EBITDA expectations to between $38 million and $42 million, up from our prior outlook of $28 million to $32 million. This updated projection includes the $16.3 million gain from tariff refunds, partially offset by strategic growth investments and increased fuel expenses. We are reaffirming our full year net sales guidance of $540 million to $560 million. First half net sales were minus 6.2%, finishing at the top end of our targeted minus 6% to minus 10% range.

While overall second half sales performance is projected to be between minus 2% to plus 2%, we expect sales in the third quarter to moderate as we lap prior year clearance events that generated lower margin revenue. Our tariff rate for the second half of the year is assumed at approximately 15% to 16%, reflecting 12.5% for Q3 and back to the higher rates in Q4.

Within SG&A, we anticipate marketing spends to accelerate in Q3 compared to last year due to earlier holiday shopping demand, and we expect continued headwinds in transportation costs. We are affirming full-year capital expenditure guidance of approximately $12 million, behind investments in Manhattan Active Omni fulfillment software, Apple Pay, and maintenance.

We are allocating capital and strategically reinvesting our cash flow and tariff refund proceeds across key priorities. First, we are fueling brand growth with incremental second half marketing investments across connected TV, college football, and high conversion search channels. Second, we are funding long-term strategic initiatives, including retail store growth and wholesale partnerships to support the Raise the Roof stage of our Build to Last strategy for 2028 and beyond. Finally, we are being prudent in maintaining a reserve to counter macroeconomic and supply chain headwinds.

In closing, validated by 5 consecutive quarters of expanding margins and improving cash flow, our Q2 results demonstrate the success of our turnaround. Driven by margin discipline, optimized inventory, and strong cash generation. With the Seal the Foundation phase complete, we are focusing on Frame the Structure, capitalizing on our enhanced financial strength to invest in growth initiatives that drive strategic customer engagement and broader distribution.

Having transitioned our financial model towards higher structural growth margins, decreased fulfillment costs, and greater working capital efficiency, we are maintaining a disciplined approach to capital allocation and have clear financial levers to drive sustainable, profitable growth as outlined in our Build to Last strategy. With that, I will turn the call over for questions.

Operator

[Operator Instructions]

Our first question comes from Dylan Carden with William Blair.

分析師問答

Dylan Carden

I'm curious if you can kind of spell out in guidance expectations for third quarter, why that takes a step back and maybe in that understanding kind of the drag of the Alaskan Hardgear business. In other words, sort of 2 quarters into that. Inventory reset, I don't think you've ever quantified it as a percent of sales, but just how big of a headwind is that versus sort of the core Duluth business?

Stephanie Pugliese

So Dylan, this is Stephanie. Good morning. I can start with the Alaskan Hardgear conversation, then I'll hand it over to Heena on your other question around third quarter and guidance. Alaskan Hardgear is a relatively small part of our assortment overall. What we're finding is that we've got some specific core products in Alaskan Hardgear that are doing really well. It was an area of the business that over the past several years, kind of fell victim, if you will, to the over-assortment, over-SKU situation that the total business had. And so we've pulled that business back to the essence, things like Stone Run Pants, for example. And we're rebuilding into that. But think about it as a small part of the business, something that we think has opportunity in the long term, but it's really not an overall significant drag to what we're trying to do with the core men's and women's apparel.

Heena Agrawal

Good morning, Dylan. On Q3 guidance, we expect the trend in Q3 to be better than Q2. However, we are not repeating some of the clearance events. As I mentioned in the call, our clearance inventory is down over 40%, both in dollars and units. And so that's the reason for moderating our expectations on Q3, but it will be an improving trend versus Q2.

Stephanie Pugliese

And I would categorize it, Dylan, as our reset really has been highly focused on the promotions that we turn on or trigger during specific time periods. And we're starting to lap that as we come into the back half of the year. That said, last year at this time. We were so heavily impacted by clearance and the negative from the standpoint of our inventory and our balance sheet and ultimately the margins. But it did generate short-term top-line volume for us, specifically in the month of August and third quarter, that is a headwind for us in third quarter.

Dylan Carden

Understood. So if I'm thinking about back half down 2, up 2, is third quarter worse than that? And I guess if so, help me understand the inflection then in fourth quarter. Is that... lapping clearance activity, is that sort of a marketing lag effect?

Heena Agrawal

Yes, so if you think about the minus 2 to plus 2 and the timing of the different quarters, every quarter improves versus the prior quarter. So Q3 better than Q2, Q4 better than Q3, and that is what gets us to the minus 2 to plus 2 for the second half versus the first half. Okay, but Q3, yes, lags Q4. Q4 will be better because there will be even more evenness versus last year when it comes to the amount of promotions, the pricing impact, the marketing impact, and the inventory situation.

Dylan Carden

And would you expect the recovery to be kind of led? I know it's further impaired versus the retail channel, but if you're doing all this marketing, wouldn't you expect the sort of the impact there to be mostly in the online channel, particularly as you lap the clearance activity? I know that's a higher clearance channel.

Heena Agrawal

Yes, we expect the improvement in both channels. And like you said, the improvement is greater in the online channel versus the retail channel, especially in Q4.

Dylan Carden

And sorry, last one for me. On inventory terms, if I kind of take it, the trailing 4 quarters are still kind of below 2. And I'm just kind of curious as you right-size the inventory here, the opportunity embedded in getting more efficient in turn.

Stephanie Pugliese

Thanks. Yes, this is Stephanie. I'll take that, Dylan. We do definitely see opportunity in the long term for improving inventory turns and to continue to SKU rationalize the business. That said, the other thing that was very important to us is, as you know, our core product. And I believe we still have opportunity in that core product to be in a never-out inventory situation so that when our customers come either online or in the stores, we know that we are satisfying that demand at the time of need. So we're also looking at how we right size and flow our core product in a way that satisfies our customer and just creates that better experience where we're in stock all the time.

So it's a play on the inventory around SKU rationalization, tightening down the or improving the sell-throughs, particularly on non-core products, and then an always in-stock position on core. Thank you very much.

Operator

Thank you. That will conclude today's question and answer session. This concludes today's conference call. Thank you for participating. You may now disconnect.