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Duluth Holdings (DLTH -7.26%)
Q3 2020 Earnings Call
Dec 03, 2020, 9:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the Duluth Holdings third-quarter 2020 conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Donni Case of investor relations. Please go ahead.
Donni Case -- Investor Relations
Thank you, and welcome to today's call to discuss Duluth Trading's third-quarter financial results. Our earnings release, which we issued this morning, is available on our investor relations website at irduluthtrading.com under press releases. I am here today with Steve Schlecht, chief executive officer; and Dave Loretta, chief financial officer. On today's call, management will provide prepared remarks, and then we will open the call to your 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'll turn the call over to Steve Schlecht, chief executive officer of Duluth Trading. Steve?
Steve Schlecht -- Chief Executive Officer
Good morning, everyone. And thank you for joining today's call. I am pleased to report that net sales for the third quarter grew 13% to $136 million, largely driven by a 40% growth in direct sales year over year. Our e-commerce business continued to grow at the same pace as the second quarter, with 15 million site visits, up 30% to last year.
All 65 of our retail stores were open during the quarter. Sales in the stores declined just 16% year over year, which was the best store performance we've seen since the pandemic began. Throughout this year, COVID-19 has unfortunately remained an unpredictable challenge in the retail landscape. It has tested the agility and resolve of our entire organization.
I'm very proud of our team's efforts in delivering the best customer experience regardless of the challenges. Right now, the recent surge in the virus case load is creating new concerns around holiday shopping beyond the usual apprehension of all retailers experience. That said, we've done everything within our control to be prepared for peak season. We are fully staffed across all our operations to handle the early shopping that is being driven by preseason promotional activity.
Our inventory levels are in good shape, and we're fortunate to have customer-centric technologies in place like buy online, pick up at store. In fact, the pandemic has really accelerated the adoption of BOPIS. We channeled over 33,000 orders in the third quarter, and we expect that order level might triple in the fourth quarter. This quarter, we also added text messaging for curbside pickup to further ensure an easy and safe retail shopping experience for our customers.
So far, our early Black Friday sale event was effective at pulling some business forward with direct sales in November, increasing 30%. Regarding retail, all of our stores were closed on Thanksgiving, and store traffic on Black Friday was below what we initially anticipated. There's still a lot of distractions out there. The resurgence of COVID is a concern regarding in-store shopping, and it also clouds the outlook for consumer spending.
We know that delivery providers are working around the clock to handle increased volume and shipping deadlines. Even so, research indicates that 47% of consumers are more interested in shopping online than last year, which puts added pressure on the delivery network. While these big question marks are outside our control, we've been busy looking beyond this very different holiday season. During the quarter, we launched two new brands.
In early October, we introduced our new entry-level workwear for men 40 Grit; and in late October, we launched Best Made, which is a premium offering with design-focused hardgoods and apparel. With Alaskan Hardgear, 40 Grit, and now Best Made, we are building a portfolio of distinct brands within the Duluth Trading ecosystem. We are both enthusiastic and confident that we can apply our winning formula of innovative solution-based products, memorable storytelling, and strong customer relationships to build out the next phase of our direct-to-consumer platform. In doing so, it is important to know that our process is very deliberate and totally connected to the Duluth brand reputation for quality products that support hands-on work, active hobbies and the modern self-reliant lifestyle.
Our goal is to expand brand recognition with a wider and younger audience, as well as offering an extended range of options across the good, better, best price categories. Fortunately, we also started to pivot toward digital marketing even before the pandemic and now are rapidly scaling the learning curve. Our investments in digital tactics continue to drive sales and strong new customer growth, which was more than 20% in the third quarter. We will continue to expand our testing and learnings in this space and expect that our new customer data tools will realize additional efficiencies in our overall marketing program.
Finally, I want to wish you and your families a wonderful and safe holiday season. I'm grateful to our team that has worked so hard for our customers in the greater community. Due to the successful efforts of our Pink Buck Naked campaign, we were able to donate $120,000 to The American Cancer Society. We are also the proud sponsors of the IDEAL National Championships that honor the hard work and talent of tradespeople across our nation, who faced the challenges of 2020 to make our daily lives a little easier.
With that, I'll turn the call over to Dave to discuss our financials and operations.
Dave Loretta -- Chief Financial Officer
Thanks, Steve, and good morning, everyone. As Steve mentioned, we're pleased with our third-quarter performance. We reported net sales of $136 million, up 13%, compared to $120 million last year. Effective and timely brand messaging, coupled with strong product lines, drove top-line sales momentum during the third quarter.
As expected, the holiday shopping season began early this year, kicking off in mid-October. Our second annual Big Dam Birthday Sale event ran September 24 through October 5 and beat last year's event overall by 5%. We also pulled forward a key sale event into late October to finish the quarter strong and avoid the busy election week. Within nonstore markets, direct sales grew 37% and even more encouraging, within store markets, direct sales grew 46%, reflecting the strong brand awareness that end market stores can generate even while shopping shifts to our digital channels.
As Steve mentioned, all of our stores were open during the third quarter. Store traffic was lighter than last year as expected. However, store sales improved throughout the quarter and ended down 16% compared to last year. Most recently, store traffic has fallen off roughly 30% to last year, coinciding with rising COVID cases and renewed pandemic restrictions to minimize nonessential activities.
Our investment in digital tactics continue to fuel sales and new customer growth during Q3. Customer traffic through digital channels repeated the volume of the second quarter with 15 million site visits, up 30% to last year. In addition, improving conversion rates led to digital product sales growth of 42%. Digital prospecting continued to drive significant new buyer growth and help convert our high brand awareness into a first purchase.
We leveraged social media to prospect for new customers, driving a third of the sales on our sites. We also completed the first phase of our Adobe CRM initiative and began introducing targeted email campaigns at the end of the third quarter. We've just started leveraging the power of this tool, and we've identified opportunities to generate growth in 2021. The strong demand we experienced in the first half of the year for our functional comfortable apparel continued throughout the third quarter.
Overall, our men's business was up 12%, driven by strength in the core men's categories, including underwear, Fire Hose pants, denim and Longtail Ts. Alaskan Hardgear was up over 50% to last year, fueled by our spring/summer clearance styles. We were also excited to launch two new brands, 40 Grit and Best Made in time for the holiday shopping and are very optimistic about the future potential both lines represent. Our women's business delivered very strong growth this quarter, increasing 15% over last year, driven by comfortable basics and the NoGa collection.
Strength in workwear essentials like Flex Fire Hose and Overalls continued from the spring summer, with sales increasing 50% from last year. Our plus line continues to grow and now represents 11% of the total women's apparel business. Cold weather gear like base layers, lined bottoms, sweaters and outerwear is off to a strong start with cooler temps across the country. Third quarter's strong sales momentum further improved our inventory position, which ended the quarter up 17% compared to Q3 last year, which is more in line with our current sales trend.
Our gross margin rate declined 220 basis points year over year to 52.4%, reflecting deeper discounts on clearance goods. However, the third-quarter year-over-year product margin decline was much improved, compared to the trend in the first half of the year, which was down 330 basis points. We do expect the gross margin rate in Q4 will be lower than last year, but not to the same degree as the Q3 decline. SG&A expenses for the third quarter increased 6.5% to $68.2 million, compared to $64 million in the comparable period.
This included an increase of $4.1 million in selling expense and a $5.4 million increase in general and administrative expense, partially offset by a decrease of $5.3 million in advertising and marketing expense. As a percentage of net sales, SG&A decreased 320 basis points to 50.3%, compared to 53.5% in the third quarter last year. The improvement was largely driven by reduced advertising spend, offset by increased shipping costs to support website sales higher retail overhead costs driven by new store growth and increased depreciation expense associated with technology investments. Selling expenses, as a percentage of net sales, increased 120 basis points to 16.7% due to greater shipping costs from the higher mix of direct sales as a percentage of total sales.
In the fourth quarter, we expect this expense deleverage will continue with strains on the last mile network adding costs and heavier staffing needed to fulfill direct orders. Our stores are also continuing to support direct order volumes, either through buy online, pick up in store or ship from store. General and administrative expenses as a percentage of net sales increased 140 basis points from last year to 23.4%. In dollars, G&A expenses increased $5.4 million, largely due to new store growth over the last 12 months, higher depreciation related to technology, logistics investments and a one-time credit last year related to a restricted stock forfeiture.
We opened three new stores during the third quarter, in Florence, Kentucky; a suburb of Cincinnati; Orland Park, Illinois near Chicago; and Springfield, Oregon near Eugene. This brings our total store count to 65. There will be no additional store openings for the remainder of the fiscal year, but still have one plan for -- to open up next year. As a percentage of net sales, advertising and marketing costs decreased 580 basis points to 10.2%, primarily driven by reduced catalog in TV advertising, as well as cutting billboard spend in local store markets, partially offset by higher digital spend.
During the fourth quarter, we plan to continue driving direct traffic with increased targeted and prospecting digital spend. But the overall amount will be down 15% to 20% from last year's Q4 due to less TV ads and fewer catalogs. Our adjusted EBITDA for the third quarter increased $4.2 million or 57% to $11.4 million and represented 8.4% of sales and 230 basis points of EBITDA margin expansion. For the quarter, we reported net income of $900,000 or $0.03 per diluted share, compared to net income of $200,000 or $0.01 in the third quarter last year.
Moving on to the balance sheet. We ended the quarter with net working capital of $136.6 million, including $12.8 million in cash and $91.9 million outstanding on our total line of credit of $150 million. Our cash flow initiatives have continued through the third quarter, and we expect we'll be free cash flow positive by year-end. Given the continued uncertainty with rising COVID-19 cases and the impact that is having on store traffic, we are not in a position to give financial guidance for fiscal 2020.
While there are macroeconomic factors outside of our control, we have made every effort to ensure peak preparedness for the most critical quarter of our fiscal year. We are confident in our brand, the strength of our omnichannel model and our team's ability to provide exceptional customer service in this holiday season. I join Steve in wishing you all a safe and healthy holiday and a happy much anticipated new year. With that, we'll open the call for questions.
Questions & Answers:
Operator
Thank you. [Operator instructions] Our first question is from Jonathan Komp from Robert W. Baird. Please go ahead.
Jonathan Komp -- Robert W. Baird -- Analyst
Yes. Hi. Thank you. Good morning.
I wanted to just start off more of a near-term question. I know, Dave, you highlighted some of the trends quarter to date that you're seeing, but can you maybe just expand a little bit more on the trends across direct and retail? And any thoughts on -- factors that might impact the balance of Q4 thinking about sales, as well as any shipping constraints and any associated costs there, if you could give a little more color?
Dave Loretta -- Chief Financial Officer
Yeah, sure, John. As Steve mentioned, direct business for the month of November was pretty healthy at 30% up. It certainly was a interesting month. The first couple of weeks were much lighter.
Direct was positive in all that period. But with the election noise, definitely had an impact on the first couple of weeks of November. But we accelerated coming out of that period and had our first global event kicked off two weeks ago with a lot of success. So we're pleased with how the direct business continues to trend.
Now our stores, they are in the 30% range, down from last year. And that's, I think, a reflection of just softer foot traffic, hesitancy of shopping in store. And so we've pivoted to a lot of our store staff, helping with direct orders in that period of time. Overall, though, we are thinking that we were able to manage the expenses between store fulfillment and direct fulfillment fairly effectively.
Haven't had a significant problem with the shipping at this stage. We worked proactively with our shipping partners to make sure that we had ample capacity and haven't had any delays in pickups. So feel good about that. But we're expecting it to be pretty healthy business continuing through the next two weeks.
And I think we'll see where that translates into store versus website. But clearly, online shopping is the preferred form of shopping this year.
Jonathan Komp -- Robert W. Baird -- Analyst
Yeah, that's really helpful. Appreciate that. Maybe switching to margin. I know you've had a couple of quarters now pretty encouraging margin improvement and inventory also improving while that's happened.
So maybe just broader context, if you could, about kind of the progression of margin when you think about some of the areas of savings you're getting and the sustainability going forward? If you could just talk more about your outlook for margin and the ability to continue the improvement you've seen?
Dave Loretta -- Chief Financial Officer
Yeah. Beyond this year, and we certainly expect our gross margin or product margin to be a big contributor to operating margin expansion. I did articulate that we're going to expect our fourth-quarter gross margin to still be a bit below last year, but not to the near degree that we've had it year to date. And that's reflective of the cleaner inventory positions that really help manage the product gross margin.
We've got a logistics network that's now all under our control. We pulled out of three PLs over the summer. We're ramping up a new facility in Dubuque, that is going to provide productivity and efficiency improvements for us going forward. That will certainly help with our variable expense and be able to leverage that through -- into 2021.
And simply the fact that we've rationalized our capex spend from fewer new stores. We're not going to see the additive fixed costs from depreciation. And so we expect to be able to leverage that into the future as well. Advertising has been a big contributor of leverage for us this year, and that's been somewhat of a shift from national marketing and advertising primarily through TV to digital.
And that allows us to be more targeted and more nimble with how we spend those dollars. So we expect that to continue as well.
Jonathan Komp -- Robert W. Baird -- Analyst
That's helpful color. Thanks, Dave.
Dave Loretta -- Chief Financial Officer
Thank you.
Operator
The next question comes from Jim Duffy from Stifel. Please go ahead.
Jim Duffy -- Stifel Financial Corp. -- Analyst
Good morning, guys. Hope you do well.
Dave Loretta -- Chief Financial Officer
Good morning.
Jim Duffy -- Stifel Financial Corp. -- Analyst
I congratulate you on great execution through challenging times. You've done a particularly nice job with the inventories and the cash flow. I'm curious how you're planning inventory receipts as you look into spring? What are some of the prevailing strategies behind your buys and the assortment planning?
Dave Loretta -- Chief Financial Officer
Yeah, Jim, we started our spring assortment planning six months ago and focused it on a sales plan that we knew was going to be more realistic without some of the new stores that we had been on the pace of. So it's more reflective of the sales forecast that we have going forward, which means we'll be able to buy to those levels. But we are also using the learnings from the prior spring season to adjust the categories within the assortment with an eye toward what's really working. Our spring/summer event was strong on the women's side with garden as a key focus.
Our men's saw a lot of great success with some of the warmer weather summer items that we introduced with lighter-weight fabrics. So all of that learnings go into our assortment for next year and gives us enough capacity to chase some -- the items are going to work really well and even some year-round items that do well in the first half of the year, we can reup and chase in the back half of the year. So it gives us more nimble ability to do that without the overhang of a large inventory position that we spent a good part of this year working down. But we're well onto adjusting our buys for fall/winter right now for next year, and that's being informed by success in items that we're seeing sell right now.
Jim Duffy -- Stifel Financial Corp. -- Analyst
Great. And then, a follow-up question on the marketing efficiency. Really nice leverage from reduced spend in some legacy media forms like catalog, TV, billboard, do you guys see that as permanent savings? Or is that more circumstantial, given the COVID backdrop? Should we take this to be reflective of a more permanent shift to digital marketing spend and more marketing efficiency? Or are there dollars coming back into the model as business starts to normalize?
Steve Schlecht -- Chief Executive Officer
No. I mean, we think these are permanent shifts. We'll always have some presence on TV. That is an important aspect of our brand awareness program.
So that will be there, but not to the heavy degree that we've had in the past. Digital has proven to be much more efficient and flexible near term. So we'll continue to learn there, and it's also been a tremendous new buyer acquisition tool for us through prospecting on social media. So we can -- we'll continue to do that.
Catalog will also continue to have a presence in those specific times of year, but we've been reducing that for the last few years as it is. And I think the efficiency that we're at today is the big improvements are largely behind us. Now it's a lot of fine-tuning and using our customer data tools to be as targeted and personalized as possible because we think that's really what's going to be the big improvement for us going forward.
Jim Duffy -- Stifel Financial Corp. -- Analyst
OK, great. And then, last one for me, just on the multi-branded strategy with 40 Grit and Best Made, what are you guys seeing in terms of average selling prices? Are you seeing 40 Grit bring in a new consumer? Is it actually mixing average selling prices down and you're just seeing more units?
Steve Schlecht -- Chief Executive Officer
It's pretty early on with 40 Grit and Best Made. 40 Grit certainly is designed to attract a more cost-conscious younger customer and that is what we are seeing. The average ticket is lower than the Duluth Trading core items. But our objective is to keep that at everyday low price and not have to use it as a markdown clearance vehicle.
So we'll maintain a constant margin on that. But it's still growing. And we're just now starting to see a lot of the product reviews on our website that fuels interest as we go, and we're adjusting some of our marketing tactics around that. But it will be a slightly lower price point, average ticket size than the core Duluth goods.
But we're expecting that we are going to see some volume through that category as it gains more traction and more awareness. Best Made is more of the higher ticket, fewer items, but premium. And again, that's still very new. We haven't really introduced any of the new products yet that we want to bring to the brand, that will start coming next year.
And we'll give our higher-end customers something to aspire to and a little premium level as well.
Jim Duffy -- Stifel Financial Corp. -- Analyst
Great, that's all I have. Thank you, guys.
Steve Schlecht -- Chief Executive Officer
Thank you.
Operator
[Operator instructions] The next question is from Dylan Carden from William Blair. Please go ahead.
Dylan Carden -- William Blair and Company -- Analyst
Yes, thank you very much. Dave, I just wanted to clarify two points on the model. When you're talking about gross margins for the fourth quarter, sequential improvement, are you expecting kind of a promotional activity, at least the depth of it to improve relative to where your inventory levels are such that you should see kind of a sequential improvement? And then, on the advertising cost, it's 10% or so, low double digits, kind of the new level that you anticipate being able to hold even in a more normalized environment?
Dave Loretta -- Chief Financial Officer
Yeah. I mean, to start with the advertising, we do think low double digits is what we'll be able to hold to that going forward. So that is the assumption for us on the gross margin. What we're going to see in the fourth quarter is a level that's comparable to the third quarter in terms of its gross margin rate.
But that's still going to be down a bit from last year. And going forward, we're expecting that to start to improve in the first quarter in 2021 with the inventories as clean as they will have been in a while. So yes, that's what we're looking at.
Dylan Carden -- William Blair and Company -- Analyst
Great. And then, maybe for both of you, just on the sort of the portfolio approach here. I'm just kind of curious sort of your thinking as far as rolling some of these brands directly onto the Duluth platform, is there an opportunity longer-term to kind of incubate and maybe spin some of these off, how you think about their presence in stores? And then, just given kind of the environment that we are in, is this something where you can maybe add a couple more tuck-ins to kind of sort of further the strategy? Just would be curious what you're thinking around all that.
Dave Loretta -- Chief Financial Officer
Yeah, Dylan, we definitely think that our portfolio approach can sustain more sub-brands. We're not actively out there looking for them. But when they come our way or we do see something that might be attractive, we'll certainly consider it. It needs to fit the criteria of -- within the overall Duluth umbrella brand position.
But if it's allowing us to extend into a different demographic or a category that we think is complementary and can drive some additional business for our existing customers, then we're going to look at that. We haven't really thought about spin-offs or being a heavy transaction-oriented business. So far, what we've got with Alaskan Hardgear, our development of 40 Grit, our purchase of the Best Made brand, we're committed to those going forward. And we don't necessarily see that they would need to leave, but where we could see growth is if there's a store format that might make sense for those brands on their own.
And that, I would say that's a ways away. We don't have anything on the drawing board, but that's certainly a longer-term strategic potential as these gain some scale and really can stand on their own. And this is the first phase of having them stand on their own is just a presence on our website as a separate tab. So that's going to be the big learning for us as we nurture these brands.
Dylan Carden -- William Blair and Company -- Analyst
Yes. And that's more what I meant. Yes, and I guess, maybe to that kind of same vein, the new customers that you're seeing kind of in, I think you called this out last quarter as well, would you attribute -- I know you're doing some more innovation on the sort of core Duluth side as well, but would you attribute some of that, at least to these newer brands as well? And then, I was just curious, I know we are kind of early days here, but have you seen kind of the stickiness of that new customer, maybe sort of coming back to purchase around holiday or anything that kind of gives you some comfort as sort of the acquisition that you've seen in this environment, if that makes sense?
Dave Loretta -- Chief Financial Officer
Yeah. From the new buyer, stickiness, we're seeing that it continues to play out like we have in the past. And so the surge of new acquisition this year, does give us confidence that they're going to be retained at, at least the same level, if not better, than we've had in the past. Part of our confidence in the ability to do that is having tools that will allow us to personalize outreach to those first-time buyers and make them a second-time buyer.
In the past, we haven't really been able to do that very effectively at all. And so with our new CRM model, that is a major benefit that we'll able to see some higher retention rates from this new buyer group. So yes, very positive with the fact that our new buyer profile is going to be fueling some of the growth for us in the coming years, where new stores were a growth vehicle for us in the years past.
Dylan Carden -- William Blair and Company -- Analyst
Great, thank you very much. Have a great holiday.
Dave Loretta -- Chief Financial Officer
Thank you.
Steve Schlecht -- Chief Executive Officer
Thank you.
Operator
The next question is a follow-up from Jonathan Komp from Robert W. Baird. Please go ahead.
Jonathan Komp -- Robert W. Baird -- Analyst
Yeah. Thanks. Just two more follow-ups, just if I could. One just on the store strategy, I've seen only one lease signed for 2021.
Could you maybe just follow up and share a little more perspective on what you're thinking for the store strategy here and any pivots going forward?
Dave Loretta -- Chief Financial Officer
The store strategy was started to formulate really a year and a half ago when we really started to understand the maturity curve of the stores. And I'd say our focus has been getting the most out of our existing stores, but understand that they do have a role to grow our market. We still think that's an important element to brand growth long term. So physical presence in markets where we don't have stores is still an objective of ours.
But what we want to give ourselves the time to do now is evaluate the nature, the shape, the cost of the stores. And really, the sites that we think are going to be most fruitful for those new geographies we're going to -- that we're going to explore for physical presence. So we're giving ourselves time right now to do that. I'd say more to come down the road as we design some concepts of the store of the future and start to test some concepts with that.
But 15 stores a year at $2-plus million in build out cost is -- we don't have that on the road map today. And so we are looking for other ways to have some physical presence to complement the online presence because we know that that's really what helps the brand the most.
Jonathan Komp -- Robert W. Baird -- Analyst
Yeah, great. And maybe just one more broader question on operating margin. Given the slower pace of retail growth, along with the advertising savings and Dave, your comment about product margin improvements in the years ahead. Just how are you thinking about operating margin? And maybe what might it take to get back to high single-digit type levels or higher over time? How are you thinking about that?
Dave Loretta -- Chief Financial Officer
Yes, we do certainly have our sight set on operating margins that were at the levels we previously enjoyed, high single-digit operating margin, low double-digit EBITDA, and in fact, I think longer term, we can get to mid double-digit EBITDA margins given the leverage that we have with the scale now with stores and logistics and systems in place. What's going to get us there is certainly going to be some product margin expansion. We, in the past, were in the mid-50% range higher than that when you include the shipping revenue, which we're not assuming we're going to get back in the future. But more sustainable product margin that's based on some full-price selling.
It's based on a mix of goods that are really relevant to the season that they're in and markdown strategies that are informed by some automated systems that -- versus a very manual approach today. All of those will lead to gross margin improvement for us. And on top of that, I think where we're going to see leverage is on some of the overhead and a bit on the variable expense. Where we're going to land this year on advertising is probably a good spot for us in terms of fueling enough marketing to -- across the brands, especially some of the newer brands that sometimes require a higher amount of ad spend.
But gross margin, variable expense and leveraging the fixed cost is what's going to get us back to those high operating margin levels.
Jonathan Komp -- Robert W. Baird -- Analyst
Understood. Very helpful. Thanks again.
Steve Schlecht -- Chief Executive Officer
Yes, thank you.
Operator
The next question is from Richard Hayden from THC. Please go ahead.
Unidentified speaker
Hi. Just a couple of numbers questions. Do you have a number for capex for 2021?
Dave Loretta -- Chief Financial Officer
We haven't released that yet, but what we've talked about is, it's going to be a similar level to where we are this year. We only have one store planned for next year, but we do have some initiatives in technology and logistics that will require some additional capital, but should be at a comparable spend to what we are going to do this year, which is $16 million to $17 million in capex.
Unidentified speaker
And second. In the quarter, I'm just trying to reconcile the variation in the GPM. Excuse me. The stock-based compensation had a swing of $1.1 million or $0.03 a share pre-tax.
Is that included in gross profit or cost of goods sold, excuse me?
Dave Loretta -- Chief Financial Officer
No, that's in the SG&A.
Unidentified speaker
SG&A. And what sort of numbers should we see going forward that was a pretty big swing for the quarter?
Dave Loretta -- Chief Financial Officer
Well, versus year over year?
Unidentified speaker
Right.
Dave Loretta -- Chief Financial Officer
Yeah. The normal amount is what we expense this year. What we're comparing against to last year was an unusually low stock expense because we had a forfeiture last year when our CEO left the company. And so that was a one-time credit of about $1.2 million last year.
So that's why it looks like a big variance year over year.
Unidentified speaker
OK, thank you.
Dave Loretta -- Chief Financial Officer
OK.
Operator
[Operator signoff]
Duration: 44 minutes
Call participants:
Donni Case -- Investor Relations
Steve Schlecht -- Chief Executive Officer
Dave Loretta -- Chief Financial Officer
Jonathan Komp -- Robert W. Baird -- Analyst
Jim Duffy -- Stifel Financial Corp. -- Analyst
Dylan Carden -- William Blair and Company -- Analyst
Unidentified speaker
