Image source: Duluth Holdings.
What happened
After reporting disappointing third-quarter results, shares of Duluth Holdings (DLTH +1.70%), a niche apparel maker that caters to tradesmen in rural areas, fell by more than 22% as of 11:30 a.m. EST on Friday.
So what
Here's a quick look at the quarterly highlights:
- Duluth opened three new retail stores during the quarter, bringing its total up 12 retail stores and two outlets.
- Revenue grew 21% to $67 million. This figure came up short of the $69 million in revenue that Wall Street had expected.
- Gross margin expanded by 60 basis points in the period to 57.8%.
- Costs related to new store openings caused selling, general, and administrative expenses to rise by 27% to $37.9 million.
- Net income for the quarter dropped 67% to $0.5 million, or $0.01 per diluted share. That was roughly in line with what market watchers had expected.
Management blamed the revenue shortfall on "unseasonable weather, coupled with a highly promotional environment." In response, it lowered guidance for fiscal 2016.
Here's an updated look what it expects to happen during the full year:
| 2016 Guidance | New Guidance | Old Guidance |
|---|---|---|
| Revenue | $360 million to $370 million | $370 million to $380 million |
| Adjusted EBITDA | $34 million to $38 million | $40 million to $43 million |
| GAAP EPS | $0.52 to $0.60 | $0.66 to $0.70 |
| Capital expenditures | $25 million to $26 million | $24 million to $25 million |
Data source: Duluth Trading.
Given the disappointing third-quarter sales and cut to full-year guidance, it's no surprise to see shares cratering today.
Now what
Duluth's long-term shareholders have enjoyed a fantastic run in 2016. Even after including today's huge drop, shares are still up more than 96% since the start of the year. That blows past the returns of the retail sector in general as measured by the SPDR S&P Retail ETF (XRT 0.10%).
While Duluth's third-quarter results were a bit light of expectations, the company continues to feel good about its long-term prospects. In the release, management reaffirmed its long-term financial growth targets, which call for roughly 20% annual sales growth and 25% net income growth.
With plenty of room left for new store openings and rising gross margins, these long-term targets appear to be achievable. If true, then it wouldn't surprise me one bit to see shares continue to provide investors with market-beating returns.
