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Duluth Holdings Keeps Moving Forward

By Brian Feroldi - Dec 8, 2017 at 10:13AM

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New store openings and customer gains enabled management to reaffirm its guidance for the year.

Duluth Holdings (DLTH -3.83%), a purveyor of clothing and accessories primarily used by tradespeople, released its fiscal third-quarter results on Thursday, Dec. 7. Management said that warmer-than-expected fall weather stunted its growth early in the quarter, but sales picked up once the temperature dropped in late October. When combined with the company's growing retail footprint, total sales grew at a healthy pace yet again.

Let's dig into the details to learn more about what happened at Duluth during the quarter.

Inside view of a Duluth store

Image source: Duluth Holdings.

Duluth Holdings Q3 results: The raw numbers

Metric Q3 2017 Q3 2016 Year-Over-Year Change
Revenue $83.7 million $67.0 million 25%
Net income ($0.8 million) $0.5 million N/A
Earnings per share ($0.03) $0.01 N/A

Data source: Duluth Holdings Inc.

What happened with Duluth Holdings this quarter?

  • Catalog and online sales grew 3.6% to $54.1 million. However, management noted that its free shipping promotion is acting as a drag on revenue. Product sales from these channels actually grew 5.2% when compared to the year-ago period.
  • New store openings allowed retail sales to grow by 101% year over year to $29.6 million.
  • The women's business accounted for 25% of total product sales.
  • Total new customer growth was 19%.
  • Gross margins dipped 120 basis points to 56.6%. The decline was mostly owed to lost shipping revenue. On the bright side, product margins actually rose year over year thanks partly to lower markdowns.
  • Spending on selling, general and administrative expenses grew 27%, outpacing revenue growth. Management noted that spending on advertising, marketing, and executive turnover caused the large jump.
  • Higher spending and lower margins caused net income to turn negative. Net loss for the period was $0.8 million, or $0.03 per share.  
  • Three new stores were opened during the quarter. That brings the year-to-date total to 15, completing the company's new store opening goals for the year.

What management had to say

CEO Stephanie Pugliese said that this was the 31st quarter in a row of increasing net sales year over year. She also said that she was "proud" that her team was able to execute so well with new store openings.

Pugliese also provided investors with some upbeat commentary related to how the retail stores are performing:

We continue to attract new customers through our retail stores and during the third quarter, new customers acquired through retail was up 81%. We remain committed to investing in our omnichannel model and believe it is vital to building brand awareness and delivering holistic growth to our company.

Looking forward

Management reaffirmed guidance for the full fiscal year 2017 that calls for revenue to land between $455 million and $465 million. The midpoint of that range represents growth of about 22%. The fiscal year ends at the end of January. Turning to the bottom line, management predicts that full-year EPS will land between $0.66 and $0.71. That represents 4% growth at the midpoint.

Turning to 2018, management affirmed that the company is targeting 15 new stores openings for the upcoming year.

On the conference call with investors, Pugliese said Duluth remains well-positioned to thrive in this changing retail landscape:

Duluth is moving confidently toward a true omnichannel model. This ultimately means that we meet our customers where and when they want to shop and provide them the tools to interact with our brands seamlessly. Our solution based product, our distinctive brand identity and importantly, our continued investment in the channels that we control are what give us the ability to holistically grow our brand in this new retail environment.

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