Duluth Holdings (NASDAQ:DLTH), a retailer that caters to the needs of tradespeople, released its fiscal fourth-quarter and full-year results on Tuesday, March 20. New store openings and modest gains in the direct business segment helped drive record quarterly revenue and earnings results.

Let's dig into the details to get a better sense of what happened at the clothing and gear company during the period.

Inside view of a Duluth Trading men's department, with button-down shirts on display.

Image source: Duluth Holdings.

Duluth Holdings Q4 results: The raw numbers

Metric Q4 2017 Q4 2016 Year-Over-Year Change
Revenue $217.8 million $174.7 million 24.7%
Net income $19.5 million $14 million 39.3%
Earnings per share $0.60 $0.43 39.5%

Data source: Duluth Holdings Inc.

What happened with Duluth Holdings this quarter?

  • Retail (store) sales doubled to $62.5 million while direct (online and catalog) sales grew by 9% to $155 million.
  • Gross margins slipped 210 basis points to 53.3%. The decline was caused by an increase in free shipping to customers and increased promotional activity.
  • Spending on SG&A (selling, general, and administrative expenses) fell 260 basis points to 39.7% of net sales and helped to offset the lower gross margin.
  • Net income was artificially boosted by the recent passage of the U.S. Tax Cuts and Jobs Act. When adjusting for the tax changes, net income would have been $17.6 million, or $0.55 per share.

Zooming out to the full year, here's a look at the key numbers from fiscal year 2017:

  • Sales grew 25% to $471 million. That was $6 million above the high end of management's guidance range.
  • Net income jumped 10% to $23.4 million, or $0.72 per share. That was a penny higher than the top of guidance. However, if you exclude the impact of the Tax Act, then net income would only have grown by 1% to $21.5 million, or $0.67 per share.
  • The company opened 15 new stores during the year, bringing the total store count at year's end to 31.

What management had to say

CEO Stephanie Pugliese noted that this was the 32nd quarter in a row of increasing net sales. This shows that the company's growth strategy is working:

We continue to see higher sales growth in markets with an established store, which supports our long-term strategy to significantly expand our total market opportunity through continued strength in online capabilities and the full expression of the brand in a brick and mortar setting.

Looking forward

Here's management's guidance for the current year:

  • Sales will be in the range of $555 million to $575 million. The midpoint of this range represents growth of about 20%. The growth is expected to be driven mainly by new store openings, but the direct segment is expected to post growth in the mid-single digits.
  • Full-year gross margin is expected to be flat while spending on SG&A will increase 50 basis points to 100 basis points.
  • EPS will land between $0.79 and $0.84 per diluted share. The midpoint of this range represents growth of about 14%.
  • Fifteen new store openings are planned.

While these numbers look good in absolute terms, they came in shy of Wall Street's expectations. Specifically, Wall Street was expecting $588 million in revenue and $0.95 in earnings per share. In response, shares of Duluth fell by double digits on the day earnings were released.

On the call with analysts, Pugliese reiterated her plan to keep making investments in the company's omnichannel experience. Specifically, the company plans to complete work on its new order management system and make upgrades to its e-commerce platform in the first half of the year.

Pugliese ended her prepared marks on the call by stating the company is making investments today to ensure that its growth will remain strong for years:

We have a tremendous amount of runway for the future and are continuing to prove that our omnichannel model provides the strongest connectivity with our customers both current and future. Our investments this year focus on maximizing that model as well as differentiating our brand.

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