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Duluth Holdings' Sales and Profits Surge on Retail Strength

By Brian Feroldi – Sep 8, 2018 at 7:04AM

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The rough-and-tumble brand posted strong growth across the board.

Duluth Holdings (DLTH 3.73%) reported its fiscal second-quarter results on Thursday, Sept. 5. Sales continue to surge on the back of new store openings and steady growth in the direct sales business. When combined with lower spending on advertising and marketing, Duluth's bottom line expanded rapidly during the last three months.

Menswear showcased inside a Duluth store.

Image source: Getty Images.

Duluth Holdings Q2 results: The raw numbers

Metric Q2 2018 Q2 2017 Change (YOY)
Revenue $110.7 million $86.2 million 28.3%
Net income $6.4 million $4.3 million 48.9%
Earnings per share $0.20 $0.13 53.8%

Data source: Duluth Holdings Inc.

What happened with Duluth Holdings this quarter?

  • The strong top-line growth was driven by a 6% uptick in direct sales and 74% growth in retail sales. New store openings were the primary reason retail store sales continued to soar. Total sales of $110.7 million came in $4 million higher than Wall Street's prediction.

  • Gross margin declined 50 basis points to 56.2%. Loss of shipping revenue and an increase in freight costs were the primary reasons management cited for the dip. 

  • Spending on overhead grew 26% -- a slower rate than overall sales growth. The operating leverage helped drive the favorable jump in net income. 

  • Duluth's earnings per share of $0.20 came in $0.06 above the number that market watchers were expecting.

  • Cash balance at quarter end was $2.4 million. The company increased its leverage during the period and now owes $35 million against its revolving credit line, which it classifies as long-term debt.

  • Six new retail stores were opened during the period, bringing the total number of new stores opened so far this fiscal year to eight. 

What management had to say

CEO Stephanie Pugliese noted that this was the company's 34th quarter in a row of increased year-over-year sales. She also reaffirmed that Duluth is on track to open 15 new stores during the fiscal year.

Commenting on the results, Pugliese observed that the company's strategy is working, and shared her marching orders for the remainder of the year:

These results demonstrate the strength of the Duluth Trading brand and validate the investments we have made in building our omnichannel presence over the past few years. For the balance of the year, we plan to focus on product innovation, digital marketing, opening the remaining seven stores, and the completion of key technology and infrastructure projects to prepare us for our peak selling season.

Looking forward

The upbeat second-quarter results allowed management to reiterate its guidance for the full year. As a reminder, that guidance range implies sales and earnings-per-share growth of 20% and 14%, respectively.

Duluth's stock soared more than 13% higher during the trading session following the earnings release. Investors can credit the big gain to the better-than-expected quarterly results. When adding that jump to Duluth's bullish move in recent months, the stock has almost doubled since the start of the year. 

Overall, Duluth's surging sales and profits continue to prove that its aggressive retail push is playing out as expected. With plenty of room left for future expansion, long-term bulls appear to have every reason to remain optimistic. 

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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