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Why Duluth Holdings Is Getting Walloped Today

By Brian Feroldi – Apr 5, 2019 at 11:24AM

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Shares crater after the company reports disappointing fourth-quarter results and offers tepid guidance.

What happened

In response to reporting of fiscal fourth-quarter results that missed the mark, shares of Duluth Holdings (DLTH 3.81%), a retailer that caters to the needs of tradespeople, dropped 23% as of 10:51 a.m. EDT on Friday.

So what

Here are the key numbers from the fiscal fourth quarter:

  • Revenue jumped 15% to $250.5 million. That was a few million dollars lower than what Wall Street was expecting.
  • Gross margin declined 90 basis points to 52.4%. Operating margin fell 150 basis points to 12.1%.
  • Operating income grew 2.6% to $30.3 million.
  • Net income was $20.8 million, or $0.64 per share. That was up 7% when compared to the year-ago period but fell far short of the $0.75 that analysts had modeled.

Here are the headline numbers from the full fiscal year:

  • Revenue grew 20.5% to $568.1 million. This figure was in the middle of management's guidance range.
  • Net income was $23.3 million, or $0.72 per share. These numbers were flat year over year and came up short of management's guidance range of $0.79 to $0.84.
Businessman with hands over head looking worried.

Image source: Getty Images.

Duluth's CEO Stephanie Pugliese did her best on the conference call with investors to put some context around the weak fourth-quarter results:

On a macro level, we were not immune to the overall slowdown in consumer spending and we felt the impact of lower traffic across all of our channels. Internally, we encountered some challenges with systems implementation and late deliveries of product. As a result, we had inventory that was misaligned to the timing of sales and not distributed optimally throughout the network. This affected store productivity and added extra cost throughout the system, and some of our high-demand product didn't hit the market in time to reach the full benefit of the holiday season.

Management provided investors with guidance for fiscal 2019:

  • Sales are expected to land between $645 million and $655 million. This represents growth of about 14% at the midpoint. For context, Wall Street was expecting this number to be $675 million.
  • Earnings per diluted share are expected to land between $0.74 and $0.80. Market watchers were expecting $1.01.

Given the worse-than-expected quarterly numbers and downbeat guidance, it isn't hard to figure out why shares are nosediving today.

Now what

There aren't many positive takeaways for investors from this earnings report. Sales growth is slowing, margins are falling, and net income is barely moving at all.

Will management be able to right the ship as we head into 2019? I'm hopeful that the answer is yes, but I have a hard time getting excited about buying this stock right now, even with the sharply lower share price.

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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