By Eric Smith
Shares of Duluth Holdings Inc. tumbled $6.03, or 19.9 percent, to $24.33 Friday following the company’s mixed third-quarter results. Although the company’s revenue was up 27.4 percent to $106.7 million—which beat Wall Street’s target by $2 million—there is concern on the retail side.
Duluth posted a net loss of $3.2 million, or 10 cents per diluted share, compared to net loss of $0.8 million, or 3 cents per diluted share, in the prior-year third quarter. The company’s EPS beat estimates by 2 cents.
The company saw 58.4 percent growth in retail net sales, with increases in both the men’s and women’s businesses, but the increase in retail net sales was primarily due to having 43 stores in the third quarter of 2018 as compared to 26 stores in the same period a year ago.
Wall Street reacted to the retail numbers with a slide in shares, while analysts jumped on the soft numbers there as reason for mild concern.
In a note to investors, Jim Duffy of Stifel wrote: “3Q results/guide didn’t show the upside we anticipated and the composition was different than our expectations with direct providing upside but retail shy of estimates. Direct reacceleration is encouraging, perhaps providing justification of the omni-channel model, but we expected more from retail given the favorable backdrop and October weather. 4Q remains hugely important representing approximately 90 percent of annual earnings power. Trends and the environment are suggestive of a strong finish to the year and we remain comfortable with estimates at the high end of the guided range.”
Challenges persisted for Duluth in the quarter, which CEO Stephanie Pugliese outlined for analysts on Thursday afternoon’s earnings conference call.
“The transition to our new e-commerce platform in August went very well, but there was an expected period of adjustment where we saw a slowdown of direct growth and some increased expenses to monitor and fine tune this halfway,” she said. “We have a slower transition than expected when we upgraded our retail replenishment software and implemented new technology in our Belleville distribution center. This caused a temporary flow down in inventory being replenished to existing stores and the delay in our seasonal update for late sell product.”
Pugliese added that the company was pleased with results, which were “in line with our expectations and also marked our 35th consecutive quarter of increased net sales year-over-year. We continue to see strong contribution from our new stores and growth from our women’s business”
She also said the company is well-positioned heading into the holiday season and outlined some of the company’s recent investments “that strengthen our competitive position and enable us to provide an outstanding customer experience.”
These investments include:
- improvements in the e-commerce and mobile experience;
- buy-online-pickup-in-store and ship-from-store in seven stores;
- mini-distribution center in the Greensboro retail store;
- electronic gift cards;
- launch of the women’s plus line;
- 15 new store locations to touch and experience our products; and
- upgrades to the Belleville distribution center.
“As we entered this all important peak season, we’ve improved our ability to reach new customers and serve our existing customers better than ever before,” Pugliese said. “We’ve successfully completed our store expansion plans for the year with the addition of seven new stores opened in the second half of the year. We have achieved our stated goal of 15 stores for fiscal 2018 and all are meeting or exceeding our initial expectations.
“Overall, this year was our most ambitious effort to geographically expand the dilutive trading store experience to customers across the country. We now have 46 stores in 24 states and 37 markets, and we’re coast to coast from Portland, Oregon to Portland, Maine.”
Duluth reaffirmed much of its fiscal 2018 outlook. The company calls for net sales in the range of $555 million to $575 million and EPS in the range of 79 cents to 84 cents per diluted share, with an effective tax rate of 26 percent. The company has completed its plan of opening 15 new stores, which added approximately 250,000 of additional gross square footage
The company did update some its fiscal 2018 outlook. It now expects adjusted EBITDA in the range of $53 million to $56 million, up from previous guidance of $51 million to $54 million, and capital expenditures, net of proceeds from finance lease obligations, of $50 million to $55 million.
Photo courtesy Duluth Holdings Inc.