Financial Performance

Duluth Holdings Shares Slump on Earnings Miss

The casual wear company spent heavily on opening new stores and advertising in Q1, cutting into its bottom line.
Matthew HellerJune 8, 2017
Duluth Holdings Shares Slump on Earnings Miss

Shares in Duluth Holdings dropped sharply after the casual wear company reported lower-than-expected earnings amid heavy spending on new stores, marketing and advertising.

For the first quarter, Duluth’s net income dropped 88% to $415,000, or $0.01 per share, well shy of the $0.05 per share that Wall Street was looking for.

Revenue grew 22% to $83.7 million, marking the 29th quarter in a row of top-line growth and beating analysts’ estimates of $82.9 million. But spending on selling, general, and administrative expense jumped 39.4%, well in excess of revenue growth.

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On news of the results, Duluth shares fell more than 18.5% to $16.75 in trading Wednesday. It was the stock’s lowest closing price since February 2016.

“We made several investments in the business this quarter that impacted SG&A in the short term but will benefit us long term,” CEO Stephanie Pugliese explained in a news release.

She cited the opening of four new stores in the Indianapolis, Boston, Detroit and Providence markets, bringing the total number of stores to 20, and “incremental spend in women’s TV advertising, continuing to grow that part of the business and bringing new brand fans to the customer base.”

As a percentage of net sales, SG&A expenses increased 720 basis points to 57.2%, compared to 50.0% in the corresponding prior-year period.

Duluth, which is based in Belleville, Wisc., is known for products such as its Fire Hose work pants and Buck Naked underwear. The company said Tuesday it is planning to open 12 new stores and one outlet during fiscal 2017 and also reaffirmed that it expects full-year earnings per share in the range of 66 cents to 71 cents and sales in the range of $455.0 million to $465.0 million.

The Wall Street consensus is for EPS of 70 cents and revenue of $463.7 million.

“We remain on track to deliver on our 2017 financial guidance,” Pugliese said, adding that the men’s and women’s business both “saw positive momentum with new products such as Bullpen Underwear, Ballroom Khakis and the No-Yank Tank.”