Duluth Holding (DLTH) Stock Down After Q1 Earnings Miss

Shares of Duluth Holdings Inc. (NASDAQ:DLTH) slumped almost 19% since the company posted weaker-than-expected earnings in first-quarter fiscal 2017. The company reaffirmed its fiscal 2017 view.

Quarter in Detail

The company surpassed estimates in the trailing four quarters. First-quarter earnings of 1 cent lagged the Zacks Consensus Estimate of 6 cents by 83.3%. Earnings declined 90% from year-over-year earnings of 10 cents per share. Higher operating expenses and continued headwinds from declining shipping revenues in the Direct business led to lowered profits. The women’s television advertising campaign reduced earnings per share by 5 cents, while increase in retail store preopening expenses lowered earnings by 4 cents.

The weakness in earnings is well reflected in the price movement of the company. Shares of this apparel retailer declined 32.1% in the past one year, wider than the Zacks categorized Textile-Apparel Manufacturing industry’s decline of 20.7%.

Revenue and Margins

Net sales gained 21.9% year over year to $83.7 million during the first quarter and beat the Zacks Consensus Estimate of $83.0 million by 0.8%. This was also the company’s 29th consecutive quarter of higher year-over-year sales. Sales were driven by 5.7% growth in direct net sales and 139.7% growth in retail net sales. Almost all the product categories achieved positive growth, with robust performance in both men’s and women’s businesses.

Gross profit increased 22.6% to $48.6 million on the back of higher year-over-year sales. Despite decline in shipping revenues, gross margin expanded 30 basis points (bps) to 58.1% attributable to higher product margin as a result of product mix and strategic management of promotions.

Adjusted EBITDA declined 59.1% to $2.7 million, due to higher selling, general and administrative expenses and advertising and marketing costs.

Store Update

During the first quarter, the company opened four new retail stores in Noblesville, IN, Burlington, MA, Macomb, MI, and Warwick, RI. In fiscal 2017, the company expects to open a total of 12 retail stores and one outlet store.

Fiscal 2017 View

Duluth Holdings has reaffirmed its guidance for fiscal 2017. It continues to expect net sales in the range of $455–$465 million for fiscal 2017. It anticipates earnings to be in the range of 66–71 cents per share compared with 66 cents in fiscal 2016. EBITDA are estimated to be $47.0–$4 9.5 million. The company anticipates incurring capital expenditures of $31.0–$35.0 million.

The company expects full-year gross margin rate to be in line with last year. The company further expects advertising expense ratio to be lower than last year in the second, third and fourth quarters and for the total year, primarily due to growth in the Retail segment. For fiscal 2017, the company expects selling, general and administrative expense ratio to increase than last year due to retail store pre-opening expenses.

Other Financial Details

The company ended the quarter with a cash balance of approximately $13.6 million compared with $24 million in the previous quarter. Long-term debt less current maturities amounted to $34 million compared with $35 million in the previous quarter.

Zacks Rank

Duluth Holdings currently carries a Zacks Rank #4 (Sell).

Key Picks from the Sector

Investors interested in the same industry may consider Cherokee Inc. (NASDAQ:CHKE) , Tailored Brands, Inc. (NYSE:TLRD) and Gildan Activewear, Inc. (TO:GIL) .

Cherokee and Tailored Brands sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Gildan Activewear carry a Zacks Rank #2 (Buy).

While Cherokee and Tailored Brands have long-term earnings growth of 15.00% and 16.50%, Gildan Activewear has a growth rate of 12.33% over the long term.

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