Duluth Holdings Q2 profit misses estimates, cuts FY19 forecast

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Duluth Holdings (NASDAQ: DLTH), doing business as Duluth Trading Co., reported a 70% dip in earnings for the second quarter due to higher costs and expenses. The results missed analysts’ expectations. Further, the company lowered its earnings and revenue guidance for fiscal 2019.

Net income plunged by 70% to $1.94 million or $0.06 per share. Net sales increased by 10.2% to $122 million.

The top line was driven by a 24% growth in retail net sales, with increases in both men’s and women’s businesses, offset by a 0.9% decline in direct net sales. The increase in retail net sales was driven by new stores with 55 stores as compared to 39 stores in the same period a year ago, partially offset by existing stores.

Duluth Holdings Q2 profit misses estimates, cuts FY19 forecast
Courtesy: Duluth / Facebook post

Looking ahead into fiscal 2019, the company lowered its net sales outlook to the range of $610 million to $620 million from the prior range of $645 million to $655 million. The earnings guidance is reduced to the range of $0.60 to $0.66 per share from the previous range of $0.74 to $0.80 per share.

For the full year, adjusted EBITDA forecast is cut to the range of $51 million to $55 million from the prior range of $60 million to $64 million. The company lowered its capital expenditures outlook to the range of $38 million to $42 million from the previous range of $40 million to $45 million. The management continues to expect to open 15 new stores this year, adding about 215,000 of additional gross square footage.

For the second quarter, gross margin decreased by 310 basis points to 53.1% from 56.2% in the previous year quarter. This was primarily due to a decrease in product margins due to additional global promotions, coupled with recent clearance activity.

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As a percentage of net sales, selling, general and administrative expenses increased 280 basis points to 50.1% from 47.3% a year ago. The expenses increased as a growth in the number of retail stores lifted the occupancy and equipment cost, and investments in technology and corporate facilities drove depreciation expense higher. The personnel cost increased from the last year due to an increase in headcount to support the growth of the business.

The company ended the quarter with a cash balance of $3.5 million, net working capital of $66.1 million, and $45 million outstanding on its $130 million revolving line of credit.

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