Raymond James Adjusts Duluth Estimates After Call With Management

Duluth Holdings Inc DLTH shares tumbled 26 percent last week following worse than expected earnings. Many revenue headwinds being faced by the company are expected to continue through at least the first half of 2019, according to Raymond James.

The Analyst

Raymond James’ Dan Wewer maintains a Market Perform rating for Duluth Holdings.

The Thesis

After a call with CEO Stephanie Pugliese and CFO Dave Loretta, analysts at Raymond James had a few key takeaways.

Management indicated operating issues due to the implementation of a new order management system and assortment planning system are now mostly behind the company, Wewer says.

The number Duluth's retail stores in their second year rose to 33 percent of the store base at the end of 2018, from 23 percent a year ago. By the end of 2019, this headwind is likely to alleviate with the number declining to 25 percent.

Since the fiscal fourth quarter typically accounts for around 45 percent of the company’s annual sales, Duluth is evaluating the use of popup DCs or 3LPs to meet the increased shipments during this high-volume period. Management is considering other options as well, which will provide Duluth with an optimal supply chain network, without significantly increasing capex to continue growing its store base at a rapid pace.

Wewer expressed concerns, however, regarding Duluth continuing to face company-specific and macro-related headwinds through at least the first half of the year.

“We prefer to see improved visibility to sales and earnings growth before turning more constructive on the name" Wewer wrote in the note.

The analyst reduced first-quarter EPS estimates from a loss of 16 cents to a loss of 22 cents.

Price Action

Shares of Duluth traded around $17.56 on Monday afternoon.

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