Duluth Holdings Improvements Have Gone Unnoticed, Stifel Says In Upgrade

Lifestyle brand Duluth Holdings Inc DLTH
has a path to grow earnings in 2021, as consumers are expected to return to stores, according to Stifel.

The Duluth Holdings Analyst: Jim Duffy upgraded Duluth Holdings from Hold to Buy with an unchanged $14 price target.

The Duluth Holdings Thesis: Duluth's Direct business recorded a 38.5% growth rate in 2020 and will likely see pressure next year, but a more favorable mix implies the potential for gross margin improvement, Duffy said in the upgrade note.

The company will see easing shipping expenses and benefits from the rollout of new omnichannel capabilities that improve conversion and push customers to pick orders in store or have items shipped from a store, the analyst said. 

The company is also investing in a new e-commerce platform with improved mobile functionality, while new data analytic tools will improve demand forecasting and result in lower markdowns, he said. 

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"We believe much of DLTH's systems and competency improvement has gone unnoticed and can support improving productivity, margins, and cash flow in future periods," Duffy said.

Stifel is modeling a 5.9% revenue growth in 2021 at $701.5 million, while operating margins are expected to rise 150 basis points to 6.1%.

The company is also expected to open just one new store in 2021, and this will help support free cash flow, the analyst said, adding that Duluth should end 2021 with a net cash position of $25.6 million.

DLTH Price Action: Shares of Duluth Holdings were trading higher by 4.54% Monday morning at $11.28.

Photo by Tony Webster via Wikimedia.