DLTH - Duluth Holdings: Continued Share Loss
2024-06-13 08:24:13 ET
Summary
- Duluth Trading experienced further sales declines in Q1, with both DTC and Retail continuing to post negative year-over-year results.
- Sales continued to be pressured by what I believe is a confluence of both macro pressures and share losses, both of which I contextualize as more temporal.
- Margins are trending in the right direction, which, coupled with the sales growth opportunities, creates an interesting future for Duluth if they can execute on those.
Introduction
Duluth Holdings ( DLTH ) had another bout of weak results, but my take on their future - and respective valuation - hasn’t changed materially from last time, in that I continue to believe there’s a lot of opportunity ahead. This should come in the form of a stabilizing macro backdrop, continued new product category introduction, normalizing capex spend, what should be improved margins from those capex investments, and wholesale penetration. The timing of these initiatives is uncertain, but it’s hard to argue they won’t improve Duluth’s economics over time. The key, however, is stopping today’s share losses.
Sales: Continued Demand Weakness
Duluth posted sales of ~$117M , down nearly 6% from the ~$124M posted in the prior year Q1, and down 52.5% from the ~$246M sales posted in Q4 2023. Obviously, the sequential decline is seasonally driven to a large extent after a seasonally larger Q4, so that’s not worrisome. However, it’s not so clear that sales didn’t worsen on a seasonally-adjusted basis. While we can see in 2019, for instance, that sales declined ~55% sequentially from Q4 2018 to Q1 2019, suggesting that today’s low-50% sequential decline isn’t all that abnormal, the year-over-year growth story says otherwise. After posting a sales decline of ~6% in Q3 2023, they posted sales growth of 2% in Q4, which is now down 6% versus Q1 2023. So, the seasonal decline today was certainly greater than last year’s, and considering the qualitative context, signals that sales declined on a seasonally-adjusted basis....
Duluth Holdings: Continued Share Loss