DLTH - Duluth Holdings: Only Further Pain Ahead
2024-01-31 21:39:57 ET
Summary
- While DLTH’s revenue growth appears good, its profitability has persistently declined as margins have been traded for maintaining growth.
- The rise of fast-fashion and rapidly changing trends has negatively impacted the company, with limited scope for improvement as its influence has declined.
- Economic conditions are compounding its current downward trajectory, as FCF turns negative and inventory is liquidated.
- DLTH is in the bottom quartile of its cohort for financial performance, which is unsurprising given its limited commercial development.
- DLTH’s valuation is directionally correct but does not imply any upside. We suggest investors avoid this stock.
Investment thesis
Our current investment thesis is:
- DLTH is likely on a slow decline to zero. The company, while providing good quality products that certainly have their place in the market, is unable to gain upward traction. Marketing efforts have fallen flat, innovative responses to industry developments have been non-existent, and competition has grown substantially. We believe it is likely too late for a resurgence.
- We expect the company to stabilize in H2’24, although will likely continue to underperform the market. For its brands to succeed, we believe a strategic takeover is required.