Warm temps cool Duluth’s outlook
Consumers held off buying apparel for cold weather
The corporate parent of apparel retailer Duluth Trading Co. saw sales increase by 21% in the third quarter, but fall short of management’s expectations.
Duluth Holdings Inc. announced the financial results after markets closed Thursday, and the firm’s stock slid in afterhours trading.
Unseasonably warm weather hurt Duluth — and other clothing retailers — as consumers held off on purchases of items such as lined pants and fleece apparel, CEO Stephanie Pugliese told analysts on a conference call.
Also a factor was general price cutting among retailers — “promotional pricing” in industry jargon — that Pugliese called “as extreme as we’ve seen in some time.”
Duluth shares rose 9.1% Thursday before the earnings were released. But they gave up those gains and more in afterhours trading, with investors perhaps made wary by a marked slowing in the growth of Duluth’s catalog and internet sales, which make up the largest part of its business.
While it has been expanding its brick-and-mortar presence — Duluth now has 16 stores open, and plans to open eight to 10 others next year — the company’s catalog and internet business represents more than 75% of overall sales.
Duluth’s catalog/internet revenue rose 12.3% in the three months ended Oct. 30. That’s less than half the growth rate of a year ago and significantly lower than the growth of any in the last four quarters.
Sales in Duluth stores were up 68.4%, mainly because the number of stores increased.
Given the unseasonable weather, downward pressure on prices and the prospect of a relatively weak fourth quarter, Duluth reduced its sales guidance for the full year by $10 million. The company now says it expects 2016 revenue of $360 million to $370 million.
Chief financial officer Mark DeOrio said that while Duluth is “disappointed with the softness we now expect for the fourth quarter,” the company views the situation as a short-term
problem.
Third-quarter net income was $462,000, or 1 cent per share, compared
with adjusted net income a year ago of $905,000, or 4 cents a share. The adjustment includes a hypothetical income tax on Duluth’s 2015 third-quarter revenue. The company at the time was a privately held “S” corporation and generally wasn’t subject
to corporate income taxes, as it is now.
Also Thursday, Pugliese said Duluth has signed new leases for retail stores in Pittsburgh and Macomb, Mich., near Detroit.
In a related matter, the Village Board in Mount
Horeb on Wednesday approved plans for a new, five-story building that will become the Duluth Holdings headquarters. The company plans to move its headquarters to Mount Horeb from Belleville, a smaller community about 17 miles away.