Duluth Holdings (DLTH) reported Q1 (Apr) results this morning. After a big miss and guide-down in Q4 (Jan) along with comments on the call saying weakness would persist into AprQ, we were sort of holding our breath heading into this report. Our initial reaction is that this was better than expected.
It was a tiny miss, but not a big deal given our low expectations. It could have been worse and it was much better than the $0.11 miss last quarter. Revenue grew 14% yr/yr to $114.1 mln, which was right in-line with expectations. That was good to see as well.
Perhaps the best news is that DLTH reaffirmed full year EPS and revenue guidance. We mentioned yesterday that we would view a reaffirm as a win in light of the cautious comments on the last call. So that was certainly a positive as we were bracing for another potential guide-down.
Another big positive was DLTH's commentary. CEO Stephanie Pugliese said "the softer demand trends we experienced at the end of the fourth quarter persisted through May ...[Areas of improvement] include better product selection with deeper inventory in new styles, driving higher traffic to our stores and website through more targeted spend in marketing ... [we] expect to see improving results in the back half of the year."
DLTH said on the JanQ call that weakness would persist into AprQ. Our concern was that DLTH would say the problems would continue longer. The good news is it sounds like the weakness ended in May and that June is performing better. Hopefully, this more positive trend continues through the summer. The comment about improving results expected in 2H19 makes us feel that these better results are sustainable.
We are hoping this recent stumble is a short-term blip on what appears to be a nice growth story at DLTH. The company uses attention-grabbing ads that are humorous and memorable. We also like that its products are sold exclusively through its own channels (website, catalogs and retail stores). You will not see DLTH products for sale at any department stores etc. This model enables DLTH to control both its Duluth Trading brand expression and pricing. It also helps ward off online competition.
DLTH has been aggressively opening new stores and it has been broadening DLTH's Men's assortment to new categories and it sees potential in growing its Women's business. Since launching in 2005, its Women's business has grown significantly to represent 23% of total sales in FY17 and 25% in FY18. We view growing its Women's business as a potentially big catalyst for DLTH in the coming years.
Overall, we are more positive on DLTH after this earnings report. We can exhale. We'd like to see another nice quarter or two to be sure the company has put the weakness in the rearview mirror. However, the company built up some credibility in our minds with its cautious comments last call. Management did not sugarcoat the problem and was candid. That makes them more credible when they sound more optimistic.