Duluth Trading (DLTH 17.76, -2.81, -13.6%) certainly has some funny ads for its underwear and other apparel items, yet there is nothing funny about the performance of its stock price. Shares of DLTH were down 19% for the year after Tuesday's close and that loss is being compounded today after the retailer posted its fiscal first quarter results.
The overall numbers themselves weren't atrocious relative to other brick-and-mortar apparel retailers. The problem, though, is that Duluth Trading derives the bulk of its sales from its direct business, which also includes catalog sales, and the growth there just wasn't up to snuff relative to investors' online growth expectations. The added concern is that Duluth Trading is making a brick-and-mortar growth push at a time when many investors are inclined to think that less is more on that particular front.
Duluth Trading obviously disagrees, and truth be told, it still has a very small brick-and-mortar footprint. At the end of fiscal 2016, the company operated 14 retail stores and two outlet stores.
In the first quarter, Duluth opened four new stores, bringing the total number of stores in operation to 20 versus only nine in the same period a year ago. Duluth noted that it expects to open 12 new retail stores and one new outlet store in fiscal 2017, adding approximately 150,000 additional selling square feet.
The increased store count fueled a 139.7% growth rate in retail net sales of $19.9 million in the first quarter. Direct sales, meanwhile, increased only 5.7% to $63.8 million.
With the increased store count came increased store expenses. To that end, selling expenses as a percentage of net sales jumped 80 basis points to 14.6% as customer service expenses escalated with the growth in retail stores.
The latter factor, along with the company's push to build brand awareness with increased advertising and marketing, led to a 720 basis points increase in SG&A expense as a percentage of net sales. Not surprisingly, Duluth's net income suffered as a result, declining 88% to $0.4 million, or $0.01 per diluted share, from $3.2 million, or $0.10 per diluted share in the prior-year first quarter.
The earnings per share figure for the first quarter was below analysts' average expectation while total sales of $83.7 million were slightly ahead of expectations.
Duluth Trading reaffirmed its fiscal 2017 outlook, which calls for net sales in the range of $455.0 to $465.0 million and earnings per diluted share between $0.66 and $0.71.
Despite holding the line on its fiscal 2017 outlook, Duluth Trading's stock is getting it hard today as investors don't appear as enamored with the company's growth strategy as they are with its funny ads.