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Duluth Holdings to report loss in Q1 as margins remain under stress

Picture courtesy: Tony Webster (flickr)

Duluth Holdings (Nasdaq: DLTH), a retailer of casual wear and accessories, will be publishing financial results for the first quarter Thursday before the opening bell. After expanding its store base by 50% and adding several new locations last year, the company is currently refining its omnichannel model and optimizing recent investments.

Taking a cue from the initiatives, analysts forecast a 14% increase in first-quarter revenues to $114 million. However, the company is expected to report a wider loss of $0.22 per share than last year’s $0.02 per share. The estimate has been reaffirmed multiple times in the past few weeks, and the deterioration in performance reflects higher costs and squeezed margins.

In the fourth quarter, Duluth reported a 7% increase in earnings to $0.64 per share on net sales of $251 million. The top line increased 15% year-over-year but came in below the estimates, triggering a stock selloff.

Taking a cue from the growth initiatives, analysts forecast a 14% increase in first-quarter revenues

Though the comparatively low price makes the stock a potential investment option, the fundamentals do not look very encouraging. The company’s current cash position is weak, especially when compared to the rising debt levels. On the operational front, the pressure on margins due to competition from industry rivals is expected to have impacted the bottom-line in recent months, and the trend is expected to continue during the rest of the year.

Also read: Duluth Q4 2018 Earnings Conference Call Transcript

While the company has been able to overcome the tough market conditions to some extent by expanding its store presence, that might not be enough to remain profitable in the long-term.

In May, Gap Inc. (GAP) reported a double-digit increase in first-quarter earnings, despite lower sales, as margins got a boost from better pricing. Last week, American Eagle Outfitters (AEO) said its comparable store sales grew 6% in the first quarter, marking an improvement from the prior-year period. Consequently, earnings and sales rose 4% and 8%, respectively.

Duluth shares are yet to recover from the sharp fall that followed the unimpressive fourth-quarter results. They are down 40% since the beginning of the year and 25% over the past twelve months.

Listen to on-demand earnings calls and hear how management responds to analysts’ questions

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