Continue Reading Below
In response to an earnings report that showed fourth-quarter results soaring past Wall Street's projections, shares of the niche retailerDuluth Holdings (NASDAQ: DLTH)rose by more than 12% as of 11:05 a.m. EDT on Wednesday.
Image source: Getty images.
Here's a review of the key numbers from the quarter that put traders in a good mood:
- Revenue rose 24% to $174.7 million, driven by15% growth in direct sales and 106% growth in retail sales. This figure was far better than the $163 million in revenue that market watchers had expected.
- The promotional retail environment caused gross margins to fall by 70 basis points to55.4%. When combined with higher spending on new-store openings and a surging tax bill, this resulted in a net income decline of 20% to $14 million, or $0.43 per share. However, this figure easily exceeded the$0.34 in earnings per share (EPS) that Wall Street was expecting.
- Duluth opened two new retail stores during the fourth quarter.
Continue Reading Below
In 2017, Duluth's management team is targeting10 to12 new store openings and isoffering up the following guidance:
|Metric||2016 Actual||2017 Guidance||Year-Over-Year
Change at Midpoint
|Revenue||$376 million||$455 million to $465 million||22%|
|Adjusted EBITDA||$41.2 million||$47 million to $49.5 million||15%|
|GAAP EPS||$0.66||$0.66 to $0.71||4%|
Duluth Trading's 2017 guidance. Data source: Duluth Holdings.
By contrast, Wall Street expects only $444 million in revenue and EPS of $0.69 for the full year.
The better-than-expected fourth-quarter results mixed with bullish revenue guidance for 2017 sent the company's share price soaring.
Eagle-eyed investors might notice that Duluth's 2017 guidance falls a bit short of the company's long-term financial growth targets. Specifically, management had previously told investors to expect top-line growth of 20% and net income growth of 25%. Since the company'sprofit guidance is lower than its long-term target, CEO Stephanie Pugliese stated the following:
We continue to believe these goals are achievable in the long term; however, over the next 18 to 24 months, we will be making substantial investments in growth, primarily by scaling our retail store expansion at a faster rate than previously planned.
Traders appeared to overlook this weak profit guidance and sent shares screaming higher anyway. This reaction hints that they applaud the company's decision to forgoshort-term profits in exchange for turbo-charging the top line. That's a trade-off that I, for one, applaud, so I can't blame the markets for bidding up shares today.
10 stocks we like better than Duluth Holdings
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Duluth Holdings wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 6, 2017