You might not know Duluth Holdings (NASDAQ:DLTH) by name. However, you almost certainly know their distinctive marketing campaign. Indeed, their commercials feature the right mix between broad appeal and humor, lifting the bull case for DLTH stock.

The structure is so simple yet so brilliant.

A cartoon character, typically a plump, middle-aged man, encounters a common problem with his attire. DLTH comes to the rescue with their unique brand of clothing. Our protagonist is happy, and the viewing audience is left in stitches.

It’s a shtick, but it’s an effective one. Back in 2015, total revenue dollars didn’t even crack a quarter-of-a-billion. Now, sales are well above half-a-billion. And while Duluth Holdings stock has had a wild ride since its initial public offering more than three years ago, the company has demonstrated potential.

If investments were graded only on narratives, DLTH stock would absolutely soar. Unfortunately, the markets also want to see results. That’s where the apparel-maker with its lovable characters fell well short.

As our own Karl Utermohlen reported, Duluth generated income of $20.8 million for the fourth quarter of fiscal 2018. This number translates to approximately 64 cents per share, which was a significant improvement over the year-ago-quarter’s results. Back then, the company produced earnings of 55 cents per share.

However, this quarter, analysts were looking for earnings per share of 75 cents. In another blemish for DLTH stock, management rang up sales of $250.5 million. Again, this tally fell short of analysts’ consensus expectations for $257.5 million.

Adding to concerns, the apparel industry is extremely competitive. Fashion trends are unpredictable, especially among millennials. Therefore, I’m not surprised that Duluth Holdings stock dropped nearly 19% in after-hours trading.

There’s a Reason Why DLTH Stock Tanked

Given the ugliness that has already happened and is sure to follow, your best bet is to steer clear. Duluth Holdings stock has turned into a falling knife, with a high probability of a stabbing.

I say this because shares fell for a reason. Due to the law of small numbers, an up-and-coming organization can’t afford to miss revenue expectations. Moreover, you don’t want to miss sales and earnings targets.

But if you dig a little deeper, you’ll find that the revenue miss also has its own, nuanced explanation. According to Duluth CEO Stephanie Pugliese, the company overall enjoyed many successes in 2018, including rising sales in Q4.

So, what happened? On the Q4 conference call, Pugliese disclosed that sales momentum remained strong through the first week of December. However, a broader consumer slowdown pressured the retail sector, eventually dooming DLTH stock.

I’m assuming she’s talking about the government shutdown, which likely had a disproportionate impact on Duluth Holdings stock. If you browse their website, Duluth apparel caters heavily towards the blue collar, outdoorsy type.

When the government temporarily closed its doors, it didn’t just negatively affect federal employees. It also affected business contracts and rural communities, which surround many impacted federal institutions. Under normal circumstances, rural life is tough. But when you have a government shutdown on top of it, it takes the wind out of you.

Therefore, a substantial amount of Duluth’s core customers had to dial back their spending. Certainly, the timing of the company’s revenue dearth matches that of the shutdown.

That doesn’t mean I’m necessarily gung-ho on DLTH stock. However, I think the markets are making a mistake in not really listening to Pugliese’s reasonable and logical explanation.

Tailwinds for Duluth Holdings Stock

I really can’t tell you how the markets will react to DLTH stock over the next few days. By the numbers, the Q4 earning report genuinely stunk up the room.

But again, if you’re risk-tolerant, look deeper. Inside, you’ll find compelling tailwinds that distinguish DLTH from other apparel-makers like Gap (NYSE:GPS), American Eagle Outfitters (NYSE:AEO), and Abercrombie & Fitch (NYSE:ANF).

First, Duluth products emphasize function over form. For most of the field, it’s the other way around. This helps DLTH stock in the long run, because the company isn’t as levered to fashion whims as its rivals. As long as management produces practical, utilitarian clothes, they’re pretty much golden.

Second, Duluth customers love the company. Pugliese noted double-digit growth in the company’s active user base. While a small detail, you shouldn’t ignore it. This brand loyalty could one day lift DLTH stock from its current doldrums.

Finally, that marketing gem of theirs will keep the Duluth name in the limelight for years to come. I don’t have any brand association with the three companies I mentioned above, even though I’ve bought their products.

I’ve never purchased Duluth clothing, but I remember several of their commercials. That’s off-the-charts marketing, and at some point, it may translate to a higher share price.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.