An outdoorsy slant makes the casual-wear offerings of Duluth Holdings (NASDAQ:DLTH) somewhat unique. Shoppers might appreciate Duluth’s folksy appeal, but market traders haven’t shown much love for DLTH stock in the past few years.
The first half of the year has been particularly challenging for DLTH’s shareholders. The onset of the novel coronavirus had a major fiscal impact on the retail sector and on Duluth in particular. As Duluth Founder, CEO and Executive Chairman Stephen L. Schlecht recounts, “In a matter of days, we went from 62 Duluth stores open to 62 stores closed.”
Like many retail-market businesses, Duluth had to adapt or face possible extinction. The financial landscape is quite different now than it was just six months ago. DLTH stock investors must now consider whether the company is willing and able to make the necessary changes.
A Closer Look at DLTH Stock
The long-term price action in DDuluth stock reveals a number of interesting data points. For one thing, the $35 level is a hard resistance area. The bulls tried to push the stock above that level a couple of times in the past and failed each time.
It’s also worth mentioning that the medium-term decline in DLTH didn’t just start during the coronavirus crisis. In actuality, it began in late 2018, when DLTH was trading above $33 per share. 2019 turned out to be a horrendous year for the shareholders.
Any hope of an easy recovery was dashed when the coronavirus forced stores to shut down and caused some people to avoid buying anything that wasn’t absolutely necessary.
Yet, DLTH stock did show some signs of life in May and early June. During that time, the shares spiked from $3.50 to around $9.30. Is there reason to believe that this short-term momentum can continue?
Good Clothing, Bad Timing
It should be noted that DLTH’s long-term share-price decline doesn’t necessarily reflect a problem with the company’s product offerings. Indeed, there’s definitely a market for the outdoorsy clothing that Duluth sells.
It’s actually a savvy business model as Duluth isn’t really trying to compete with fancy, high-end clothing manufacturers. Rather, the company’s target consumer is an active, rugged individualist with a decidedly do-it-yourself ethic.
The problem is that in a pandemic-stricken world, outdoorsy clothing and activewear generally aren’t necessarily best-sellers. Lockdowns, social distancing and shelter-in-place mandates have made many active pursuits impractical.
And it certainly didn’t help that Duluth’s stores were closed between March 20 and May 3. The company might have high-quality clothing to offer, but the coronavirus caught shoppers unprepared and DLTH shareholders have paid a hefty price for this.
A Swift Shift
Clearly, Duluth’s business model needed some adjustments. In particular, the company had to pivot its focus to e-commerce. That’s been the key to survival amid this brutal, unforgiving retail-market landscape.
The data provides evidence of this. During the first quarter, Duluth’s in-store sales declined by a whopping 52%. Perhaps that shouldn’t be too surprising, though, in light of the store closures.
Yet, in that same time frame, the net sales derived from Duluth’s website and catalog increased by 32%. Duluth’s CEO recalls how quickly the company had to shift to an e-commerce framework:
“With all stores closed for 7 weeks, we leaned heavily on our strong and long-established digital direct-to-consumer business with its roots in the mail order catalog world. We had started the year thinking retail stores would represent half of our business, with direct the other half. In April, with all stores closed, direct alone carried the day.”
Life has a funny way of crushing our expectations sometimes, only to force us to construct new ones. A very different Duluth isn’t necessarily better than the old one, but at least the company seems to have evolved from survival mode to a phase characterized by the hope for a brighter, more profitable future.
The Bottom Line
Duluth’s forced changes could be viewed as symbolic of the jarring shifts that we’ve all had to make. The message, then, for investors in DLTH stock is the same one that all of humanity needs to hear now: times are tough, yes, but you will survive this.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.