Unlock: Duluth Holdings (DLTH) Earnings Play

(This bullish earnings play was sent to clients last weekend on April 3)

Duluth Holdings (DLTH) – Reports earnings on Thursday, April 7, after market close. You may have seen their funny commercials on TV for lifestyle brand of men’s and women’s casual wear, workwear and accessories. The Company offers a line of functional products, such as Longtail T shirts, Buck Naked underwear and Fire Hose work pants, among many other things.

This is fairly new IPO that came to market around Thanksgiving last year. Not a lot of analyst coverage. Nobody talks about this. Therefore, to explain the technical strength in stock price we go straight to most recent 10-Q filing on SEC which was released on December 17. Net Sales grew +29.9% YoY to $55.3M, sharply beating consensus view of $42.6M. Gross Margins expanded by 100bps to 57%. Inventories grew slightly faster than sales, a small concern but likely in anticipation of higher holiday sales. Stock has been quietly moving higher since starts of year, almost completely avoiding large market correction in early 2016 which suggests to us it remains in strong hands with steady accumulation. With only $600 million market cap and trading at 1.5x forward sales growing 30-40% YoY and 29x earnings (the PE will dramatic compress when margins improve with economies of scale), we believe its under followed hyper growth story that has yet to be fully recognized by Wall Street.

Trade Idea – Buy DLTH May 17.5 calls for $3.00 debit or less.