Founded in 1989 with a vision to revolutionize the apparel industry, Duluth Trading Company embarked on its journey as a catalog-centric enterprise. Over the years, it underwent several transformations, including acquisition by Gempler in 2000, followed by the sale of Gempler’s segment to Grainger in 2003, ultimately culminating in the formation of Duluth Holdings Inc. Since then, Duluth has carved its niche as a premier apparel and gear brand, renowned for iconic products like the Fire Hose Work Pants.
The success of Duluth can be attributed to its unwavering commitment to its roots while embracing the digital era, mirroring its catalog days’ essence in today’s digital landscape. By predominantly focusing on the US market and implementing quirky yet memorable marketing campaigns featuring characters like the Giant Angry Beaver and the Buck-Naked Guy, Duluth has captured the attention of consumers nationwide.
However, navigating the apparel industry is no easy feat, especially in a landscape as competitive as the US market, which accounted for a staggering $325.96 billion in 2022. With behemoths like Nike dominating the scene, consumer preferences are primarily driven by factors like price, reviews, and recommendations. Additionally, the industry has witnessed a significant shift from traditional brick-and-mortar stores to online channels, with direct-to-consumer models gaining prominence.
| 2022 | $699 | $44 | 6.29% |
| 2023 | $653 | $6 | 0.92% |
Looking ahead, while Duluth’s expansion into foreign markets like China presents an enticing opportunity, it must tread cautiously amidst geopolitical uncertainties. Moreover, focusing on enhancing operating margins through operational efficiency initiatives will be crucial for sustaining growth in the long term. By leveraging its manufacturing prowess and strategic partnerships, Duluth can gradually improve its operating margin, inching closer to the industry average of 9%.
Reflecting on Duluth’s performance in the past year, the company has faced challenges, evidenced by a decline in stock prices and revenue growth. Factors such as changing consumer behavior, driven by inflation and economic uncertainties, have impacted demand for apparel. Despite efforts to diversify revenue streams, including exploring wholesale opportunities with partners like Costco, Duluth’s growth trajectory has plateaued.
| Base Year and Comparison | Growth Story | Profitability Story | Growth Efficiency Story | ||||||||||||
| Company | Industry | This goes to the fact that the company is trying to do wholesale partner with large retailer Costco. | Currently, the factor will not be in effect until 2025 but should see a change in overall efficiency getting to the industry average within five years of operations. | This is what is expected to maintain the company’s overall growth. | Terminal Value | ||||||||||
| Revenue Growth | -2.13% | 2.99% | Growth Rate | 4.08% | |||||||||||
| Revenue | $642,834 | Cost of capital | 8.58% | ||||||||||||
| Operating Margin | 0.03% | 14.64% | Return on capital | 8.58% | |||||||||||
| Operating Income | $173 | Reinvestment Rate | 47.55% | ||||||||||||
| EBIT (1-t) | $129 | ||||||||||||||
| PV(Terminal value) | $ 242,143 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | Terminal year | |||
| PV (CF over next 10 years) | $ 138,795 | Revenue Growth | 1.00% | 3.00% | 3.00% | 3.00% | 3.00% | 3.22% | 3.43% | 3.65% | 3.86% | 4.08% | 4.08% | ||
| Probability of failure = | 0.00% | Revenue | $ 649,262 | $ 668,740 | $ 688,802 | $ 709,466 | $ 730,750 | $ 754,251 | $ 780,137 | $ 808,597 | $ 839,841 | $ 874,106 | $ 909,770 | ||
| Value of operating assets = | $380,938 | Operating Margin | 2.00% | 4.80% | 6.20% | 7.60% | 9.00% | 9.00% | 9.00% | 9.00% | 9.00% | 9.00% | 9.00% | ||
| – Debt | $131,651 | Operating Income | $ 12,985 | $ 32,100 | $ 42,706 | $ 53,919 | $ 65,768 | $ 67,883 | $ 70,212 | $ 72,774 | $ 75,586 | $ 78,670 | $ 81,879 | ||
| – Minority interests | -$3,234 | EBIT (1-t) | $ 9,700 | $ 23,978 | $ 31,901 | $ 40,278 | $ 49,128 | $ 50,749 | $ 52,533 | $ 54,493 | $ 56,644 | $ 59,002 | $ 61,409 | ||
| + Cash | $13,044 | Reinvestment | $ 10,198 | $ 10,504 | $ 10,819 | $ 11,143 | $ 12,304 | $ 14,625 | $ 16,079 | $ 17,652 | $ 19,359 | $ 20,149 | $ 29,202 | ||
| + Non-operating assets | $0 | FCFF | $ (498) | $ 13,475 | $ 21,082 | $ 29,134 | $ 36,824 | $ 36,124 | $ 36,454 | $ 36,841 | $ 37,285 | $ 38,853 | $ 32,208 | ||
| Value of equity | $265,565 | $ 715,728.12 | |||||||||||||
| – Value of options | $0 | ||||||||||||||
| Value of equity in common stock | $265,565 | Cost of Capital | 12.69% | 12.69% | 12.69% | 12.69% | 12.69% | 11.87% | 11.05% | 10.22% | 9.40% | 8.58% | |||
| Number of shares | 34,475.26 | Cumulated WACC | 0.8874 | 0.7875 | 0.6988 | 0.6201 | 0.5503 | 0.4919 | 0.4430 | 0.4019 | 0.3673 | 0.3383 | |||
| Estimated value /share | $7.70 | ||||||||||||||
| Sales to Capital | 1.91 | 1.91 | 1.91 | 1.91 | 1.91 | 1.77 | 1.77 | 1.77 | 1.77 | 1.77 | |||||
| Price per share | $5.00 | ROIC | 2.89% | 6.93% | 8.95% | 10.97% | 12.98% | 12.99% | 12.96% | 12.93% | 12.90% | 12.87% | 8.58% | ||
| % Under or Over Valued | -35.09% | ||||||||||||||