Baird Downgrades Duluth Holdings After 40% Gain

With the stock up more than 40 percent since February 2017, now is the time for Duluth Holdings Inc (NASDAQ: DLTH) investors to move to the sidelines, according to Baird.

The Analyst

Baird's Jonathan Komp downgraded Duluth Holdings from Outperform to Neutral with an unchanged $30 price target.

The Thesis

Shares of Duluth Holdings, a maker of casual wear, workwear and accessories, are up nearly 70 percent in the past three months alone due to a strong retail backdrop and increased confidence in the company's growth strategy and e-commerce platform launch, Komp said in the downgrade note. (See his track record here.)

The strong gains in the stock reflect the favorable outlook, including expectations for 20-percent earnings growth in fiscal 2019, the analyst said. 

Duluth shares are trading near 30 times NTM P/E, which is a premium to its historical average of 26.5 times and a premium to rival apparel maker Lululemon Athletica inc. (NASDAQ: LULU), which has a five-year average multiple of 27 times.

The case for a higher valuation is supported by the following factors, Komp said:

• The improvement of the e-commerce business while simultaneously avoiding the margin pressures other retailers of multiple brands face.
• Additional benefits from sales of Duluth-branded merchandise that reduce the need to discount.
• Long-term targets that add to the attractive growth story.
• A solid management that's executing well. 

Price Action

Duluth Holdings shares were trading lower by 0.3 percent Thursday afternoon at $28.52. 

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