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Duluth Trading shares plunge after retailer posts quarterly loss

Shares in Duluth Trading Co.'s parent company plunged Thursday as the casual clothing and workwear retailer reported its first quarterly loss since going public two years ago.

Duluth Holdings Inc. stock fell $3.28 — a drop of 17 percent — to close at $16. The steep decline followed the Duluth-founded, now Wisconsin-based firm's announcement that it lost $816,000, or three cents a share, in the three months that ended Oct. 29.

Duluth's share price has fallen more than 50 percent in little more than a year, as sales have increased but earnings have shrunk.

The rising revenue and lower profits have come as Duluth has substantially expanded its base of brick-and-mortar stores. The company now has 31 stores — nearly double the number at the start of 2017. It plans to add another 15 stores next year. Its store in downtown Duluth opened in 2014.

Duluth is still primarily a catalog and online retailer, but it views physical stores as an essential complement to its direct business. And the stores are becoming more important to overall revenue. They generated 35 percent of total sales in the most recent quarter, more than double the 16 percent they accounted for two years ago.

The brick-and-mortar expansion is the main reason for Duluth's decline in profitability, a decline that likely is temporary, said Jonathan Komp, an analyst who follows the company for Milwaukee-based Robert W. Baird & Co. Inc.

"There are a lot of upfront costs when you move that quickly," Komp said. He noted that Duluth not only has been opening new stores, but also has been adding locations well beyond its original base in Wisconsin and Minnesota. The portfolio now includes stores as far away as Massachusetts, Virginia and Colorado.

Komp thinks Duluth's strategy of fielding an array of stores — the company has said it envisions as many as 100 — makes sense, and can boost digital business over time as well as generate the added revenue from the physical locations. As the costs of store openings are absorbed, he said, profits should improve.

"That's really what I'm expecting over time," he said.

The $816,000 loss in the third quarter compares with a profit of $462,000 — a penny a share — a year ago.

Revenue rose 25 percent in the most recent period, driven largely by the increase in the store base.

Duluth is known for an offbeat approach to marketing that taps into what one expert called "the construction worker in all of us" and uses impish, often body-oriented humor.