February 01, 2018

P&L Shows Trouble On The Horizon

There's nothing that the folks at Gliebers Dresses want to hear less than to hear about the success of Duluth Trading Company.

Go ahead and ask them to read through the 2016 10-K Statement (click here) ... you'll hear every excuse in the book.

Meredith Thompson (Chief Merchandising Officer): Frankly, I find their ads disgusting. Gliebers Dresses is a respected, classy brand. Do you have any ideas for respected, classy brands like ours?

Roger Morgan (Chief Operating Officer): I was at a Woodside Research symposium last week. At a roundtable discussion, the host mentioned that brands that embrace technology are brands most likely to succeed. The vendor community really agreed with that viewpoint, so it must be an accurate viewpoint. The experts at the roundtable discussion never once mentioned creativity as a key to success, so I'm not sure what Duluth Trading Company is doing is sustainable.

Pepper Morgan-Pressley (Chief Marketing Officer): Didn't I read somewhere that Duluth Trading Company is hiring a VP of Marketing?

Lois Gladstone (Chief Financial Officer): They claim they are growing via three initiatives ... brand awareness that leads to customer acquisition, retail expansion, and growing the merchandising assortment. All three sound risky to me and require a lot of cash. I'd ignore the past decade where sales tripled and instead look to the future. The future is risky, and I'm not sure the risks they are taking will pay off. But I'm just a dumb financial person, what do I know?

Thing is, if you look at the Gliebers Dresses profit and loss statement, you can see that trouble is on the horizon.


The ad-to-sales ratio hovers around 30%.

Pick-Pack-Ship expense has grown from 9.5% to 11.3% over five years, as Gliebers Dresses moves ever-closer to a free shipping 24/7/365 model.

Let's think about this for a moment.
  • Over the past five years, approximately 40% of net sales are consumed by advertising expense and shipping revenue/expense.
That's trouble.

This means Gliebers Dresses cannot experiment, because there isn't any cash available to do the things that Duluth Trading Company might do. I mean, you can go back eight years and see the seeds of the modern Duluth Trading Company being born (click here) via experimentation. How does Gliebers Dresses experiment when they commit 40% of net sales to paper, printing, postage, and shipping?

What would you do if you were Gliebers Dresses?


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