Health Check: How Prudently Does Duluth Holdings (NASDAQ:DLTH) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Duluth Holdings Inc. (NASDAQ:DLTH) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Duluth Holdings's Net Debt?

As you can see below, Duluth Holdings had US$25.2m of debt, at February 2025, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has US$3.34m in cash leading to net debt of about US$21.9m.

A Look At Duluth Holdings' Liabilities

We can see from the most recent balance sheet that Duluth Holdings had liabilities of US$128.6m falling due within a year, and liabilities of US$144.1m due beyond that. Offsetting these obligations, it had cash of US$3.34m as well as receivables valued at US$6.27m due within 12 months. So it has liabilities totalling US$263.2m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$64.7m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Duluth Holdings would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Duluth Holdings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Duluth Holdings

Over 12 months, Duluth Holdings made a loss at the EBIT level, and saw its revenue drop to US$627m, which is a fall of 3.0%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Duluth Holdings produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping US$29m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it vaporized US$25m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Duluth Holdings is showing 2 warning signs in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.