DSW parent company Designer Brands (DBI -5.10%) reported third-quarter 2024 results on Tuesday, Dec. 10, that fell short of analyst consensus expectations. Earnings per share came in at $0.27, which missed analyst expectations of $0.35. Revenue for the quarter declined year over year to $777.2 million, which was below the $802 million expectation. Despite these numbers, comparable sales improved compared to last year.
Overall, the quarter was marked by strategic efforts at improvement hampered by a challenging retail climate.
| Metric | Q3 2024 | Analysts' Estimate | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $0.27 | $0.35 | $0.24 | 12.5% |
| Revenue | $777.2 million | $802 million | $786.3 million | (1.2%) |
| Gross margin | 31.8% | - | 32.6% | (0.8 pps) |
| Comparable sales | (3.1%) | 1.5% | (9.3%) | 6.2 pps |
| Cash and cash equivalents | $36.2 million | - | $54.6 million | (33.7%) |
Source: Designer Brands. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year.
Understanding Designer Brands
Designer Brands operates as a leading North American footwear retailer and a brand portfolio manager with segments across the U.S., Canada, and various brand assets. Its focus is on integrating these segments to capitalize on its retail and branded offerings. Driven by a strategy to grow its share of Owned Brands, it aims to enhance margins and brand appeal. Strategic acquisitions such as Topo and Keds bolster this ambition, making owned brands a significant revenue driver.
Owned Brands presently contribute a substantial portion of net sales, with a target for continued growth. Coupled with an omnichannel retail approach, Designer Brands aims to establish diversified customer experiences while addressing current market trends. This strategic alignment is key to its long-term pursuits.
Quarterly Highlights
Designer Brands struggled against unexpected challenges in the third quarter (which ended Nov. 2) yet demonstrated commitment to its strategic evolution. Revenue fell 1.2% year over year and CEO Doug Howe attributed some of the loss to unseasonably warm weather affecting key seasonal footwear categories. EPS missed estimates at $0.27 but it was up 12.5% year over year, underscoring operational pressures.
Sales in the U.S. Retail segment, excluding boots, showed a positive uptick of 8%, highlighting a shift towards other categories. However, gross profit dipped to $247.4 million from $256.4 million the previous year, illustrating margin pressures. The report notes significant acquisitions supporting growth in the Brand Portfolio, with sales expanding strongly by 18.5% in this segment.
Designer Brands continues to diversify strategically, concentrating resources on Owned Brands to achieve its goal of deriving one-third of sales from these assets by 2026. The company knows its revenue concentration comes from five key wholesale customers who represent a sizable portion of its brand portfolio revenue. The balance between managing this concentration risk and fostering brand loyalty is crucial in navigating the brand's financial dynamics.
Gross margins dipped slightly to 31.8% from 32.6% year over year, impacted by promotions and category dynamics. Comparable sales showed improvement, narrowing the year-on-year decline in comps to 3.1% from the previous 9.3%, hinting at better inventory turnover and customer engagement in non-boot categories.
Looking Forward
Designer Brands management adjusted its full-year financial outlook downward and now expects adjusted EPS to be between $0.10 and $0.30 (down from previous guidance of $0.50 to $0.60), reflecting caution amidst external economic headwinds. It now expects sales to be down by low single-digit percentages for the year.
The future strategy for Designer Brands emphasizes bolstering the Owned Brands segment, maintaining its omni-channel retail investments, and adjusting for market variability. These initiatives are designed to adapt to consumer trends, from product offerings to shopping behaviors. The guided earnings per share for the full year underscores the expectation of continued volatility in consumer spending, prompting a prudent approach to short-term financial projections.
Investors should monitor the company's progress in expanding its brand portfolio and improving operational efficiencies to combat market headwinds. The company's continued commitment to digital engagement and store operations is essential to weather this financial period.
