What happened

Shares of Designer Brands (DBI -5.10%) leaped 12% on Thursday after the footwear maker reported a surprise profit in its fiscal 2022 fourth quarter ended Jan. 28.  

So what

Designer Brands' net sales fell 7.5% year over year to $760.5 million, driven by a 5.5% decline in comparable-store sales. The company chose to sacrifice revenue rather than match the heavy discounts offered by its competitors.

"In the fourth quarter, the footwear industry was highly promotional, specifically in athletic, to combat over-inventory positions and a constrained consumer," Designer Brands president Doug Howe said during a conference call with analysts. 

However, Designer Brands has demonstrated considerable progress with its owned brand strategy over the past year. In February, the retailer acquired the popular shoe brand Keds from Wolverine Worldwide. The company has also worked to design and source more of the products it sells and market them directly to consumers via its stores and e-commerce sites. 

"Our 2022 results clearly showcase the power and success of our brand-building strategy with our owned brands growing over 32% to last year while delivering gross margins 400 basis points higher than those we saw in 2019," CEO Roger Rawlins said in a press release. 

These efforts are helping to bolster Designer Brands' profitability. Its adjusted net income checked in at $4.7 million, or $0.07 per share, in the fourth quarter. That surpassed Wall Street's estimates, which had called for a per-share loss of $0.02. For the full year, Designer Brands' adjusted net income totaled $133.7 million, or $1.85 per share. 

Now what 

Management expects economic conditions to remain challenging in the coming quarters. The company projects that its net sales growth, excluding the impact of its Keds acquisition, to be down mid-single digits in fiscal 2023. 

"Although we are navigating through a volatile environment, we are well-positioned to offer great value and a diverse assortment of product to our customers as we head into 2023," Howe said. "We will continue to be prudent in managing our expenses and inventory and drive growth in our portfolio of increasingly diversified owned brands."