What happened
Shares of Designer Brands (DBI -5.10%) were up 21% as of 11:47 a.m. ET on Thursday following the company's quarterly earnings report.
For the fiscal second quarter ending in July, sales were down 7.8%, but what investors most cared about was the sequential growth in sales versus Q1, which might indicate an improving business environment.
So what
It's been a tough stretch for retailers since the beginning of 2022. Consumers are not in the mood to spend money given inflation is trending above average, but with many retail stocks selling at discounted valuations, Wall Street is looking for early signs of improving sales trends -- and it may have gotten just that in Designer Brands' latest earnings report.
After sales fell 10.7% to $742 million in the previous quarter, sales reached $792 million in fiscal Q2. Investors are now looking for Designer Brands to improve the bottom line, and there was good news on that front, too.
Now what
Management expects further headwinds to impact the company's performance, but CEO Doug Howe said, "We are confident in our plans to continue optimizing and spotlighting our unparalleled assortment."
Executives touted Designer Brands' relationship with Nike and new athleisure offerings from Le Tigre and Keds as opportunities to drive more demand.
The stock still sells at a relatively cheap forward price-to-earnings ratio of 9.8, but the challenge will be to keep sales growing in a weak consumer spending environment.
Designer Brands can support its stock with higher margins. Gross profit margin rose slightly to 34.5%, up from 34.4% in the year-ago period. Transportation costs trended down in the quarter, and management also credited its effort to consolidate fulfillment centers. The company still sees more room for improvement to deliver healthy margins more consistently.
