Designer Brands Inc. Reports Second Quarter 2023 Financial Results
- Sequential improvement in sales and gross margin
- Reaffirmation of 2023 guidance
- Net sales decreased by 7.8%
- Total comparable sales decreased by 8.9%
- Gross profit decreased to $273.4 million
- Gross margin was 34.5%
- Net income attributable to Designer Brands Inc. was $37.2 million
- Adjusted net income was $39.4 million
- Debt totaled $331.0 million
- Closed two stores in Q2 2023
Reporting sequential improvement in sales and gross margin over the first quarter 2023
Reaffirming 2023 guidance
Doug Howe, Chief Executive Officer, stated, "I am proud of the sequential improvement in both sales and profitability in the second quarter as well as the progress that has been made on our strategic initiatives, with several exciting milestones in the quarter – including new collaborations and celebrity partnerships. Our portfolio of Owned Brands and National Brand partners remains strong and we are excited to be rolling out our new athletic and athleisure offerings from Le Tigre and Keds while continuing to elevate our relationship with Nike during a time that athletic and athleisure demand continues to grow.
"The unique synergies between our legacy retail business and our brand portfolio are putting us on a path to being more resilient than ever and we will continue to build out our leadership and structure our teams accordingly. As we look ahead, we do anticipate near-term headwinds will persist, but we are confident in our plans to continue optimizing and spotlighting our unparalleled assortment."
Second Quarter Operating Results (Unless otherwise stated, all comparisons are to the second quarter of 2022)
- Net sales decreased
7.8% to .$792.2 million - Total comparable sales decreased by
8.9% . - Gross profit decreased to
versus$273.4 million last year, and gross margin was$295.7 million 34.5% compared to34.4% for the same period last year. - Reported net income attributable to Designer Brands Inc. was
, or diluted earnings per share ("EPS") of$37.2 million , including net after-tax charges of$0.56 per diluted share from adjusted items, primarily related to CEO transition, restructuring, and integration costs.$0.03 - Adjusted net income was
, or adjusted diluted EPS of$39.4 million .$0.59
Liquidity
- Cash and cash equivalents totaled
at the end of the second quarter of 2023, compared to$46.2 million at the end of the same period last year, with$50.8 million available for borrowings under our senior secured asset-based revolving credit facility and$233.7 million available for borrowings by September 21, 2023 under our new senior secured term loan credit agreement ("Term Loan"). Debt totaled$85.0 million at the end of the second quarter of 2023 compared to$331.0 million at the end of the same period last year.$387.4 million - The Company ended the second quarter with inventories of
compared to$606.8 million at the end of the same period last year.$694.0 million
Capital Allocation
- During the second quarter, the Company repurchased an aggregate 2.1 million Class A common shares, including open market purchases and purchases under our previously-disclosed Dutch auction tender offer. As of July 29, 2023,
of Class A common shares remained available for future repurchase under the share repurchase program.$166.5 million - During the third quarter through September 5, 2023, the Company has repurchased an additional
Class A common shares through open market purchases at an average price of$58.3 million per share. As of September 5, 2023, the Company maintains$10.18 authorized for future repurchases under its share repurchase program.$102.8 million - The Company anticipates drawing an additional
under the Term Loan throughout the remainder of 2023. As of September 5, 2023, our outstanding debt balance was$85.0 million .$341.4 million
Store Openings and Closings
During the second quarter of 2023, we closed one store in the
Updated 2023 Financial Outlook
The Company is reaffirming the following guidance for the full year 2023:
Metric | Guidance | |
Net Sales: | ||
Designer Brands net sales growth, excluding Keds | Down mid- to high-single digits | |
Incremental net sales from Keds acquisition | ||
Diluted EPS: | ||
Designer Brands, excluding Keds | ||
Contribution from Keds acquisition |
Webcast and Conference Call
The Company is hosting a conference call today at 8:30 am Eastern Time. Investors and analysts interested in participating in the call are invited to dial 1-888-317-6003, or the international dial in, 1-412-317-6061, and reference conference ID number 7689007 approximately ten minutes prior to the start of the conference call. The conference call will also be broadcast live over the internet and can be accessed through the following link, as well as through the Company's investor website at investors.designerbrands.com:
https://app.webinar.net/5xmnwoEQVrJ
For those unable to listen to the live webcast, an archived version will be available at the same location until September 21, 2023. A replay of the teleconference will be available by dialing the following numbers:
International: 1-412-317-0088
Passcode: 4386380
Important information may be disseminated initially or exclusively via the Company's investor website; investors should consult the site to access this information.
About Designer Brands
Designer Brands is one of the world's largest designers, producers, and retailers of the most recognizable footwear brands and accessories, transforming and defining the footwear industry through a mission of inspiring self-expression. With a diversified, world-class portfolio of coveted brands, including Keds, Lucky Brand, Crown Vintage, Vince Camuto, Topo Athletic, Jessica Simpson, Le Tigre and others, Designer Brands designs and produces on-trend footwear and accessories for all of life's occasions delivered to the consumer through a robust direct-to-consumer omni-channel infrastructure and powerful national wholesale distribution. Powered by a billion-dollar digital commerce business across multiple domains and nearly 640 DSW Designer Shoe Warehouse and The Shoe Company stores in
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements in this press release may constitute forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the use of forward-looking words such as "outlook," "could," "believes," "expects," "potential," "continues," "may," "will," "should," "would," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," or the negative version of those words or other comparable words. These statements are based on the Company's current views and expectations and involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to: uncertain general economic conditions, including recession concerns, inflationary pressures and rising interest rates, and the related impacts to consumer discretionary spending; supply chain challenges; risks related to adverse public health developments; our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations; our ability to maintain strong relationships with our vendors, manufacturers, licensors, and retailer customers; risks related to losses or disruptions associated with our distribution systems, including our distribution centers and stores, whether as a result of reliance on third-party providers, or otherwise; our ability to retain our existing management team, and continue to attract qualified new personnel; risks related to cyber security threats and privacy or data security breaches or the potential loss or disruption of our information technology ("IT") systems; risks related to the implementation of an enterprise resource planning system software solution and other IT systems; our reliance on our loyalty programs and marketing to drive traffic, sales, and customer loyalty; our ability to protect our reputation and to maintain the brands we license; our competitiveness with respect to style, price, brand availability, and customer service; risks related to our international operations, including international trade, our reliance on foreign sources for merchandise, exposure to political, economic, operational, compliance and other risks, and fluctuations in foreign currency exchange rates; our ability to comply with privacy laws and regulations, as well as other legal obligations; domestic and global political and social conditions; geopolitical tensions; risks associated with climate change and other corporate responsibility issues; and uncertainties related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation. Risks and other factors that could cause our actual results to differ materially from our forward-looking statements are described in the Company's latest Annual Report on Form 10-K or other reports made or filed with the Securities and Exchange Commission. All forward-looking statements speak only as of the time when made. The Company undertakes no obligation to update or revise the forward-looking statements included in this press release to reflect any future events or circumstances.
DESIGNER BRANDS INC. | |||||||||||
Net Sales | |||||||||||
Three months ended | |||||||||||
(dollars in thousands) | July 29, 2023 | July 30, 2022 | Change | ||||||||
Amount | % of | Amount | % of Total | Amount | % | ||||||
Segment net sales: | |||||||||||
U.S. Retail | $ 658,542 | 81.0 % | $ 734,063 | 83.5 % | $ (75,521) | (10.3) % | |||||
Canada Retail | 70,266 | 8.6 % | 78,284 | 8.9 % | (8,018) | (10.2) % | |||||
Brand Portfolio | 84,217 | 10.4 % | 66,351 | 7.6 % | 17,866 | 26.9 % | |||||
Total segment net sales | 813,025 | 100.0 % | 878,698 | 100.0 % | (65,673) | (7.5) % | |||||
Elimination of | (20,808) | (19,379) | (1,429) | 7.4 % | |||||||
Consolidated net sales | $ 792,217 | $ 859,319 | $ (67,102) | (7.8) % |
Six months ended | |||||||||||
(dollars in thousands) | July 29, 2023 | July 30, 2022 | Change | ||||||||
Amount | % of | Amount | % of Total | Amount | % | ||||||
Segment net sales: | |||||||||||
U.S. Retail | $ 1,271,428 | 80.8 % | $ 1,436,808 | 82.8 % | $ (165,380) | (11.5) % | |||||
Canada Retail | 124,221 | 7.9 % | 134,599 | 7.8 % | (10,378) | (7.7) % | |||||
Brand Portfolio | 177,200 | 11.3 % | 163,807 | 9.4 % | 13,393 | 8.2 % | |||||
Total segment net sales | 1,572,849 | 100.0 % | 1,735,214 | 100.0 % | (162,365) | (9.4) % | |||||
Elimination of | (38,550) | (45,352) | 6,802 | (15.0) % | |||||||
Consolidated net sales | $ 1,534,299 | $ 1,689,862 | $ (155,563) | (9.2) % |
Net Sales by Brand Categories | |||||||||
(in thousands) |
| Brand | Eliminations | Consolidated | |||||
Three months ended July 29, 2023 | |||||||||
Owned Brands:(1) | |||||||||
Direct-to-consumer | $ 115,749 | $ — | $ 15,776 | $ — | $ 131,525 | ||||
External customer wholesale, commission | — | — | 47,633 | — | 47,633 | ||||
Intersegment wholesale and commission income | — | — | 20,808 | (20,808) | — | ||||
Total Owned Brands | 115,749 | — | 84,217 | (20,808) | 179,158 | ||||
National brands | 542,793 | — | — | — | 542,793 | ||||
Canada Retail(2) | — | 70,266 | — | — | 70,266 | ||||
Total net sales | $ 658,542 | $ 70,266 | $ 84,217 | $ (20,808) | $ 792,217 | ||||
Three months ended July 30, 2022 | |||||||||
Owned Brands:(1) | |||||||||
Direct-to-consumer | $ 147,877 | $ — | $ 7,793 | $ — | $ 155,670 | ||||
External customer wholesale, commission | — | — | 39,179 | — | 39,179 | ||||
Intersegment wholesale and commission income | — | — | 19,379 | (19,379) | — | ||||
Total Owned Brands | 147,877 | — | 66,351 | (19,379) | 194,849 | ||||
National brands | 586,186 | — | — | — | 586,186 | ||||
Canada Retail(2) | — | 78,284 | — | — | 78,284 | ||||
Total net sales | $ 734,063 | $ 78,284 | $ 66,351 | $ (19,379) | $ 859,319 | ||||
Six months ended July 29, 2023 | |||||||||
Owned Brands:(1) | |||||||||
Direct-to-consumer | $ 238,958 | $ — | $ 26,400 | $ — | $ 265,358 | ||||
External customer wholesale, commission | — | — | 112,250 | — | 112,250 | ||||
Intersegment wholesale and commission income | — | — | 38,550 | (38,550) | — | ||||
Total Owned Brands | 238,958 | — | 177,200 | (38,550) | 377,608 | ||||
National brands | 1,032,470 | — | — | — | 1,032,470 | ||||
Canada Retail(2) | — | 124,221 | — | — | 124,221 | ||||
Total net sales | $ 1,271,428 | $ 124,221 | $ 177,200 | $ (38,550) | $ 1,534,299 | ||||
Six months ended July 30, 2022 | |||||||||
Owned Brands:(1) | |||||||||
Direct-to-consumer | $ 287,032 | $ — | $ 14,320 | $ — | $ 301,352 | ||||
External customer wholesale, commission | — | — | 104,135 | — | 104,135 | ||||
Intersegment wholesale and commission income | — | — | 45,352 | (45,352) | — | ||||
Total Owned Brands | 287,032 | — | 163,807 | (45,352) | 405,487 | ||||
National brands | 1,149,776 | — | — | — | 1,149,776 | ||||
Canada Retail(2) | — | 134,599 | — | — | 134,599 | ||||
Total net sales | $ 1,436,808 | $ 134,599 | $ 163,807 | $ (45,352) | $ 1,689,862 | ||||
(1) | "Owned Brands" refers to those brands we have rights to sell through ownership or license arrangements. Beginning in the first quarter of 2023, sales of the Keds brand are included in Owned Brands as a result of our acquisition of the Keds business. Sales of the Keds brand in periods prior to the first quarter of 2023 are not restated, as this brand was considered a national brand during those periods. |
(2) | We currently do not report the Canada Retail segment net sales by brand categories. |
Comparable Sales | |||||||
Three months ended | Six months ended | ||||||
July 29, 2023 | July 30, 2022 | July 29, 2023 | July 30, 2022 | ||||
Change in comparable sales: | |||||||
U.S. Retail segment | (9.2) % | 2.7 % | (10.4) % | 7.8 % | |||
Canada Retail segment | (7.3) % | 47.3 % | (3.0) % | 44.8 % | |||
Brand Portfolio segment - direct-to-consumer | 0.5 % | 43.3 % | 5.3 % | 31.5 % | |||
Total | (8.9) % | 6.2 % | (9.6) % | 10.4 % |
Store Count | |||||||
(square footage in thousands) | July 29, 2023 | July 30, 2022 | |||||
Number of | Square | Number of | Square | ||||
498 | 9,978 | 506 | 10,237 | ||||
Canada Retail segment: | |||||||
The Shoe Company stores | 113 | 594 | 113 | 596 | |||
DSW stores | 25 | 496 | 25 | 496 | |||
138 | 1,090 | 138 | 1,092 | ||||
Total number of stores | 636 | 11,068 | 644 | 11,329 |
Gross Profit | |||||||||||||
Three months ended | |||||||||||||
(dollars in thousands) | July 29, 2023 | July 30, 2022 | Change | ||||||||||
Amount | % of | Amount | % of | Amount | % | Basis | |||||||
Segment gross profit: | |||||||||||||
U.S. Retail | $ 225,768 | 34.3 % | $ 251,143 | 34.2 % | $ (25,375) | (10.1) % | 10 | ||||||
Canada Retail | 23,811 | 33.9 % | 30,974 | 39.6 % | (7,163) | (23.1) % | (570) | ||||||
Brand Portfolio | 24,298 | 28.9 % | 12,294 | 18.5 % | 12,004 | 97.6 % | 1,040 | ||||||
Total segment gross profit | 273,877 | 33.7 % | 294,411 | 33.5 % | (20,534) | (7.0) % | 20 | ||||||
Net recognition (elimination) of | (490) | 1,259 | (1,749) | ||||||||||
Consolidated gross profit | $ 273,387 | 34.5 % | $ 295,670 | 34.4 % | $ (22,283) | (7.5) % | 10 |
Six months ended | |||||||||||||
(dollars in thousands) | July 29, 2023 | July 30, 2022 | Change | ||||||||||
Amount | % of | Amount | % of | Amount | % | Basis | |||||||
Segment gross profit: | |||||||||||||
U.S. Retail | $ 422,582 | 33.2 % | $ 484,210 | 33.7 % | $ (61,628) | (12.7) % | (50) | ||||||
Canada Retail | 40,985 | 33.0 % | 49,847 | 37.0 % | (8,862) | (17.8) % | (400) | ||||||
Brand Portfolio | 46,383 | 26.2 % | 36,136 | 22.1 % | 10,247 | 28.4 % | 410 | ||||||
Total segment gross profit | 509,950 | 32.4 % | 570,193 | 32.9 % | (60,243) | (10.6) % | (50) | ||||||
Net recognition of intersegment | 1,176 | 1,222 | (46) | ||||||||||
Consolidated gross profit | $ 511,126 | 33.3 % | $ 571,415 | 33.8 % | $ (60,289) | (10.6) % | (50) |
Intersegment Eliminations | |||
Three months ended | |||
(in thousands) | July 29, 2023 | July 30, 2022 | |
Intersegment recognition and elimination activity: | |||
Net sales recognized by Brand Portfolio segment | $ (20,808) | $ (19,379) | |
Cost of sales: | |||
Cost of sales recognized by Brand Portfolio segment | 15,066 | 12,554 | |
Recognition of intersegment gross profit for inventory previously purchased that | 5,252 | 8,084 | |
$ (490) | $ 1,259 |
Six months ended | |||
(in thousands) | July 29, 2023 | July 30, 2022 | |
Intersegment recognition and elimination activity: | |||
Net sales recognized by Brand Portfolio segment | $ (38,550) | $ (45,352) | |
Cost of sales: | |||
Cost of sales recognized by Brand Portfolio segment | 28,277 | 30,723 | |
Recognition of intersegment gross profit for inventory previously purchased that | 11,449 | 15,851 | |
$ 1,176 | $ 1,222 |
DESIGNER BRANDS INC. | |||||||
Three months ended | Six months ended | ||||||
July 29, 2023 | July 30, 2022 | July 29, 2023 | July 30, 2022 | ||||
Net sales | $ 792,217 | $ 859,319 | $ 1,534,299 | $ 1,689,862 | |||
Cost of sales | (518,830) | (563,649) | (1,023,173) | (1,118,447) | |||
Gross profit | 273,387 | 295,670 | 511,126 | 571,415 | |||
Operating expenses | (214,530) | (228,690) | (434,649) | (452,116) | |||
Income from equity investments | 2,138 | 2,435 | 4,469 | 4,380 | |||
Impairment charges | (308) | (1,816) | (649) | (2,888) | |||
Operating profit | 60,687 | 67,599 | 80,297 | 120,791 | |||
Interest expense, net | (6,932) | (2,752) | (13,529) | (5,704) | |||
Loss on extinguishment of debt and write-off of debt issuance | — | — | — | (12,862) | |||
Non-operating income, net | 579 | 37 | 245 | 43 | |||
Income before income taxes | 54,334 | 64,884 | 67,013 | 102,268 | |||
Income tax provision | (17,079) | (18,671) | (18,385) | (29,873) | |||
Net income | 37,255 | 46,213 | 48,628 | 72,395 | |||
Net income attributable to redeemable noncontrolling interest | (51) | — | (9) | — | |||
Net income attributable to Designer Brands Inc. | $ 37,204 | $ 46,213 | $ 48,619 | $ 72,395 | |||
Diluted earnings per share attributable to Designer Brands | $ 0.56 | $ 0.62 | $ 0.73 | $ 0.96 | |||
Weighted average diluted shares | 66,997 | 73,942 | 66,863 | 75,369 |
DESIGNER BRANDS INC. | |||||
July 29, 2023 | January 28, 2023 | July 30, 2022 | |||
ASSETS | |||||
Current assets: | |||||
Cash and cash equivalents | $ 46,187 | $ 58,766 | $ 50,799 | ||
Receivables, net | 97,364 | 77,763 | 204,880 | ||
Inventories | 606,841 | 605,652 | 694,010 | ||
Prepaid expenses and other current assets | 50,308 | 47,750 | 51,558 | ||
Total current assets | 800,700 | 789,931 | 1,001,247 | ||
Property and equipment, net | 226,634 | 235,430 | 242,147 | ||
Operating lease assets | 751,637 | 700,373 | 646,062 | ||
Goodwill | 135,259 | 97,115 | 93,655 | ||
Intangible assets, net | 72,640 | 31,866 | 20,237 | ||
Deferred tax assets | 48,100 | 48,285 | — | ||
Equity investments | 62,938 | 63,820 | 61,957 | ||
Other assets | 49,430 | 42,798 | 37,134 | ||
Total assets | $ 2,147,338 | $ 2,009,618 | $ 2,102,439 | ||
LIABILITIES, REDEEMABLE NONCONTROLLING | |||||
Current liabilities: | |||||
Accounts payable | $ 294,724 | $ 255,364 | $ 337,543 | ||
Accrued expenses | 172,130 | 190,676 | 210,469 | ||
Current maturities of long-term debt | 2,500 | — | — | ||
Current operating lease liabilities | 181,484 | 190,086 | 192,130 | ||
Total current liabilities | 650,838 | 636,126 | 740,142 | ||
Long-term debt | 328,506 | 281,035 | 387,441 | ||
Non-current operating lease liabilities | 682,248 | 631,412 | 588,064 | ||
Other non-current liabilities | 22,784 | 24,989 | 25,844 | ||
Total liabilities | 1,684,376 | 1,573,562 | 1,741,491 | ||
Redeemable noncontrolling interest | 3,144 | 3,155 | — | ||
Total shareholders' equity | 459,818 | 432,901 | 360,948 | ||
Total liabilities, redeemable noncontrolling interest, and | $ 2,147,338 | $ 2,009,618 | $ 2,102,439 |
DESIGNER BRANDS INC. | |||||||
Three months ended | Six months ended | ||||||
July 29, 2023 | July 30, 2022 | July 29, 2023 | July 30, 2022 | ||||
Operating expenses | $ (214,530) | $ (228,690) | $ (434,649) | $ (452,116) | |||
Non-GAAP adjustments: | |||||||
CEO transition costs | 744 | — | 2,954 | — | |||
Restructuring and integration costs | 818 | 992 | 2,938 | 1,606 | |||
Acquisition-related costs | 90 | — | 1,597 | — | |||
Total non-GAAP adjustments | 1,652 | 992 | 7,489 | 1,606 | |||
Adjusted operating expenses | $ (212,878) | $ (227,698) | $ (427,160) | $ (450,510) | |||
Operating profit | $ 60,687 | $ 67,599 | $ 80,297 | $ 120,791 | |||
Non-GAAP adjustments: | |||||||
CEO transition costs | 744 | — | 2,954 | — | |||
Restructuring and integration costs | 818 | 992 | 2,938 | 1,606 | |||
Acquisition-related costs | 90 | — | 1,597 | — | |||
Impairment charges | 308 | 1,816 | 649 | 2,888 | |||
Total non-GAAP adjustments | 1,960 | 2,808 | 8,138 | 4,494 | |||
Adjusted operating profit | $ 62,647 | $ 70,407 | $ 88,435 | $ 125,285 | |||
Net income attributable to Designer Brands Inc. | $ 37,204 | $ 46,213 | $ 48,619 | $ 72,395 | |||
Non-GAAP adjustments: | |||||||
CEO transition costs | 744 | — | 2,954 | — | |||
Restructuring and integration costs | 818 | 992 | 2,938 | 1,606 | |||
Acquisition-related costs | 90 | — | 1,597 | — | |||
Impairment charges | 308 | 1,816 | 649 | 2,888 | |||
Loss on extinguishment of debt and write-off of debt | — | — | — | 12,862 | |||
Foreign currency transaction gains | (579) | (37) | (245) | (43) | |||
Total non-GAAP adjustments before tax effect | 1,381 | 2,771 | 7,893 | 17,313 | |||
Tax effect on above non-GAAP adjustments | (377) | (735) | (2,032) | (4,374) | |||
Discrete and permanent tax on non-deductible CEO | 1,750 | — | 1,897 | — | |||
Valuation allowance change on deferred tax assets | (607) | (2,135) | (2,724) | (2,495) | |||
Total non-GAAP adjustments, after tax | 2,147 | (99) | 5,034 | 10,444 | |||
Net income attributable to redeemable noncontrolling | 51 | — | 9 | — | |||
Adjusted net income | $ 39,402 | $ 46,114 | $ 53,662 | $ 82,839 | |||
Diluted earnings per share | $ 0.56 | $ 0.62 | $ 0.73 | $ 0.96 | |||
Adjusted diluted earnings per share | $ 0.59 | $ 0.62 | $ 0.80 | $ 1.10 |
Non-GAAP Measures
To supplement amounts presented in our consolidated financial statements determined in accordance with accounting principles generally accepted in
Comparable Sales Performance Metric
We consider the percent change in comparable sales from the same previous year period, a primary metric commonly used throughout the retail industry, to be an important measurement for management and investors of the performance of our direct-to-consumer businesses. We include in our comparable sales metric sales from stores in operation for at least 14 months at the beginning of the applicable year. Stores are added to the comparable base at the beginning of the year and are dropped for comparative purposes in the quarter in which they are closed. Comparable sales include the e-commerce sales of the
CONTACT: Stacy Turnof, DesignerBrandsIR@edelman.com
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SOURCE Designer Brands Inc.