Designer Brands Inc. Reports Third Quarter 2020 Financial Results

Rhea-AI Summary

Designer Brands Inc. (NYSE: DBI) reported a 30.1% decline in net sales to $652.9 million for Q3 2020 compared to Q3 2019. Athletic comparable sales increased 5% in the U.S., reflecting a shift towards athletic products. Despite increased markdowns and elevated shipping costs, the company noted improved flexibility aligning with consumer preferences. The net loss for the quarter was $40.6 million, translating to $0.56 loss per diluted share. Cash and investments stood at $114.5 million with inventory down 19%.

Positive

• U.S. athletic comparable sales increased 5% in Q3 2020.
• Athletic product penetration grew to 26%, up from 17% YOY.
• Inventory decreased by 19%, indicating strong inventory controls.

Negative

• Net sales fell 30.1% compared to the same quarter last year.
• Reported net loss of $40.6 million, or $0.56 loss per share.
• Gross profit decreased by $107.7 million to $165.7 million.

Net sales improved 33% on a sequential basis versus second quarter

Athletic comparable sales in the U.S. Retail segment were up 5% in third quarter, above the 4% increase in the second quarter, outpacing results for seasonal products

COLUMBUS, Ohio, Dec. 9, 2020 /PRNewswire/ -- Designer Brands Inc. (NYSE: DBI) (the "Company"), one of North America's largest designers, producers and retailers of footwear and accessories, announced financial results for the three months ended October 31, 2020, compared to the three months ended November 2, 2019.

Roger Rawlins, Chief Executive Officer, said, "Designer Brands delivered sequential improvement across all of our metrics in the third quarter by successfully leveraging our flexible business model to align with consumer preferences. We have been shifting our assortment to include more athletic and kids product, as well as items from the Top 10 brands in footwear, and see further opportunity to meaningfully grow these categories. Our investment in these areas has resulted in athletic penetration in our U.S. retail business increasing to 26% at the end of the third quarter, up from 17% last year, and kids penetration has grown to 10% from 7% last year. During the quarter, athletic comparable sales turned positive at DSW, growing 5%, outperforming the market and supporting our strategic decision to pivot in this environment."

Mr. Rawlins continued, "Fundamentally, our customers know Designer Brands as a dress and seasonal house. As they continue to work from home and avoid large social events, the balance of our assortment will remain challenged. We are pleased to see that a vaccine may be on the horizon, but widespread adoption will take time and our business will continue to feel pressure in the near-term. We have confidence there will be a day our customers feel comfortable going out again, and, when that time comes, we will reap the benefits of the combination of our legacy command of the dress and seasonal market coupled with recent gains we are making in athletic and kids."

Third Quarter Operating Results

• Net sales decreased 30.1% to $652.9 million in the third quarter of fiscal 2020 compared to the same period last year.
• Comparable sales decreased 30.4% for the third quarter of fiscal 2020 compared to a 0.3% increase in the third quarter of fiscal 2019.
• Gross profit decreased $107.7 million to $165.7 million in the third quarter of fiscal 2020 versus $273.3 million last year, and gross margin as a percentage of net sales was 25.4% as compared to 29.3% in the third quarter of fiscal 2019. The decrease in gross profit was primarily driven by the significant reduction in customer traffic with the continuing impact of COVID-19. The decline in gross margin during the period was also a result of continued elevated markdown activity in addition to the increase in shipping expense and deleverage on occupancy, fixed distribution costs, and royalty expense related to the decline in sales.
• Reported operating expenses were down 8.8% to $196.1 million versus last year and the reported operating expenses as a percentage of net sales was 30.1%, above last year's level of 23.1%, due to a significantly lower sales volume.
• Reported net loss was $40.6 million, or $0.56 loss per diluted share, including net charges of $0.30 per diluted share from adjusted items primarily related to impairment charges.
• Adjusted net loss was $19.0 million, or $0.26 loss per diluted share.

Liquidity Highlights

• Cash and investments totaled $114.5 million at the end of the third quarter of fiscal 2020, compared to $113.8 million for the same period last year, with $295.0 million available for borrowings under our ABL Revolver. Debt totaled $274.6 million at the end of the third quarter of fiscal 2020 compared to $235.0 million debt outstanding for the same period last year.
• The Company ended the quarter with inventories of $546.0 million, down 19% compared to the same period last year, primarily due to strong inventory controls and higher inventory reserves versus the prior year.

Store Openings and Closings
During the third quarter of fiscal 2020, we opened four stores and closed two in the U.S. resulting in a total of 524 U.S. stores. In Canada, we opened one store with no closures resulting in a total of 145 Canadian stores.

2020 Guidance
We continue to monitor and evaluate the impact of the COVID-19 pandemic and, given the prolonged uncertainty surrounding the impacts of COVID-19, the Company is not providing guidance at this time.

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 8509121 approximately ten minutes prior to the start of the call. The conference call will also be broadcast live over the internet and can be accessed through the following link:

https://www.webcaster4.com/Webcast/Page/1213/38606

For those unable to listen to the live webcast, an archived version will be available via the same website address until December 23, 2020. A replay of the teleconference will be available by dialing the following numbers:

U.S.: 1-877-344-7529
Canada: 1-855-669-9658
International: 1-412-317-0088
Passcode: 10149800

About Designer Brands
Designer Brands Inc. is one of North America's largest designers, producers and retailers of footwear and accessories. The Company operates a portfolio of retail concepts in nearly 700 locations under the DSW Designer Shoe Warehouse®, The Shoe Company®, and Shoe Warehouse® banners. The Company designs and produces footwear and accessories through Camuto Group, a leading manufacturer selling in more than 5,400 stores worldwide. Camuto Group owns licensing rights for the Jessica Simpson® footwear business, and footwear and handbag licenses for Lucky Brand® and Max Studio®. In partnership with a joint venture with Authentic Brands Group, the Company also owns a stake in Vince Camuto®, Louise et Cie®, and others. More information can be found at www.designerbrands.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Any statements in this release that are not historical facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In many cases, you can identify these forward-looking statements by the use of forward-looking words such as "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 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: risks and uncertainty related to the continued outbreak of the coronavirus disease ("COVID-19"), any future COVID-19 resurgence, and any other adverse public health developments; our ability to protect the health and safety of our employees and our customers, which may be affected by current or future government regulations related to stay-at-home orders and orders related to the operation of non-essential businesses; risks related to our holdings of cash and investments and access to liquidity and the financial markets on terms that are favorable to us, if at all; risks related to our international operations, including international trade, our reliance on foreign sources for merchandise, exposure to foreign tax contingencies, and fluctuations in foreign currency exchange rates; maintaining strong relationships with our vendors, manufacturers, licensors, and retailer customers; our ability to successfully integrate acquired businesses or realize the anticipated benefits of the acquisitions after we complete our integration efforts; risks related to losses or disruptions associated with our distribution systems, including our distribution and fulfillment centers and our stores, whether as a result of COVID-19, reliance on third-party providers, or otherwise; our reliance on our loyalty programs and marketing to drive traffic, sales and customer loyalty; our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations; failure to retain our key executives or attract qualified new personnel; risks related to the loss or disruption of our information systems and data and our ability to prevent or mitigate breaches of our information security and the compromise of sensitive and confidential data; risks associated with remote working arrangements; our ability to comply with privacy laws and regulations, as well as other legal obligations; the effect of Stein Mart Inc. filing for relief under Chapter 11 of the United States Bankruptcy Code; our success in growing our store base and digital demand; our ability to protect our reputation and to maintain the brands we license; our ability to execute our strategies; seasonality of our business and fluctuation of our comparable sales and quarterly financial performance; uncertain general economic, political and social conditions and the related impacts to consumer discretionary spending; our competitiveness with respect to style, price, brand availability and customer service; the imposition of increased or new tariffs on our products; risks related to our qualification under the Coronavirus Aid, Relief, and Economic Security Act for payroll tax credits and deferral of payroll taxes in the U.S., as well as other similar regulations in Canada; and uncertainty related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation. Additional factors that could cause our actual results to differ materially from our expectations are described in the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2020, as amended, our Forms 10-Q for the fiscal quarter ended May 2, 2020 and August 1, 2020 and risk factors identified in the Company's other filings with the Securities and Exchange Commission. All forward-looking statements speak only as of the time when made. The Company undertakes no obligation to revise the forward-looking statements included in this press release to reflect any future events or circumstances, except as may be required by law.

DESIGNER BRANDS INC. SEGMENT RESULTS (unaudited)
Net Sales
	Three months ended								Change
(dollars in thousands)	October 31, 2020				November 2, 2019				Amount				%			Comparable Sales %
Segment net sales:
U.S. Retail	$	501,901			$	716,775			$	(214,874)			(30.0)%			(31.9)%
Canada Retail	61,598				76,299				(14,701)				(19.3)%			(18.7)%
Brand Portfolio	83,905				137,496				(53,591)				(39.0)%			13.4%
Other	27,020				28,848				(1,828)				(6.3)%			NA
Total segment net sales	674,424				959,418				(284,994)				(29.7)%			(30.4)%
Elimination of intersegment net sales	(21,554)				(25,592)				4,038				(15.8)%
Net sales	$	652,870			$	933,826			$	(280,956)			(30.1)%
NA - Not applicable
	Nine months ended								Change
(dollars in thousands)	October 31, 2020				November 2, 2019				Amount				%			Comparable Sales %
Segment net sales:
U.S. Retail	$	1,272,951			$	2,086,535			$	(813,584)			(39.0)%			(39.6)%
Canada Retail	140,509				191,421				(50,912)				(26.6)%			(25.5)%
Brand Portfolio	196,476				344,989				(148,513)				(43.0)%			61.4%
Other	62,909				93,935				(31,026)				(33.0)%			(50.4)%
Total segment net sales	1,672,845				2,716,880				(1,044,035)				(38.4)%			(38.4)%
Elimination of intersegment net sales	(47,478)				(53,813)				6,335				(11.8)%
Net sales	$	1,625,367			$	2,663,067			$	(1,037,700)			(39.0)%

 

Store Data
	October 31, 2020						November 2, 2019
(square footage in thousands)	Number of Stores			Square Footage			Number of Stores			Square Footage
U.S. Retail segment - DSW Designer Shoe Warehouse	524			10,633			521			10,579
Canada Retail segment:
The Shoe Company / Shoe Warehouse	118			626			119			638
DSW Designer Shoe Warehouse	27			536			27			535
	145			1,162			146			1,173
Total operating stores	669			11,795			667			11,752

 

Gross Profit
	Three months ended
	October 31, 2020							November 2, 2019							Change
(dollars in thousands)	Amount				% of Segment Net Sales			Amount				% of Segment Net Sales			Amount				%			Basis Points
Segment gross profit (loss):
U.S. Retail	$	117,679			23.4	%		$	201,409			28.1	%		$	(83,730)			(41.6)%			(470)
Canada Retail	18,905				30.7	%		27,485				36.0	%		$	(8,580)			(31.2)%			(530)
Brand Portfolio	22,128				26.4	%		40,849				29.7	%		$	(18,721)			(45.8)%			(330)
Other	6,272				23.2	%		6,291				21.8	%		$	(19)			(0.3)%			140
	164,984							276,034
Elimination of intersegment gross loss (profit)	672							(2,726)
Gross profit	$	165,656			25.4	%		$	273,308			29.3	%		$	(107,652)			(39.4)%			(390)

 

	Nine months ended
	October 31, 2020							November 2, 2019							Change
(dollars in thousands)	Amount				% of Segment Net Sales			Amount				% of Segment Net Sales			Amount				%			Basis Points
Segment gross profit (loss):
U.S. Retail	$	124,806			9.8	%		$	619,356			29.7	%		$	(494,550)			(79.8)%			(1,990)
Canada Retail	22,244				15.8	%		65,171				34.0	%		$	(42,927)			(65.9)%			(1,820)
Brand Portfolio	24,592				12.5	%		93,308				27.0	%		$	(68,716)			(73.6)%			(1,450)
Other	962				1.5	%		21,643				23.0	%		$	(20,681)			(95.6)%			(2,150)
	172,604							799,478
Elimination of intersegment gross loss (profit)	3,634							(5,664)
Gross profit	$	176,238			10.8	%		$	793,814			29.8	%		$	(617,576)			(77.8)%			(1,900)

 

Intersegment Eliminations
	Three months ended
(in thousands)	October 31, 2020				November 2, 2019
Elimination of intersegment activity:
Net sales recognized by Brand Portfolio segment	$	(21,554)			$	(25,592)
Cost of sales:
Cost of sales recognized by Brand Portfolio segment	17,155				17,363
Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period	5,071				5,503
Gross loss (profit)	$	672			$	(2,726)

 

	Nine months ended
(in thousands)	October 31, 2020				November 2, 2019
Elimination of intersegment activity:
Net sales recognized by Brand Portfolio segment	$	(47,478)			$	(53,813)
Cost of sales:
Cost of sales recognized by Brand Portfolio segment	34,116				39,281
Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period	16,996				8,868
Gross loss (profit)	$	3,634			$	(5,664)

 

DESIGNER BRANDS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands, except per share amounts)
	Three months ended								Nine months ended
	October 31, 2020				November 2, 2019				October 31, 2020				November 2, 2019
Net sales	$	652,870			$	933,826			$	1,625,367			$	2,663,067
Cost of sales	(487,214)				(660,518)				(1,449,129)				(1,869,253)
Operating expenses	(196,067)				(215,038)				(551,712)				(654,988)
Income from equity investment	1,902				2,662				6,325				7,354
Impairment charges	(30,081)				(4,824)				(149,363)				(4,824)
Operating profit (loss)	(58,590)				56,108				(518,512)				141,356
Interest expense, net	(9,009)				(2,174)				(14,955)				(5,947)
Non-operating income (expenses), net	24				15				680				(128)
Income (loss) before income taxes	(67,575)				53,949				(532,787)				135,281
Income tax benefit (provision)	26,932				(10,489)				178,072				(33,220)
Net income (loss)	$	(40,643)			$	43,460			$	(354,715)			$	102,061
Diluted earnings (loss) per share	$	(0.56)			$	0.60			$	(4.92)			$	1.36
Weighted average diluted shares	72,344				72,947				72,134				75,149

 

DESIGNER BRANDS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited and in thousands)
	October 31, 2020				February 1, 2020				November 2, 2019
Assets
Cash and cash equivalents	$	114,531			$	86,564			$	87,838
Investments	—				24,974				25,939
Accounts receivable, net	61,840				89,151				87,313
Inventories	545,954				632,587				677,696
Prepaid expenses and other current assets	54,577				67,534				48,077
Total current assets	776,902				900,810				926,863
Property and equipment, net	313,102				395,009				394,695
Operating lease assets	728,871				918,801				950,514
Goodwill	93,655				113,644				113,644
Intangible assets, net	15,652				22,846				23,297
Deferred tax assets	208,976				31,863				39,452
Equity investment	57,978				57,760				54,964
Other assets	31,585				24,337				33,549
Total assets	$	2,226,721			$	2,465,070			$	2,536,978
Liabilities and shareholders' equity
Accounts payable	$	371,382			$	299,072			$	266,335
Accrued expenses	171,261				194,264				190,897
Current maturities of long-term debt	62,500				—				—
Current operating lease liabilities	226,423				186,695				184,598
Total current liabilities	831,566				680,031				641,830
Long-term debt	274,635				190,000				235,000
Non-current operating lease liabilities	721,771				846,584				880,883
Other non-current liabilities	28,228				27,541				36,084
Total liabilities	1,856,200				1,744,156				1,793,797
Total shareholders' equity	370,521				720,914				743,181
Total liabilities and shareholders' equity	$	2,226,721			$	2,465,070			$	2,536,978

 

DESIGNER BRANDS INC. NON-GAAP RECONCILIATION (unaudited and in thousands, except per share amounts)
	Three months ended								Nine months ended
	October 31, 2020				November 2, 2019				October 31, 2020				November 2, 2019
Reported net income (loss)	$	(40,643)			$	43,460			$	(354,715)			$	102,061
Pre-tax adjustments:
Included in cost of sales -
COVID-19 incremental costs	—				—				3,676				—
Included in operating expenses:
COVID-19 incremental costs (credits), net	(985)				—				(4,453)				—
Integration and restructuring expenses	816				1,465				11,019				13,574
Amortization of intangible assets	113				617				582				664
Impairment charges	30,081				4,824				149,363				4,824
Gain on settlement	—				—				(8,990)				—
Included in non-operating expenses, net -
Foreign currency transaction losses (gains)	(25)				9				(368)				216
Total pre-tax adjustments	30,000				6,915				150,829				19,278
Tax effect of adjustments	(8,357)				(1,789)				(38,875)				(3,394)
Total adjustments, after tax	21,643				5,126				111,954				15,884
Adjusted net income (loss)	$	(19,000)			$	48,586			$	(242,761)			$	117,945
Reported diluted earnings (loss) per share	$	(0.56)			$	0.60			$	(4.92)			$	1.36
Adjusted diluted earnings (loss) per share	$	(0.26)			$	0.67			$	(3.37)			$	1.57

 

Non-GAAP Measures

In addition to diluted earnings (loss) per share and net income (loss) determined in accordance with accounting principles generally accepted in the United States ("GAAP"), the Company uses adjusted diluted earnings (loss) per share and adjusted net income (loss), which adjust for the effects of: (1) COVID-19 incremental costs and credits; (2) integration and restructuring expenses; (3) amortization expense of intangible assets; (4) impairment charges; (5) gain on settlement; (6) foreign currency transaction losses (gains); and (7) the net tax expense impact of such items. The unaudited reconciliation of adjusted results should not be construed as an alternative to the reported results determined in accordance with GAAP. These financial measures are not based on any standardized methodology and are not necessarily comparable to similar measures presented by other companies. The Company believes these non-GAAP measures provide useful information to both management and investors to increase comparability to the prior periods by adjusting for certain items that may not be indicative of core operating measures and to better identify trends in our business. The adjusted financial results are used by management to, and allow investors to, evaluate the operating performance of the Company on a comparable basis, when reviewed in conjunction with the Company's GAAP statements. These amounts are not determined in accordance with GAAP and therefore should not be used exclusively in evaluating the Company's business and operations.

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SOURCE Designer Brands Inc.

FAQ

What were Designer Brands' Q3 2020 financial results?

Designer Brands reported a net sales decline of 30.1% to $652.9 million in Q3 2020.

How did athletic sales perform for DBI in Q3 2020?

Athletic comparable sales increased by 5%, reflecting a positive trend.

What was Designer Brands' net loss for Q3 2020?

The company reported a net loss of $40.6 million, or $0.56 loss per diluted share.

What factors contributed to the decline in gross profit for DBI?

The decline was primarily driven by reduced customer traffic due to COVID-19 and increased markdown activity.

What is the current inventory situation for Designer Brands?

Designer Brands' inventory decreased by 19% compared to the same period last year.