Designer Brands Inc., the parent of DSW, reported a loss in the first quarter ended May 2 of $215.9 million that included pre-tax charges totaling $112.3 million covering impairment charges, integration and restructuring expenses and COVID-19 incremental costs. Revenues were down 44.7 percent despite a 25 percent hike in online sales. The Company has reopened approximately 90 percent of its total store base.

Roger Rawlins, chief executive officer, stated, “As we said last quarter, the effect of COVID-19 on our industry has been unprecedented and has created many significant near-term challenges. The pandemic necessitated store closures and heavily impacted consumers, resulting in total comparable sales being down 42 percent during the first quarter.”

Rawlins continued, “I am proud of how our team has responded to the challenges and what we were able to accomplish in the first quarter. Over the past several years, we have made significant investments in our digital infrastructure, and, as a result, we were able to generate strong digital demand during the first quarter, which resulted in digital demand representing 50 percent of total demand for the quarter, growing 25 percent over last year. We also leveraged our best-in-class inventory controls to end the quarter with inventory units on hand flat versus last year. We have adjusted our near-term areas of focus to prioritize growing with the top fifty brands in footwear and further emphasizing our everyday value. We are also laser-focused on maintaining and preserving sufficient liquidity.”

First Quarter Operating Results

  • Net sales decreased 44.7 percent to $482.8 million;
  • Comparable sales decreased 42.3 percent for first quarter of fiscal 2020 compared to a 3.0 percent increase in the first quarter of fiscal 2019;
  • Reported consolidated gross profit decreased $285.8 million to a loss of $26.5 million in the first quarter as compared to a profit of $259.3 million in the same period last year. This was primarily driven by increased inventory markdown activity and the resulting increase in inventory reserves of $84.0 million over the same period last year, higher shipping costs associated with an increase in digital penetration, and the deleveraging of distribution and fulfillment and store occupancy expenses on lower sales volume;
  • Recorded impairment charges of $112.5 million as a result of the material reduction in net sales and cash flows due to the temporary closure of all stores;
  • Reported net loss was $215.9 million, or $3.00 loss per diluted share, including pre-tax charges totaling $112.3 million, or $1.17 per diluted share, primarily related to impairment charges, integration and restructuring expenses and COVID-19 incremental costs, partially offset by governmental credits the company is able to claim; and
  • Adjusted net loss was $131.8 million, or $1.83 loss per diluted share.

Liquidity Highlights

  • Cash and investments totaled $250.9 million at the end of the first quarter compared to $121.9 million for the same period last year. Debt totaled $393.0 million at the end of the first quarter compared to $235.0 million debt outstanding for the same period last year, reflecting net borrowings from our senior revolving credit agreement;
  • During the quarter, the Company amended its $400 million Credit Facility and increased borrowings by $203.0 million as a precautionary measure to increase its cash position and preserve financial flexibility considering uncertainty in the U.S. and global markets resulting from COVID-19. The Company continues to actively pursue further options to increase financial flexibility. While there is no immediate need to raise capital at the present time, the Company intends to evaluate assessing the financing markets and may look to raise capital, when and if the company deems it prudent, to further strengthen its balance sheet;
  • The Company has reached alignment with nearly all major vendors and landlords on past-due amounts and has extended go-forward payment terms; and
  • The Company ended the quarter with inventories of $533.6 million, down 16.9 percent compared to the same period last year, primarily due to strong inventory controls and higher inventory reserves versus the prior year.

Operations Update
As of the date of this release, the Company has successfully reopened approximately 90 percent of its total store base. The Company expects to have nearly all North American stores open by the end of June. The Company has implemented a number of measures to protect the health and safety of its customers and associates as stores are re-opened.

2020 Guidance
As previously announced on March 17, 2020, the Company is not issuing guidance for fiscal 2020 given the rapidly evolving COVID-19 environment. The Company is not providing an update at this time.

Designer Brands operates a portfolio of retail concepts in nearly 1,000 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, which 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, Sole Society, CC Corso Como, and others.

Photo courtesy Designer Brands Inc.