Footwear retailer and manufacturer Designer Brands Inc. (formerly DSW Inc.) on Thursday reported earnings per share for the second quarter ended August 3 of 37 cents per diluted share, including net charges of 11 per diluted share from adjusted items. Adjusted EPS of 48 cents beat estimates by 1 cent.
Comparable sales decreased 0.6 percent with the company’s recently acquired businesses, namely Camuto Group, performing above expectations while plans are on track to assume U.S. retail segment private label sourcing.
Roger Rawlins, CEO, said, “I am proud of the work our teams have done, not only delivering a solid quarter, but also successfully integrating two significant acquisitions and leveraging the unique strength of each of our businesses to give Designer Brands greater control and flexibility in setting our own destiny in a world full of extraordinary external pressures. Each segment delivered what was needed this quarter, but our newest businesses really stood out, exceeding our expectations and moving us closer to the vision laid out at our Investor Day.
“In Canada, the transfer of successful practices at DSW in the U.S. to our Canadian banners fueled continued positive momentum in this business,” Rawlins continued. “We were particularly pleased with the growth in Canada of both the loyalty programs and e-commerce sales. Similarly, Camuto Group is delivering exactly what we expected giving us differentiation and bringing added excitement to our retail segments. The Camuto Group team has unveiled the DSW Spring 2020 private label offering and based on the fashion, styles and quality shown, we believe we will be in a solid position to not only see the gross margin benefit as we convert the production of our DSW private label to Camuto Group next Spring, but also to increase brand loyalty and further drive sales within our warehouse footprint.”
Second Quarter Operating Results
- Total revenue increased by 8.2 percent, including $102.9 million in revenue from the Brand Portfolio segment, which includes $17.7 million in intersegment revenue that is eliminated in consolidation.
- Comparable sales decreased 0.6 percent for second quarter of fiscal 2019 compared to a 9.7 percent increase in the second quarter of fiscal 2018.
- Reported gross profit, as a percent of sales, decreased by 210 bps primarily driven by a benefit recognized in the second quarter of fiscal 2018 as a result of adjusting our loyalty programs deferred revenue due to the relaunch of the DSW VIP rewards program, the inclusion of Camuto Group which operates at a lower gross profit rate, and higher shipping costs in the current year associated with our continued success in engaging with customers across all mediums.
- Reported operating expenses, as a percent of revenue, increased by 180 bps, driven by the consolidation of the Brand Portfolio segment and integration and restructuring costs incurred during fiscal 2019.
- Reported net income was $27.4 million, or $0.37 per diluted share, including pre-tax charges totaling $9.1 million, or $0.11 per diluted share, primarily from integration and restructuring expenses.
- Adjusted net income was $35.8 million, or $0.48 per diluted share.
Six Months Operating Results
- Total revenue increased by 15.3 percent, including $207.5 million in revenue from the Brand Portfolio segment, which includes $28.2 million in intersegment revenue that is eliminated in consolidation.
- Comparable sales increased 1.1 percent compared to last year’s 5.8 percent increase.
- Reported gross profit, as a percent of sales, decreased by 90 bps.
- Reported operating expenses, as a percent of revenue, increased by 170 bps, driven by the consolidation of the acquired businesses.
- Reported net income was $58.6 million, or $0.77 per diluted share, including pre-tax charges totaling $12.4 million, or $0.14 per diluted share, from integration and restructuring expenses.
- Adjusted net income was $69.4 million, or $0.91 per diluted share.
Balance Sheet Highlights
- Cash and investments totaled $77.3 million compared to $289.1 million at the end of the second quarter last year, and debt totaled $235 million compared to no debt outstanding at the end of the second quarter last year, reflecting the funding of the two acquisitions in fiscal 2018 and share repurchase activity.
- The company ended the quarter with inventories of $706.2 million compared to $597 million last year. Excluding inventories from the acquisitions, inventories per square foot were flat to last year.
- During fiscal 2019, the company repurchased 6.1 million shares for a total of $125 million with $351.6 million remaining under its share repurchase program.
Regular Dividend
The company’s Board of Directors declared a quarterly cash dividend of $0.25 per share. The dividend will be paid on October 4, 2019 to shareholders of record at the close of business on September 20, 2019.