Designer Brands, Inc. saw its DBI share surge nearly 50 percent on Tuesday after the parent of the DSW Shoe Warehouse, The Shoe Co. and Rubino retail banners, and a brand portfolio business that includes Topo Athletic, Keds, Vince Camuto, and a range of other designer footwear brands posted continued progress across key metrics.
“We delivered on our strategic priorities throughout the quarter, and I’m pleased to share that this positive momentum has carried through the early part of the fourth quarter, and I believe we are positioned well as we close out the year,” offered company CEO Doug Howe on a conference call with analysts. “Our results are an encouraging indicator that we are effectively communicating our value proposition admits the ongoing uncertainty in the external environment.”
While the company did not move into positive territory in the Thord quarter ended November 1, total sales and comparable store sales both improved sequentially from the second quarter, which Howe said reflected strengthening consumer demand and improved in-store execution.
“In addition to driving improved top line trends, we continue to diligently manage markdowns and operating expenses,” the CEO added, pointing to a year-over-year increase in gross profit dollars and merchandise margins.
Fiscal Third Quarter Summary
Net sales for the third quarter ended November 1 amounted to $752.4 million, a 3.2 percent year-over-year (y/y) decrease versus Q3 2024. Analysts were expecting net sales of $763.4 million.
Total comparable sales decreased by 2.4 percent year-over-year (y/y), an improvement from Q3 2024 levels, particularly in the U.S. Retail segment.
Segment Summary
U.S. Retail Segment (DSW)
U.S. Retail segment sales declined 0.8 percent y/y with comp sales down 1.5 percent. “Both metrics reflect another quarter of sequential improvements from Q2, demonstrating the continued increase in customer engagement, strength of our product assortment and improving sales productivity in our U.S. Retail segment,” added company interim CFO Mark Haley. The 2025 second quarter saw both comps and total sales down roughly 5 percent.
Our “Let Us Surprise You” brand campaign has performed well, driving strong awareness, generating $2 billion earned media impressions as of the end of October,” Howe noted. “We are continuing to optimize our marketing and media mix as we move forward with this refreshed platform and imagery. In addition, we’re seeing encouraging trends across multiple product categories, indicating that enhancements we are delivering in our broad, balanced assortment are resonating with a wide range of consumers.”
Howe added that the retailer’s Top 8 brands continued to outperform the balance of the assortment, posting a positive 4 percent comp for the quarter. He said penetration of these brands reportedly expanded by 200 basis points year-over-year to 42 percent of total sales, underscoring the strength and relevance of the company’s most strategic brand partners.
“We’re also encouraged by the strong performance of our key focus areas within the fashion business,” Howe said. “Boots have generated a strong start to the season, delivering an 8 percent increase in regular-priced product sales in the quarter with our inventory well positioned to capitalize on this trend as the business peaks.”
He said they have seen brown being the hot color this season with high-quality, tall shaft boots trending. “In fact, according to Circana, DSW outpaced POS by 6 points in boot sales for Q3, driven by women’s, which were up 2 percent to prior year,” the CEO added.
“In our affordable luxury offering, while currently a modest portion of sales, achieved impressive year-over-year growth in Q3, underscoring the opportunity to expand and regain market share in this segment,” Howe said.
He said athletic category performance continued to improve, delivering a 1 percent comp in adult athletic, a 300 basis-point increase from last quarter and an 8 percent comp in kids’ athletic, an 800 basis-point increase from last quarter, highlighted by the strong back-to-school performance.
“We believe these positive trends broadly across our business are evidence that our curated and differentiated assortment is an area of strength and a key differentiator we will continue to amplify,” Howe suggested.
The CEO said they saw strong regular price selling throughout the quarter and, as a result, markdown rates improved by 140 basis points year-over-year. These moves, plus the strategic pullback on unprofitable digital promotions, led to a $5.7 million year-over-year improvement in adjusted operating income for the U.S. Retail segment. Adjusted operating income flow-through reportedly improved by 100 basis points.
Canada Retail Segment (DSW, The Shoe Co., Rubinos)
Canada Retail segment sales declined 7.5 percent y/y in the third quarter, with comps down 6.6 percent. Haley said the decline was mainly due to warmer weather stifling demand for seasonal product but also added that they have seen the trend beginning to reverse in the fourth quarter.
“While macro pressures remain, our teams are managing the business with agility and discipline and we remain focused on items in our control and delivering value to the customer,” Howe said. “Encouragingly, performance in Q4 is rebounding as weather has normalized over the past several weeks.”
Brand Portfolio Segment ( Topo, Keds and Designer Brands)
Brand Portfolio segment total sales were down 8.6 percent year-over-year, said to be largely driven by a shift in sales from External Wholesale activity from the third quarter to the fourth quarter due to shipment timing. As a result, Haley said they expect higher sales year-over-year from External Wholesale customers in the fourth quarter.
Howe continued, “I’m encouraged that this positive momentum has extended into the early part of the fourth quarter, reinforcing the progress of our strategic initiatives and positioning us well as we close out the year. While macroeconomic pressures persist, we are confident in our ability to navigate the near-term environment and continue making progress on our long-term strategies.”
Profitability and Expenses
Consolidated gross margin was 45.1 percent in the third quarter, a 210 basis-point improvement versus the prior year third quarter, reportedly driven by strategically fewer markdowns in the U.S. retail segment and an increase in fulfillment of orders through the company’s East Coast logistics center.
Gross margin dollars increased $5.8 million year-over-year despite lower sales.
Adjusted operating expenses were up $2.5 million in Q3 compared to last year, representing 39.4 percent of sales. Haley said this reflects deleverage of 160 basis points over last year on lower sales.
“It’s important to note that last year’s third quarter benefited from the timing of a $9 million reversal of a bonus accrual,” Haley said. “Amid ongoing macro volatility and the associated impact on consumer demand, we’ve maintained a strong disciplined approach to managing operating expenses, inventory and capital investments. We now expect total expense savings to reach nearly $30 million for fiscal 2025 compared to 2024.”
Operating margin amounted to 5.7 percent of net sales in Q3, up from 2.9 percent in the third quarter last year, with the U.S. Retail and Brand Portfolio segment both posting solid improvement year-over-year.
Adjusted operating income was $46.5 million for the third quarter, compared to $43.6 million in Q3 last year.
“We are encouraged by the year-over-year improvement in operating income driven by disciplined execution by our teams across the business,” Haley said.
The company had $11.4 million of net interest expense in Q3, compared to $11.6 million in Q3 last year.
The effective tax rate in the third quarter on adjusted results was 44 percent compared to 55 percent in Q3 last year.
Reported net income attributable to Designer Brands Inc. was $18.2 million, or diluted EPS of 35 cents per share.
Adjusted net income was $19.6 million, or Adjusted diluted EPS of 38 cents per diluted share, compared to $14.5 million, or 27 cents per diluted shares, in the prior-year third quarter.
Analysts were looking for Adjusted diluted EPS of 18 cents per share.
Balance Sheet and Liquidity Summary
Cash and cash equivalents totaled $51.4 million at the end of the third quarter of 2025, compared to $36.2 million at the end of the Q3 period last year, with $166.9 million available for borrowings under the company’s senior secured asset-based revolving credit facility.
Debt totaled $469.8 million at the end of the third quarter of 2025 compared to $536.3 million at the end of the Q3 period last year.
The company ended the third quarter with inventories of $620.0 million compared to $637.0 million at the end of the Q3 period last year.
A dividend of 5 cents per share for both Class A and Class B common shares will be paid on December 19, 2025 to shareholders of record at the close of business on December 5, 2025.
Stores
Outlook
The company expects the following for fiscal 2025
Image courtesy Topo Athletic
