Designer Brands, Inc., the parent of DSW, Keds and Topo Athletic, reduced its outlook for the year after reporting first-quarter results came in slightly below plan and weakening consumer trends.

Sales of $742.1 million in the quarter ended April 29 were below Wall Street’s consensus target of $763.46 million. Adjusted EPS of 21 cents a share compared with Wall Street’s consensus target of 27 cents. 

Doug Howe, CEO of Designer Brands, said, “I am pleased with the quarter we delivered on top of outsized market-leading growth in the first quarter of last year, albeit slightly below our initial expectations. We have made significant operational progress on our goal of doubling sales of our Owned Brands by 2026 over 2021, with our recent acquisitions of Keds, Le Tigre and Topo Athletic helping to further expand and diversify our brand portfolio. We continue to lean further than ever before into our Owned Brands, harnessing key and exciting moments to showcase our brands with engaging events and customer experiences.

“As the consumer remains cautious, we are approaching the remainder of the year and the trajectory of the recovery in our business with heightened consideration. We are confident in our ability to continue to optimize those factors over which we have control, providing compelling products from our Owned Brands and an ideal national brand assortment to our customers seeking a wide range of styles.”

First Quarter Operating Results
(all comparisons are to the first quarter of 2022, unless otherwise noted)

  • Net sales decreased 10.7 percent to $742.1 million;
  • Comparable sales decreased by 10.4 percent;
  • Gross profit decreased to $237.7 million versus $275.7 million last year, and gross margin was 32.0 percent compared to 33.2 percent for the same period last year;
  • Reported net income attributable to Designer Brands, Inc. was $11.4 million, or diluted earnings per share (EPS) of $0.17, including net charges of $0.04 per diluted share from adjusted items, primarily related to CEO transition, restructuring, integration, and acquisition costs, partially offset by the valuation allowance change on deferred tax assets. In the year-ago period, earnings were $26.1 million, or 34 cents a share; and
  • Adjusted net income was $14.3 million, or adjusted diluted EPS of $0.21, down 61.0 percent from $36.7 million, or 48 cents, a year ago.

Liquidity

  • Cash and cash equivalents totaled $50.6 million at the end of the first quarter of 2023, compared to $54.8 million at the end of the same period last year, with $200.3 million available for borrowings under our senior secured asset-based revolving credit facility (ABL Revolver). Debt totaled $390.3 million at the end of the first quarter of 2023 compared to $306.9 million at the end of the same period last year; and
  • The company ended the first quarter with inventories of $637.4 million compared to $672.5 million at the end of the same period last year.

Store Openings and Closings
During the first quarter of 2023, the company closed two stores in the U.S. and opened one new store in Canada, resulting in a total of 499 U.S. and 139 Canadian stores as of April 29, 2023.

Stock Buyback Through Modified Dutch Auction Tender Offer
In a separate release, Designer Brands said its board had authorized the repurchase of up to $100 million of the company’s Class A common shares through a modified “Dutch Auction” tender offer at an anticipated cash purchase price of not less than $7.00 per share and not more than $8.00 per share, less any applicable withholding taxes and without interest. Designer Brands intends to enter into a $135 million term loan agreement to be used principally to fund the offer, with the remaining availability to be used for general corporate purposes.

Updated 2023 Financial Outlook 
Designer Brands’s updated outlook calls for the following:

  • Designer Brands’ net sales growth, excluding Keds, is expected to be down mid- to high-single digits (down mid-single-digits previously);
  • EPS, excluding Keds, is expected in the range of $1.20 to $1.50 ($1.65 to $1.75 previously); and
  • The acquisition of Keds is still expected to add $75.0 million to $85.0 million and zero per share in EPS contribution.

Designer Brands operates 640 DSW Designer Shoe Warehouse and The Shoe Company stores in North America. The company’s owned and licensed footwear portfolio includes Keds, Lucky Brand, Crown Vintage, Vince Camuto, Topo Athletic, Jessica Simpson, and Le Tigre.

Photo courtesy Topo Athletic