Designer Brands, Inc., the parent of DSW, reported earnings on an adjusted basis were down 31 percent in the third quarter ended October 29 as lower gross margins offset a 1.4 percent gain in sales. Results were slightly below Wall Street estimates. The company maintained its sales outlook but lowered its earnings guidance for the year.

EPS in the quarter on an adjusted basis was 67 cents versus analysts’ consensus estimate of 71 cents. Revenue for the quarter came in at $865 million versus the consensus estimate of $875.03 million.

Roger Rawlins, CEO, stated, “We continued to make meaningful progress on our long-term brand-building strategy while also delivering solid comparable sales across every segment of our business. Sales of owned brands represented 26.5 percent of total net sales in the third quarter of 2022 compared to 21.5 percent for the same period last year. The strategic shifts we have made in our business over the past several years are driving a sustainably higher gross margin rate than 2019 as we have a more targeted focus on customer acquisition, optimizing our assortment, and growing the brands we own and control.

“While we are seeing many of the same pressures across the consumer landscape that most retailers are seeing, our flexible business model continues to support our efforts to navigate a dynamic macro environment. We are focused on meeting our customers’ footwear needs while we balance inventory and expenses in order to continue growing market share in this volatile environment.”

Third-quarter Operating Results
(all comparisons are to the third quarter of 2021)

  • Net sales increased 1.4 percent to $865.0 million;
  • Comparable sales increased 3.0 percent;
  • Gross profit decreased to $285.8 million versus $313.6 million last year, and gross margin, as a percentage of net sales, was 33.0 percent as compared to 36.7 percent last year;
  • Reported net income was $45.2 million, or 65 cents a share, down from $80.2 million, or $1.04 a share; and
  • Adjusted net income was $46.1 million, or 67 cents, down 30.8 percent from $66.6 million, or 86 cents a share, a year ago.

Liquidity Highlights
Cash and cash equivalents totaled $62.5 million at the end of the third quarter of 2022 compared to $83.1 million at the end of the same period last year, with $130.9 million remaining available for borrowings under our senior secured asset-based revolving credit facility. Debt totaled $415.5 million at the end of the third quarter of 2022 compared to $227.9 million at the end of the same period last year. In November 2022, the company received $120.3 million of its income tax receivable from the IRS as a result of the Coronavirus Aid, Relief and Economic Security Act. The company anticipates receiving the remaining income tax receivable within the next twelve months.

The company ended the quarter with more normalized inventory levels of $681.8 million compared to $602.1 million during the same period last year with accelerated receipts to support fall season demand.

Return To Shareholders
During the third quarter of 2022, Designer Brands repurchased 1.3 million Class A common shares (2.0 percent of Class A and Class B common shares at the beginning of the quarter) at an aggregate cost of $19.1 million under its share repurchase program.

During the nine months ended October 29, 2022, the company repurchased 10.7 million Class A common shares (14.6 percent of Class A and Class B common shares at the beginning of the fiscal year) at an aggregate cost of $147.5 million, with $187.4 million of Class A common shares that remain authorized under the program as of October 29, 2022.

A dividend of $0.05 per share of Class A and Class B common shares will be paid on December 28, 2022 to shareholders of record at the close of business on December 13, 2022.

Store Openings and Closings
During the third quarter of 2022, Designer Brands opened 1 new store and closed 3 stores in the U.S. with no changes to the store count in Canada, resulting in a total of 504 U.S. stores and 138 Canadian stores as of October 29, 2022.

Updated 2022 Financial Outlook
The company updated its guidance for the full year 2022 as follows:

  • Designer Brands Comparable Sales Growth to mid-single-digits (prior, mid-single-digits); and
  • Diluted EPS to $1.75 to $1.80 (prior, $2.05 to $2.15).

Photo courtesy DSW