Designer Brands Inc. is the latest public company to find that age-old question, “What did you do for me lately?” which now means, “What are you going to do for me in the future?” That’s the reality today in managing a company through a 90-day Wall Street calendar window. The discussion is over before you get to brag about first-quarter net sales growth in line with plans, earnings per share exceeding expectations, and “continuing to build on the momentum generated in the back half of fiscal 2025, highlighted by solid execution across the company’s strategic priorities and strong growth in the company’s Brand Portfolio segment.”
But life isn’t fair in the corner office, and Wall Street analysts don’t carry crystal balls to help predict the future. They rely on information and data. Don’t tell them what you did, no matter how good you feel you did or didn’t do. You need to bring the heat in your outlook for the year. Don’t miss a thing. And make sure your Q1 beat carries through the full year, or questions will be raised, and the stock will get whacked by a lot.
Doug Howe, CEO, Designer Brands Inc., 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, found as much on Tuesday, June 9. after delivering weak revenue numbers that were said to be slightly below the consensus estimate, but still within plan, and then beat The Street’s EPS estimates by a wide margin in posting a bottom-line profit against analyst expectations for a loss for the quarter.
On a conference call with analysts, Howe found that, despite the stronger-than-expected earnings performance, investors focused on the company’s full-year outlook and concerns that the first-quarter beat was not carried forward into the year.
In other words, if DBI can beat the bottom-line consensus estimate by 16 cents in the first quarter, why is the company reaffirming its fiscal 2026 earnings guidance of 28 cents to 38 cents per share, and, more importantly, why did the bottom-line guidance of 33 cents per share at its midpoint still fall 7 cents short of the Wall Street expectations of 40 cents per share for the year?
“Based on our strong first quarter performance, we now expect full year EPS to trend toward the high end of the guidance range we shared on our last call,” Howe said in his prepared remarks on Tuesday, June 9. “We have also had a solid start to Q2, with results trending in line with our expectations.” If Q2 looks to be moving in the right direction, what could be holding the company back in the second half of the year?
Over the last four quarters, the company has reportedly surpassed consensus EPS estimates four times. Coming up 7 cents short for the year was going to leave a mark.
The mark it left? DBI shares were down 21 percent at the close of trading on June 9, closing at $7.02 per share. But what about tariffs?
Company CFO Sheamus Toal, who joined DBI just five months ago, but some of the old shoe dogs here may remember from his days at Footstar, Inc., was left to share details of the assumptions underlying the offending guidance.
“As Doug mentioned in his remarks, while we continue to expect sales for the fiscal year in line with our original guidance, given the strong results in Q1, we now expect full-year earnings per share to trend towards the high end of our annual guidance range,” Toal stated in his remarks. “In Q2, quarter-to-date performance is supportive of our approach to our annual sales guidance.”
He said the quarter began with unfavorable weather that impacted demand for seasonal products. Still, results reportedly “improved week-over-week sequentially in May as weather has normalized and we anticipate total sales to be flat to slightly up for the quarter.” That being said, he also noted that “there remains a moderate amount of uncertainty with tariffs and the macro environment.”
Toal said the company is “taking a cautious approach” to the potential impact of tariff dynamics on the business and assuming a substantial portion of any potential refunds will be offset by increased risk from the new Section 301 tariffs that may begin in August.
“Given that a significant portion of our business relies on partnerships with national brands that have their own tariff exposure, it also remains to be seen how they will respond to the latest developments on tariffs, he explained. “We have remained cautious in our approach, and we want to clarify that our earnings guidance excludes these potential impacts.”
He did reiterate that, looking ahead to the balance of the year, DBI continues to anticipate stronger sales and earnings growth in the first half.
Toal continued, “Within the second half of the year, we expect earnings to be pressured in the third quarter as we lap strong performance and return to a normalized level of incentive-based compensation. We anticipate adjusted earnings per share in the fourth quarter will improve notably year-over-year.
The fact that the element was not present in the initial guidance for the year when the company reported its fourth quarter results may be the most egregious error made by the company.
