Despite the pending exit of Nike from its mix, DSW’s athletic footwear momentum continues with comps in the category in the second quarter running up 90 percent year-over-year and 45 percent against the 2019 second quarter. The strength across Athleisure helped drive quarter results for DSW’s parent, Designer Brands, far above plan, although supply chain constraints could restrain second-half growth.

DSW has been pivoting away from its traditional dressier styles toward athletic and athleisure for several years as consumers have embraced comfort footwear and the comfort trend that accelerated as a result of the pandemic. DSW has also been emphasizing its kids’ assortment.

On a call with analysts, Roger Rawlins, CEO, Designer Brands and interim president, DSW, shown above, said the company continues to see strength in athleisure and kids and is positioning DSW to capture more market share in these areas.

“We saw customer demand going the way of athleisure, we pivoted rapidly, and we still see so much room for growth here,” said Rawlins. “We see athleisure as a core staple in our customers’ closets.”

Jared Poff, CFO, said the chain’s 45 percent gain in athletic against 2019 was among the strongest athletic performances in the footwear industry and helped bring athletic styles to 23 percent of DSW’s sales mix versus 17 percent in 2019. Overall athleisure comps, which includes athletic and casual, were up 107 percent during the second quarter compared to a year ago, with athleisure sales penetration climbing to 57 percent versus 44 percent in 2019.

Nike’s Exit Planned For September
Following reports in March that Nike planned to exit six more wholesale accounts this fall, including DSW, to focus on its direct-to-consumer business, DSW officials confirmed on the company’s first-quarter call in May that Nike would not take further purchase orders from DSW or its Canadian operations, beginning in September 2021.

The other five retailers include Urban Outfitters, Shoe Show, Dunham’s Sports, and Olympia Sports. The move followed similar steps by Nike in the prior year to end wholesale arrangements from another group of longstanding partners, including Zappos, Dillard’s and Belk.

In May, Designer Brands said Nike accounted for less than 7 percent of DSW’s total sales in 2020 and vowed to fill the void from Nike’s exit with other brands and continue its athleisure push. Rawlins said, “No single brand is material to our operations, and DBI’s broad assortment across multiple categories and channels is what differentiates our model from many others.”

On Tuesday morning’s conference call with analysts, DSW officials did not mention Nike’s pending exit but cited continued strong momentum across the category. Said Rawlins, “We are killing it in Athletic.”

DSW.com continues to feature a range of Nike products. Other athletic styles include Adidas, New Balance, Converse, Vans, Asics, Brooks, On, Gucci, and Reebok.

Companywide, sales at Designer Brands increased 66.9 percent to $817.3 million, topping Wall Street’s consensus estimate of $748.0 million. Comparable sales increased 84.9 percent year-over-year.

Gross margins improved to 34.8 percent from 7.6 percent for the same period last year and 30.5 percent for the second quarter of 2019 due to increased full-price selling.

Reported net income came to $42.9 million, or 55 cents per share, against a net loss of $98.2 million, or $1.36, a year ago. Adjusted net income in the latest quarter was $43.4 million, or 56 cents. Results were more than double Wall Street’s consensus estimate of 24 cents.

Among its segments, U.S. Retail segment sales, which features the DSW chain, reached $723.1 million against $394.0 million a year ago, representing an 83.5 percent gain. Comps grew 94.3 percent and improved from a 56.3 percent comp gain in the first quarter.

The gains were helped by improving traffic. While store traffic in the second quarter was down 10 percent to 2019, sequential improvement was seen throughout the quarter with May down roughly 17 percent and July down 3.6 percent. Positive store traffic comps were achieved on multiple days.

Athleisure And Kids Gaining Market Share
The gains reflect the pivot toward Athleisure and Kids Footwear, up 55 percent compared to Q219. According to NPD, sales growth in both categories outpaced the remaining U.S. footwear market significantly compared to the same quarter in 2019, driving market share gains for DSW and positioning the chain among the top 15 footwear retailers in both categories, according to Rawlins.

Another encouraging category was seasonal footwear, which grew 5 percent and was ahead of expectations amid tight inventory investments behind the category.

The dress category saw improvement from prior trends. While women’s dress was down 40 percent for the second quarter versus 2019, it was “much improved” from a 57 percent decline seen in the first quarter of 2021, said Poff. Similar to women’s, men’s dress was down 30 percent versus 2019, much improved from down 56 percent in the 2020 first quarter. Said Poff, “Dress continues to lag the broader recovery given continued challenges and the trend of working from home and apprehension around social gathering and traveling, but we liked the trajectory we are seeing.”

Digital continued its strength at DSW.com despite store openings with sales up 21 percent year-over-year on top of a 27 percent increase at the same time last year. Online accounted for 27.2 percent of DSW’s sales against 18.9 percent in the second quarter of 2019.

In its other two segments, Canada Retail’s revenues increased 16.1 percent to $57.6 million from $49.6 million a year ago. Comps grew 14.6 percent. Canada’s recovery remains a few months behind the U.S. due to COVID restrictions but is improving.

In its Brand Portfolio wholesale segment, which includes the Camuto Group business, sales were down 4.1 percent to $108.0 million. The segment includes Jessica Simpson footwear, Lucky Brand footwear and handbags, and the Vince Camuto and Louise et Cie footwear brands.

Designer Brands ended the quarter with inventory up 13 percent in dollars year-over-year but down in units by 16 percent year-over-year and down 28 percent in units compared to 2019. Inventories were below Designer Brands’ initial plan to have unit inventories be close to flat to 2019.

Poff said, “This obviously causes some potential friction as we continue to see our sales ramp quite positively to 2019. Accordingly, we are leaning heavily into our own production capabilities at Camuto and aggressively working with our vendor partners to get priority access to the available inventory. Our scale and overall relationship size with most of the brands we carry typically positions us well when chasing limited inventory.”

He also said Designer Brands projects “several million dollars” of incremental freight costs across the company this fall to expedite inventory that becomes available.

Poff noted in the Q&A session that DSW’s position in athletic assortments is in solid shape. He said, “One thing I am very happy to say is on the athletic side of the world, we had been very aggressive and placed quite a bit of over-ordering in athletic knowing there was little risk to that product even if it all showed up. That has put us in a pretty good position on that front.”

Looking ahead, Puff said Designer Brands continues to hold back on providing detailed long-term guidance due to the uncertainty created by the potential for COVID-variant outbreaks and “mounting global supply chain pressures.” However, adjusted operating income for the fall of the current year is expected to be slightly above the fall of 2019, including assumed increases in freight and labor costs.

Photo courtesy DSW