Designer Brands Inc. reported that sales of Topo Athletic jumped 24 percent in the second quarter to pace robust growth across its Branded Portfolio segment. Officials expect the running and trail footwear brand to surpass $100 million in sales next year.

“Topo continued to be a standout, with revenue growth of more than 24 percent during the quarter, in line with our expectations,” said Doug Howe, CEO of Designer Brands, on an analyst call. “We expect the brand to generate over $100 million in 2027 and remain bullish on the brand’s long-term growth potential, with significant opportunity anticipated both in existing and new channels of distribution.”

Howe added that the brand’s underlying profitability is also improving. The CEO said he “encouraged by the progress of our recent actions to integrate Topo sourcing into the broader DBI platform and expect meaningful profitability improvement from sourcing optimization and further business integration moving forward.”

Asked by an analyst about Topo’s growth potential, Howe said the brand has room to expand in specialty retail and is not yet sold in DSW stores, leaving additional room for growth. Said Howe, “We think the sky’s the limit with regards to very long runway on the brand. Still is in relatively modest distribution, about 1,600 doors. Lots of opportunity with our existing customers, lots of opportunity and new points of distribution. As a reminder, it’s not actually sold in DSW, so there’s a large runway to be able to continue to build that out in specialty runs, specifically. The brand continues to do very well.”

Designer Brands’ Q2 Earnings Exceed Expectations
Companywide, Designer Brands’ earnings on adjusted basis improved 17.1 percent to $19.2 million, or 34 cents a share, from $16.4 million, or 33 cents, a year ahead and comfortably ahead of analysts’ consensus target of 26 cents.

Sales decreased 1.2 percent to $730.6 million, falling short of analysts’ consensus estimate of $745.09 million due to weak sales at its Retail segment.

However, Designer Brands raised its full-year guidance for both sales and earnings due to stronger sales expectations, continued gross margin expansion and tighter expense control.

Howe said earnings in the quarter benefited from a tariff claim refunds, but gross margins still improved excluding the benefit on a dollar and rate basis through “elevated assortment, disciplined sourcing, and our continued focus on promotions and markdown management.”

Operating profits improved 32.1 percent to $39.4 million in the quarter while vaulting 104.4 percent in the half, to $58.8 million. Howe said the profit gains “reflects the meaningful progress we are making in strengthening the underlying profitability of the business as we execute against our strategic priorities.”

Gross margins in the quarter companywide improved 430 basis points to 47.9 percent. Tariff refund claims of $20.2 million retained by the company contributed 280 basis points of the margin improvement. The remaining gross margin improvement of 150 basis points was primarily from the expansion of segment margins in both retail and brand segments due to the improved effectiveness of product assortment and inventory management strategies.

For the second quarter, adjusted operating expenses were 42.9 percent of sales, deleveraging 300 basis points versus last year, driven by increased performance-based compensation and marketing investments in the quarter.

Howe said the company’s “power of the pair” model, which combines a brand portfolio with a retail footprint, gives Designer Brands a competitive advantage. He said the stores provide reach and visibility for brands while the wholesale component provides scale in sourcing and logistics. He said, “This combination of our retail and brand portfolio gives us greater flexibility in how and where we distribute our product, creating diverse opportunities to drive growth and margin expansion as we remain excited by the long-term potential and value creation inherent to this business model.”

DSW Hampered By Weakness in Sandals and Athletic
Retail segment sales, which includes the DSW Designer Shoe Warehouse, The Shoe Co., and Rubino banners across North America, declined 2.2 percent in the second quarter to $ 671.1 million from $686.0 million a year ago. Comparable sales were down 2.6 percent on top of a decline of 4.5 percent in the year-ago quarter.

While the top-line performance was slightly below expectations, average unit retail and average dollars per sale “remained strong as we focused on driving margin dollar expansion while navigating a sequential traffic headwind during the quarter,” said Seamus Toal, CFO, on the call.

Gross margins in the Retail segment improved 120 basis points to 44.9 percent. Operating earnings slid 9.7 percent to $62.0 million from $68.7 million a year ago.

Howe said sandals, the Retail segment’s largest seasonal category in spring/summer, was “pressured by early weather-related headwinds and never fully rebounded.” Approximately 200 basis points of the Retail segment’s sales decline was attributed to sandals. Excluding the impact from sandals, retail sales in Q2 were approximately flat versus last year.

Howe said, “We ended the quarter with sandals inventory in a healthy position and are confident in the team’s plans to enhance the assortment for next year’s peak selling season.”

Athletic was also “softer overall” in Q2, but the category still saw margin improvement and brands offering newness performed well. Howe added, “Performance was materially stronger with brands that leaned into innovation and where we had greater access to lifestyle and premium product. Within the category overall, we remain disciplined in our markdown cadence and delivered margin improvement amidst a very promotional environment. Encouragingly, athletic demand improved sequentially by 400 basis points in August.”

Looking ahead, Howe said stores have returned to positive comps quarter to date. He said sales at the store level are benefiting from placing greater focus on brands, categories, and key styles “where we see the greatest customer response,” while narrowing the overall breadth of assortments. Said Howe, “We are seeing encouraging results from this approach.”

The Retail segment’s top-ten brands improved sequentially versus Q1 and outperformed the balance of the assortment during the quarter. Howe added, “Importantly, we drove this performance with meaningfully less promotional activity than last year, reflecting the progress we are making toward a healthier and more productive assortment.”

In other categories, women’s dress posted sales growth in the high-single digits for the quarter while the “affordable luxury” assortment nearly doubled versus last year.

Strength in categories adjacent to footwear (i.e., beauty, wellness, hydration, socks, and sunglasses) continued to see strength, up about 10 percent. Both dress and boots quarter-to-date data are showing “encouraging trends,” with DBI’s retail banners entering back-to-school season with “healthy” inventories after seeing year-ago inventories impacted by tariff-related delays.

Howe said the flagship DSW brand’s ongoing repositioning continues to increase the brand’s “cultural relevance,” with its partnership with Ciara Miller from Bravo’s “Summer House” driving 7 billion earned impressions and delivering an all-time highest-performing social content for the brand.

DSW is also relaunching its rewards program this month, providing quicker access to rewards, extended reward redemption timing, and a more personalized experience with special perks for best customers. Nearly 90 percent of DSW’s transactions come from approximately 30 million VIP members.

DSW opened five new stores in the second quarter and is seeing stores remodeled since 2025 outperform the balance of chain. DSW is also adding an  “The Edit at DSW” in-store shop to four locations this fall. Measuring between 1,000 and 1,500 square feet, the shops “curated, elevated destination showcasing key affordable luxury and elevated fashion brands in an open, experiential environment,” said Howe.

Brand Portfolio Segment Sales Q2 Climb 18 Percent
Brand Portfolio segment sales, which includes the Topo Athletic, Keds, Vince Camuto, Kelly & Katie, Jessica Simpson, Lucky Brand, Mix No. 6, and Crown Vintage brands, climbed 17.9 percent to $86.3 million from $73.2 million in Q2 last year. Direct-to-consumer sales in the Brand Portfolio segment grew 7.1 percent compared with a 29.2 percent decline in the year-ago period. Intercompany sales, or brand sales sold through the company’s retail banners, were up double digits for the quarter.

Gross margins in the Brand Portfolio segment jumped 510 basis points to 29.8 percent. Segment operating profits amounted to $979,000 against a loss of $4.05 million in the same period a year ago.

Howe said the gains reflect “continued momentum across our brand portfolio.”

Beyond Topo, a notably strong performance came from Jessica Simpson, with sales ahead 24 percent year-over-year on “impressive growth across all major accounts,” according to Howe. Keds performed in line with plans, “highlighted by strong direct-to-consumer performance across the assortment.” Howe said Keds is expected to “robust double-digit growth” for 2026.

Outlook
Designer Brands raised its full-year 2026 outlook. The company now expects total sales to be flat to up 1 percent for the year, compared with prior guidance for a decline of 1 percent to growth of 1 percent. It also lifted adjusted diluted EPS guidance to 47 cents to 52 cents, up from a prior range of 28 cents to 38 cents.

Howe said the third quarter is “off to a strong start.” While back to school had a later start this year due to the timing of Labor Day, the season is performing ahead of expectations and Retail segment sales are slightly positive quarter to date.

In an answer to an analyst’s question about the outlook, Howe said the athletic category will have less of an impact in the back half, and he reiterated his optimism around fall categories. He said on the call, “We feel that the penetration of the athletic business diminishes a little bit as we move through the back half. Dress actually increases. We’re very optimistic about the boot category. We see some growth there.”

Image courtesy Topo Athletic

EXEC: Topo’s Founder Tony Post Sees Growth Just Getting Started