Wednesday, February 21, 2024

Designer Brands Inc. Reports Second Quarter 2023 Financial Results

Reporting sequential improvement in sales and gross margin over the first quarter 2023

Reaffirming 2023 guidance

COLUMBUS, Ohio, Sept. 7, 2023 /PRNewswire/ — Designer Brands Inc. (NYSE: DBI) (the “Company” and “Designer Brands”), one of the world’s largest designers, producers, and retailers of footwear and accessories, announced financial results for the second quarter ended July 29, 2023.

Doug Howe, Chief Executive Officer, stated, “I am proud of the sequential improvement in both sales and profitability in the second quarter as well as the progress that has been made on our strategic initiatives, with several exciting milestones in the quarter – including new collaborations and celebrity partnerships. Our portfolio of Owned Brands and National Brand partners remains strong and we are excited to be rolling out our new athletic and athleisure offerings from Le Tigre and Keds while continuing to elevate our relationship with Nike during a time that athletic and athleisure demand continues to grow.

“The unique synergies between our legacy retail business and our brand portfolio are putting us on a path to being more resilient than ever and we will continue to build out our leadership and structure our teams accordingly. As we look ahead, we do anticipate near-term headwinds will persist, but we are confident in our plans to continue optimizing and spotlighting our unparalleled assortment.”

Second Quarter Operating Results (Unless otherwise stated, all comparisons are to the second quarter of 2022)

  • Net sales decreased 7.8% to $792.2 million.
  • Total comparable sales decreased by 8.9%.
  • Gross profit decreased to $273.4 million versus $295.7 million last year, and gross margin was 34.5% compared to 34.4% for the same period last year.
  • Reported net income attributable to Designer Brands Inc. was $37.2 million, or diluted earnings per share (“EPS”) of $0.56, including net after-tax charges of $0.03 per diluted share from adjusted items, primarily related to CEO transition, restructuring, and integration costs.
  • Adjusted net income was $39.4 million, or adjusted diluted EPS of $0.59.

Liquidity

  • Cash and cash equivalents totaled $46.2 million at the end of the second quarter of 2023, compared to $50.8 million at the end of the same period last year, with $233.7 million available for borrowings under our senior secured asset-based revolving credit facility and $85.0 million available for borrowings by September 21, 2023 under our new senior secured term loan credit agreement (“Term Loan”). Debt totaled $331.0 million at the end of the second quarter of 2023 compared to $387.4 million at the end of the same period last year.
  • The Company ended the second quarter with inventories of $606.8 million compared to $694.0 million at the end of the same period last year.

Capital Allocation

  • During the second quarter, the Company repurchased an aggregate 2.1 million Class A common shares, including open market purchases and purchases under our previously-disclosed Dutch auction tender offer. As of July 29, 2023, $166.5 million of Class A common shares remained available for future repurchase under the share repurchase program.
  • During the third quarter through September 5, 2023, the Company has repurchased an additional $58.3 million Class A common shares through open market purchases at an average price of $10.18 per share. As of September 5, 2023, the Company maintains $102.8 million authorized for future repurchases under its share repurchase program.
  • The Company anticipates drawing an additional $85.0 million under the Term Loan throughout the remainder of 2023. As of September 5, 2023, our outstanding debt balance was $341.4 million.

Store Openings and Closings

During the second quarter of 2023, we closed one store in the U.S. and one store in Canada, resulting in a total of 498 U.S. stores and 138 Canadian stores as of July 29, 2023.

Updated 2023 Financial Outlook

The Company is reaffirming the following guidance for the full year 2023:

Metric


Guidance

Net Sales:



 Designer Brands net sales growth, excluding Keds


Down mid- to high-single digits

 Incremental net sales from Keds acquisition


$75.0 million to $85.0 million

Diluted EPS:



 Designer Brands, excluding Keds


$1.20 – $1.50

 Contribution from Keds acquisition


~$0.00

Webcast and Conference Call

The Company is hosting a conference call today at 8:30 am Eastern Time. Investors and analysts interested in participating in the call are invited to dial 1-888-317-6003, or the international dial in, 1-412-317-6061, and reference conference ID number 7689007 approximately ten minutes prior to the start of the conference call. The conference call will also be broadcast live over the internet and can be accessed through the following link, as well as through the Company’s investor website at investors.designerbrands.com:

https://app.webinar.net/5xmnwoEQVrJ

For those unable to listen to the live webcast, an archived version will be available at the same location until September 21, 2023. A replay of the teleconference will be available by dialing the following numbers:

U.S.: 1-877-344-7529
Canada: 1-855-669-9658
International: 1-412-317-0088
Passcode: 4386380

Important information may be disseminated initially or exclusively via the Company’s investor website; investors should consult the site to access this information.

About Designer Brands

Designer Brands is one of the world’s largest designers, producers, and retailers of the most recognizable footwear brands and accessories, transforming and defining the footwear industry through a mission of inspiring self-expression. With a diversified, world-class portfolio of coveted brands, including Keds, Lucky Brand, Crown Vintage, Vince Camuto, Topo Athletic, Jessica Simpson, Le Tigre and others, Designer Brands designs and produces on-trend footwear and accessories for all of life’s occasions delivered to the consumer through a robust direct-to-consumer omni-channel infrastructure and powerful national wholesale distribution. Powered by a billion-dollar digital commerce business across multiple domains and nearly 640 DSW Designer Shoe Warehouse and The Shoe Company stores in North America, Designer Brands delivers current, in-line footwear and accessories from the largest national brands in the industry and holds leading market share positions in key product categories across Women’s, Men’s, and Kids’. Designer Brands also distributes its brands internationally through select wholesale and distributor relationships while also leveraging design and sourcing expertise to build private label product for national retailers. Designer Brands is committed to being a difference maker in the world, taking steps forward to advance diversity, equity, and inclusion in the footwear industry and supporting a global community and the health of the planet by donating more than seven million pairs of shoes to the global non-profit Soles4Souls. To learn more, visit www.designerbrands.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Certain statements in this press release may constitute forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “could,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “would,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” or the negative version of those words or other comparable words. These statements are based on the Company’s current views and expectations and involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to: uncertain general economic conditions, including recession concerns, inflationary pressures and rising interest rates, and the related impacts to consumer discretionary spending; supply chain challenges; risks  related to adverse public health developments; our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations; our ability to maintain strong relationships with our vendors, manufacturers, licensors, and retailer customers; risks related to losses or disruptions associated with our distribution systems, including our distribution centers and stores, whether as a result of reliance on third-party providers, or otherwise; our ability to retain our existing management team, and continue to attract qualified new personnel; risks related to cyber security threats and privacy or data security breaches or the potential loss or disruption of our information technology (“IT”) systems; risks related to the implementation of an enterprise resource planning system software solution and other IT systems; our reliance on our loyalty programs and marketing to drive traffic, sales, and customer loyalty; our ability to protect our reputation and to maintain the brands we license; our competitiveness with respect to style, price, brand availability, and customer service; risks related to our international operations, including international trade, our reliance on foreign sources for merchandise, exposure to political, economic, operational, compliance and other risks, and fluctuations in foreign currency exchange rates; our ability to comply with privacy laws and regulations, as well as other legal obligations; domestic and global political and social conditions; geopolitical tensions; risks associated with climate change and other corporate responsibility issues; and uncertainties related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation. Risks and other factors that could cause our actual results to differ materially from our forward-looking statements are described in the Company’s latest Annual Report on Form 10-K or other reports made or filed with the Securities and Exchange Commission. All forward-looking statements speak only as of the time when made. The Company undertakes no obligation to update or revise the forward-looking statements included in this press release to reflect any future events or circumstances.

DESIGNER BRANDS INC. 
SEGMENT RESULTS
(unaudited)


Net Sales


Three months ended





(dollars in thousands)

July 29, 2023


July 30, 2022


Change


Amount


% of
Segment
Net Sales


Amount


% of Total
Segment
Net Sales


Amount


%

Segment net sales:












 U.S. Retail

$                658,542


81.0 %


$                734,063


83.5 %


$     (75,521)


(10.3) %

 Canada Retail

70,266


8.6 %


78,284


8.9 %


(8,018)


(10.2) %

 Brand Portfolio

84,217


10.4 %


66,351


7.6 %


17,866


26.9 %

 Total segment net sales

813,025


100.0 %


878,698


100.0 %


(65,673)


(7.5) %

Elimination of
intersegment net sales

(20,808)




(19,379)




(1,429)


7.4 %

Consolidated net sales

$                792,217




$                859,319




$     (67,102)


(7.8) %


Six months ended



(dollars in thousands)

July 29, 2023


July 30, 2022


Change


Amount


% of
Segment
Net Sales


Amount


% of Total
Segment
Net Sales


Amount


%

Segment net sales:












 U.S. Retail

$             1,271,428


80.8 %


$             1,436,808


82.8 %


$   (165,380)


(11.5) %

 Canada Retail

124,221


7.9 %


134,599


7.8 %


(10,378)


(7.7) %

 Brand Portfolio

177,200


11.3 %


163,807


9.4 %


13,393


8.2 %

 Total segment net sales

1,572,849


100.0 %


1,735,214


100.0 %


(162,365)


(9.4) %

Elimination of
intersegment net sales

(38,550)




(45,352)




6,802


(15.0) %

Consolidated net sales

$             1,534,299




$             1,689,862




$   (155,563)


(9.2) %

Net Sales by Brand Categories

(in thousands)

U.S. Retail


Canada
Retail


Brand
Portfolio


Eliminations


Consolidated

Three months ended July 29, 2023










Owned Brands:(1)










 Direct-to-consumer

$       115,749


$                —


$         15,776


$                 —


$       131,525

 External customer wholesale, commission
 income, and other



47,633



47,633

 Intersegment wholesale and commission income



20,808


(20,808)


 Total Owned Brands

115,749



84,217


(20,808)


179,158

National brands

542,793





542,793

Canada Retail(2)


70,266




70,266

Total net sales

$       658,542


$        70,266


$         84,217


$       (20,808)


$       792,217

Three months ended July 30, 2022










Owned Brands:(1)










 Direct-to-consumer

$       147,877


$                —


$           7,793


$                 —


$       155,670

 External customer wholesale, commission
 income, and other



39,179



39,179

 Intersegment wholesale and commission income



19,379


(19,379)


 Total Owned Brands

147,877



66,351


(19,379)


194,849

National brands

586,186





586,186

Canada Retail(2)


78,284




78,284

Total net sales

$       734,063


$        78,284


$         66,351


$       (19,379)


$       859,319

Six months ended July 29, 2023










Owned Brands:(1)










 Direct-to-consumer

$       238,958


$                —


$         26,400


$                 —


$       265,358

 External customer wholesale, commission
 income, and other



112,250



112,250

 Intersegment wholesale and commission income



38,550


(38,550)


 Total Owned Brands

238,958



177,200


(38,550)


377,608

National brands

1,032,470





1,032,470

Canada Retail(2)


124,221




124,221

Total net sales

$   1,271,428


$      124,221


$       177,200


$       (38,550)


$   1,534,299

Six months ended July 30, 2022










Owned Brands:(1)










 Direct-to-consumer

$       287,032


$                —


$         14,320


$                 —


$       301,352

 External customer wholesale, commission
 income, and other



104,135



104,135

 Intersegment wholesale and commission income



45,352


(45,352)


 Total Owned Brands

287,032



163,807


(45,352)


405,487

National brands

1,149,776





1,149,776

Canada Retail(2)


134,599




134,599

Total net sales

$   1,436,808


$      134,599


$       163,807


$       (45,352)


$   1,689,862











(1)

“Owned Brands” refers to those brands we have rights to sell through ownership or license arrangements. Beginning in the first quarter of 2023, sales of the Keds brand are included in Owned Brands as a result of our acquisition of the Keds business. Sales of the Keds brand in periods prior to the first quarter of 2023 are not restated, as this brand was considered a national brand during those periods.

(2)

We currently do not report the Canada Retail segment net sales by brand categories.

Comparable Sales


Three months ended


Six months ended


July 29, 2023


July 30, 2022


July 29, 2023


July 30, 2022

Change in comparable sales:








 U.S. Retail segment

(9.2) %


2.7 %


(10.4) %


7.8 %

 Canada Retail segment

(7.3) %


47.3 %


(3.0) %


44.8 %

 Brand Portfolio segment – direct-to-consumer
 channel

0.5 %


43.3 %


5.3 %


31.5 %

 Total

(8.9) %


6.2 %


(9.6) %


10.4 %

Store Count

(square footage in thousands)

July 29, 2023


July 30, 2022


Number of
Stores


Square
Footage


Number of
Stores


Square
Footage

U.S. Retail segment – DSW stores

498


9,978


506


10,237

Canada Retail segment:








 The Shoe Company stores

113


594


113


596

 DSW stores

25


496


25


496


138


1,090


138


1,092

Total number of stores

636


11,068


644


11,329

Gross Profit


Three months ended







(dollars in thousands)

July 29, 2023


July 30, 2022


Change


Amount


% of
Segment
Net Sales


Amount


% of
Segment
Net Sales


Amount


%


Basis
Points

Segment gross profit:














 U.S. Retail

$     225,768


34.3 %


$     251,143


34.2 %


$     (25,375)


(10.1) %


10

 Canada Retail

23,811


33.9 %


30,974


39.6 %


(7,163)


(23.1) %


(570)

 Brand Portfolio

24,298


28.9 %


12,294


18.5 %


12,004


97.6 %


1,040

Total segment gross profit

273,877


33.7 %


294,411


33.5 %


(20,534)


(7.0) %


20

Net recognition (elimination) of
intersegment gross profit

(490)




1,259




(1,749)





Consolidated gross profit

$     273,387


34.5 %


$     295,670


34.4 %


$     (22,283)


(7.5) %


10


Six months ended



(dollars in thousands)

July 29, 2023


July 30, 2022


Change


Amount


% of
Segment
Net Sales


Amount


% of
Segment
Net Sales


Amount


%


Basis
Points

Segment gross profit:














 U.S. Retail

$     422,582


33.2 %


$     484,210


33.7 %


$     (61,628)


(12.7) %


(50)

 Canada Retail

40,985


33.0 %


49,847


37.0 %


(8,862)


(17.8) %


(400)

 Brand Portfolio

46,383


26.2 %


36,136


22.1 %


10,247


28.4 %


410

Total segment gross profit

509,950


32.4 %


570,193


32.9 %


(60,243)


(10.6) %


(50)

Net recognition of intersegment
gross profit

1,176




1,222




(46)





Consolidated gross profit

$     511,126


33.3 %


$     571,415


33.8 %


$     (60,289)


(10.6) %


(50)

Intersegment Eliminations


Three months ended

(in thousands)

July 29, 2023


July 30, 2022

Intersegment recognition and elimination activity:




 Net sales recognized by Brand Portfolio segment

$                (20,808)


$                (19,379)

 Cost of sales:




  Cost of sales recognized by Brand Portfolio segment

15,066


12,554

  Recognition of intersegment gross profit for inventory previously purchased that
  was subsequently sold to external customers during the current period

5,252


8,084


$                      (490)


$                    1,259


Six months ended

(in thousands)

July 29, 2023


July 30, 2022

Intersegment recognition and elimination activity:




 Net sales recognized by Brand Portfolio segment

$                (38,550)


$                (45,352)

 Cost of sales:




  Cost of sales recognized by Brand Portfolio segment

28,277


30,723

  Recognition of intersegment gross profit for inventory previously purchased that
  was subsequently sold to external customers during the current period

11,449


15,851


$                    1,176


$                    1,222

DESIGNER BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)



Three months ended


Six months ended


July 29, 2023


July 30, 2022


July 29, 2023


July 30, 2022

Net sales

$        792,217


$        859,319


$     1,534,299


$     1,689,862

Cost of sales

(518,830)


(563,649)


(1,023,173)


(1,118,447)

Gross profit

273,387


295,670


511,126


571,415

Operating expenses

(214,530)


(228,690)


(434,649)


(452,116)

Income from equity investments

2,138


2,435


4,469


4,380

Impairment charges

(308)


(1,816)


(649)


(2,888)

Operating profit

60,687


67,599


80,297


120,791

Interest expense, net

(6,932)


(2,752)


(13,529)


(5,704)

Loss on extinguishment of debt and write-off of debt issuance
costs




(12,862)

Non-operating income, net

579


37


245


43

Income before income taxes

54,334


64,884


67,013


102,268

Income tax provision

(17,079)


(18,671)


(18,385)


(29,873)

Net income

37,255


46,213


48,628


72,395

Net income attributable to redeemable noncontrolling interest

(51)



(9)


Net income attributable to Designer Brands Inc.

$          37,204


$          46,213


$          48,619


$          72,395

Diluted earnings per share attributable to Designer Brands
Inc.

$               0.56


$               0.62


$               0.73


$               0.96

Weighted average diluted shares

66,997


73,942


66,863


75,369

DESIGNER BRANDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands)



July 29, 2023


January 28, 2023


July 30, 2022

ASSETS






 Current assets:






  Cash and cash equivalents

$                  46,187


$                  58,766


$                  50,799

  Receivables, net

97,364


77,763


204,880

  Inventories

606,841


605,652


694,010

  Prepaid expenses and other current assets

50,308


47,750


51,558

 Total current assets

800,700


789,931


1,001,247

 Property and equipment, net

226,634


235,430


242,147

 Operating lease assets

751,637


700,373


646,062

 Goodwill

135,259


97,115


93,655

 Intangible assets, net

72,640


31,866


20,237

 Deferred tax assets

48,100


48,285


 Equity investments

62,938


63,820


61,957

 Other assets

49,430


42,798


37,134

Total assets

$             2,147,338


$             2,009,618


$             2,102,439

LIABILITIES, REDEEMABLE NONCONTROLLING
INTEREST AND SHAREHOLDERS’ EQUITY






 Current liabilities:






  Accounts payable

$                294,724


$                255,364


$                337,543

  Accrued expenses

172,130


190,676


210,469

  Current maturities of long-term debt

2,500



  Current operating lease liabilities

181,484


190,086


192,130

 Total current liabilities

650,838


636,126


740,142

 Long-term debt

328,506


281,035


387,441

 Non-current operating lease liabilities

682,248


631,412


588,064

 Other non-current liabilities

22,784


24,989


25,844

 Total liabilities

1,684,376


1,573,562


1,741,491

 Redeemable noncontrolling interest

3,144


3,155


 Total shareholders’ equity

459,818


432,901


360,948

Total liabilities, redeemable noncontrolling interest, and
shareholders’ equity

$             2,147,338


$             2,009,618


$             2,102,439

DESIGNER BRANDS INC. 
NON-GAAP RECONCILIATION
(unaudited and in thousands, except per share amounts)



Three months ended


Six months ended


July 29, 2023


July 30, 2022


July 29, 2023


July 30, 2022

Operating expenses

$      (214,530)


$      (228,690)


$      (434,649)


$      (452,116)

Non-GAAP adjustments:








 CEO transition costs

744



2,954


 Restructuring and integration costs

818


992


2,938


1,606

 Acquisition-related costs

90



1,597


Total non-GAAP adjustments

1,652


992


7,489


1,606

Adjusted operating expenses

$      (212,878)


$      (227,698)


$      (427,160)


$      (450,510)

Operating profit

$          60,687


$          67,599


$          80,297


$        120,791

Non-GAAP adjustments:








 CEO transition costs

744



2,954


 Restructuring and integration costs

818


992


2,938


1,606

 Acquisition-related costs

90



1,597


 Impairment charges

308


1,816


649


2,888

 Total non-GAAP adjustments

1,960


2,808


8,138


4,494

Adjusted operating profit

$          62,647


$          70,407


$          88,435


$        125,285

Net income attributable to Designer Brands Inc.

$          37,204


$          46,213


$          48,619


$          72,395

Non-GAAP adjustments:








 CEO transition costs

744



2,954


 Restructuring and integration costs

818


992


2,938


1,606

 Acquisition-related costs

90



1,597


 Impairment charges

308


1,816


649


2,888

 Loss on extinguishment of debt and write-off of debt
 issuance costs




12,862

 Foreign currency transaction gains

(579)


(37)


(245)


(43)

 Total non-GAAP adjustments before tax effect

1,381


2,771


7,893


17,313

 Tax effect on above non-GAAP adjustments

(377)


(735)


(2,032)


(4,374)

 Discrete and permanent tax on non-deductible CEO
 transition costs

1,750



1,897


 Valuation allowance change on deferred tax assets

(607)


(2,135)


(2,724)


(2,495)

 Total non-GAAP adjustments, after tax

2,147


(99)


5,034


10,444

 Net income attributable to redeemable noncontrolling
 interest

51



9


Adjusted net income

$          39,402


$          46,114


$          53,662


$          82,839

Diluted earnings per share

$               0.56


$               0.62


$               0.73


$               0.96

Adjusted diluted earnings per share

$               0.59


$               0.62


$               0.80


$               1.10

Non-GAAP Measures

To supplement amounts presented in our consolidated financial statements determined in accordance with accounting principles generally accepted in the United States (“GAAP”), the Company uses certain non-GAAP financial measures, including adjusted operating expenses, adjusted operating profit, adjusted net income, and adjusted diluted earnings per share as shown in the table above. These measures adjust for the effects of: (1) CEO transition costs; (2) restructuring and integration costs, including severance charges other than those included in CEO transition costs; (3) acquisition-related costs; (4) impairment charges; (5) loss on extinguishment of debt and write-off of debt issuance costs; (6) foreign currency transaction gains; (7) the net tax impact of such items, including discrete and permanent tax on non-deductible CEO transition costs; (8) the change in the valuation allowance on deferred tax assets; and (9) net income attributable to redeemable noncontrolling interest. The unaudited adjusted results should not be construed as an alternative to the reported results determined in accordance with GAAP. These financial measures are not based on any standardized methodology and are not necessarily comparable to similar measures presented by other companies. The Company believes these non-GAAP financial measures provide useful information to both management and investors to increase comparability to prior periods by adjusting for certain items that may not be indicative of core operating measures and to better identify trends in our business. The adjusted financial results are used by management to, and allow investors to, evaluate the operating performance of the Company compared to prior periods, when reviewed in conjunction with the Company’s GAAP statements. These amounts are not determined in accordance with GAAP and therefore should not be used exclusively in evaluating the Company’s business and operations.

Comparable Sales Performance Metric

We consider the percent change in comparable sales from the same previous year period, a primary metric commonly used throughout the retail industry, to be an important measurement for management and investors of the performance of our direct-to-consumer businesses. We include in our comparable sales metric sales from stores in operation for at least 14 months at the beginning of the applicable year. Stores are added to the comparable base at the beginning of the year and are dropped for comparative purposes in the quarter in which they are closed. Comparable sales include the e-commerce sales of the U.S. Retail and Canada Retail segments. Comparable sales for the Canada Retail segment exclude the impact of foreign currency translation and are calculated by translating current period results at the foreign currency exchange rate used in the comparable period of the prior year. Comparable sales for the Brand Portfolio segment include the direct-to-consumer e-commerce sales of www.vincecamuto.com. The e-commerce sales for Topo Athletic and the Keds business will be added to the comparable base for the Brand Portfolio segment beginning with the first quarter of 2024 and the second quarter of 2024, respectively. The calculation of comparable sales varies across the retail industry and, as a result, the calculations of other retail companies may not be consistent with our calculation.

CONTACT: Stacy Turnof, [email protected]

SOURCE Designer Brands Inc.

Originally published at https://www.prnewswire.com/news-releases/designer-brands-inc-reports-second-quarter-2023-financial-results-301919851.html
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