Designer Brands Inc. Reports Third Quarter 2024 Financial Results

About this update from Designer Brands Inc.

According to Circana, U.S. Retail segment footwear sales were inline with the market with key categories outpacing the market including performance, leisure footwear, and dress occasion footwear during the quarter, which helped to partially offset negative boot performance COLUMBUS, Ohio , Dec. 10, 2024 /PRNewswire/ -- Designer Brands Inc. (NYSE: DBI) (the "Company," "we," "us," "our," and "Designer Brands"), one of the world's largest designers, producers, and retailers of footwear and accessories, today announced financial results for the third quarter ended November 2, 2024 . Doug Howe , Chief Executive Officer stated, "The third quarter started strong, driven by back-to-school season and the success of our athletic and athleisure offerings, bolstering our confidence that we had reached a turning point in our business. However, we had a difficult transition into the fall season, with unseasonably warm weather and ongoing macroeconomic uncertainty placing pressure on consumer discretionary spending, specifically in our seasonal category. As a result, we saw our total Company comparable sales decline 3.1% for the quarter. According to Circana, footwear sales excluding boots remained flat to prior year in the footwear market while U.S. Retail segment sales excluding boots grew 8% versus prior year, outpacing the footwear market results. This gives us further confidence that we are investing our time and resources into the right areas as we continue to transform our business." Howe continued, "Although external challenges have persisted, I am encouraged by how effectively our business has stayed aligned with our strategic priorities and executing on the things within our control. As we make our way through the fourth quarter, we remain confident in our strategy and our ability to navigate headwinds as we implement a refreshed holiday marketing and merchandising approach. We continue to believe this focus will help us improve performance over the long-term." Third Quarter Operating Results   (Unless otherwise stated, all comparisons are to the third quarter of 2023) Net sales decreased 1.2% to $777.2 million . Total comparable sales decreased by 3.1%. Gross profit decreased to $247.4 million versus $256.4 million last year, and gross profit as a percentage of net sales was 31.8% compared to 32.6% last year. Reported net income attributable to Designer Brands Inc. was $13.0 million , or diluted earnings per share ("EPS") of $0.24 . Adjusted net income was $14.5 million , or adjusted diluted EPS of $0.27 . Liquidity Cash and cash equivalents totaled $36.2 million at the end of the third quarter of 2024, compared to $54.6 million at the end of the same period last year, with $118.3 million available for borrowings under our senior secured asset-based revolving credit facility. Debt totaled $536.3 million at the end of the third quarter of 2024 compared to $375.5 million at the end of the same period last year. The Company ended the third quarter with inventories of $637.0 million compared to $601.5 million at the end of the same period last year. Return to Shareholders During the third quarter of 2024, the Company repurchased 7.7 million Class A common shares at an aggregate cost of $50.6 million . As of November 2, 2024 , $19.7 million of Class A common shares remained available for repurchase under the Board-approved share repurchase program. A dividend of $0.05 per share for both Class A and Class B common shares will be paid on December 20, 2024 to shareholders of record at the close of business on December 6, 2024 . Store Openings and Closings During the third quarter of 2024, the Company closed three stores in the United States ("U.S.") and opened two stores in Canada , resulting in a total of 496 stores in the U.S. and 179 stores in Canada as of November 2, 2024 . Updated 2024 Financial Outlook The Company has updated the following guidance for the full year 2024: Metric Previous Guidance Current Guidance Designer Brands Net Sales Growth Flat to low-single digits Down low single digits Adjusted Diluted EPS $0.50 - $0.60 $0.10 - $0.30 Forward-looking adjusted diluted EPS for 2024 excludes potential charges or gains that may be recorded during the fiscal year, including among other things: (1) restructuring and integration costs, including severance charges; (2) acquisition-related costs; (3) impairment charges; (4) foreign currency transaction losses (gains); (5) the net tax impact of such items; (6) the change in the valuation allowance on deferred tax assets; and (7) net income attributable to redeemable noncontrolling interest. A reconciliation of forward-looking non-GAAP earnings guidance to the comparable GAAP measure is not provided, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K, because the impact and timing of these potential charges or gains is inherently uncertain and difficult to predict and is unavailable without unreasonable efforts. In addition, the Company believes that such reconciliations would imply a degree of precision and certainty that could be confusing to investors. Such items are uncertain and could have a substantial impact on GAAP measures of our financial performance. 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 0882763 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/0K81jQ0A5Ra   For those unable to listen to the live webcast, an archived version will be available on the Company's investor website until December 17, 2024 . 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: 8250457 Important information may be disseminated initially or exclusively via the Company's investor website; investors should consult the website 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 Crown Vintage, Hush Puppies, Jessica Simpson , Keds, Kelly & Katie, Lucky Brand, Mix No. 6, Topo Athletic, Vince Camuto 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 675 DSW Designer Shoe Warehouse, The Shoe Co., and Rubino 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 ten million pairs of shoes to the global non-profit Soles4Souls since 2018. 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 and financial conditions, including economic volatility, supply chain disruptions, new or increased tariffs and other barriers to trade, fluctuating interest rates, inflationary pressures, and the related impacts to consumer discretionary spending, as well as our ability to plan for and respond to the impact of these conditions; our ability to anticipate and respond to rapidly changing consumer preferences, seasonality, customer expectations, and fashion trends; the impact on our consumer traffic and demand, our business operations, and the operations of our suppliers, as we experience unseasonable weather, climate change evolves, and the frequency and severity of weather events increase; our ability to execute on our business strategies, including integrating and growing our Brand Portfolio segment, enhancing in-store and digital shopping experiences, and meeting consumer demands; whether we will be able to successfully and efficiently integrate our recent acquisitions in a manner that does not impede growth; 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; risks related to cyber security threats and privacy or data security breaches or the potential loss or disruption of our information technology ("IT") systems, or those of our vendors; risks related to the implementation of new or updated IT systems; our ability to protect our reputation and to maintain the brands we license; our reliance on our loyalty programs and marketing to drive traffic, sales, and customer loyalty; our ability to successfully integrate new hires or changes in leadership and retain our existing management team, and to continue to attract qualified new personnel; risks related to restrictions imposed by our senior secured asset-based revolving credit facility, as amended ("ABL Revolver"), and our senior secured term loan credit agreement, as amended ("Term Loan"), that could limit our ability to fund our operations; our competitiveness with respect to style, price, brand availability, shopping platforms, and customer service; risks related to our international operations and our reliance on foreign sources for merchandise; our ability to comply with privacy laws and regulations, as well as other legal obligations; 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 Annual Report on Form 10-K for the fiscal year ended February 3, 2024 ("2023 Form 10-K") or our other reports made or filed with the Securities and Exchange Commission. All forward-looking statements speak only as of the time when made. Except as may be required by applicable law, 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) November 2, 2024 October 28, 2023 Change Amount % of Segment Net Sales Amount % of  Segment Net Sales Amount % Segment net sales: U.S. Retail $                615,495 75.9 % $                631,610 78.8 % $     (16,115) (2.6) % Canada Retail 83,504 10.3 % 75,610 9.5 % 7,894 10.4 % Brand Portfolio 111,492 13.8 % 94,057 11.7 % 17,435 18.5 % Total segment net sales 810,491 100.0 % 801,277 100.0 % 9,214 1.1 % Elimination of intersegment net sales (33,297) (14,948) (18,349) 122.8 % Consolidated net sales $                777,194 $                786,329 $       (9,135) (1.2) %   Nine months ended (dollars in thousands) November 2, 2024 October 28, 2023 Change Amount % of Segment Net Sales Amount % of Segment Net Sales Amount % Segment net sales: U.S. Retail $             1,878,556 78.1 % $             1,903,038 80.2 % $     (24,482) (1.3) % Canada Retail 213,813 8.9 % 199,831 8.4 % 13,982 7.0 % Brand Portfolio 311,615 13.0 % 271,257 11.4 % 40,358 14.9 % Total segment net sales 2,403,984 100.0 % 2,374,126 100.0 % 29,858 1.3 % Elimination of intersegment net sales (108,294) (53,498) (54,796) 102.4 % Consolidated net sales $             2,295,690 $             2,320,628 $     (24,938) (1.1) %   Net Sales by Brand Categories (in thousands) U.S. Retail Canada Retail (2) Brand Portfolio Eliminations Consolidated Three months ended November 2, 2024 Owned Brands: (1) Direct-to-consumer $       105,094 $        11,782 $         13,877 $                 — $       130,753 External customer wholesale, commission income, and other — — 64,318 — 64,318 Intersegment wholesale — — 33,297 (33,297) — Total Owned Brands 105,094 11,782 111,492 (33,297) 195,071 National brands 510,401 71,722 — — 582,123 Total net sales $       615,495 $        83,504 $       111,492 $       (33,297) $       777,194 Three months ended October 28, 2023 Owned Brands: (1) Direct-to-consumer $       123,973 $        13,024 $         17,204 $                 — $       154,201 External customer wholesale, commission income, and other — — 61,905 — 61,905 Intersegment wholesale and commission income — — 14,948 (14,948) — Total Owned Brands 123,973 13,024 94,057 (14,948) 216,106 National brands 507,637 62,586 — — 570,223 Total net sales $       631,610 $        75,610 $         94,057 $       (14,948) $       786,329 Nine months ended November 2, 2024 Owned Brands: (1) Direct-to-consumer $       308,148 $        30,692 $         41,696 $                 — $       380,536 External customer wholesale, commission income, and other — — 161,625 — 161,625 Intersegment wholesale — — 108,294 (108,294) — Total Owned Brands 308,148 30,692 311,615 (108,294) 542,161 National brands 1,570,408 183,121 — — 1,753,529 Total net sales $   1,878,556 $      213,813 $       311,615 $     (108,294) $   2,295,690 Nine months ended October 28, 2023 Owned Brands: (1) Direct-to-consumer $       362,931 $        30,944 $         43,604 $                 — $       437,479 External customer wholesale, commission income, and other — — 174,155 — 174,155 Intersegment wholesale and commission income — — 53,498 (53,498) — Total Owned Brands 362,931 30,944 271,257 (53,498) 611,634 National brands 1,540,107 168,887 — — 1,708,994 Total net sales $   1,903,038 $      199,831 $       271,257 $       (53,498) $   2,320,628 (1) "Owned Brands" refers to those brands that we have rights to sell through ownership or license arrangements. (2) Beginning with the 2023 Form 10-K, we are providing a breakout of Canada Retail segment net sales by brand categories and we have recast the three months and the nine months ended October 28, 2023 on a consistent basis.   Comparable Sales Three months ended Nine months ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 Change in comparable sales: U.S. Retail segment (2.8) % (9.8) % (2.1) % (10.2) % Canada Retail segment (4.6) % (7.7) % (4.2) % (4.8) % Brand Portfolio segment - direct-to- consumer channel (7.5) % 7.0 % (5.8) % 6.0 % Total (3.1) % (9.3) % (2.3) % (9.5) %   Store Count (square footage in thousands) November 2, 2024 October 28, 2023 Number of Stores Square Footage Number of Stores Square Footage U.S. Retail segment - DSW stores 496 9,784 499 9,966 Canada Retail segment: The Shoe Co. stores 125 638 119 622 DSW stores 26 511 25 496 Rubino Stores 28 149 — — 179 1,298 144 1,118 Total number of stores 675 11,082 643 11,084   Gross Profit Three months ended (dollars in thousands) November 2, 2024 October 28, 2023 Change Amount % of Segment Net Sales Amount % of Segment Net Sales Amount % Basis Points Segment gross profit: U.S. Retail $     187,790 30.5 % $     200,268 31.7 % $     (12,478) (6.2) % (120) Canada Retail 27,405 32.8 % 26,606 35.2 % 799 3.0 % (240) Brand Portfolio 31,313 28.1 % 28,654 30.5 % 2,659 9.3 % (240) Total segment gross profit 246,508 30.4 % 255,528 31.9 % (9,020) (3.5) % (150) Net recognition of intersegment gross profit 937 878 59 Consolidated gross profit $     247,445 31.8 % $     256,406 32.6 % $       (8,961) (3.5) % (80)   Nine months ended (dollars in thousands) November 2, 2024 October 28, 2023 Change Amount % of Segment Net Sales Amount % of Segment Net Sales Amount % Basis Points Segment gross profit: U.S. Retail $     592,306 31.5 % $     622,850 32.7 % $     (30,544) (4.9) % (120) Canada Retail 70,097 32.8 % 67,591 33.8 % 2,506 3.7 % (100) Brand Portfolio 91,425 29.3 % 75,037 27.7 % 16,388 21.8 % 160 Total segment gross profit 753,828 31.4 % 765,478 32.2 % (11,650) (1.5) % (80) Net recognition (elimination) of intersegment gross profit (8,400) 2,054 (10,454) Consolidated gross profit $     745,428 32.5 % $     767,532 33.1 % $     (22,104) (2.9) % (60)   Intersegment Eliminations Three months ended (in thousands) November 2, 2024 October 28, 2023 Intersegment recognition and elimination activity: Elimination of net sales recognized by Brand Portfolio segment $                  (33,297) $                  (14,948) Cost of sales: Elimination of cost of sales recognized by Brand Portfolio segment 23,823 9,857 Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period 10,411 5,969 $                         937 $                         878   Nine months ended (in thousands) November 2, 2024 October 28, 2023 Intersegment recognition and elimination activity: Elimination of net sales recognized by Brand Portfolio segment $               (108,294) $                  (53,498) Cost of sales: Elimination of cost of sales recognized by Brand Portfolio segment 76,090 38,134 Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period 23,804 17,418 $                    (8,400) $                      2,054   DESIGNER BRANDS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands, except per share amounts) Three months ended Nine months ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 Net sales $               777,194 $           786,329 $            2,295,690 $        2,320,628 Cost of sales (529,749) (529,923) (1,550,262) (1,553,096) Gross profit 247,445 256,406 745,428 767,532 Operating expenses (210,457) (230,788) (675,904) (665,437) Income from equity investments 3,584 2,503 9,019 6,972 Impairment charges (17,756) — (17,756) (649) Operating profit 22,816 28,121 60,787 108,418 Interest expense, net (11,565) (8,767) (34,161) (22,296) Non-operating income (expenses), net (260) (162) (512) 83 Income before income taxes 10,991 19,192 26,114 86,205 Income tax benefit (provision) 2,223 (8,987) 2,067 (27,372) Net income 13,214 10,205 28,181 58,833 Net income attributable to redeemable noncontrolling interest (202) (64) (562) (73) Net income attributable to Designer Brands Inc. $                 13,012 $              10,141 $                  27,619 $              58,760 Diluted earnings per share attributable to Designer Brands Inc. $                     0.24 $                  0.17 $                      0.48 $                  0.90 Weighted average diluted shares 53,486 61,405 57,116 65,292   DESIGNER BRANDS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited and in thousands) November 2, 2024 February 3, 2024 October 28, 2023 ASSETS Current assets: Cash and cash equivalents $                  36,227 $                  49,173 $                  54,638 Receivables, net 70,570 83,590 106,916 Inventories 637,012 571,331 601,470 Prepaid expenses and other current assets 56,864 73,338 36,785 Total current assets 800,673 777,432 799,809 Property and equipment, net 212,206 219,939 224,638 Operating lease assets 707,544 721,335 742,384 Goodwill 130,649 123,759 123,759 Intangible assets, net 85,854 82,827 83,032 Deferred tax assets 39,656 39,067 47,199 Equity investments 53,358 62,857 62,239 Other assets 50,824 49,016 49,518 Total assets $             2,080,764 $             2,076,232 $             2,132,578 LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $                238,040 $                289,368 $                310,113 Accrued expenses 167,601 159,622 183,383 Current maturities of long-term debt 6,750 6,750 2,500 Current operating lease liabilities 155,220 166,531 182,259 Total current liabilities 567,611 622,271 678,255 Long-term debt 529,551 420,344 372,965 Non-current operating lease liabilities 644,303 646,161 669,494 Other non-current liabilities 17,521 24,948 21,072 Total liabilities 1,758,986 1,713,724 1,741,786 Redeemable noncontrolling interest 3,272 3,288 3,208 Total shareholders' equity 318,506 359,220 387,584 Total liabilities, redeemable noncontrolling interest, and shareholders' equity $             2,080,764 $             2,076,232 $             2,132,578   DESIGNER BRANDS INC. NON-GAAP RECONCILIATION (unaudited and in thousands, except per share amounts) Three months ended Nine months ended November 2, 2024 October 28, 2023 November 2, 2024 October 28, 2023 Operating expenses $             (210,457) $          (230,788) $             (675,904) $         (665,437) Non-GAAP adjustments: CEO transition costs — 1,029 — 3,983 Restructuring and integration costs 2,936 2,252 10,114 5,190 Acquisition-related costs 82 — 2,154 1,597 Total non-GAAP adjustments 3,018 3,281 12,268 10,770 Adjusted operating expenses $              (207,439) $           (227,507) $              (663,636) $          (654,667) Operating profit $                 22,816 $              28,121 $                 60,787 $           108,418 Non-GAAP adjustments: CEO transition costs — 1,029 — 3,983 Restructuring and integration costs 2,936 2,252 10,114 5,190 Acquisition-related costs 82 — 2,154 1,597 Impairment charges 17,756 — 17,756 649 Total non-GAAP adjustments 20,774 3,281 30,024 11,419 Adjusted operating profit $                 43,590 $              31,402 $                 90,811 $           119,837 Net income attributable to Designer Brands Inc. $                 13,012 $              10,141 $                 27,619 $             58,760 Non-GAAP adjustments: CEO transition costs — 1,029 — 3,983 Restructuring and integration costs 2,936 2,252 10,114 5,190 Acquisition-related costs 82 — 2,154 1,597 Impairment charges 17,756 — 17,756 649 Foreign currency transaction losses (gains) 260 162 512 (83) Total non-GAAP adjustments before tax effect 21,034 3,443 30,536 11,336 Tax effect on above non-GAAP adjustments (19,478) (853) (22,025) (2,885) Discrete and permanent tax on non-deductible CEO transition costs — 907 — 2,804 Valuation allowance change on deferred tax assets (306) 1,109 (348) (1,615) Total non-GAAP adjustments, after tax 1,250 4,606 8,163 9,640 Net income attributable to redeemable noncontrolling interest 202 64 562 73 Adjusted net income $                  14,464 $              14,811 $                 36,344 $              68,473 Diluted earnings per share $                      0.24 $                  0.17 $                     0.48 $                  0.90 Adjusted diluted earnings per share $                      0.27 $                  0.24 $                     0.64 $                  1.05   Non-GAAP Measures To supplement amounts presented in our condensed consolidated financial statements determined in accordance with accounting principles generally accepted in the U.S. ("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; (3) acquisition-related costs; (4) impairment charges; (5) foreign currency transaction losses (gains); (6) the net tax impact of such items (which reflects the determination based on with adjustments and without adjustments approach), including discrete and permanent tax on non-deductible CEO transition costs; (7) the change in the valuation allowance on deferred tax assets; and (8) 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 that 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. For calculating comparable sales in 2024, periods in 2023 are shifted by one week to compare similar calendar weeks. 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. Stores added as a result of the Rubino acquisition that will have been in operation for at least 14 months at the beginning of 2025, along with its e-commerce sales, will be added to the comparable base for the Canada Retail segment beginning with the second quarter of 2025. Comparable sales include the e-commerce net sales of the Brand Portfolio segment from the direct-to-consumer e-commerce sites. 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] View original content to download multimedia: https://www.prnewswire.com/news-releases/designer-brands-inc-reports-third-quarter-2024-financial-results-302326814.html SOURCE Designer Brands Inc.

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