Designer Brands Inc. Reports First Quarter 2023 Financial Results

Designer Brands Inc. Reports First Quarter 2023 Financial Results

Owned Brand penetration grew to 26.7% in the quarter, highlighting progress on strategic plans

COLUMBUS, Ohio, June 8, 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 three months ended April 29, 2023.

Doug Howe, Chief Executive Officer, stated, “I am pleased with the quarter we delivered on top of outsized market-leading growth in the first quarter of last year, albeit slightly below our initial expectations. We have made significant operational progress on our goal of doubling sales of our Owned Brands by 2026 over 2021 with our recent acquisitions of Keds, Le Tigre, and Topo Athletic helping to further expand and diversify our brand portfolio. We continue to lean further than ever before into our Owned Brands, harnessing key and exciting moments to showcase our brands with engaging events and customer experiences.

“As the consumer remains cautious, we are approaching the remainder of the year and the trajectory of the recovery in our business with heightened consideration. We are confident in our ability to continue to optimize those factors over which we have control, providing compelling products from our Owned Brands and an ideal national brand assortment to our customers seeking a wide range of styles.”

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

  • Net sales decreased 10.7% to $742.1 million.
  • Comparable sales decreased by 10.4%.
  • Gross profit decreased to $237.7 million versus $275.7 million last year, and gross margin was 32.0% compared to 33.2% for the same period last year.
  • Reported net income attributable to Designer Brands Inc. was $11.4 million, or diluted earnings per share (“EPS”) of $0.17, including net charges of $0.04 per diluted share from adjusted items, primarily related to CEO transition, restructuring, integration, and acquisition costs, partially offset by the valuation allowance change on deferred tax assets.
  • Adjusted net income was $14.3 million, or adjusted diluted EPS of $0.21.

Liquidity

  • Cash and cash equivalents totaled $50.6 million at the end of the first quarter of 2023, compared to $54.8 million at the end of the same period last year, with $200.3 million available for borrowings under our senior secured asset-based revolving credit facility (“ABL Revolver”). Debt totaled $390.3 million at the end of the first quarter of 2023 compared to $306.9 million at the end of the same period last year.
  • The Company ended the first quarter with inventories of $637.4 million compared to $672.5 million at the end of the same period last year.

Store Openings and Closings

During the first quarter of 2023, we closed two stores in the U.S. and opened one new store in Canada, resulting in a total of 499 U.S. stores and 139 Canadian stores as of April 29, 2023.

Updated 2023 Financial Outlook

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

Metric


Previous Guidance


Current Guidance

Net Sales:





Designer Brands net sales growth, excluding Keds


Down mid-single digits


Down mid- to high-single digits

Incremental net sales from Keds acquisition


$75.0 million to $85.0 million


$75.0 million to $85.0 million

Diluted EPS:





Designer Brands, excluding Keds


$1.65 – $1.75


$1.20 – $1.50

Contribution from Keds acquisition


~$0.00


~$0.00

The above guidance excludes the impact of the anticipated modified “Dutch Auction” tender offer to repurchase up to $100.0 million of our Class A common shares that we announced today, which we intend to fund through a new proposed $135.0 million term loan agreement.

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 0936665 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:

https://app.webinar.net/qdg7QPdQaz8

For those unable to listen to the live webcast, an archived version will be available at the same location until June 22, 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: 9230529

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 inflationary pressures and rising interest rates, and the related impacts to consumer discretionary spending, as well as supply chain disruptions and pressures; risks and uncertainties related to the ongoing coronavirus (“COVID-19”) pandemic, any future COVID-19 resurgence, and any other 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 manage our Chief Executive Officer (“CEO”) transition, 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, global pandemics, and the potential impact of geopolitical turmoil or conflict; 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 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)

April 29, 2023


April 30, 2022


Change


Amount


% of Total
Segment
Net Sales


Amount


% of Total
Segment
Net Sales


Amount


%

Segment net sales:












U.S. Retail

$                612,886


80.7 %


$                702,745


82.0 %


$     (89,859)


(12.8) %

Canada Retail

53,955


7.1 %


56,315


6.6 %


(2,360)


(4.2) %

Brand Portfolio

92,983


12.2 %


97,456


11.4 %


(4,473)


(4.6) %

Total segment net sales

759,824


100.0 %


856,516


100.0 %


(96,692)


(11.3) %

Elimination of intersegment net sales

(17,742)




(25,973)




8,231


(31.7) %

Consolidated net sales

$                742,082




$                830,543




$     (88,461)


(10.7) %

Net Sales by Brand Category

(in thousands)

U.S. Retail


Canada
Retail


Brand
Portfolio


Eliminations


Consolidated

Three months ended April 29, 2023










Owned Brands:(1)










Direct-to-consumer

$       123,209


$                —


$         10,624


$                 —


$       133,833

External customer wholesale and commission
income



64,617



64,617

Intersegment wholesale and commission income



17,742


(17,742)


Total Owned Brands

123,209



92,983


(17,742)


198,450

National brands

489,677





489,677

Canada Retail(2)


53,955




53,955

Total net sales

$       612,886


$        53,955


$         92,983


$       (17,742)


$       742,082

Three months ended April 30, 2022










Owned Brands:(1)










Direct-to-consumer

$       139,155


$                —


$           6,527


$                 —


$       145,682

External customer wholesale and commission
income



64,956



64,956

Intersegment wholesale and commission income



25,973


(25,973)


Total Owned Brands

139,155



97,456


(25,973)


210,638

National brands

563,590





563,590

Canada Retail(2)


56,315




56,315

Total net sales

$       702,745


$        56,315


$         97,456


$       (25,973)


$       830,543

(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


April 29, 2023


April 30, 2022

Change in comparable sales:




U.S. Retail segment

(11.6) %


13.6 %

Canada Retail segment

2.9 %


41.4 %

Brand Portfolio segment – direct-to-consumer channel

8.3 %


19.7 %

Total

(10.4) %


15.3 %

Store Count

(square footage in thousands)

April 29, 2023


April 30, 2022


Number of
Stores


Square
Footage


Number of
Stores


Square
Footage

U.S. Retail segment – DSW stores

499


10,015


510


10,322

Canada Retail segment:








The Shoe Company stores

114


601


115


607

DSW stores

25


496


25


496


139


1,097


140


1,103

Total number of stores

638


11,112


650


11,425

Gross Profit


Three months ended







(dollars in thousands)

April 29, 2023


April 30, 2022


Change


Amount


% of
Segment
Net Sales


Amount


% of
Segment
Net Sales


Amount


%


Basis
Points

Segment gross profit:














U.S. Retail

$     196,814


32.1 %


$     233,067


33.2 %


$     (36,253)


(15.6) %


(110)

Canada Retail

17,174


31.8 %


18,873


33.5 %


(1,699)


(9.0) %


(170)

Brand Portfolio

22,085


23.8 %


23,842


24.5 %


(1,757)


(7.4) %


(70)

Total segment gross profit

236,073


31.1 %


275,782


32.2 %


(39,709)


(14.4) %


(110)

Net recognition (elimination) of
intersegment gross profit

1,666




(37)




1,703





Consolidated gross profit

$     237,739


32.0 %


$     275,745


33.2 %


$     (38,006)


(13.8) %


(120)

Intersegment Eliminations


Three months ended

(in thousands)

April 29, 2023


April 30, 2022

Recognition (elimination) of intersegment activity:




Net sales recognized by Brand Portfolio segment

$                (17,742)


$                (25,973)

Cost of sales:




Cost of sales recognized by Brand Portfolio segment

13,211


18,169

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

6,197


7,767


$                    1,666


$                        (37)

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)



Three months ended


April 29, 2023


April 30, 2022

Net sales

$                742,082


$                830,543

Cost of sales

(504,343)


(554,798)

Gross profit

237,739


275,745

Operating expenses

(220,119)


(223,426)

Income from equity investments

2,331


1,945

Impairment charges

(341)


(1,072)

Operating profit

19,610


53,192

Interest expense, net

(6,597)


(2,952)

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


(12,862)

Non-operating income (expenses), net

(334)


6

Income before income taxes

12,679


37,384

Income tax provision

(1,306)


(11,202)

Net income

11,373


26,182

Net loss attributable to redeemable noncontrolling interest

42


Net income attributable to Designer Brands Inc.

$                  11,415


$                  26,182

Diluted earnings per share attributable to Designer Brands Inc.

$                      0.17


$                      0.34

Weighted average diluted shares

67,042


76,924

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)



April 29, 2023


January 28, 2023


April 30, 2022

ASSETS






Current assets:






Cash and cash equivalents

$                  50,569


$                  58,766


$                  54,802

Receivables, net

100,237


77,763


222,297

Inventories

637,396


605,652


672,490

Prepaid expenses and other current assets

43,598


47,750


49,836

Total current assets

831,800


789,931


999,425

Property and equipment, net

227,692


235,430


250,123

Operating lease assets

701,670


700,373


635,334

Goodwill

134,770


97,115


93,655

Intangible assets, net

75,450


31,866


20,355

Deferred tax assets

50,111


48,285


Equity investments

66,151


63,820


55,118

Other assets

46,851


42,798


33,734

Total assets

$             2,134,495


$             2,009,618


$             2,087,744

LIABILITIES, REDEEMABLE NONCONTROLLING
INTEREST AND SHAREHOLDERS’ EQUITY






Current liabilities:






Accounts payable

$                288,526


$                255,364


$                369,147

Accrued expenses

170,759


190,676


208,282

Current operating lease liabilities

183,074


190,086


179,870

Total current liabilities

642,359


636,126


757,299

Long-term debt

390,302


281,035


306,861

Non-current operating lease liabilities

635,245


631,412


579,839

Other non-current liabilities

23,342


24,989


26,952

Total liabilities

1,691,248


1,573,562


1,670,951

Redeemable noncontrolling interest

3,093


3,155


Total shareholders’ equity

440,154


432,901


416,793

Total liabilities, redeemable noncontrolling interest, and
shareholders’ equity

$             2,134,495


$             2,009,618


$             2,087,744

DESIGNER BRANDS INC.

NON-GAAP RECONCILIATION

(unaudited and in thousands, except per share amounts)



Three months ended


April 29, 2023


April 30, 2022

Operating expenses

$             (220,119)


$           (223,426)

Non-GAAP adjustments:




CEO transition costs

2,210


Restructuring and integration costs

2,120


614

Acquisition-related costs

1,507


Total non-GAAP adjustments

5,837


614

Adjusted operating expenses

$             (214,282)


$           (222,812)

Operating profit

$                 19,610


$               53,192

Non-GAAP adjustments:




CEO transition costs

2,210


Restructuring and integration costs

2,120


614

Acquisition-related costs

1,507


Impairment charges

341


1,072

Total non-GAAP adjustments

6,178


1,686

Adjusted operating profit

$                 25,788


$               54,878

Net income attributable to Designer Brands Inc.

$                 11,415


$               26,182

Non-GAAP adjustments:




CEO transition costs

2,210


Restructuring and integration costs

2,120


614

Acquisition-related costs

1,507


Impairment charges

341


1,072

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


12,862

Foreign currency transaction losses (gains)

334


(6)

Total non-GAAP adjustments before tax effect

6,512


14,542

Tax effect of non-GAAP adjustments

(1,508)


(3,639)

Valuation allowance change on deferred tax assets

(2,117)


(360)

Total non-GAAP adjustments, after tax

2,887


10,543

Net loss attributable to redeemable noncontrolling interest

(42)


Adjusted net income

$                 14,260


$               36,725

Diluted earnings per share

$                     0.17


$                   0.34

Adjusted diluted earnings per share

$                     0.21


$                   0.48

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 losses and gains; (7) the net tax impact of such items; (8) the change in the valuation allowance on deferred tax assets; and (9) net loss 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 site www.vincecamuto.com. The e-commerce sales for Topo and the Keds business will be added to the comparable base beginning with the first quarter of 2024. 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-first-quarter-2023-financial-results-301845540.html
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