Designer Brands Inc. Reports Third Quarter 2023 Financial Results

Designer Brands Inc. Reports Third Quarter 2023 Financial Results

COLUMBUS, OhioDec. 5, 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 third quarter ended October 28, 2023.

“This quarter, we were impacted by a footwear market that contracted for the first time since COVID coupled with unseasonably warm weather, which significantly reduced customer demand for shoes and pressured our heavily seasonal assortment,” stated Doug Howe, Chief Executive Officer. “We saw improved performance in casual and clearance categories this quarter, but this was not enough to offset the broader lack of demand. While macro pressures notably impacted our business, we clearly recognize the need to operate with even greater speed and increase the level of innovation, newness, and fashion into our assortments, returning to our roots as a merchant organization and a fashion footwear retailer.”

Howe continued, “As we look ahead, we do not anticipate pressures alleviating in the near-term, and we will continue to adjust accordingly. Our team is already executing several initiatives to address areas for improvement within our business. Ongoing refreshment of our assortment, including new specialty sizes, and new marketing initiatives are two ways we are actively reinforcing our business as the best in shoes. We have also made some difficult decisions regarding leadership across our organization and believe that we are making progress in positioning our business well for the long-term while continuing to generate strong cash flow and ample liquidity.”

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

  • Net sales decreased 9.1% to $786.3 million.
  • Total comparable sales decreased by 9.3%.
  • Gross profit decreased to $256.4 million versus $285.8 million last year, and gross margin was 32.6% compared to 33.0% for the same period last year.
  • Reported net income attributable to Designer Brands Inc. was $10.1 million, or diluted earnings per share (“EPS”) of $0.17, including net after-tax charges of $0.07 per diluted share from adjusted items, primarily related to restructuring, integration, and Chief Executive Officer (“CEO”) transition costs as well as valuation allowance change on deferred tax assets.
  • Adjusted net income was $14.8 million, or adjusted diluted EPS of $0.24.

Liquidity

  • Cash and cash equivalents totaled $54.6 million at the end of the third quarter of 2023, compared to $62.5 million at the end of the same period last year, with $213.3 million available for borrowings under our senior secured asset-based revolving credit facility and $85.0 million available for borrowings under our new senior secured term loan credit agreement (“Term Loan”). On October 31, 2023, we borrowed an additional $25.0 million under the Term Loan with any remaining borrowings to be taken by January 31, 2024. Debt totaled $375.5 million at the end of the third quarter of 2023 compared to $415.5 million at the end of the same period last year.
  • Net cash provided by operating activities was $202.5 million for the first nine months of 2023 compared to $37.9 million during the same period last year.
  • The Company ended the third quarter with inventories of $601.5 million compared to $681.8 million at the end of the same period last year.

Return to Shareholders

  • During the third quarter of 2023, the Company repurchased an aggregate 7.6 million Class A common shares at an aggregate cost of $79.7 million, including transaction costs and excise tax. As of October 28, 2023$87.7 million of Class A common shares remained available for repurchase under the share repurchase program.
  • A dividend of $0.05 per share of Class A and Class B common shares will be paid on December 14, 2023 to shareholders of record at the close of business on November 30, 2023.

Store Openings and Closings

During the third quarter of 2023, we opened one store in the U.S. and six stores in Canada, resulting in a total of 499 U.S. stores and 144 Canadian stores as of October 28, 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- to high-single digits

Down high-single digits

Incremental net sales from Keds acquisition

$75.0 million to $85.0 million

$60.0 million to $70.0 million

Diluted EPS:

Designer Brands, excluding Keds

$1.20 – $1.50

$0.40 – $0.70

Contribution from Keds acquisition

~$0.00

~$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 7417878 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/06YrEpem8ZW

For those unable to listen to the live webcast, an archived version will be available at the same location until December 19, 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: 1276880

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 SimpsonLe 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 over 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 approximately nine 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, including relating to the ongoing war in Ukraine and the Israel-Hamas war; 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)

October 28, 2023

October 29, 2022

Change

Amount

% of
Segment
Net Sales

Amount

% of
Segment
Net Sales

Amount

%

Segment net sales:

U.S. Retail

$                631,610

78.8 %

$                706,391

78.8 %

$     (74,781)

(10.6) %

Canada Retail

75,610

9.5 %

82,289

9.2 %

(6,679)

(8.1) %

Brand Portfolio

94,057

11.7 %

107,458

12.0 %

(13,401)

(12.5) %

Total segment net sales

801,277

100.0 %

896,138

100.0 %

(94,861)

(10.6) %

Elimination of
intersegment net sales

(14,948)

(31,118)

16,170

(52.0) %

Consolidated net sales

$                786,329

$                865,020

$     (78,691)

(9.1) %

Nine months ended

(dollars in thousands)

October 28, 2023

October 29, 2022

Change

Amount

% of
Segment
Net Sales

Amount

% of
Segment
Net Sales

Amount

%

Segment net sales:

U.S. Retail

$             1,903,038

80.2 %

$             2,143,199

81.5 %

$   (240,161)

(11.2) %

Canada Retail

199,831

8.4 %

216,888

8.2 %

(17,057)

(7.9) %

Brand Portfolio

271,257

11.4 %

271,265

10.3 %

(8)

— %

Total segment net sales

2,374,126

100.0 %

2,631,352

100.0 %

(257,226)

(9.8) %

Elimination of
intersegment net sales

(53,498)

(76,470)

22,972

(30.0) %

Consolidated net sales

$             2,320,628

$             2,554,882

$   (234,254)

(9.2) %

Net Sales by Brand Categories

(in thousands)

U.S. Retail

Canada
Retail

Brand
Portfolio

Eliminations

Consolidated

Three months ended October 28, 2023

Owned Brands:(1)

Direct-to-consumer

$       123,973

$                —

$         17,204

$                 —

$       141,177

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

94,057

(14,948)

203,082

National brands

507,637

507,637

Canada Retail(2)

75,610

75,610

Total net sales

$       631,610

$        75,610

$         94,057

$       (14,948)

$       786,329

Three months ended October 29, 2022

Owned Brands:(1)

Direct-to-consumer

$       153,311

$                —

$           9,810

$                 —

$       163,121

External customer wholesale, commission
income, and other

66,530

66,530

Intersegment wholesale and commission income

31,118

(31,118)

Total Owned Brands

153,311

107,458

(31,118)

229,651

National brands

553,080

553,080

Canada Retail(2)

82,289

82,289

Total net sales

$       706,391

$        82,289

$       107,458

$       (31,118)

$       865,020

Nine months ended October 28, 2023

Owned Brands:(1)

Direct-to-consumer

$       362,931

$                —

$         43,604

$                 —

$       406,535

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

271,257

(53,498)

580,690

National brands

1,540,107

1,540,107

Canada Retail(2)

199,831

199,831

Total net sales

$   1,903,038

$      199,831

$       271,257

$       (53,498)

$   2,320,628

Nine months ended October 29, 2022

Owned Brands:(1)

Direct-to-consumer

$       440,343

$                —

$         24,130

$                 —

$       464,473

External customer wholesale, commission
income, and other

170,665

170,665

Intersegment wholesale and commission income

76,470

(76,470)

Total Owned Brands

440,343

271,265

(76,470)

635,138

National brands

1,702,856

1,702,856

Canada Retail(2)

216,888

216,888

Total net sales

$   2,143,199

$      216,888

$       271,265

$       (76,470)

$   2,554,882

(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 Keds. 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

Nine months ended

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

Change in comparable sales:

U.S. Retail segment

(9.8) %

1.1 %

(10.2) %

5.5 %

Canada Retail segment

(7.7) %

18.8 %

(4.8) %

33.5 %

Brand Portfolio segment – direct-to-
consumer channel

7.0 %

27.0 %

6.0 %

29.6 %

Total

(9.3) %

3.0 %

(9.5) %

7.8 %

Store Count

(square footage in thousands)

October 28, 2023

October 29, 2022

Number of
Stores

Square
Footage

Number of
Stores

Square
Footage

U.S. Retail segment – DSW stores

499

9,966

504

10,188

Canada Retail segment:

The Shoe Company stores

119

622

113

596

DSW stores

25

496

25

496

144

1,118

138

1,092

Total number of stores

643

11,084

642

11,280

Gross Profit

Three months ended

(dollars in thousands)

October 28, 2023

October 29, 2022

Change

Amount

% of
Segment
Net Sales

Amount

% of
Segment
Net Sales

Amount

%

Basis
Points

Segment gross profit:

U.S. Retail

$     200,268

31.7 %

$     232,058

32.9 %

$     (31,790)

(13.7) %

(120)

Canada Retail

26,606

35.2 %

31,298

38.0 %

(4,692)

(15.0) %

(280)

Brand Portfolio

28,654

30.5 %

23,839

22.2 %

4,815

20.2 %

830

Total segment gross profit

255,528

31.9 %

287,195

32.0 %

(31,667)

(11.0) %

(10)

Net recognition (elimination) of
intersegment gross profit

878

(1,376)

2,254

Consolidated gross profit

$     256,406

32.6 %

$     285,819

33.0 %

$     (29,413)

(10.3) %

(40)

Nine months ended

(dollars in thousands)

October 28, 2023

October 29, 2022

Change

Amount

% of
Segment
Net Sales

Amount

% of
Segment
Net Sales

Amount

%

Basis
Points

Segment gross profit:

U.S. Retail

$     622,850

32.7 %

$     716,268

33.4 %

$     (93,418)

(13.0) %

(70)

Canada Retail

67,591

33.8 %

81,145

37.4 %

(13,554)

(16.7) %

(360)

Brand Portfolio

75,037

27.7 %

59,975

22.1 %

15,062

25.1 %

560

Total segment gross profit

765,478

32.2 %

857,388

32.6 %

(91,910)

(10.7) %

(40)

Net recognition (elimination) of
intersegment gross profit

2,054

(154)

2,208

Consolidated gross profit

$     767,532

33.1 %

$     857,234

33.6 %

$     (89,702)

(10.5) %

(50)

Intersegment Eliminations

Three months ended

(in thousands)

October 28, 2023

October 29, 2022

Intersegment recognition and elimination activity:

Net sales recognized by Brand Portfolio segment

$                (14,948)

$                (31,118)

Cost of sales:

Cost of sales recognized by Brand Portfolio segment

9,857

21,426

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

5,969

8,316

$                        878

$                  (1,376)

Nine months ended

(in thousands)

October 28, 2023

October 29, 2022

Intersegment recognition and elimination activity:

Net sales recognized by Brand Portfolio segment

$                (53,498)

$                (76,470)

Cost of sales:

Cost of sales recognized by Brand Portfolio segment

38,134

52,149

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

17,418

24,167

$                    2,054

$                      (154)

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

Three months ended

Nine months ended

October 28,
2023

October 29,
2022

October 28,
2023

October 29,
2022

Net sales

$        786,329

$        865,020

$     2,320,628

$     2,554,882

Cost of sales

(529,923)

(579,201)

(1,553,096)

(1,697,648)

Gross profit

256,406

285,819

767,532

857,234

Operating expenses

(230,788)

(222,232)

(665,437)

(674,348)

Income from equity investments

2,503

2,290

6,972

6,670

Impairment charges

(1,349)

(649)

(4,237)

Operating profit

28,121

64,528

108,418

185,319

Interest expense, net

(8,767)

(4,826)

(22,296)

(10,530)

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

(12,862)

Non-operating income (expense), net

(162)

(152)

83

(109)

Income before income taxes

19,192

59,550

86,205

161,818

Income tax provision

(8,987)

(14,379)

(27,372)

(44,252)

Net income

10,205

45,171

58,833

117,566

Net income attributable to redeemable noncontrolling interest

(64)

(73)

Net income attributable to Designer Brands Inc.

$          10,141

$          45,171

$          58,760

$        117,566

Diluted earnings per share attributable to Designer Brands
Inc.

$               0.17

$               0.65

$               0.90

$               1.60

Weighted average diluted shares

61,405

69,140

65,292

73,287

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

October 28, 2023

January 28, 2023

October 29, 2022

ASSETS

Current assets:

Cash and cash equivalents

$                  54,638

$                  58,766

$                  62,507

Receivables, net

106,916

77,763

228,746

Inventories

601,470

605,652

681,843

Prepaid expenses and other current assets

36,785

47,750

53,950

Total current assets

799,809

789,931

1,027,046

Property and equipment, net

224,638

235,430

233,515

Operating lease assets

742,384

700,373

691,032

Goodwill

123,759

97,115

93,655

Intangible assets, net

83,032

31,866

19,273

Deferred tax assets

47,199

48,285

Equity investments

62,239

63,820

64,246

Other assets

49,518

42,798

42,611

Total assets

$             2,132,578

$             2,009,618

$             2,171,378

LIABILITIES, REDEEMABLE NONCONTROLLING
INTEREST AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$                310,113

$                255,364

$                315,996

Accrued expenses

183,383

190,676

213,905

Current maturities of long-term debt

2,500

Current operating lease liabilities

182,259

190,086

187,619

Total current liabilities

678,255

636,126

717,520

Long-term debt

372,965

281,035

415,467

Non-current operating lease liabilities

669,494

631,412

628,820

Other non-current liabilities

21,072

24,989

26,059

Total liabilities

1,741,786

1,573,562

1,787,866

Redeemable noncontrolling interest

3,208

3,155

Total shareholders’ equity

387,584

432,901

383,512

Total liabilities, redeemable noncontrolling interest, and
shareholders’ equity

$             2,132,578

$             2,009,618

$             2,171,378

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

Three months ended

Nine months ended

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

Operating expenses

$             (230,788)

$             (222,232)

$             (665,437)

$             (674,348)

Non-GAAP adjustments:

CEO transition costs

1,029

3,983

Restructuring and integration costs

2,252

850

5,190

2,456

Acquisition-related costs

400

1,597

400

Total non-GAAP adjustments

3,281

1,250

10,770

2,856

Adjusted operating expenses

$             (227,507)

$             (220,982)

$             (654,667)

$             (671,492)

Operating profit

$                 28,121

$                 64,528

$               108,418

$               185,319

Non-GAAP adjustments:

CEO transition costs

1,029

3,983

Restructuring and integration costs

2,252

850

5,190

2,456

Acquisition-related costs

400

1,597

400

Impairment charges

1,349

649

4,237

Total non-GAAP adjustments

3,281

2,599

11,419

7,093

Adjusted operating profit

$                 31,402

$                 67,127

$               119,837

$               192,412

Net income attributable to Designer Brands
Inc.

$                 10,141

$                 45,171

$                 58,760

$               117,566

Non-GAAP adjustments:

CEO transition costs

1,029

3,983

Restructuring and integration costs

2,252

850

5,190

2,456

Acquisition-related costs

400

1,597

400

Impairment charges

1,349

649

4,237

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

12,862

Foreign currency transaction losses (gains)

162

152

(83)

109

Total non-GAAP adjustments before tax effect

3,443

2,751

11,336

20,064

Tax effect on above non-GAAP adjustments

(853)

(711)

(2,885)

(5,085)

Discrete and permanent tax on non-
deductible CEO transition costs

907

2,804

Valuation allowance change on deferred tax
assets

1,109

(1,070)

(1,615)

(3,565)

Total non-GAAP adjustments, after tax

4,606

970

9,640

11,414

Net income attributable to redeemable
noncontrolling interest

64

73

Adjusted net income

$                 14,811

$                 46,141

$                 68,473

$               128,980

Diluted earnings per share

$                      0.17

$                      0.65

$                      0.90

$                      1.60

Adjusted diluted earnings per share

$                      0.24

$                      0.67

$                      1.05

$                      1.76

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 (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 include the e-commerce sales of the Brand Portfolio segment from the direct-to-consumer e-commerce site for the Vince Camuto brand. The e-commerce sales for Topo, Keds, and Hush Puppies will be added to the comparable base for the Brand Portfolio segment beginning with the first quarter of 2024, the second quarter of 2024, and the third 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 TurnofDesignerBrandsIR@edelman.com

SOURCE Designer Brands Inc.