Release Date: September 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Designer Brands Inc (DBI, Financial) experienced three consecutive quarters of sequential comp improvement, with comps turning positive as they moved into the back half of the year.
- The company's top eight brands in the athletic and athleisure categories generated over 30% growth, showcasing the benefits of deeper relationships with key brand partners.
- DBI's back-to-school business showed strong momentum, supported by expanded athletic and athleisure offerings.
- The company reported a 16% increase in total athletic sales for the quarter, driven by strategic assortment changes.
- DBI's digital platform sustained mid-single-digit growth for the third consecutive quarter, indicating successful omnichannel strategies.
Negative Points
- Sales for the second quarter were down approximately 3% compared to the previous year, with a 1% decline in comparable sales.
- Gross margin contracted by 170 basis points to 32.8%, influenced by lower initial markup on athletic and athleisure products and promotional pressures.
- The company's US retail segment saw a 1.1% decline in comps, with negative comps in dress and seasonal categories offsetting gains in athletic and kids categories.
- DBI's adjusted SG&A was 28.9% of sales, up from 26.9% last year, due to increased investment in talent and IT, and a declining top line.
- The company revised its full-year earnings guidance to $0.50 to $0.60, down from the previous guidance of $0.70 to $0.80, due to muted improvements and macroeconomic pressures.
Q & A Highlights
Q: How would you describe the risk in the guidance for the back half of the year, especially with the planned reduction in boots?
A: Douglas Howe, CEO, explained that they are encouraged by the momentum seen in Q2 and the positive comps in Q3. The significant change is the planned reduction in the seasonal boot category, which they believe de-risks the demand plan for the second half.
Q: How are you adjusting the branded portfolio to reflect current trends, and is there a possibility of buying or selling brands?
A: Jared Poff, CFO, stated that recent investments have been in growing segments like athletic and athleisure. They are focusing on areas where they are winning, such as wide cap boots, and are seeing traction with brands like Jessica Simpson, which is resonating well despite being dress-focused.
Q: Can you quantify how the quarter-to-date is performing and your comfort level with the second-half guidance?
A: Douglas Howe noted that they have moved to a positive comp in Q3, driven by strong back-to-school sales and athletic business. While there is caution due to the macro environment, they are focusing on controlling what they can and are well-positioned for the seasonal business.
Q: What are your expectations for gross margin for the full year?
A: Jared Poff mentioned that while there is pressure on IMU due to higher penetration of national athletic brands, they expect markdown leverage in the fall to offset this, resulting in a flattish gross profit for the year.
Q: How are you managing inventory levels and what are the drivers of comps in each channel?
A: Douglas Howe highlighted that they are encouraged by the improvement in traffic and AUR. They have managed inventory well, pulling forward athletic receipts for back-to-school, which has contributed to positive comps in Q3.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
