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Designer Brands Inc. Reports Second Quarter 2021 Financial Results

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<p> Record setting second quarter sales and gross profit at the U.S. Retail segment </p>

<p> Comparable sales were up 84.9% in the second quarter of fiscal 2021 </p>

COLUMBUS, Ohio, Aug. 31, 2021 /CNW/ -- Designer Brands Inc. (NYSE: DBI) (the "Company" and "Designer Brands"), one of North America's largest designers, producers, and retailers of footwear and accessories, announced financial results for the three months ended July 31, 2021, compared to the three months ended August 1, 2020.

Roger Rawlins, Chief Executive Officer, stated, "Our tremendous second quarter results reflect successful execution on our short-term priorities coupled with our strategy to gain market share in athleisure and kids. Our sales results were driven by increased store traffic as we substantially grew our loyal customer base and welcomed core DSW customers back into our stores.

"As we look forward to our strategic growth, we have organized our efforts around three pillars: customer, brand and speed. All three of these pillars interact with one another and simultaneously strengthen each other. We are offering customers the experiences they crave, the speed they demand, and the brands that can rise to those challenges. Given the positive momentum and strength of our strategy, we expect to achieve an adjusted operating income in the second half of fiscal 2021 that will be in-line or slightly better than fiscal 2019 levels."

Second Quarter Results

  • Net sales increased 66.9% to $817.3 million in the second quarter of fiscal 2021 compared to the same period last year.

  • Comparable sales increased 84.9% for the second quarter of fiscal 2021.

  • Gross profit increased to $284.7 million in the second quarter of fiscal 2021 versus $37.0 million last year, and gross margin as a percentage of net sales was 34.8% as compared to 7.6% for the same period last year and 30.5% for the second quarter of fiscal 2019.

  • Reported net income in the second quarter of fiscal 2021 was $42.9 million, or $0.55 per diluted share, including net charges of $0.01 per diluted share from adjusted items, primarily related to target acquisition costs, restructuring charges, impairment charges, and the change in the valuation allowance on deferred tax assets.

  • Adjusted net income in the second quarter of fiscal 2021 was $43.4 million, or $0.56 per diluted share.

Liquidity Highlights

  • Cash and cash equivalents totaled $46.5 million at the end of the second quarter of fiscal 2021 compared to $206.7 million for the same period last year, with $364.0 million available for borrowings under our senior secured asset-based revolving credit facility ("ABL Revolver"). Debt totaled $247.1 million at the end of the second quarter of fiscal 2021 compared to $393.0 million debt outstanding for the same period last year.

  • The Company ended the quarter with inventories of $504.3 million compared to $445.0 million for the same period last year.

Store Openings and Closings
During the second quarter of fiscal 2021, we did not open any new stores; we closed one store in the U.S. and two stores in Canada, resulting in a total of 515 U.S. stores and 143 Canadian stores.

Webcast and Conference Call
The Company is hosting a conference call today at 8:30 a.m. 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 1270514 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://www.webcaster4.com/Webcast/Page/1213/42454

For those unable to listen to the live webcast, an archived version will be available via the same website address until September 14, 2021. 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: 10159507

About Designer Brands
Designer Brands is one of North America's largest designers, producers, and retailers of footwear and accessories. The Company operates a portfolio of retail concepts in nearly 700 locations under the DSW Designer Shoe Warehouse®, The Shoe Company®, and Shoe Warehouse® banners. The Company designs and produces footwear and accessories through Camuto Group, a leading manufacturer selling in more than 5,400 stores worldwide. Camuto Group owns licensing rights for the Jessica Simpson® footwear business and footwear and handbag licenses for Lucky Brand®. In partnership with a joint venture with Authentic Brands Group, the Company also owns a stake in Vince Camuto®, Louise et Cie®, and others. More information can be found at 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 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: risks and uncertainty related to the continued outbreak of the coronavirus ("COVID-19"), any future COVID-19 resurgence, and any other adverse public health developments; risks related to losses or disruptions associated with our distribution systems, including our distribution and fulfillment centers and our stores, whether as a result of COVID-19, supply chain disruptions, reliance on third-party providers, cyber-related attacks, or otherwise; our ability to protect the health and safety of our associates and our customers, which may be affected by current or future government regulations related to stay-at-home orders and orders related to the operation of non-essential businesses; risks related to our international operations, including international trade, our reliance on foreign sources for merchandise and related supply chain disruptions, exposure to political, economic, operational, compliance, and other risks, and fluctuations in foreign currency exchange rates; maintaining strong relationships with our vendors, manufacturers, licensors, and retailer customers; our ability to anticipate and respond to fashion trends, consumer preferences, and changing customer expectations; risks related to restrictions on our ABL Revolver and senior secured term loan that could limit our ability to fund operations; our reliance on our loyalty programs and marketing to drive traffic, sales, and customer loyalty; failure to retain our key executives or attract qualified new personnel; risks related to the loss or disruption of our information systems and data and our ability to prevent or mitigate breaches of our information security and the compromise of sensitive and confidential data; our ability to comply with privacy laws and regulations, as well as other legal obligations; our ability to protect our reputation and to maintain the brands we license; uncertain general economic, political, and social conditions and the related impacts to consumer discretionary spending; our competitiveness with respect to style, price, brand availability, and customer service; our ability to provide customers cost-effective shopping platforms; and uncertainty 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 expectations are described in the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2021, and risk factors identified in the Company's other filings with the Securities and Exchange Commission. All forward-looking statements speak only as of the time when made. Except as may be required by 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


Change

(dollars in thousands)

July 31, 2021


August 1, 2020


Amount


%

Segment net sales:








U.S. Retail

$

723,093



$

393,977



$

329,116



83.5

%

Canada Retail

57,585



49,582



8,003



16.1

%

Brand Portfolio

50,529



30,458



20,071



65.9

%

Other



22,266



(22,266)



NM

Total segment net sales

831,207



496,283



334,924



67.5

%

Elimination of intersegment net sales

(13,872)



(6,569)



(7,303)



111.2

%

Consolidated net sales

$

817,335



$

489,714



$

327,621



66.9

%


Six months ended


Change

(dollars in thousands)

July 31, 2021


August 1, 2020


Amount


%

Segment net sales:








U.S. Retail

$

1,343,751



$

771,050



$

572,701



74.3

%

Canada Retail

98,189



78,911



19,278



24.4

%

Brand Portfolio

107,956



112,571



(4,615)



(4.1)

%

Other



35,889



(35,889)



NM

Total segment net sales

1,549,896



998,421



551,475



55.2

%

Elimination of intersegment net sales

(29,406)



(25,924)



(3,482)



13.4

%

Consolidated net sales

$

1,520,490



$

972,497



$

547,993



56.3

%


NM - Not meaningful

Comparable Sales


Three months ended


Six months ended


July 31, 2021


August 1, 2020


July 31, 2021


August 1, 2020

Comparable sales:








U.S. Retail segment

94.3

%


(44.9)

%


74.5

%


(43.7)

%

Canada Retail segment

14.6

%


(27.9)

%


12.6

%


(29.9)

%

Brand Portfolio segment - direct-to-consumer channel

10.6

%


120.5

%


8.6

%


106.5

%

Other

NA


(36.2)

%


NA


(50.4)

%

Total comparable sales

84.9

%


(42.7)

%


68.1

%


(42.5)

%


NA - Not applicable

Store Count


July 31, 2021


August 1, 2020

(square footage in thousands)

Number of Stores


Square Footage


Number of Stores


Square Footage

U.S. Retail segment - DSW stores

515



10,491



522



10,578


Canada Retail segment:








The Shoe Company / Shoe Warehouse stores

116



611



117



623


DSW stores

27



536



27



536



143



1,147



144



1,159


Total number of stores

658



11,638



666



11,737


Gross Profit


Three months ended








July 31, 2021


August 1, 2020


Change

(dollars in thousands)

Amount


% of Segment Net Sales


Amount


% of Segment Net Sales


Amount


%


Basis Points

Segment gross profit (loss):














U.S. Retail

$

256,893



35.5

%


$

40,097



10.2

%


$

216,796



540.7

%


2,530


Canada Retail

18,768



32.6

%


5,650



11.4

%


$

13,118



232.2

%


2,120


Brand Portfolio

8,533



16.9

%


(11,440)



(37.6)

%


$

19,973



NM


NM

Other



%


118



0.5

%


$

(118)



NM


NM


284,194





34,425










Elimination of intersegment gross profit

487





2,617










Gross profit

$

284,681



34.8

%


$

37,042



7.6

%


$

247,639



668.5

%


2,720



Six months ended








July 31, 2021


August 1, 2020


Change

(dollars in thousands)

Amount


% of Segment Net Sales


Amount


% of Segment Net Sales


Amount


%


Basis Points

Segment gross profit (loss):














U.S. Retail

$

450,006



33.5

%


$

7,127



0.9

%


$

442,879



6,214.1

%


3,260


Canada Retail

29,603



30.1

%


3,339



4.2

%


$

26,264



786.6

%


2,590


Brand Portfolio

20,459



19.0

%


2,464



2.2

%


$

17,995



730.3

%


1,680


Other



%


(5,310)



(14.8)

%


$

5,310



NM


NM


500,068





7,620










Elimination of intersegment gross profit

724





2,962










Gross profit

$

500,792



32.9

%


$

10,582



1.1

%


$

490,210



4,632.5

%


3,180



NM - Not meaningful

Intersegment Eliminations


Three months ended

(in thousands)

July 31, 2021


August 1, 2020

Elimination of intersegment activity:




Net sales recognized by Brand Portfolio segment

$

(13,872)



$

(6,569)


Cost of sales:




Cost of sales recognized by Brand Portfolio segment

9,707



4,827


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

4,652



4,359


Gross profit

$

487



$

2,617



Six months ended

(in thousands)

July 31, 2021


August 1, 2020

Elimination of intersegment activity:




Net sales recognized by Brand Portfolio segment

$

(29,406)



$

(25,924)


Cost of sales:




Cost of sales recognized by Brand Portfolio segment

20,642



16,961


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

9,488



11,925


Gross profit

$

724



$

2,962


DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)



Three months ended


Six months ended


July 31, 2021


August 1, 2020


July 31, 2021


August 1, 2020

Net sales

$

817,335



$

489,714



$

1,520,490



$

972,497


Cost of sales

(532,654)



(452,672)



(1,019,698)



(961,915)


Gross profit

284,681



37,042



500,792



10,582


Operating expenses

(224,385)



(168,424)



(425,199)



(355,645)


Income from equity investment

2,290



2,153



3,998



4,423


Impairment charges

(1,174)



(6,735)



(1,174)



(119,282)


Operating profit (loss)

61,412



(135,964)



78,417



(459,922)


Interest expense, net

(8,072)



(3,788)



(16,886)



(5,946)


Non-operating income (expenses), net

(244)



743



562



656


Income (loss) before income taxes

53,096



(139,009)



62,093



(465,212)


Income tax benefit (provision)

(10,236)



40,795



(2,207)



151,140


Net income (loss)

$

42,860



$

(98,214)



$

59,886



$

(314,072)


Diluted earnings (loss) per share

$

0.55



$

(1.36)



$

0.78



$

(4.36)


Weighted average diluted shares

77,619



72,142



77,271



72,028



CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)



July 31, 2021


January 30, 2021


August 1, 2020

Assets






Cash and cash equivalents

$

46,458



$

59,581



$

206,720


Receivables, net

199,371



196,049



49,240


Inventories

504,316



473,183



445,044


Prepaid expenses and other current assets

53,616



51,772



69,456


Total current assets

803,761



780,585



770,460


Property and equipment, net

271,401



296,469



332,730


Operating lease assets

676,665



700,481



797,413


Goodwill

93,655



93,655



93,655


Intangible assets, net

15,905



15,635



15,663


Deferred tax assets





182,866


Equity investment

55,149



58,598



56,690


Other assets

29,513



31,172



23,780


Total assets

$

1,946,049



$

1,976,595



$

2,273,257


Liabilities and shareholders' equity






Accounts payable

$

299,322



$

245,071



$

224,693


Accrued expenses

222,055



200,326



202,831


Current maturities of long-term debt

62,500



62,500




Current operating lease liabilities

190,853



244,786



241,694


Total current liabilities

774,730



752,683



669,218


Long-term debt

184,569



272,319



393,000


Non-current operating lease liabilities

645,136



677,735



778,826


Other non-current liabilities

30,502



30,841



25,586


Total liabilities

1,634,937



1,733,578



1,866,630


Total shareholders' equity

311,112



243,017



406,627


Total liabilities and shareholders' equity

$

1,946,049



$

1,976,595



$

2,273,257


DESIGNER BRANDS INC.

NON-GAAP RECONCILIATIONS

(unaudited and in thousands, except per share amounts)



Three months ended


Six months ended


July 31, 2021


August 1, 2020


July 31, 2021


August 1, 2020

Operating expenses

$

(224,385)



$

(168,424)



$

(425,199)



$

(355,645)


Non-GAAP adjustments:








Integration and restructuring expenses

1,094



8,455



2,836



10,203


Target acquisition costs

5,333





5,333




Gain on settlement



(8,990)





(8,990)


Adjusted operating expenses

$

(217,958)



$

(168,959)



$

(417,030)



$

(354,432)


Operating profit (loss)

$

61,412



$

(135,964)



$

78,417



$

(459,922)


Non-GAAP adjustments:








Integration and restructuring expenses

1,094



8,455



2,836



10,203


Target acquisition costs

5,333





5,333




Gain on settlement



(8,990)





(8,990)


Impairment charges

1,174



6,735



1,174



119,282


Total non-GAAP adjustments

7,601



6,200



9,343



120,495


Adjusted operating profit (loss)

$

69,013



$

(129,764)



$

87,760



$

(339,427)


Net income (loss)

$

42,860



$

(98,214)



$

59,886



$

(314,072)


Non-GAAP adjustments:








Integration and restructuring expenses

1,094



8,455



2,836



10,203


Target acquisition costs

5,333





5,333




Gain on settlement



(8,990)





(8,990)


Impairment charges

1,174



6,735



1,174



119,282


Foreign currency transaction losses (gains)

244



(743)



(562)



(343)


Total non-GAAP adjustments before tax effect

7,845



5,457



8,781



120,152


Tax effect of non-GAAP adjustments

(1,871)



(1,393)



(2,179)



(30,531)


Valuation allowance change on deferred tax assets

(5,395)





(13,577)




Total adjustments, after tax

579



4,064



(6,975)



89,621


Adjusted net income (loss)

$

43,439



$

(94,150)



$

52,911



$

(224,451)


Diluted earnings (loss) per share

$

0.55



$

(1.36)



$

0.78



$

(4.36)


Adjusted diluted earnings (loss) per share

$

0.56



$

(1.31)



$

0.68



$

(3.12)


Non-GAAP Measures
To supplement amounts presented in our unaudited condensed 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 (loss), adjusted net income (loss), and adjusted diluted earnings (loss) per share as shown in the table above. These measures adjust for the effects of: (1) integration and restructuring expenses, including severance charges; (2) impairment charges and a related gain on settlement; (3) target acquisition costs; (4) foreign currency transaction losses (gains); (5) the net tax impact of such items; and (6) the change in the valuation allowance on deferred tax assets. The unaudited reconciliation of 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 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 on a comparable basis, 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.

Revised Non-GAAP Measures
Beginning with the fourth quarter of fiscal 2020, the Company revised its determination of adjusted financial results by eliminating the immaterial adjustments related to COVID-19 incremental costs (credits), net, and amortization of intangible assets. These revisions align with how management currently evaluates the performance of the business. The Company has recast its second quarter of fiscal 2020 non-GAAP financial measures to conform to the revised presentation as set forth in the table above.

CONTACT: Stacy Turnof, DesignerBrandsIR@edelman.com

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