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Designer Brands Inc. Reports Third Quarter 2020 Financial Results

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Net sales improved 33% on a sequential basis versus second quarter

Athletic comparable sales in the U.S. Retail segment were up 5% in third quarter, above the 4% increase in the second quarter, outpacing results for seasonal products

COLUMBUS, Ohio, Dec. 9, 2020 /PRNewswire/ -- Designer Brands Inc. (NYSE: DBI) (the "Company"), one of North America's largest designers, producers and retailers of footwear and accessories, announced financial results for the three months ended October 31, 2020, compared to the three months ended November 2, 2019.

Roger Rawlins, Chief Executive Officer, said, "Designer Brands delivered sequential improvement across all of our metrics in the third quarter by successfully leveraging our flexible business model to align with consumer preferences. We have been shifting our assortment to include more athletic and kids product, as well as items from the Top 10 brands in footwear, and see further opportunity to meaningfully grow these categories. Our investment in these areas has resulted in athletic penetration in our U.S. retail business increasing to 26% at the end of the third quarter, up from 17% last year, and kids penetration has grown to 10% from 7% last year. During the quarter, athletic comparable sales turned positive at DSW, growing 5%, outperforming the market and supporting our strategic decision to pivot in this environment."

Mr. Rawlins continued, "Fundamentally, our customers know Designer Brands as a dress and seasonal house. As they continue to work from home and avoid large social events, the balance of our assortment will remain challenged. We are pleased to see that a vaccine may be on the horizon, but widespread adoption will take time and our business will continue to feel pressure in the near-term. We have confidence there will be a day our customers feel comfortable going out again, and, when that time comes, we will reap the benefits of the combination of our legacy command of the dress and seasonal market coupled with recent gains we are making in athletic and kids."

Third Quarter Operating Results

  • Net sales decreased 30.1% to $652.9 million in the third quarter of fiscal 2020 compared to the same period last year.

  • Comparable sales decreased 30.4% for the third quarter of fiscal 2020 compared to a 0.3% increase in the third quarter of fiscal 2019.

  • Gross profit decreased $107.7 million to $165.7 million in the third quarter of fiscal 2020 versus $273.3 million last year, and gross margin as a percentage of net sales was 25.4% as compared to 29.3% in the third quarter of fiscal 2019. The decrease in gross profit was primarily driven by the significant reduction in customer traffic with the continuing impact of COVID-19. The decline in gross margin during the period was also a result of continued elevated markdown activity in addition to the increase in shipping expense and deleverage on occupancy, fixed distribution costs, and royalty expense related to the decline in sales.

  • Reported operating expenses were down 8.8% to $196.1 million versus last year and the reported operating expenses as a percentage of net sales was 30.1%, above last year's level of 23.1%, due to a significantly lower sales volume.

  • Reported net loss was $40.6 million, or $0.56 loss per diluted share, including net charges of $0.30 per diluted share from adjusted items primarily related to impairment charges.

  • Adjusted net loss was $19.0 million, or $0.26 loss per diluted share.

Liquidity Highlights

  • Cash and investments totaled $114.5 million at the end of the third quarter of fiscal 2020, compared to $113.8 million for the same period last year, with $295.0 million available for borrowings under our ABL Revolver. Debt totaled $274.6 million at the end of the third quarter of fiscal 2020 compared to $235.0 million debt outstanding for the same period last year.

  • The Company ended the quarter with inventories of $546.0 million, down 19% compared to the same period last year, primarily due to strong inventory controls and higher inventory reserves versus the prior year.

Store Openings and Closings
During the third quarter of fiscal 2020, we opened four stores and closed two in the U.S. resulting in a total of 524 U.S. stores. In Canada, we opened one store with no closures resulting in a total of 145 Canadian stores.

2020 Guidance
We continue to monitor and evaluate the impact of the COVID-19 pandemic and, given the prolonged uncertainty surrounding the impacts of COVID-19, the Company is not providing guidance at this time.

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 8509121 approximately ten minutes prior to the start of the 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/1213/38606

For those unable to listen to the live webcast, an archived version will be available via the same website address until December 23, 2020. 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: 10149800

About Designer Brands
Designer Brands Inc. 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® and Max Studio®. 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
Any statements in this release that are not historical facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In many cases, you can identify these forward-looking statements by the use of forward-looking words such as "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 disease ("COVID-19"), any future COVID-19 resurgence, and any other adverse public health developments; our ability to protect the health and safety of our employees 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 holdings of cash and investments and access to liquidity and the financial markets on terms that are favorable to us, if at all; risks related to our international operations, including international trade, our reliance on foreign sources for merchandise, exposure to foreign tax contingencies, and fluctuations in foreign currency exchange rates; maintaining strong relationships with our vendors, manufacturers, licensors, and retailer customers; our ability to successfully integrate acquired businesses or realize the anticipated benefits of the acquisitions after we complete our integration efforts; 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, reliance on third-party providers, or otherwise; our reliance on our loyalty programs and marketing to drive traffic, sales and customer loyalty; our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations; 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; risks associated with remote working arrangements; our ability to comply with privacy laws and regulations, as well as other legal obligations; the effect of Stein Mart Inc. filing for relief under Chapter 11 of the United States Bankruptcy Code; our success in growing our store base and digital demand; our ability to protect our reputation and to maintain the brands we license; our ability to execute our strategies; seasonality of our business and fluctuation of our comparable sales and quarterly financial performance; 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; the imposition of increased or new tariffs on our products; risks related to our qualification under the Coronavirus Aid, Relief, and Economic Security Act for payroll tax credits and deferral of payroll taxes in the U.S., as well as other similar regulations in Canada; and uncertainty related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation. Additional 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 February 1, 2020, as amended, our Forms 10-Q for the fiscal quarter ended May 2, 2020 and August 1, 2020 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. The Company undertakes no obligation to revise the forward-looking statements included in this press release to reflect any future events or circumstances, except as may be required by law.

DESIGNER BRANDS INC.

SEGMENT RESULTS

(unaudited)


Net Sales


Three months ended


Change

(dollars in thousands)

October 31, 2020


November 2, 2019


Amount


%


Comparable Sales %

Segment net sales:










U.S. Retail

$

501,901



$

716,775



$

(214,874)



(30.0)%


(31.9)%

Canada Retail

61,598



76,299



(14,701)



(19.3)%


(18.7)%

Brand Portfolio

83,905



137,496



(53,591)



(39.0)%


13.4%

Other

27,020



28,848



(1,828)



(6.3)%


NA

Total segment net sales

674,424



959,418



(284,994)



(29.7)%


(30.4)%

Elimination of intersegment net sales

(21,554)



(25,592)



4,038



(15.8)%



Net sales

$

652,870



$

933,826



$

(280,956)



(30.1)%


















NA - Not applicable

















Nine months ended


Change

(dollars in thousands)

October 31, 2020


November 2, 2019


Amount


%


Comparable Sales %

Segment net sales:










U.S. Retail

$

1,272,951



$

2,086,535



$

(813,584)



(39.0)%


(39.6)%

Canada Retail

140,509



191,421



(50,912)



(26.6)%


(25.5)%

Brand Portfolio

196,476



344,989



(148,513)



(43.0)%


61.4%

Other

62,909



93,935



(31,026)



(33.0)%


(50.4)%

Total segment net sales

1,672,845



2,716,880



(1,044,035)



(38.4)%


(38.4)%

Elimination of intersegment net sales

(47,478)



(53,813)



6,335



(11.8)%



Net sales

$

1,625,367



$

2,663,067



$

(1,037,700)



(39.0)%




Store Data


October 31, 2020


November 2, 2019

(square footage in thousands)

Number of Stores


Square Footage


Number of Stores


Square Footage

U.S. Retail segment - DSW Designer Shoe Warehouse

524



10,633



521



10,579


Canada Retail segment:








The Shoe Company / Shoe Warehouse

118



626



119



638


DSW Designer Shoe Warehouse

27



536



27



535



145



1,162



146



1,173


Total operating stores

669



11,795



667



11,752


Gross Profit


Three months ended








October 31, 2020


November 2, 2019


Change

(dollars in thousands)

Amount


% of Segment Net Sales


Amount


% of Segment Net Sales


Amount


%


Basis Points

Segment gross profit (loss):














U.S. Retail

$

117,679



23.4

%


$

201,409



28.1

%


$

(83,730)



(41.6)%


(470)


Canada Retail

18,905



30.7

%


27,485



36.0

%


$

(8,580)



(31.2)%


(530)


Brand Portfolio

22,128



26.4

%


40,849



29.7

%


$

(18,721)



(45.8)%


(330)


Other

6,272



23.2

%


6,291



21.8

%


$

(19)



(0.3)%


140



164,984





276,034










Elimination of intersegment gross loss (profit)

672





(2,726)










Gross profit

$

165,656



25.4

%


$

273,308



29.3

%


$

(107,652)



(39.4)%


(390)



Nine months ended








October 31, 2020


November 2, 2019


Change

(dollars in thousands)

Amount


% of Segment Net Sales


Amount


% of Segment Net Sales


Amount


%


Basis Points

Segment gross profit (loss):














U.S. Retail

$

124,806



9.8

%


$

619,356



29.7

%


$

(494,550)



(79.8)%


(1,990)


Canada Retail

22,244



15.8

%


65,171



34.0

%


$

(42,927)



(65.9)%


(1,820)


Brand Portfolio

24,592



12.5

%


93,308



27.0

%


$

(68,716)



(73.6)%


(1,450)


Other

962



1.5

%


21,643



23.0

%


$

(20,681)



(95.6)%


(2,150)



172,604





799,478










Elimination of intersegment gross loss (profit)

3,634





(5,664)










Gross profit

$

176,238



10.8

%


$

793,814



29.8

%


$

(617,576)



(77.8)%


(1,900)


Intersegment Eliminations


Three months ended

(in thousands)

October 31, 2020


November 2, 2019

Elimination of intersegment activity:




Net sales recognized by Brand Portfolio segment

$

(21,554)



$

(25,592)


Cost of sales:




Cost of sales recognized by Brand Portfolio segment

17,155



17,363


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

5,071



5,503


Gross loss (profit)

$

672



$

(2,726)



Nine months ended

(in thousands)

October 31, 2020


November 2, 2019

Elimination of intersegment activity:




Net sales recognized by Brand Portfolio segment

$

(47,478)



$

(53,813)


Cost of sales:




Cost of sales recognized by Brand Portfolio segment

34,116



39,281


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

16,996



8,868


Gross loss (profit)

$

3,634



$

(5,664)


DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)






Three months ended


Nine months ended


October 31, 2020


November 2, 2019


October 31, 2020


November 2, 2019

Net sales

$

652,870



$

933,826



$

1,625,367



$

2,663,067


Cost of sales

(487,214)



(660,518)



(1,449,129)



(1,869,253)


Operating expenses

(196,067)



(215,038)



(551,712)



(654,988)


Income from equity investment

1,902



2,662



6,325



7,354


Impairment charges

(30,081)



(4,824)



(149,363)



(4,824)


Operating profit (loss)

(58,590)



56,108



(518,512)



141,356


Interest expense, net

(9,009)



(2,174)



(14,955)



(5,947)


Non-operating income (expenses), net

24



15



680



(128)


Income (loss) before income taxes

(67,575)



53,949



(532,787)



135,281


Income tax benefit (provision)

26,932



(10,489)



178,072



(33,220)


Net income (loss)

$

(40,643)



$

43,460



$

(354,715)



$

102,061


Diluted earnings (loss) per share

$

(0.56)



$

0.60



$

(4.92)



$

1.36


Weighted average diluted shares

72,344



72,947



72,134



75,149



DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)








October 31, 2020


February 1, 2020


November 2, 2019

Assets






Cash and cash equivalents

$

114,531



$

86,564



$

87,838


Investments



24,974



25,939


Accounts receivable, net

61,840



89,151



87,313


Inventories

545,954



632,587



677,696


Prepaid expenses and other current assets

54,577



67,534



48,077


Total current assets

776,902



900,810



926,863


Property and equipment, net

313,102



395,009



394,695


Operating lease assets

728,871



918,801



950,514


Goodwill

93,655



113,644



113,644


Intangible assets, net

15,652



22,846



23,297


Deferred tax assets

208,976



31,863



39,452


Equity investment

57,978



57,760



54,964


Other assets

31,585



24,337



33,549


Total assets

$

2,226,721



$

2,465,070



$

2,536,978








Liabilities and shareholders' equity






Accounts payable

$

371,382



$

299,072



$

266,335


Accrued expenses

171,261



194,264



190,897


Current maturities of long-term debt

62,500






Current operating lease liabilities

226,423



186,695



184,598


Total current liabilities

831,566



680,031



641,830


Long-term debt

274,635



190,000



235,000


Non-current operating lease liabilities

721,771



846,584



880,883


Other non-current liabilities

28,228



27,541



36,084


Total liabilities

1,856,200



1,744,156



1,793,797


Total shareholders' equity

370,521



720,914



743,181


Total liabilities and shareholders' equity

$

2,226,721



$

2,465,070



$

2,536,978



DESIGNER BRANDS INC.

NON-GAAP RECONCILIATION

(unaudited and in thousands, except per share amounts)






Three months ended


Nine months ended


October 31, 2020


November 2, 2019


October 31, 2020


November 2, 2019

Reported net income (loss)

$

(40,643)



$

43,460



$

(354,715)



$

102,061


Pre-tax adjustments:








Included in cost of sales -








COVID-19 incremental costs





3,676




Included in operating expenses:








COVID-19 incremental costs (credits), net

(985)





(4,453)




Integration and restructuring expenses

816



1,465



11,019



13,574


Amortization of intangible assets

113



617



582



664


Impairment charges

30,081



4,824



149,363



4,824


Gain on settlement





(8,990)




Included in non-operating expenses, net -








Foreign currency transaction losses (gains)

(25)



9



(368)



216


Total pre-tax adjustments

30,000



6,915



150,829



19,278


Tax effect of adjustments

(8,357)



(1,789)



(38,875)



(3,394)


Total adjustments, after tax

21,643



5,126



111,954



15,884


Adjusted net income (loss)

$

(19,000)



$

48,586



$

(242,761)



$

117,945


Reported diluted earnings (loss) per share

$

(0.56)



$

0.60



$

(4.92)



$

1.36


Adjusted diluted earnings (loss) per share

$

(0.26)



$

0.67



$

(3.37)



$

1.57


Non-GAAP Measures

In addition to diluted earnings (loss) per share and net income (loss) determined in accordance with accounting principles generally accepted in the United States ("GAAP"), the Company uses adjusted diluted earnings (loss) per share and adjusted net income (loss), which adjust for the effects of: (1) COVID-19 incremental costs and credits; (2) integration and restructuring expenses; (3) amortization expense of intangible assets; (4) impairment charges; (5) gain on settlement; (6) foreign currency transaction losses (gains); and (7) the net tax expense impact of such items. 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 the 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.

Cision
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SOURCE Designer Brands Inc.