Designer Brands (NYSE: DBI) reported its latest quarterly results on August 31, for the period ending July 2022.
Earnings per share (EPS) beat FactSet analyst consensus estimates by 18.9% coming in at $0.62 instead of the projected $0.52. Meanwhile, sales of $859.32m beat consensus estimates of $835.92m.
What is Designer Brands Inc?
Designer Brands Inc. is an American company that sells designer and name-brand shoes and fashion accessories. It owns the Designer Shoe Warehouse (DSW) store chain. Through its portfolio of world-class owned brands, led by the industry-setting Vince Camuto brand, Designer Brands delivers on-trend products through its robust direct-to-consumer (D2C) omnichannel infrastructure. This features a billion-dollar digital commerce business and nearly 650 stores across the US and Canada.
Its Canadian retail outlets include The Shoe Company, Shoe Warehouse, DSW Designer Shoe Warehouse and their related e-commerce sites. At the same time, its Brand Portfolio segment includes wholesale, First Cost, and D2C e-commerce sites. Its Other segment refers to the ABG and Ebuys business.
Designer Brands retailing operations under the DSW and The Shoe Company banners deliver current, in-line footwear and accessories from most of the largest national brands in the industry and hold leading market share positions in key product categories across Women's, Men's and Kids in North America.
The company also distributes its owned brands through select wholesale relationships while leveraging its design and sourcing expertise to build private-label products for national retailers.
Designer Brands is also committed to being a difference maker in the world, taking steps forward to advance diversity, equity, and inclusion in the footwear industry and supporting our global community and the health of our planet through donating more than six million pairs of shoes to the international non-profit Soles4Souls.
Designer Brands was founded on January 20, 1969, and is headquartered in Columbus, Ohio.
How Does Designer Brands Make Money?
Designer Brands makes money selling footwear and accessories directly to consumers and via wholesale routes. Indeed, Designer Brands operates as one of the world's most prominent designers, producers and retailers of the most recognizable footwear brands and accessories.
Some recognizable shoe brands the company stocks include Kelly & Katie, Steve Madden, Crocs, Sketchers, Dr. Martens, Sam Edelman, Hey Dude, Birkenstock, Timberland, and Mix No. 6, among others.
DBI Q2 Financial Results
Net Sales: $859.3m (up 5.1% Y/Y)
Gross Profit: $295.7m (up 3.8% Y/Y)
Net Income: $46.2m
Diluted EPS: $0.62
Gross Margin: 34.4% (down -1.1% Y/Y)
Cash and Equivalents: $50.8m (up 9.2% Y/Y)
Available Credit: $157.7m
Debt: $387.4m (increased from $247.1m Y/Y)
Inventory Levels: $694m (up 37% Y/Y)
During Q2, Designer Brands repurchased 7.8 million common shares of DBI stock for $1bn.
A dividend of $0.05 per share of Class A and Class B common shares will be paid on October 6, 2022, to shareholders of record at the close of business on September 22, 2022.
The company expects to soon receive around $16m from the Internal Revenue Service because of the Coronavirus Aid, Relief, and Economic Security Act.
Designer Brands has raised its guidance for Q3 to diluted EPS of between $2.05 and $2.15, from a range of $1.90 to $2. The raise is driven by DBI's share repurchase activity and better-than-expected Q2 results.
The company's long-term goal is to double sales of its Owned Brands by 2026 while maintaining sales levels of National Brands.
In the past six months, the company has raised its guidance for the third time, bought back approximately 12% of DBI stock and initiated a dividend.
Additionally, in under three years, Designer Brands has built six of DBI's Owned Brands to be in the top 50 brands in the fashion footwear industry based on Q2 sales. These include Kelly & Katie, Vince Camuto, Jessica Simpson, Mix No. 6, Crown Vintage, and Lucky.
Meanwhile, DBI's top 50 brands grew 20% Y/Y in Q2 and represented 80% of its sales.
The company recently acquired Le Tigre as an opportunity to embrace the athleisure segment.
Roger Rawlins, the CEO of Designer Brands Inc, said:
This partnership with Le Tigre coupled with our already announced partnership with Reebok allows us to expand our Owned Brand dominance in the increasingly important athletic category.
Furthermore, the company is seeing market share growth and profitability in Canada since extending its workforce there.
To date, the company has not seen a significant shift in consumer behavior with regard to inflation. And as its customer base tends to come from a wealthier income bracket, it is hopeful this will continue.
The overall footwear market was slightly softer in Q2 over Q1. Still, Designer Brands continues to outpace the significant footwear retail industry, and it considers itself better positioned than many to deliver on its fall expectations.
DBI Stock Financials
Over the past year, Designer Brands Inc (DBI) has traded between $11.24 and $19.38. Today it trades at $17.06. Year-to-date, the Designer Brands Inc (DBI) stock is up by 16.74%, while the S&P 500 is down by -17.39% over the same period.
FactSet analysts have a consensus Hold rating on DBI stock with a target share price of $18.25.
Designer Brands Growth Potential
According to Grand View Research, the global footwear market is expected to grow at a compound annual growth rate (CAGR) of 4.3% from 2022 to 2030 to reach $543.9bn by 2030.
Designer Brands has shown it is growing and scaling its business with strategic partnerships, M&A, and brand positioning, which is beginning to pay off. It will have to remain nimble to continue to beat the industry average and stay ahead.
In May 2022, the company opened its new "Warehouse Reimagined" format at a Houston-area DSW store.
At the time, Designer Brands CEO Roger Rawlins commented:
Warehouse Reimagined allows us to showcase our National Brands with shop-in-shops, together with Owned Brands and associated experiences that elevate brands in the eyes of the customer,
This new store format is an immersive experience – by the customer, for the customer – and brings to bear our proven capability to retail brands the way customers want. We have leaned heavily on customer insights and digital capabilities to showcase our Owned Brands and are partnering with top National Brands to give customers an exciting 360-degree experience.
DBI Stock Risks
Inflation and rising interest rates are softening consumer sentiment. The company is already experiencing higher freight costs. While this does not yet appear to be a problem with regard to consumer spending, it is something to be conscious of as it could weigh on company margins and the DBI share price.
The company faced supply chain disruption in 2021, but this does not currently appear to be an issue.
Designer Brands operates in a highly competitive environment subject to fast-changing trends and desires.
Debt and inventory levels have increased Y/Y. This could become a problem if there is a slowdown.
Should You Invest in DBI?
The company has warned it anticipates Q3 will be tough to compare Y/Y as Q3 2021 was particularly impressive. However, Designer Brands does expect more robust growth Y/Y in Q4. With the economic backdrop experiencing a tightening phase, bearish sentiment will likely weigh on the DBI share price in the coming months.
The dividend yield is low, but it's something to sweeten the deal for shareholders and offset share price decline.
DBI appears to be doing what it can to mitigate risk and keep shareholders at the forefront of its strategy. The DBI share price does not appear overvalued, but it may be fair for the current circumstances. Therefore, whether you buy Designer Brands stock at this price point depends on your confidence in the company's ability to grow long-term.