December 10, 2022

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Designer Brands Inc. Reports Third Quarter 2020 Financial Results

10 min read

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.

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SOURCE Designer Brands Inc.

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