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Bear of the Day: Designer Brands (DBI)

Madeleine Johnson

Formerly known as Designer Shoe Warehouse (DSW), Designer Brands Inc. (DBI) is a retailer that offers brand-name and designer shoes and accessories for men and women; customers can find dress, casual, and athletic footwear, as well as handbags and luggage. DBI is headquartered in Columbus, Ohio.

Shares Slump After Disappointing Earnings

The DSW parent reported adjusted earnings of $0.67, missing consensus estimates of $0.74, but total revenue managed to increase over 12% to $936.3 million.

Comparable sales, however, rose only 0.3%, or 7.6% on a two-year basis. Based on these numbers, same-store sales growth has slowed significantly compared to the year-ago period.

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And, gross margin fell 370 basis points to 28.9% due to heavy markdowns and promotions in the quarter.

"We continued to make progress on our strategic initiatives and the integration of our acquisitions. At the same time, we faced several meaningful headwinds during the third quarter that impacted our results and will likely continue for the upcoming quarters,” said CEO Roger Rawlins.

Management also blamed warm weather for the challenges the company faced.

DBI is now a Zacks Rank #5 (Strong Sell).

Shares of the footwear retailer are down almost 37% since January, and slumped over 17% the day of its earnings release. The S&P 500, on the other hand, has been on a tear this year, and is up 32% this year

Bottom Line

Designer Brands cut its earnings guidance for the full year, and now expects EPS of 1.50 to $1.55, down from a previous range of $1.87 to $1.97. Comparable sales are expected to be flat (previous forecasts called for comps in the low single digits).

Margins will likely be an issue for DBI in the short term, and its recent acquisition of Camuto Group has been weighing on the company. While management is still bullish on Camuto, it’s been dealing with internal operational dysfunction at the division, and DBI expects a 10-cent impact on profitability in Q4.

Investors who are interested in adding a retail peer to their portfolio could consider Boot Barn (BOOT), which is known for their western and cowboy inspired boot selection. BOOT is a #1 (Strong Buy) on the Zacks Rank, and shares have skyrocketed 163% in 2019.

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