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Designer Brands Inc. Reports Third Quarter 2021 Financial Results

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  • DBI

Record setting third quarter gross profit, operating income and EPS

Comparable sales were up 40.8% in the third quarter of fiscal 2021

Inventory for the retail segments significantly improved to end the third quarter flat to the same period in fiscal 2019

The Company announces guidance for the fourth quarter of fiscal 2021

COLUMBUS, Ohio, Dec. 7, 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 October 30, 2021, compared to the three months ended October 31, 2020.

Roger Rawlins, Chief Executive Officer, stated, "Designer Brands' outstanding third quarter results demonstrate the efficacy of our strategic plans that were set in motion prior to the onset of the pandemic and accelerated over the last 18 months. We continue to see strength in our key assortment distortion areas including athletic and athleisure, kid's, and men's, all powered by the Top 50 Brands in footwear, as well as a return to growth in our vertical brands. This drove record-setting margin expansion in the third quarter and our expectation is that these areas will continue to drive our long-term margin profile with these shifts being a permanent part of our go-forward model.

"We are energized by the strength of our strategy and our record-setting results, despite unseasonably warm weather and industry-wide supply chain challenges. Looking forward, we are continuing to focus on our three key strategic pillars – customer, brand, and speed – to remove friction, acquire new customers, evolve our assortment to match consumer preferences, and move product to our customers faster and more efficiently."

Third Quarter Results

  • Net sales increased 30.7% to $853.5 million in the third quarter of fiscal 2021 compared to the same period last year.

  • Comparable sales increased 40.8% for the third quarter of fiscal 2021.

  • Gross profit increased to a record $313.6 million in the third quarter of fiscal 2021 versus $165.7 million last year, and gross margin as a percentage of net sales was a record 36.7% as compared to 25.4% for the same period last year and 29.3% for the third quarter of fiscal 2019.

  • Reported net income in the third quarter of fiscal 2021 was $80.2 million, or $1.04 diluted earnings per share ("EPS"), including net benefits of $0.18 per diluted share from adjusted items, primarily related the change in the valuation allowance on deferred tax assets.

  • Adjusted net income in the third quarter of fiscal 2021 was $66.6 million, or $0.86 diluted EPS, compared to an adjusted net loss of $18.6 million, or $0.26 loss per diluted share, for the third quarter of fiscal 2020.

Liquidity Highlights

  • Cash and cash equivalents totaled $83.1 million at the end of the third quarter of fiscal 2021 compared to $114.5 million for the same period last year, with $394.7 million available for borrowings under our senior secured asset-based revolving credit facility ("ABL Revolver"). Debt totaled $227.9 million at the end of the third quarter of fiscal 2021 compared to $337.1 million debt outstanding for the same period last year.

  • The Company ended the quarter with inventories of $602.1 million compared to $546.0 million for the same period last year.

Store Openings and Closings

During the third quarter of fiscal 2021, we opened four new stores in the U.S. and one new store in Canada, and we closed four stores in the U.S., resulting in a total of 515 U.S. stores and 144 Canadian stores as of October 30, 2021.

Outlook for the Fourth Quarter of Fiscal 2021

The Company has announced new guidance for the fourth quarter of fiscal 2021. Consolidated net sales are expected to be flat to up low-single digits compared to the fourth quarter of fiscal 2019. The Company expects this to result in a diluted EPS in the range of $0.10 to $0.15 for the fourth quarter of fiscal 2021.

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 7726369 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/1213/43794

For those unable to listen to the live webcast, an archived version will be available via the same website address until February 21, 2022. 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: 101622231

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, including the potential for more severe or contagious variants, 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 the impacts of the COVID-19 pandemic, supply chain disruptions, labor shortages, reliance on third-party providers, cyber-related attacks, or otherwise; labor disruptions and other risks as a result of the impacts of vaccine mandates and other governmental regulations relating to the ongoing COVID-19 pandemic; 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, vaccine mandates, 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)

October 30, 2021


October 31, 2020


Amount


%

Segment net sales:








U.S. Retail

$

709,608



$

501,901



$

207,707



41.4

%

Canada Retail

74,792



61,598



13,194



21.4

%

Brand Portfolio

103,919



83,905



20,014



23.9

%

Other



27,020



(27,020)



NM


Total segment net sales

888,319



674,424



213,895



31.7

%

Elimination of intersegment net sales

(34,852)



(21,554)



(13,298)



61.7

%

Consolidated net sales

$

853,467



$

652,870



$

200,597



30.7

%






Nine months ended


Change

(dollars in thousands)

October 30, 2021


October 31, 2020


Amount


%

Segment net sales:








U.S. Retail

$

2,053,359



$

1,272,951



$

780,408



61.3

%

Canada Retail

172,981



140,509



32,472



23.1

%

Brand Portfolio

211,875



196,476



15,399



7.8

%

Other



62,909



(62,909)



NM


Total segment net sales

2,438,215



1,672,845



765,370



45.8

%

Elimination of intersegment net sales

(64,258)



(47,478)



(16,780)



35.3

%

Consolidated net sales

$

2,373,957



$

1,625,367



$

748,590



46.1

%


NM - Not meaningful

Comparable Sales


Three months ended


Nine months ended


October 30, 2021


October 31, 2020


October 30, 2021


October 31, 2020

Change in comparable sales:








U.S. Retail segment

43.9

%


(31.9)

%


62.6

%


(39.6)

%

Canada Retail segment

15.2

%


(18.7)

%


13.7

%


(25.5)

%

Brand Portfolio segment - direct-to-consumer channel

50.4

%


13.4

%


22.8

%


61.4

%

Other

NA



NA



NA



(50.4)

%

Total comparable sales

40.8

%


(30.4)

%


57.4

%


(38.4)

%


NA - Not applicable

Store Count


October 30, 2021


October 31, 2020

(square footage in thousands)

Number of
Stores


Square
Footage


Number of
Stores


Square
Footage

U.S. Retail segment - DSW stores

515



10,457



524



10,633


Canada Retail segment:








The Shoe Company / Shoe Warehouse stores

117



617



118



626


DSW stores

27



536



27



536



144



1,153



145



1,162


Total number of stores

659



11,610



669



11,795


Gross Profit


Three months ended








October 30, 2021


October 31, 2020


Change

(dollars in thousands)

Amount


% of
Segment
Net Sales


Amount


% of
Segment
Net Sales


Amount


%


Basis
Points

Segment gross profit:














U.S. Retail

$

258,059



36.4

%


$

117,679



23.4

%


$

140,380



119.3

%


1,300


Canada Retail

28,588



38.2

%


18,905



30.7

%


$

9,683



51.2

%


750


Brand Portfolio

32,329



31.1

%


22,128



26.4

%


$

10,201



46.1

%


470


Other



%


6,272



23.2

%


$

(6,272)



NM



NM



318,976





164,984










Net recognition (elimination) of intersegment gross profit

(5,359)





672










Gross profit

$

313,617



36.7

%


$

165,656



25.4

%


$

147,961



89.3

%


1,130



Nine months ended








October 30, 2021


October 31, 2020


Change

(dollars in thousands)

Amount


% of
Segment
Net Sales


Amount


% of
Segment
Net Sales


Amount


%


Basis
Points

Segment gross profit:














U.S. Retail

$

708,065



34.5

%


$

124,806



9.8

%


$

583,259



467.3

%


2,470


Canada Retail

58,191



33.6

%


22,244



15.8

%


$

35,947



161.6

%


1,780


Brand Portfolio

52,788



24.9

%


24,592



12.5

%


$

28,196



114.7

%


1,240


Other



%


962



1.5

%


$

(962)



NM



NM



819,044





172,604










Net recognition (elimination) of intersegment gross profit

(4,635)





3,634










Gross profit

$

814,409



34.3

%


$

176,238



10.8

%


$

638,171



362.1

%


2,350



NM - Not meaningful

Intersegment Eliminations


Three months ended

(in thousands)

October 30, 2021


October 31, 2020

Elimination of intersegment activity:




Net sales recognized by Brand Portfolio segment

$

(34,852)



$

(21,554)


Cost of sales:




Cost of sales recognized by Brand Portfolio segment

22,950



17,155


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

6,543



5,071


Net recognition (elimination) of intersegment gross profit

$

(5,359)



$

672



Nine months ended

(in thousands)

October 30, 2021


October 31, 2020

Elimination of intersegment activity:




Net sales recognized by Brand Portfolio segment

$

(64,258)



$

(47,478)


Cost of sales:




Cost of sales recognized by Brand Portfolio segment

43,592



34,116


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

16,031



16,996


Net recognition (elimination) of intersegment gross profit

$

(4,635)



$

3,634


DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)



Three months ended


Nine months ended


October 30, 2021


October 31, 2020


October 30, 2021


October 31, 2020

Net sales

$

853,467



$

652,870



$

2,373,957



$

1,625,367


Cost of sales

(539,850)



(487,214)



(1,559,548)



(1,449,129)


Gross profit

313,617



165,656



814,409



176,238


Operating expenses

(211,909)



(196,067)



(637,108)



(551,712)


Income from equity investment

2,600



1,902



6,598



6,325


Impairment charges



(30,081)



(1,174)



(149,363)


Operating profit (loss)

104,308



(58,590)



182,725



(518,512)


Interest expense, net

(7,706)



(9,009)



(24,592)



(14,955)


Non-operating income, net

172



24



734



680


Income (loss) before income taxes

96,774



(67,575)



158,867



(532,787)


Income tax benefit (provision)

(16,590)



26,932



(18,797)



178,072


Net income (loss)

$

80,184



$

(40,643)



$

140,070



$

(354,715)


Diluted earnings (loss) per share

$

1.04



$

(0.56)



$

1.81



$

(4.92)


Weighted average diluted shares

77,135



72,344



77,216



72,134


DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)



October 30, 2021


January 30, 2021


October 31, 2020

Assets






Cash and cash equivalents

$

83,069



$

59,581



$

114,531


Receivables, net

231,391



196,049



61,840


Inventories

602,101



473,183



545,954


Prepaid expenses and other current assets

53,756



51,772



54,577


Total current assets

970,317



780,585



776,902


Property and equipment, net

263,581



296,469



313,102


Operating lease assets

664,646



700,481



728,871


Goodwill

93,655



93,655



93,655


Intangible assets, net

16,005



15,635



15,652


Deferred tax assets





208,976


Equity investment

56,623



58,598



57,978


Other assets

29,117



31,172



31,585


Total assets

$

2,093,944



$

1,976,595



$

2,226,721


Liabilities and shareholders' equity






Accounts payable

$

401,280



$

245,071



$

371,382


Accrued expenses

211,017



200,326



171,261


Current maturities of long-term debt

62,500



62,500



62,500


Current operating lease liabilities

206,065



244,786



226,423


Total current liabilities

880,862



752,683



831,566


Long-term debt

165,422



272,319



274,635


Non-current operating lease liabilities

622,273



677,735



721,771


Other non-current liabilities

31,726



30,841



28,228


Total liabilities

1,700,283



1,733,578



1,856,200


Total shareholders' equity

393,661



243,017



370,521


Total liabilities and shareholders' equity

$

2,093,944



$

1,976,595



$

2,226,721


DESIGNER BRANDS INC.

NON-GAAP RECONCILIATIONS

(unaudited and in thousands, except per share amounts)



Three months ended


Nine months ended


October 30, 2021


October 31, 2020


October 30, 2021


October 31, 2020

Operating expenses

$

(211,909)



$

(196,067)



$

(637,108)



$

(551,712)


Non-GAAP adjustments:








Integration and restructuring expenses



816



2,836



11,019


Target acquisition costs (credits)

(2,107)





3,226




Gain on settlement







(8,990)


Adjusted operating expenses

$

(214,016)



$

(195,251)



$

(631,046)



$

(549,683)


Operating profit (loss)

$

104,308



$

(58,590)



$

182,725



$

(518,512)


Non-GAAP adjustments:








Integration and restructuring expenses



816



2,836



11,019


Target acquisition costs (credits)

(2,107)





3,226




Gain on settlement







(8,990)


Impairment charges



30,081



1,174



149,363


Total non-GAAP adjustments

(2,107)



30,897



7,236



151,392


Adjusted operating profit (loss)

$

102,201



$

(27,693)



$

189,961



$

(367,120)


Net income (loss)

$

80,184



$

(40,643)



$

140,070



$

(354,715)


Non-GAAP adjustments:








Integration and restructuring expenses



816



2,836



11,019


Target acquisition costs (credits)

(2,107)





3,226




Gain on settlement







(8,990)


Impairment charges



30,081



1,174



149,363


Foreign currency transaction gains

(172)



(25)



(734)



(368)


Total non-GAAP adjustments before tax effect

(2,279)



30,872



6,502



151,024


Tax effect of non-GAAP adjustments

560



(8,788)



(1,619)



(39,319)


Valuation allowance change on deferred tax assets

(11,873)





(25,450)




Total adjustments, after tax

(13,592)



22,084



(20,567)



111,705


Adjusted net income (loss)

$

66,592



$

(18,559)



$

119,503



$

(243,010)


Diluted earnings (loss) per share

$

1.04



$

(0.56)



$

1.81



$

(4.92)


Adjusted diluted earnings (loss) per share

$

0.86



$

(0.26)



$

1.55



$

(3.37)


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 (credits); (4) foreign currency transaction 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 third 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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