Designer Brands Inc. Reports Second Quarter 2021 Financial Results

<p> Record setting second quarter sales and gross profit at the U.S. Retail segment </p>

<p> Comparable sales were up 84.9% in the second quarter of fiscal 2021 </p>

COLUMBUS, Ohio, Aug. 31, 2021 /PRNewswire/ — 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 July 31, 2021, compared to the three months ended August 1, 2020.

Roger Rawlins, Chief Executive Officer, stated, “Our tremendous second quarter results reflect successful execution on our short-term priorities coupled with our strategy to gain market share in athleisure and kids. Our sales results were driven by increased store traffic as we substantially grew our loyal customer base and welcomed core DSW customers back into our stores.

“As we look forward to our strategic growth, we have organized our efforts around three pillars: customer, brand and speed. All three of these pillars interact with one another and simultaneously strengthen each other. We are offering customers the experiences they crave, the speed they demand, and the brands that can rise to those challenges. Given the positive momentum and strength of our strategy, we expect to achieve an adjusted operating income in the second half of fiscal 2021 that will be in-line or slightly better than fiscal 2019 levels.”

Second Quarter Results

  • Net sales increased 66.9% to $817.3 million in the second quarter of fiscal 2021 compared to the same period last year.

  • Comparable sales increased 84.9% for the second quarter of fiscal 2021.

  • Gross profit increased to $284.7 million in the second quarter of fiscal 2021 versus $37.0 million last year, and gross margin as a percentage of net sales was 34.8% as compared to 7.6% for the same period last year and 30.5% for the second quarter of fiscal 2019.

  • Reported net income in the second quarter of fiscal 2021 was $42.9 million, or $0.55 per diluted share, including net charges of $0.01 per diluted share from adjusted items, primarily related to target acquisition costs, restructuring charges, impairment charges, and the change in the valuation allowance on deferred tax assets.

  • Adjusted net income in the second quarter of fiscal 2021 was $43.4 million, or $0.56 per diluted share.

Liquidity Highlights

  • Cash and cash equivalents totaled $46.5 million at the end of the second quarter of fiscal 2021 compared to $206.7 million for the same period last year, with $364.0 million available for borrowings under our senior secured asset-based revolving credit facility (“ABL Revolver”). Debt totaled $247.1 million at the end of the second quarter of fiscal 2021 compared to $393.0 million debt outstanding for the same period last year.

  • The Company ended the quarter with inventories of $504.3 million compared to $445.0 million for the same period last year.

Store Openings and Closings
During the second quarter of fiscal 2021, we did not open any new stores; we closed one store in the U.S. and two stores in Canada, resulting in a total of 515 U.S. stores and 143 Canadian stores.

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 1270514 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/1213/42454

For those unable to listen to the live webcast, an archived version will be available via the same website address until September 14, 2021. 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: 10159507

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, 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 COVID-19, supply chain disruptions, reliance on third-party providers, cyber-related attacks, or otherwise; 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 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)

July 31, 2021

August 1, 2020

Amount

%

Segment net sales:

U.S. Retail

$

723,093

$

393,977

$

329,116

83.5

%

Canada Retail

57,585

49,582

8,003

16.1

%

Brand Portfolio

50,529

30,458

20,071

65.9

%

Other

22,266

(22,266)

NM

Total segment net sales

831,207

496,283

334,924

67.5

%

Elimination of intersegment net sales

(13,872)

(6,569)

(7,303)

111.2

%

Consolidated net sales

$

817,335

$

489,714

$

327,621

66.9

%

Six months ended

Change

(dollars in thousands)

July 31, 2021

August 1, 2020

Amount

%

Segment net sales:

U.S. Retail

$

1,343,751

$

771,050

$

572,701

74.3

%

Canada Retail

98,189

78,911

19,278

24.4

%

Brand Portfolio

107,956

112,571

(4,615)

(4.1)

%

Other

35,889

(35,889)

NM

Total segment net sales

1,549,896

998,421

551,475

55.2

%

Elimination of intersegment net sales

(29,406)

(25,924)

(3,482)

13.4

%

Consolidated net sales

$

1,520,490

$

972,497

$

547,993

56.3

%

Comparable Sales

Three months ended

Six months ended

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

Comparable sales:

U.S. Retail segment

94.3

%

(44.9)

%

74.5

%

(43.7)

%

Canada Retail segment

14.6

%

(27.9)

%

12.6

%

(29.9)

%

Brand Portfolio segment – direct-to-consumer channel

10.6

%

120.5

%

8.6

%

106.5

%

Other

NA

(36.2)

%

NA

(50.4)

%

Total comparable sales

84.9

%

(42.7)

%

68.1

%

(42.5)

%

Store Count

July 31, 2021

August 1, 2020

(square footage in thousands)

Number of Stores

Square Footage

Number of Stores

Square Footage

U.S. Retail segment – DSW stores

515

10,491

522

10,578

Canada Retail segment:

The Shoe Company / Shoe Warehouse stores

116

611

117

623

DSW stores

27

536

27

536

143

1,147

144

1,159

Total number of stores

658

11,638

666

11,737

Gross Profit

Three months ended

July 31, 2021

August 1, 2020

Change

(dollars in thousands)

Amount

% of Segment Net Sales

Amount

% of Segment Net Sales

Amount

%

Basis Points

Segment gross profit (loss):

U.S. Retail

$

256,893

35.5

%

$

40,097

10.2

%

$

216,796

540.7

%

2,530

Canada Retail

18,768

32.6

%

5,650

11.4

%

$

13,118

232.2

%

2,120

Brand Portfolio

8,533

16.9

%

(11,440)

(37.6)

%

$

19,973

NM

NM

Other

%

118

0.5

%

$

(118)

NM

NM

284,194

34,425

Elimination of intersegment gross profit

487

2,617

Gross profit

$

284,681

34.8

%

$

37,042

7.6

%

$

247,639

668.5

%

2,720

Six months ended

July 31, 2021

August 1, 2020

Change

(dollars in thousands)

Amount

% of Segment Net Sales

Amount

% of Segment Net Sales

Amount

%

Basis Points

Segment gross profit (loss):

U.S. Retail

$

450,006

33.5

%

$

7,127

0.9

%

$

442,879

6,214.1

%

3,260

Canada Retail

29,603

30.1

%

3,339

4.2

%

$

26,264

786.6

%

2,590

Brand Portfolio

20,459

19.0

%

2,464

2.2

%

$

17,995

730.3

%

1,680

Other

%

(5,310)

(14.8)

%

$

5,310

NM

NM

500,068

7,620

Elimination of intersegment gross profit

724

2,962

Gross profit

$

500,792

32.9

%

$

10,582

1.1

%

$

490,210

4,632.5

%

3,180

Intersegment Eliminations

Three months ended

(in thousands)

July 31, 2021

August 1, 2020

Elimination of intersegment activity:

Net sales recognized by Brand Portfolio segment

$

(13,872)

$

(6,569)

Cost of sales:

Cost of sales recognized by Brand Portfolio segment

9,707

4,827

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

4,652

4,359

Gross profit

$

487

$

2,617

Six months ended

(in thousands)

July 31, 2021

August 1, 2020

Elimination of intersegment activity:

Net sales recognized by Brand Portfolio segment

$

(29,406)

$

(25,924)

Cost of sales:

Cost of sales recognized by Brand Portfolio segment

20,642

16,961

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

9,488

11,925

Gross profit

$

724

$

2,962

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)

Three months ended

Six months ended

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

Net sales

$

817,335

$

489,714

$

1,520,490

$

972,497

Cost of sales

(532,654)

(452,672)

(1,019,698)

(961,915)

Gross profit

284,681

37,042

500,792

10,582

Operating expenses

(224,385)

(168,424)

(425,199)

(355,645)

Income from equity investment

2,290

2,153

3,998

4,423

Impairment charges

(1,174)

(6,735)

(1,174)

(119,282)

Operating profit (loss)

61,412

(135,964)

78,417

(459,922)

Interest expense, net

(8,072)

(3,788)

(16,886)

(5,946)

Non-operating income (expenses), net

(244)

743

562

656

Income (loss) before income taxes

53,096

(139,009)

62,093

(465,212)

Income tax benefit (provision)

(10,236)

40,795

(2,207)

151,140

Net income (loss)

$

42,860

$

(98,214)

$

59,886

$

(314,072)

Diluted earnings (loss) per share

$

0.55

$

(1.36)

$

0.78

$

(4.36)

Weighted average diluted shares

77,619

72,142

77,271

72,028

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)

July 31, 2021

January 30, 2021

August 1, 2020

Assets

Cash and cash equivalents

$

46,458

$

59,581

$

206,720

Receivables, net

199,371

196,049

49,240

Inventories

504,316

473,183

445,044

Prepaid expenses and other current assets

53,616

51,772

69,456

Total current assets

803,761

780,585

770,460

Property and equipment, net

271,401

296,469

332,730

Operating lease assets

676,665

700,481

797,413

Goodwill

93,655

93,655

93,655

Intangible assets, net

15,905

15,635

15,663

Deferred tax assets

182,866

Equity investment

55,149

58,598

56,690

Other assets

29,513

31,172

23,780

Total assets

$

1,946,049

$

1,976,595

$

2,273,257

Liabilities and shareholders’ equity

Accounts payable

$

299,322

$

245,071

$

224,693

Accrued expenses

222,055

200,326

202,831

Current maturities of long-term debt

62,500

62,500

Current operating lease liabilities

190,853

244,786

241,694

Total current liabilities

774,730

752,683

669,218

Long-term debt

184,569

272,319

393,000

Non-current operating lease liabilities

645,136

677,735

778,826

Other non-current liabilities

30,502

30,841

25,586

Total liabilities

1,634,937

1,733,578

1,866,630

Total shareholders’ equity

311,112

243,017

406,627

Total liabilities and shareholders’ equity

$

1,946,049

$

1,976,595

$

2,273,257

DESIGNER BRANDS INC.

NON-GAAP RECONCILIATIONS

(unaudited and in thousands, except per share amounts)

Three months ended

Six months ended

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

Operating expenses

$

(224,385)

$

(168,424)

$

(425,199)

$

(355,645)

Non-GAAP adjustments:

Integration and restructuring expenses

1,094

8,455

2,836

10,203

Target acquisition costs

5,333

5,333

Gain on settlement

(8,990)

(8,990)

Adjusted operating expenses

$

(217,958)

$

(168,959)

$

(417,030)

$

(354,432)

Operating profit (loss)

$

61,412

$

(135,964)

$

78,417

$

(459,922)

Non-GAAP adjustments:

Integration and restructuring expenses

1,094

8,455

2,836

10,203

Target acquisition costs

5,333

5,333

Gain on settlement

(8,990)

(8,990)

Impairment charges

1,174

6,735

1,174

119,282

Total non-GAAP adjustments

7,601

6,200

9,343

120,495

Adjusted operating profit (loss)

$

69,013

$

(129,764)

$

87,760

$

(339,427)

Net income (loss)

$

42,860

$

(98,214)

$

59,886

$

(314,072)

Non-GAAP adjustments:

Integration and restructuring expenses

1,094

8,455

2,836

10,203

Target acquisition costs

5,333

5,333

Gain on settlement

(8,990)

(8,990)

Impairment charges

1,174

6,735

1,174

119,282

Foreign currency transaction losses (gains)

244

(743)

(562)

(343)

Total non-GAAP adjustments before tax effect

7,845

5,457

8,781

120,152

Tax effect of non-GAAP adjustments

(1,871)

(1,393)

(2,179)

(30,531)

Valuation allowance change on deferred tax assets

(5,395)

(13,577)

Total adjustments, after tax

579

4,064

(6,975)

89,621

Adjusted net income (loss)

$

43,439

$

(94,150)

$

52,911

$

(224,451)

Diluted earnings (loss) per share

$

0.55

$

(1.36)

$

0.78

$

(4.36)

Adjusted diluted earnings (loss) per share

$

0.56

$

(1.31)

$

0.68

$

(3.12)

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; (4) foreign currency transaction losses (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 second quarter of fiscal 2020 non-GAAP financial measures to conform to the revised presentation as set forth in the table above.

CONTACT: Stacy Turnof, [email protected]

Cision

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SOURCE Designer Brands Inc.