Designer Brands(US:DBI)2019-08-29 18:43Financial Data and Key Metrics Changes - Net income for Q2 2019 was $27.4 million or $0.37 per diluted share, including net after-tax charges of $8.3 million or $0.11 per diluted share related to integration and restructuring expenses [16] - Adjusted EPS was $0.48 per diluted share, compared to an adjusted EPS of $0.63 per diluted share in Q2 2018 [17][16] - Operating income decreased by $20.1 million compared to last year, aligning with expectations due to the previous year's sales boom from the VIP rewards re-launch [18] Business Line Data and Key Metrics Changes - U.S. retail segment comp sales declined by 1.5%, contrasting with last year's comp growth of 9.6%, resulting in a two-year comp of 8.1% [19] - Canadian retail segment achieved 8.1% comp sales growth, building on a 7.1% growth last year, driven by improved average unit retails (AURs) [23] - Digital demand grew by 22%, with significant engagement from customers across all channels [22] Market Data and Key Metrics Changes - Canadian operations saw a digital demand increase of 84% compared to last year, indicating substantial growth potential in this channel [24] - The Camuto segment reported $95.4 million in sales for the quarter, with wholesale sales up in the low single digits [25][26] Company Strategy and Development Direction - The company aims to become the dominant footwear retailer in North America by growing market share and enhancing negotiating leverage [9] - The integration of the Camuto Group is ahead of schedule, with expectations to significantly increase exclusive brand penetration over the next few years [41] - The company is focusing on leveraging its omni-channel infrastructure to improve cost transparency and mitigate external factors like tariffs [15][30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the consumer's response, noting a 4% increase in loyalty program sign-ups [68] - The company is cautious about guidance due to uncertainties surrounding tariffs but believes it has strategies to mitigate their impact [52][54] - Management reaffirmed EPS guidance of $1.87 to $1.97 for the full year, despite higher-than-expected intercompany eliminations [47][50] Other Important Information - The company ended the quarter with $77.3 million in cash and investments, down from $289.1 million last year due to acquisition activities and share repurchases [43] - Inventory per square foot across all retail segments remained flat compared to last year, with new inventory from Camuto totaling $110.7 million [44] Q&A Session Summary Question: What is the outlook for full-year comps? - Management reaffirmed guidance for low single-digit comps for the full year [64] Question: How is the overall health of the consumer? - Management noted positive signs in their business, including growth in loyalty program sign-ups and wholesale sales [66][68] Question: What is the expected contribution of Camuto to private label products? - Management indicated that the majority of private label products will be produced by Camuto starting in 2020, with a target of 30% annual growth [71][74] Question: What are the expectations for Camuto's profitability this year? - Management expects Camuto to potentially perform better than the previously projected $10 million loss, with positive contributions anticipated in Q3 [82] Question: What are the gross margin opportunities for the second half? - Management anticipates flat to slightly better gross margin rates for the fall, despite challenges in occupancy leverage [90]