Designer Brands(DBI) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total sales for Q3 2025 were down 3% year over year, with comparable sales down 2.4%, reflecting a 260 basis points sequential improvement from Q2 [5][21] - Adjusted operating income for the quarter was $46.5 million, an increase of nearly $3 million from the previous year, despite last year's Q3 including a $9 million benefit from an incentive accrual reversal [6][24] - Adjusted EPS was $0.38, up from $0.27 in the prior year [7][25] - Consolidated gross margin improved by 210 basis points to 45.1% compared to the prior year [23] Business Line Data and Key Metrics Changes - U.S. retail comparable sales decreased 1.5%, with total sales down 1% year over year, showing improvement from Q2 where both metrics were down roughly 5% [8][21] - Canadian retail total sales were down 8%, with comparable sales down 6.6%, primarily due to unseasonable warm weather [11][22] - Brand portfolio segment total sales decreased by 9%, driven by a decline in external wholesale business due to temporary sourcing-related delivery delays [12][23] Market Data and Key Metrics Changes - The top eight brands in the U.S. retail segment posted a positive 4% comparable sales increase for the quarter, with their penetration expanding by 200 basis points year over year to 42% of total sales [9] - The boot category saw an 8% increase in regular price product sales, with DSW outpacing POS by six points in boot sales for Q3 [10] Company Strategy and Development Direction - The company is focused on two pillars: customer and product, aiming to drive growth by scaling private label and building a more profitable wholesale model [13] - The "Let Us Surprise You" campaign is being executed with a holiday-centric approach to enhance DSW as a gifting destination [13][14] - The company is refining its assortment, ending the quarter with approximately 30% lower choice counts compared to last year while maintaining a focus on key item in-stock levels [15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about closing the year strongly, citing the dedication of teams and the effectiveness of strategic actions [19] - The momentum from Q3 has continued into Q4, with strong performance in key categories and brands [30] - Despite ongoing macro volatility, the company remains confident in its ability to capture opportunities and build sustainable momentum [19][26] Other Important Information - The company paid down $47 million of debt in the quarter, ending with total debt outstanding of $469.8 million [7][25] - Total liquidity at the end of Q3 was $218.3 million, providing solid financial flexibility [26] Q&A Session Summary Question: Could you elaborate on the trends quarter to date and the wide range for Q4 sales guidance? - Management noted that October was the strongest month and that key categories and brands showing momentum in Q3 have continued into Q4, contributing to the guidance [30][31] Question: How is the company thinking about gross margin in Q4 and the promotional environment? - Management is encouraged by the management of gross margin, anticipating similar favorability in Q4, with a focus on maintaining higher average unit retail prices [33][34]