Designer Brands(US:DBI)2023-09-07 17:01Financial Data and Key Metrics Changes - Designer Brands reported a net sales decline of 7.8% year-over-year to $792.2 million, although this marked an improvement from the first quarter [41][31] - Adjusted operating profit was 7.9% of sales, down from 8.2% in the prior year but improved sequentially from 3.5% in Q1 2023 [22] - Adjusted net income was $39.4 million or $0.59 diluted EPS, compared to $46.1 million or $0.62 last year [22][41] - Gross margin increased to 34.5%, up 10 basis points year-over-year and improved 250 basis points sequentially [60] Business Line Data and Key Metrics Changes - Retail comps were down 8.9% year-over-year but showed sequential improvement from Q1 [31][59] - Wholesale net sales increased by approximately 20%, driven by the integration of Keds and Topo Athletic brands [31][59] - Own brands penetration increased by 60 basis points to 25% of total revenue year-to-date [13] Market Data and Key Metrics Changes - Canadian comps were down 7.3%, following a strong post-COVID recovery of over 47% in Q2 2022 [42] - The casual category continues to show strength, while the boot category is anticipated to perform well in the upcoming season [66][67] Company Strategy and Development Direction - The company aims to double sales of its own brands from 2021 to 2026, with a focus on strategic growth through new brand launches and partnerships [31][12] - Recent leadership changes, including the hiring of Laura Denk as President of Designer Shoe Warehouse, are expected to enhance brand positioning and growth [10][29] - The company is committed to returning capital to shareholders, having returned $91.1 million year-to-date through dividends and share repurchases [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing macroeconomic pressures but reaffirmed full-year 2023 guidance, citing sequential improvements from Q1 to Q2 [38][49] - The company is cautiously optimistic about inventory positioning heading into fall, with expectations of reduced promotional activity as inventory normalizes [61][68] - Management highlighted the importance of maintaining flexibility in inventory management to capitalize on opportunistic buys [61] Other Important Information - The company ended Q2 with inventories of $606.8 million, down 13% year-over-year [44] - A term loan was established to support capital allocation priorities, with an initial draw of $50 million [47] - The IRS tax refund of $40 million is pending, which will be used to pay down debt [48] Q&A Session Summary Question: Changes in category performance from Q2 to Q1 and inventory thoughts for the fall season - Management noted improvements in casual categories and expressed cautious optimism for the boot category as the season approaches [66][67] Question: Guidance on promotional activity and inventory levels - Management indicated that while promotional activity remains high, they expect inventory levels to normalize, reducing the need for promotions [68] Question: Insights on quarter-to-date performance and sales growth expectations for Q3 and Q4 - Management reaffirmed guidance, anticipating a material shift in performance as they face easier comps in the latter half of the year [75][76] Question: Potential for increased share repurchases given balance sheet leverage - Management confirmed ongoing share repurchase activity, viewing it as a vote of confidence in their long-term strategy [78]