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Designer Brands(DBI) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year, sales increased by 3.7% to $3.3 billion compared to 2021, while fourth-quarter sales decreased by 7.5% to $760.5 million due to a pressured consumer environment [22][24] - Adjusted EPS for the full year was $1.85, landing at the top of the guidance provided at the start of the year, while fourth-quarter adjusted net income was $4.7 million or $0.07 of diluted EPS compared to $0.15 last year [47][50] - Gross margin for the full year was 32.6%, a decrease of 80 basis points from the prior year, but still structurally more robust than pre-pandemic levels [49][50] Business Line Data and Key Metrics Changes - Clearance sales at DSW were up 2%, while regular price selling was down 10%, indicating a shift in consumer behavior towards value [13] - The company's own brands grew by 32% for the year, with direct-to-consumer (DTC) sales up 35% [22][45] - The external wholesale business was down 9% during the fourth quarter, but up 24% for the year [23] Market Data and Key Metrics Changes - U.S. retail comps for the fourth quarter were down 8.1%, driven by a constrained consumer, while Canada posted comps of 15.9% for the quarter [48][23] - The company experienced strong online growth, with vincecamuto.com comps up 34.5% and tenkmuto.com comps up 44.4% for the quarter [22][23] Company Strategy and Development Direction - The company aims to increase its penetration of owned brands to nearly one-third of total sales by 2026, with current penetration at 24% [18][45] - Recent acquisitions, including Keds and Topo Athletic, support the strategy to become a leading brand builder and expand the product portfolio [14][41] - The company is focusing on maintaining strong partnerships with national brands while aggressively growing its own brands [40] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the ongoing pressure from inflation and a looming recession, leading to cautious consumer spending [13][19] - The company expects a modest return to growth in Q4 2023, with sales anticipated to be down in the mid-single digits for the first half of the year [26][51] - Management remains optimistic about the long-term growth potential, anticipating a recovery in the second half of the year [46][51] Other Important Information - The company ended the quarter with $58.8 million in cash and total liquidity of $302.7 million [25] - The anticipated future expansion with Hush Puppies will allow the company to operate in the comfort footwear space, a significant growth area [15] Q&A Session Summary Question: What are the expectations for sales and earnings in 2023? - The company is planning for sales and earnings to be down for the year due to continued consumer pressure, but believes these trends are temporary [19][29] Question: How is the company managing inventory levels? - The company has managed its inventory position better than most peers, ending the fourth quarter with inventories of $605.7 million, a notable improvement from earlier in the year [50][46] Question: What impact do the recent acquisitions have on profitability? - The company anticipates no material impact to profitability from recent acquisitions in the current year due to integration costs, with expectations for profitability in 2024 [28][54]