Designer Brands(DBI)2024-06-04 14:00Financial Data and Key Metrics Changes - For Q1 2024, net sales were $746.6 million, up 0.6% year-over-year, but down 2.5% on a comparable basis [60][71] - Consolidated gross margin improved by 80 basis points to 32.8%, driven by better inventory management and reduced closeout sales [9][64] - Adjusted SG&A was 31.2% of sales, compared to 28.9% in the prior year, reflecting increased fixed expenses and a return to normalized incentive compensation [65][66] Business Line Data and Key Metrics Changes - U.S. retail sales increased by 1.4% year-over-year, with comparable sales down 2.3%, showing sequential improvement from Q4 2023 [12][61] - The brand portfolio segment saw a 12% increase in sales, benefiting from harmonized business transactions [63] - Athletic category sales at DSW grew by 15%, with athletic penetration increasing by over 460 basis points to 30% [13][14] Market Data and Key Metrics Changes - Canadian operations reported nearly 3% sales growth, but comparable sales declined by 4.9% due to reduced consumer discretionary spending [19][62] - The overall footwear market showed broad weakness in seasonal footwear, impacting sales performance [16][62] Company Strategy and Development Direction - The company is focused on strategic initiatives to drive growth, including optimizing marketing investments and enhancing omnichannel experiences [24][26] - The acquisition of Rubino, a Canadian footwear retailer, is expected to contribute positively to operating income and expand market presence in Quebec [28][40] - A three-year plan has been established, with 2024 focused on reducing waste and driving efficiency, 2025 on leveraging strengths for growth, and 2026 on scaling operations [56] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in returning to growth, with expectations for improved comparable sales throughout fiscal 2024 [7][32] - The company anticipates a stronger Q2 performance, with May showing similar top-line results to Q1 [74] - Management acknowledged the uncertain economic environment but noted a steady promotional activity in the U.S. retail business [78] Other Important Information - The company reaffirmed its 2024 guidance, expecting net sales growth in the low single digits and comparable sales to improve sequentially [71][72] - The company ended Q1 with $43.4 million in cash and total liquidity of $231.2 million [69][70] Q&A Session Summary Question: Can you elaborate on the comp sales trend throughout the quarter? - Management noted that they exited Q1 stronger than they entered, with continued positive trends into May [39] Question: What is the impact of the Rubino acquisition on top-line expectations? - The Rubino acquisition generated $47 million in sales last year, and the company expects similar operating income contributions from it [40] Question: Can you provide more detail on the SG&A acceleration? - The increase in SG&A is primarily due to a return to normalized incentive compensation and some marketing expenses [42][43] Question: What is the promotional environment like in the U.S. retail business? - Management indicated fewer markdowns compared to Q4 and a steady promotional activity, while remaining cautious due to economic uncertainties [78]