The American shoe retailer Designer Brands, formerly known as DSW, believes that the Covid-19 pandemic will continue to have a significant impact on its business next year and does not expect significant improvement until late spring 2021 or even the next back-to-school season.
While releasing results for the third quarter, the company declined to release any guidance for the full year but said that the end of 2020 is challenging, with U.S. comparable sales down by about 20 percent since the start of November.
In the fiscal third quarter, ended on Oct. 31, sales decreased by 30.1 percent to $652.9 million, with comparable sales tumbling by 30.4 percent, as store traffic dropped 38 percent. However, this was a significant improvement sequentially over the second quarter, as the group continues to expand its athleisure stock. Athletic penetration in the U.S. retail business rose to 26 percent at the end of the third quarter, up from 17 percent last year. During the quarter, athletic comparable sales turned positive at the flagship retail brand DSW Designer Shoe Warehouse, growing by 5 percent and outperforming the market, it said. Growth in athletic footwear supports ”our strategic decision to pivot in this environment,” said executive officer, Roger Rawlins.
During the quarter, athletic footwear accounted for 73 percent of total assortment versus 65 percent last year in the U.S.
The group also benefited from strong online sales, with e-commerce comparable sales up by 7 percent for the quarter, representing 35 percent of total turnover versus 23 percent for the year-ago quarter.
In the U.S. retail segment, which consists of the DSW chain, sales declined by 30.0 percent to $501.9 million and comparable store sales were down by 31.9 percent. The performance posted by sneakers and the broader athleisure categories was offset by a poor performance from dress and seasonal. Kids’ comparable sales remained flat for the quarter, and the category represented 10 percent of sales, compared to 7 percent for the year-ago quarter.
The Canadian business fared better than the U.S. thanks to its higher penetration in the athleisure and kids’ footwear categories, which have been more resilient during the pandemic. Sales fell by 18.7 percent to $61.6 million and comparable sales declined by 18.7 percent. Sales declines in stores were slightly offset by online growth of 121 percent.
Meanwhile, the company’s brand portfolio segment, which includes Camuto, saw revenues decline by 39.0 percent to $83.9 million, and sales for other businesses fell by 6 percent to $27.0 million.
The gross margin narrowed by 3.9 percentage points to 25.4 percent on continued higher promotional activity, increases to shipping expense and deleverage on occupancy, fixed distribution costs and royalty expense related to sales declines.
Inventories in the quarter fell by 19 percent to $546.0 million, because of strong controls and higher inventory reserves compared with the prior year.
Designer Brands posted a net loss of $40.6 million, compared with a net profit of $43.4 million the year earlier.
The company had 524 DSWs stores in the U.S. at the end of the quarter, after four openings and two closures. It also had 145 Canadian stores, with one opening. The management said it is considering further closures due to weak store traffic and the acceleration in e-commerce.