The Covid-19 pandemic has taken its toll on Designer Brands, the American shoe retailing group previously called DSW. It recorded significantly lower sales and heavy losses for its first quarter ended on May 2 – both worse than analysts’ expectations - hampered by strong markdowns and store closures from March 17.
About 90 percent of its stores are now open and it expects all of them to be open by the end of June. Traffic in stores is currently around 80 percent of normal. Some 88 percent of the company’s staff was furloughed during the closures but about 60 percent has now been recalled.
To prevent high levels of aging seasonal inventory, the group implemented deeper markdowns and promotions, resulting in elevated markdowns of about $40 million on products sold. In addition, it recorded inventory reserves against a large portion of its yet to be sold inventory totaling $60 million.
Inventory on a unit basis was flat to last year and was down 17 percent in total, including the impact of reserves.
In addition, the group notified vendors and landlords that it was suspending payments until there was better visibility, while implementing significant cost cutting and capital preservation measures. It also drew down on its $400 million credit facility.
Going forward, Designer Brands expects continued strength in e-commerce and said it has reached an agreement with its major vendors and landlords on past due amounts.
For the three months ended on May 2, 2020, the company posted a net loss of $215.9 million, against net income $31.2 million for the same quarter last year. This was due to impairment charges of $112.5 million as a result of the material reduction in net sales and cash flows caused by the temporary closure of all stores, on top of markdowns to liquidate seasonal inventory and the current one.
Consolidated gross profit decreased by $285.8 million to a loss of $26.5 million in the first quarter, as compared to a profit of $259.3 million in the same period last year, weighed down by the inventory markdown activity, but also by higher shipping costs associated with an increase in digital penetration, and the deleveraging of distribution and fulfillment and store occupancy expenses on lower sales volume.
Revenues declined by 44.7 percent to $482.8, which included a 42.3 percent drop in comparable store sales, although this was partially offset by a 25 percent gain in e-commerce.
In the company’s Brand Portfolio, which includes the recently acquired Camuto Group, revenues fell by 21.5 percent to $82.1 million.
In the U.S. Retail segment, which consists of the Designer Shoe Warehouse (DSW) chain, sales went down by 45.5 percent to $377.1 million. At the end of the quarter, there were 521 DSW locations, one more than at the end of the year-ago period.
In the Canada Retail segment, sales dropped by 43.4 percent to $29.3 million. Revenues from other businesses tumbled by 61.7 percent to $13.6 million.
The management said that it is refraining from providing a guidance for its 2020 results due to the current level of uncertainty.