Designer Brands improved its fourth-quarter sales from the previous three months as it continues to increase its exposure to athleisure and children’s footwear and develop its digital capabilities. The company has streamlined its offer to focus on the top 50 brands in the U.S. and top 30 in Canada.
In 2021, the company plans to continue concentrating on “the premier footwear brands our clients demand” and improving its digital and omnichannel offer. It said that it will rely on its Camuto brand to capture any recovery in demand for dress and seasonal footwear, while protecting the market share gained in the athletic segment.
In the fourth quarter ended Jan. 30, overall net sales decreased by 26.6 percent year-over-year to $609.4 million, with comparable sales down by 20.1 percent, compared to last year’s 0.7 percent increase, due to the ongoing impact of the Covid-19 pandemic.
In the U.S., retail sales fell by 20.0 percent to $527.4 million, with comparable sales down by 19.7 percent. Designer Brands noted that comparable sales of athletic shoes in the U.S. retail channel were up by 19 percent in the fourth quarter compared with a 5 percent rise in third quarter. In the spring, athleisure will represent 50 percent of the assortment of the company’s DSW stores compared with 46 percent in the fall of 2020.
Historically, Designer Brands has been underexposed to the athleisure segment. According to NPD data, in the fiscal year 2019, athleisure only represented 30 percent of DSW’s sales compared with an overall market share of 55 percent for the footwear category in the U.S..
In the fourth quarter, the top 50 brands, which are essentially athleisure and iconic brands, will account for 75 percent of the inventory investment in 2021 compared with 60 percent in 2019.
Retail sales in Canada declined by 26.8 percent, with comparable sales down by 27.6 percent, to $42.2 million. In the country, Designer Brands also streamlined its offer by reducing the brand portfolio by 40 percent in 2020. Currently, 75 percent of Canadian sales come from 30 brands.
The company’s brand portfolio segment, which includes Camuto, saw revenues decline by 49.5 percent to $52.2 million, but comparable sales were up by 3.2 percent. Production at Camuto was cut by 40 percent year-on-year in the fourth quarter and is expected to be 15 percent lower in the first quarter. Designer Brands anticipates Camuto’s production to improve throughout 2021 as demand for dress and seasonal products recovers.
The gross margin dropped to 22.2 percent from 24.8 percent the previous year. Operating expenses fell by 8.3 percent to $201.6 but the decline was slower than the one experienced by the top line. Thus, expenses represented 33.1 percent of net sales against 26.5 percent a year earlier.
The reported net loss was $134.0 million, or $1.85 per diluted share, including net charges of $1.32 per share from adjustments primarily related to impairment and restructuring charges and the valuation allowance established against deferred tax assets. A year earlier, the net loss totaled $7.6 million.
Adjusted net loss was $38.6 million, or $0.53 loss per diluted share.
In the full year, Designer Brands posted sales of $2.2 billion, down by 36.0 percent, with comparable sales down by 34.2 percent.
The net loss was $488.7 million, or $6.77 per diluted share, against a profit of $94.5 million the previous year. The adjusted net loss was $281.7 million, or $3.90 per diluted share.
The company ended the year with inventories of $473.2 million, down by 25.2 percent compared to the same period last year, primarily due to strong controls.
During the fiscal year, Designer Brands opened six stores and closed eight stores in the U.S. resulting in a total of 519 DSW stores at the end of January. In Canada, it opened two stores and closed three stores resulting in 144 stores. In Canada, the company had 117 stores under the banners The Shoe Company and Shoe Warehouse and 27 under the DSW brand.
The company has identified 65 stores that could be closed in the U.S. when leases expire over the next four years. Twenty-four of the stores could be closed as soon as this year. It noted that the actual number of closures will depend on the landlords’ willingness to renegotiate lease terms and future demand.
Designer Brands is scheduled to open eight DSW stores in the U.S. this year. The investments had been agreed before the Covid-19 outbreak and the company managed to postpone the openings to 2021. In Canada, the company plans three closures and three openings. However, additional closures could be decided in Canada as leases come up for renewal.
The company expects demand for seasonal products to remain “depressed” and forecasts a 15 percent year-over-year decline in sandal sales in the spring. But, it added that demand for brands such as Birkenstock and Crocs remains high and it will have an “in-depth assortment” of those brands in the spring and summer.