Nike has decided to stop supplying Designer Brands as the U.S. footwear company, largely known for its DSW banner, builds up its direct-to-consumer strategy while increasing its exposure to athletic shoes. Nike is engaged in a policy of eliminating many “undifferentiated” wholesale accounts.

Nike, which is Designer Brands main vendor of athletic shoes, informed the company that it will not be taking orders from DSW or its Canadian operations as of September. ”We will continue to offer their products in our stores and online through the remainder of this year,” pointed out CEO Roger Rawlins in a conference call.

He stressed that Nike represented less than 5 percent of Designer Brands sales in 2019, but grew to just over 7 percent in 2020, as sales for dress and seasonal footwear dropped significantly during the pandemic. He added that following Nike’s decision the company has spoken with the ”leaders of every single major athleisure brand that we work with” and that the ”conversations have been very positive. They see this news as an opportunity for growth and we couldn’t be more excited about the work ahead with these brands.”

Rawlins noted that the company remains ”heavily focused” on the top 50 brands in footwear, which represented 78 percent of its sales at the end of the fiscal first quarter. Designer Brands is also focusing more on it own brands. Thanks to the control of the supply chain, the company can move owned brands faster through its DSW stores when demand increases as well as controling pricing, he explained. ”These brands are performing strongly. And 15, yes, 15 of our top 25 selling items in the first quarter were items designed and sourced vertically by Designer Brands,” he added.

Back to profit

In the first quarter ended May 1, Designer Brands swung back to profitability for the first time since the onset of the Covid-19 pandemic. Results exceeded financial analysts’ expectations and were driven by a surge in same-store sales and especially a sharp increase in athleisure comparable sales in the domestic retail segment. 

Net sales rose by 45.6 percent year-over-year to $703.2 million in the three months ended May 1, while comparable sales increased by 52.2 percent compared with a 42.3 percent drop in the same period last year.

In the U.S., where retail sales grew by 64.6 percent to $620.7 million, comparable sales were up by 56.3 percent. In the country, comparable sales were up by 87 percent year-over-year for athletic shoes, up by 78 percent for children’s footwear, down by 10 percent for the dress category and up by 56 percent for seasonal footwear. The company also pointed out that U.S. digital sales were up by 18 percent for athletic, up by 8 percent for kids, down by 24 percent for dress and up by 6 percent for seasonal.

In Canada, retail sales grew by 38.4 percent to $40.6 million, with comparable sales up by 10.0 percent.

Gross profit rose to $216.1 million from a loss of $26.5 million last year, while the gross margin was 30.7 percent as compared to a negative 5.5 percent last year and 29.7 percent for the first quarter of fiscal 2019. 

Reported net income in the first quarter stood at $17.0 million, or $0.22 per diluted share, including net benefits of $0.10 per diluted share from adjusted items - primarily the change in the valuation allowance on deferred tax assets. Adjusted net income was $9.5 million, or $0.12 per diluted share. 

Rawlins said that the company “is off to a strong start in fiscal 2021, highlighted by our return to profitability for the first time since the onset of Covid-19.”

He added that the company’s performance was ”driven by green shoots in areas of the business that had been previously affected by the pandemic, synergies from our vertical capabilities coming to life, which allowed us to capitalize on positive trends faster than ever before, and our assortment strategy focused on athleisure, kids and seasonal products.” 

While historically underexposed to the athleisure segment, the company has recently increased its assortment of athletic and children’s footwear.

“We remain focused on leveraging the flexibility of our business model, pivoting our assortment to athleisure to better match the purchasing habits of our customers, enhancing our digital capabilities, and strategically managing costs. Looking forward, we are optimistic that the positive trends will continue as the market recovers”, Rawlins said. 

During the first quarter of fiscal 2021, Designer Brands opened two stores and closed five in the U.S., resulting in a total of 516 U.S. stores. In Canada, it opened two stores and closed one, resulting in a total of 145 Canadian stores.   

The company operates the DSW Designer Shoe Warehouse, The Shoe Company and Shoe Warehouse banners. It also designs and produces footwear and accessories through Camuto Group, a leading manufacturer selling in more than 5,400 stores worldwide. Camuto Group owns licensing rights for the Jessica Simpson footwear business and footwear and handbag licenses for Lucky Brand. In partnership with a joint venture with Authentic Brands Group, it also owns a stake in Vince Camuto, Louise et Cie, and other brands.