Designer Brands, the American shoe retailing group previously called DSW, struggled in its third fiscal quarter ended on Nov. 2. Retail sales declined and same-store sales inched up by only 0.3 percent, compared with a gain of 7.3 percent for the year ago-quarter.
In reported terms, net income increased by 11.0 percent to $43.5 million, but adjusted net income – which excludes restructuring, impairments and other costs related to the integration of the Camuto Group and The Shoe Company, recently acquired – dropped by 16.1 percent to $48.6 million. The group's gross margin dropped by 3.7 percentage points to 28.9 percent, which the company attributed to the unfavorable weather and the mitigation of higher tariffs on imports from China.
The company pulled back on inventory receipts and reduced marketing investment in anticipation of weak consumer spending, while cutting prices to move products. As a result of lower advertising, store traffic was down, and inventory remained too low in key categories.
Also, the management said it faced internal issues regarding its newly upgraded POS system, as challenges related to its adoption resulted more discounting than expected for the company's promotional campaigns. Moving forward, Designer Brands hopes that the new system will help convert its consumers faster on the floor and improve efficiencies at the register.
Overall, revenues rose by 12.4 percent to $936.3 million, with a good performance by the new Brand Portfolio, which includes the recently acquired Camuto Group, which posted $130.5 million in revenues. No figures were released for the year-ago quarter. The management said it continues to see notable synergies between DSW and Camuto. The shift from a previous provider to Camuto is progressing ahead of plan, and exclusive branded products produced by Camuto will hit selling floors in the coming weeks. It is projecting nearly $500 million of retail sales in 2020 for Camuto products.
Revenues from the U.S. Retail segment, which consists of the Designer Shoe Warehouse (DSW) chain, went down by 0.7 percent to $716.8 million. Kids, boots and athleisure styles performed well. However, men's were down by 6.1 percent. At the end of the quarter, there were 521 DSW locations, two more than at the end of the year-ago period.
In the new Canada Retail segment, sales were down by 4.7 percent to $76.3 million, but comparable sales grew by 4.4 percent, driven by the DSW banner and digital demand. Revenues from other businesses dipped by 3.4 percent to $28.8 million.
The weaker-than-expected results led the company to lower its guidance, sending its share price down by 18 percent. The company said that the pressures on margins faced in the third quarter were continuing into the fourth. Revenues for the year are still expected to be up by a low-double-digit, but comparable store sales are now expected to be flat instead of going up by a low single-digit rate.