8-K: Designer Brands Inc. Reports Mixed Q4 and Full Year 2023 Results, Issues 2024 Growth Guidance

Designer Brands Inc. reported a challenging 2023 with a slight decrease in net sales and a net loss for the fourth quarter, but anticipates a return to growth in 2024.

Summary

• Designer Brands Inc. announced its financial results for the fourth quarter and full year of 2023, ending February 3, 2024.
• The company experienced a 0.8% decrease in net sales for the fourth quarter, totaling $754.3 million, and a 7.3% decrease for the full year, reaching $3.1 billion.
• Comparable sales decreased by 7.3% in the fourth quarter and 9.0% for the full year.
• Gross profit for the fourth quarter was $207.4 million, with a gross margin of 27.5%, down from 29.2% the previous year.
• The company reported a net loss of $29.7 million, or $0.52 loss per diluted share, for the fourth quarter, and a net income of $29.1 million, or $0.46 earnings per diluted share, for the full year.
• Adjusted net loss for the fourth quarter was $25.3 million, or $0.44 loss per diluted share, and adjusted net income for the full year was $43.2 million, or $0.68 adjusted diluted EPS.
• Cash and cash equivalents totaled $49.2 million at the end of 2023, with $160.9 million available for borrowings.
• Debt totaled $427.1 million at the end of 2023, up from $281.0 million at the end of 2022.
• The company repurchased 9.7 million Class A common shares for $102.2 million in 2023.
• A dividend of $0.05 per share will be paid on April 12, 2024.
• For 2024, Designer Brands anticipates low-single-digit net sales growth and diluted EPS between $0.70 and $0.80.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company is projecting growth for 2024, the 2023 results were weak, with declining sales and a net loss in Q4. The company is facing significant headwinds, but management is taking steps to address them.

Positives

• The company's full-year 2023 EPS was at the high end of its guidance range.
• The brand portfolio segment showed strength due to the acquisition of Keds and Topo, and the launch of Le Tigre.
• The company repurchased 9.7 million Class A common shares at a cost of $102.2 million during 2023.
• Designer Brands anticipates a return to growth in 2024 with low-single-digit net sales growth.

Negatives

• Net sales decreased by 0.8% to $754.3 million in the fourth quarter and 7.3% to $3.1 billion for the full year.
• Total comparable sales decreased by 7.3% in the fourth quarter and 9.0% for the full year.
• The company reported a net loss of $29.7 million, or $0.52 loss per diluted share, for the fourth quarter.
• Gross profit decreased to $207.4 million in the fourth quarter, with a gross margin of 27.5%, down from 29.2% the previous year.
• Debt increased to $427.1 million at the end of 2023, up from $281.0 million at the end of 2022.
• Net cash provided by operating activities decreased to $162.4 million for 2023 compared to $201.4 million last year.

Risks

• The company faced a softening footwear market, a highly promotional retail environment, and the impact of unseasonably warm weather on seasonal footwear sales in 2023.
• The company's performance is subject to uncertain general economic conditions, including recession concerns, rising interest rates, and inflationary pressures.
• The company's ability to anticipate and respond to changing consumer preferences and fashion trends is a risk.
• There are risks related to the company's distribution systems, cybersecurity, and IT systems.
• The company's reliance on loyalty programs and marketing to drive traffic and sales is a risk.
• The company's international operations and reliance on foreign sources for merchandise pose risks.
• The company is subject to risks associated with climate change and other corporate responsibility issues.

Future Outlook

Designer Brands anticipates a return to growth in 2024, with low-single-digit net sales growth and diluted EPS between $0.70 and $0.80.

Management Comments

• We ended the year strong, with a solid finish to the fourth quarter above the top end of our revised EPS guidance range, led by strength in our brand portfolio segment as a result of acquiring Keds, Topo, and launching Le Tigre, stated Doug Howe, Chief Executive Officer.
• Despite the results, 2023 was a difficult year as we were impacted by a softening footwear market, highly promotional retail environment, and the impact of unseasonably warm weather on our seasonal footwear business.
• Looking ahead to 2024, we have an important transition year ahead as we plan to return to growth across our business.
• We are laser focused on assembling a fresher and more trend-right assortment for our customers, providing an increasingly convenient shopping experience across our channels and executing on operational improvements in our brands business bolstered by our new hires.
• We expect these initiatives will underpin improved financial performance throughout the year, and combined with disciplined cost savings, will lead to continued strong cash flow generation.

Industry Context

The results reflect the challenges faced by the retail industry, particularly in the footwear sector, due to economic pressures, promotional activities, and weather-related impacts. The company's focus on its brand portfolio and operational improvements aligns with industry trends towards diversification and efficiency.

Comparison to Industry Standards

• Designer Brands' comparable sales decline of 9.0% for the full year is worse than some competitors, such as Nike, who have reported flat or slightly positive growth in some quarters.
• However, the company's focus on its brand portfolio, similar to VF Corporation's brand-focused strategy, could lead to improved performance in the future.
• The company's gross margin of 31.7% is lower than some luxury footwear brands but is comparable to other mid-tier retailers.
• The company's debt level of $427.1 million is higher than some of its peers, which could be a concern if the company does not return to growth as expected.
• The company's share repurchase program is a common practice among public companies, but the effectiveness of this program depends on the company's future performance.

Stakeholder Impact

• Shareholders will be impacted by the mixed financial results and the dividend payment.
• Employees may be affected by the company's restructuring and cost-saving initiatives.
• Customers will be impacted by the company's efforts to provide a fresher and more trend-right assortment.
• Suppliers and vendors may be impacted by the company's focus on operational improvements and cost savings.
• Creditors will be impacted by the company's debt levels and cash flow.

Next Steps

• The company plans to focus on assembling a fresher and more trend-right assortment for customers.
• The company will provide an increasingly convenient shopping experience across all channels.
• The company will execute on operational improvements in its brands business.
• The company will continue to implement disciplined cost savings measures.
• The company will add e-commerce sales for Topo, Keds, and Hush Puppies to the comparable base for the Brand Portfolio segment in 2024.

Key Dates

Keywords

footwear, retail, sales, earnings, EPS, comparable sales, Designer Brands, Keds, Topo, Le Tigre, brand portfolio, financial results