Designer Brands Inc. (NYSE: DBI) shares are experiencing a decline in trading on Tuesday morning following the release of the company’s worse-than-expected financial results for the third quarter of 2023. Additionally, the company has lowered its adjusted earnings per share (EPS) guidance for the full fiscal year of 2023.
In the third quarter, Designer Brands reported a 9.1% year-on-year decline in sales, amounting to $786.33 million. This figure fell short of the analyst consensus of $829.18 million. The company’s adjusted EPS of $0.24 also missed the analyst consensus of $0.48. Furthermore, total comparable sales decreased by 9.3%.
CEO Doug Howe attributed the disappointing results to a footwear market that contracted for the first time since the pandemic, coupled with unseasonably warm weather. These factors significantly reduced customer demand for shoes and put pressure on the company’s heavily seasonal assortment.
The company’s quarterly gross profit decreased to $256.4 million from $285.8 million in the previous year, resulting in a gross margin of 32.6%, down from 33.0% in the same period last year. At the end of the third quarter, Designer Brands had cash and equivalents totaling $54.6 million and debt totaling $375.5 million. The company also ended the quarter with inventories of $601.5 million, compared to $681.8 million in the same period last year.
During the third quarter of 2023, Designer Brands opened one store in the U.S. and six stores in Canada, bringing its total store count to 499 in the U.S. and 144 in Canada as of October 28, 2023. Additionally, the company had $87.7 million of Class A common shares available for repurchase under its share repurchase program.
Designer Brands will be paying a dividend of $0.05 per share of Class A and Class B common shares on December 14, 2023, to shareholders of record as of November 30, 2023.
The company also made mention of some difficult decisions regarding leadership across its organization, although no specific details were provided.
Looking ahead, Designer Brands has lowered its adjusted EPS guidance for the full fiscal year of 2023, excluding Keds, to a range of $0.40 to $0.70. This is lower than the previous consensus estimate of $1.30 and the previous guidance range of $1.20 to $1.50. The company now expects incremental net sales from the Keds acquisition to be $60.0 million to $70.0 million, down from the previous outlook of $75.0 million to $85.0 million. Additionally, net sales growth, excluding Keds, is anticipated to be down high-single digits, compared to the previous forecast of down mid- to high-single digits.
In premarket trading on Tuesday, DBI shares were down by 34.4% to $8.40.
Overall, Designer Brands Inc. is facing challenges due to a contracting footwear market and unseasonable weather conditions. The company’s financial results for the third quarter of 2023 fell below expectations, leading to a decline in its stock price. With the lowered guidance for adjusted EPS and net sales, Designer Brands will need to navigate these difficulties to regain investor confidence and drive future growth.
