Designer Brands Inc. (DBI) experienced a significant decline in its stock price, plummeting 21.1% to $4.57 in premarket trading on Tuesday. This sharp downturn follows the release of the company’s third-quarter earnings report, which showed weaker-than-expected results, prompting a downward revision of the company’s full-year outlook.
Disappointing Earnings and Sales Miss Expectations
In its third-quarter report, Designer Brands posted adjusted earnings per share (EPS) of $0.27, falling short of analyst estimates of $0.35. Additionally, net sales for the quarter totaled $777.2 million, a decline of 1.2% compared to the previous year, missing the consensus estimate of $802.14 million. The company also reported a 3.1% decline in comparable sales.
CEO Doug Howe attributed the disappointing results to a challenging transition into the fall season. Unseasonably warm weather and continued macroeconomic uncertainty were cited as key factors negatively impacting consumer discretionary spending, especially within the company’s seasonal product categories.
Declining Gross Profit and Margin Pressure
Further analysis of the Q3 report revealed a decline in gross profit to $247.4 million, down from $256.4 million during the same period last year. This resulted in a contraction of the gross margin to 31.8%, compared to 32.6% in the previous year.
Despite these challenges, Designer Brands continued its share repurchase program, buying back 7.7 million Class A common shares for $50.6 million during the quarter. As of November 2, $19.7 million remains available for additional repurchases. The company also declared a dividend of $0.05 per share, payable on December 20th to shareholders of record on December 6th.
Financial Position: Cash Decrease and Increased Debt
Designer Brands’ financial position shows a decline in cash and equivalents to $36.2 million at the end of Q3, compared to $54.6 million at the same time last year. Debt remains high at $536.3 million, while inventories increased to $637.0 million, up from $601.5 million in the prior year. This inventory buildup may indicate challenges in managing seasonal stock amidst unpredictable weather patterns.
Revised Full-Year Guidance and Lowered Expectations
Looking ahead, Designer Brands has lowered its full-year guidance. The company now expects net sales growth to decline in the low single digits for fiscal year 2024, down from the previous projection of flat to low single-digit growth. The adjusted diluted EPS forecast has been significantly reduced to a range of $0.10 to $0.30, down from an earlier estimate of $0.50 to $0.60.
Stock Decline Reflects Investor Concerns
The significant drop in DBI’s stock price underscores investor concerns about the company’s ability to manage macroeconomic challenges and meet future expectations. The combination of unseasonably warm weather and broader economic headwinds has clearly impacted Designer Brands’ performance and outlook for the remainder of fiscal year 2024.
