Designer Brands’ Earnings Call: Challenges and Growth

Designer Brands ((DBI)) has held its Q1 earnings call. Read on for the main highlights of the call.

Designer Brands Faces Challenges Amid Sales Decline but Sees Growth in Key Areas

The recent earnings call for Designer Brands revealed a challenging quarter marked by significant sales declines and macroeconomic pressures, including tariffs and weakened consumer sentiment. Despite these hurdles, the company has made strides in cost reduction and strategic brand growth, particularly with the Topo brand. While positive steps have been taken to mitigate risks, the overall outlook remains cautious amid ongoing uncertainties.

Cost Reduction Achievements

Designer Brands has successfully implemented expense cuts, leading to a 6% reduction in operating expenses for the quarter. The company projects savings of $20 million to $30 million over the course of 2025, showcasing its commitment to financial efficiency amid challenging market conditions.

Topo Brand Growth

The Topo brand has continued its impressive growth trajectory, with an 84% year-over-year increase in sales. This reinforces Topo’s momentum as an emerging growth brand within Designer Brands’ portfolio, highlighting a bright spot in an otherwise challenging quarter.

Operating Income Growth in Brand Portfolio

Despite a decline in total sales, Designer Brands’ Brand Portfolio segment achieved over 30% growth in operating income. This success is attributed to a focus on operational efficiencies, demonstrating the company’s ability to drive profitability even in a tough economic environment.

Strategic Diversification Efforts

To mitigate the impacts of tariffs, Designer Brands has accelerated its sourcing diversification efforts, aiming to reduce reliance on China to less than half by the end of the year. This strategic move is intended to buffer the company against future tariff-related challenges.

Overall Sales Decline

The first quarter saw an 8% decline in comparable sales, with U.S. Retail and Canadian segments experiencing declines of 7.3% and 9.2%, respectively. This reflects the broader challenges faced by the company in the current economic climate.

Withdrawn 2025 Guidance

Due to the highly volatile environment, Designer Brands has decided to withdraw its forward-looking guidance for 2025. This decision underscores the uncertainties that the company faces in planning for the future.

Impact of Tariffs and Macroeconomic Uncertainty

Tariffs have emerged as a substantial cost for Designer Brands, alongside macroeconomic uncertainty affecting consumer sentiment and planning visibility. These factors have contributed to the cautious outlook expressed during the earnings call.

Decreased Gross Margin

The company’s consolidated gross margin decreased by nearly 120 basis points due to increased markdowns and weaker traffic. This decline highlights the pressures on profitability that Designer Brands is currently navigating.

Forward-Looking Guidance

During the earnings call, Designer Brands reported several key metrics and strategies. Comparable sales declined by 8% in the first quarter, with U.S. Retail comps down 7.3% and Canadian comps down 9.2%. Total net sales were $687 million, an 8% decrease from the previous year. Despite these challenges, the Brand Portfolio segment achieved over 30% growth in operating income due to a 23% reduction in operating expenses, although sales were down 7.9%. The Topo brand showed strong performance with an 84% sales increase. Cost-cutting measures are projected to yield $20 million to $30 million in savings for 2025. Due to the volatile macroeconomic environment, Designer Brands withdrew its forward-looking guidance.

In summary, Designer Brands is navigating a challenging economic landscape with significant sales declines and macroeconomic pressures. However, the company is making notable progress in cost reduction and strategic brand growth, particularly with the Topo brand. While positive steps have been taken to mitigate risks, the overall outlook remains cautious amid ongoing uncertainties.