Designer Brands continues to withhold guidance as Q2 sales, profits decline

Dive Brief:

Designer Brands on Tuesday emphasized sequential gains in a Q2 report stacked with year-on-year declines. Comparable sales improved by 280 basis points from Q1, and CEO Doug Howe noted “gradual improvements in traffic and a notable uptick in conversion.”
But compared to last year, net sales fell 4.2% to $739.8 million and comps fell 5%. U.S. retail sales (over 80% of net retail sales) fell nearly 5%, with U.S. retail comps also down about 5%. 
Gross margin contracted slightly to 43.7% from 44% last year, and net income declined nearly 20% to $11.3 million.

Dive Insight:

Back-to-school shopping is important to any footwear retailer, and this year Designer Brands sought to draw people in with a series of improvements, particularly in stores.

“We have been leaning more overtly into our back-to-school marketing to reinforce our position as a true destination, and see this resonating as we continue to see positive momentum in August with further sequential improvement,” Howe told analysts Tuesday morning.

Consumers haven’t done a lot of shopping for the season, but, in general, when they did go out, they spent during each visit, according to research from RetailNext. The season made all the difference for the footwear category: From early July through early August, shoe-shopping traffic soared 13% above June’s average and 11% above late August.

Designer Brands executives are encouraged by early results from the retailer’s new marketing campaign, “Let Us Surprise You,” which is centered in stores, where 70% of its customers shop. Average clearance markdowns are trending lower. 

“But it’s very early days,” Howe said of the campaign.

The company has worked to improve store availability of more brand-name styles across sizes. In Q2 compared to last year, DSW fulfilled over 80% more of its online orders through its logistics center, which has protected store inventory and has been more cost effective. Customers report that when they leave without buying anything, it’s usually because they can’t find their size.

“This goes squarely at that, with regard to making sure that we have the style she wants in the size she wants when she comes into the store,” Howe said.

The company, which pulled its guidance last quarter, decided to maintain that, “given the ongoing volatility with the recent tariff increases extended and the continued consumer caution around discretionary spending,” he also said.