EXEC: DSW benefits from narrower and deeper purchases
Designer Brands, Inc. said sales at its flagship DSW chain continued to benefit from a “closer and deeper” buying approach that focuses on the chain’s top 50 brands. CEO Roger Rawlins also told analysts that other brands are stepping in to make up for Nike’s loss in athletic categories.
As noted, Nike stopped selling to DSW last fall as part of its effort to consolidate wholesale accounts to focus on direct-to-consumer (DTC) sales.
“Despite the largest national brand eliminating us from their distribution, we grew our sports business by 26% through 2019 in the first quarter and increased our market share in the space, supporting our belief that we are a point leading distribution channel for the consumer, strengthening our ability to protect our market share when a brand chooses to compete with us rather than partner with us,” Rawlins said in a call with analysts. “We would like to thank the leaders of our sports brand partners and are confident that our success with them will allow us to continue to grow our market share in this space.”
Overall sports penetration rose from 18% in the first quarter of 2019 to 27% in 2021, as DSW invested in athletic styles to meet the broader push towards casual wear. Rawlins said that, as expected, growth in the athletic categories moderated as consumers returned to purchase DSW’s core fashion footwear categories with the social restrictions associated with the easing of the pandemic.
He said sports levels in the first quarter “still continue to remain healthy at 21% in 2022” and remain above 2019 levels. Investments have been made in other sports brands to compensate for the loss of product. Nike.
Rawlins said: “Our team has done an outstanding job, leveraging Adidas, Brooks, New Balance, Reebok, Asics, Skechers and other national brands to fill the void created by these releases in our assortment. In fact, compared to 2019, DSW grew its athletic and lifestyle footwear sales three times faster than the remaining market for the first quarter.
Sales jump 18% in the first quarter
Company-wide, Designer Brands reported better-than-expected first-quarter earnings as a continued recovery in fashion footwear purchases boosted sales at the DSW chain and its own brands, led by Vince Camuto, experienced a significant rebound.
In the quarter ended April 30, sales rose 18.1% to $830.5 million, beating Wall Street’s consensus target of $815.4 million. Comparable sales increased 15.3% on top of last year’s 52.2% increase.
Net sales of its own brands, which also include Jessica Simpson shoes, shoe and handbag licenses for Lucky Brand and Max Studio, jumped 68% in the quarter, with growth in both DTC , which includes DSW and vincecamuto.com and wholesale revenue. Own brands represented 25% of sales for the quarter compared to 18% last year.
For U.S. retail, which primarily consists of the DSW chain, comps rose 13.6% in the quarter, compared to 56.3% last year. In-store traffic increased 22%, continuing a resurgence seen in recent quarters. DSW.com comps rose 19.7%, well above the 6.8% growth of the previous year.
Earnings in Canada, which includes the DSW, Shoe Company and Shoe Warehouse locations in Canada, climbed 41.4% from 10% a year earlier. Designer Brand officials noted that Canada started the pandemic recovery later in 2021 than the United States.
Among categories outside of sports, gains across the business were led by sales of women’s and men’s apparel, up 102% and 97% respectively. In the seasonal category, women’s sandals increased by 21%.
“After almost two years of consumer focus on athletic, comfortable and comfortable products, we are seeing our customers come back into fashion, especially with all of the events like weddings that have been postponed until this year,” Rawlins said. .
He noted that studies show one in three Americans are expected to attend a wedding this year and that the fashion revival has paid off for DSW. He cited data from the NPD Group which showed that DSW grew its fashion shoe sales four times faster than the market, and that DSW’s dollar growth exceeded the total dollar growth of the shoe market by 15 percentage points for the first quarter.
According to Rawlins, “Our flexible business model continues to allow us to quickly rotate our assortment to match the trends we see, in our historical leadership and the fashion makes us a top choice for consumers shopping for fashion footwear. . We gained significant market share in the first quarter.
Gross margins improve by 250 basis points
Gross profit for the quarter increased 27.6% to $275.7 million from $216.1 million last year. Gross margins improved to 33.2% from 30.7% last year, driven by strong full-price sales coupled with a mix shift towards fashion, which has historically recorded some of the highest margin rates. higher than DSW. A strong year-over-year margin rate improvement has been observed since the second quarter of 2021.
Reported net income was $26.2 million, or 34 cents per share, including charges of 14 cents per share from adjusted items, primarily related to the loss on extinguishment of debt and the cancellation of debt issuance costs. A year ago, profits were $17 million, or 22 cents.
On an adjusted basis, net income more than tripled to $36.7 million, or 48 cents, from $9.5 million, or 12 cents, a year ago. The results easily beat Wall Street’s consensus estimate of 24 cents.
Total inventory at the end of the quarter was $672.5 million compared to $540.1 million for the same period last year.
Narrower, deeper focus pays off for DSW
Rawlins highlighted the growth benefits DSW derives from its “narrower, deeper” approach to brand assortments. Sales of its top 50 footwear brands in its U.S. retail segment accounted for 77% of total sales in the first quarter, compared to 57% in 2019.
“Our narrower, deeper assortment strategy continues to work,” Rawlins said. “In the spring, the number of SKUs in all stores increased by 16% compared to last year. In addition, the depth of our key elements has also increased by 27% compared to last year. This contributes to the improvement of our sales and our margins.
The closer brand partnerships are supporting the opening of in-store stores within DSW that are getting a strong response from customers.
A New Balance shop-in-shop that ran from March 6 to April 30 saw a 10% increase in demand, both transactions and average dollar sales, resulting in a strong overall performance . Other flagship brands in the quarter included an Adidas children’s shoe store, a Crocs hanging wall and a Puma shop-in-shop. For the rest of the year, stores are planned for Reebok, Teva, Asics and Skechers. Designer Brands’ new prototype, Warehouse Reimagined Store, which plays on in-store stores, opened in Houston on May 7 to an encouraging response.
Rawlins also spoke of the success of innovative partnerships, including one with Wolverine Worldwide to sell Hush Puppies exclusively at DSW. He said: “We take the friction out of Wolverine by accepting Hush Puppies direct to consumer returns at DSW outlets, while we enjoy guaranteed, exclusive access to our store’s inventory. And we receive excellent feedback from our customers, we are convinced that this partnership has a bright future ahead of it.
Another new partnership is with Authentic Brands Group (ABG) to secure guaranteed quantities of Reebok products.
“We have access to many more Reebok product styles and colors than before, as well as a new cost structure that provides favorable margins compared to our historical margins when we purchased the product in bulk,” said Rawlins. “The initial agreement covers five years, and we are very pleased to be able to add guaranteed access to such a well-known sports brand. Our customers are already fans of the brand, with demand for Reebok increasing by 33% in the first quarter.”
Rawlins said Designer Brands’ own brands continue to be seen as a key driver of growth with previously announced plans to double those brands’ sales by 2026 while maintaining national brand sales. The Vince Camuto brand relaunched to a strong response with revenue 80% higher in the quarter compared to the prior year period, driven by substantial growth in both its DTC and wholesale .
Finally, Rawlins noted that Designer Brands purchased the digital domain name, shoes.com, and its associated intellectual property and sees the website as a way “to reach new customers, to partner differently with national brands and to potentially provide new distribution channels for our own brands.
For the full year, Designer Brands now expects EPS of between $1.90 and $2.00 per share, up from previous guidance of between $1.80 and $1.90 due to first quarter outperformance. Same-store growth is now expected to be mid-single digit, down from previous guidance calling for a high number.
Jared Poff, chief financial officer, said the lower sales outlook reflects moderation in sports products as well as digital traffic that the company believes the industry views as a whole. The forecast also takes into account broader industry headwinds, including pressures on freight, labor and supply chain costs. Says Poff. “If we see some of these industry headwinds starting to subside, like freight starting to normalize, athletics returning to healthy growth, or digital traffic returning to positive comps, there could be benefits to this increase in forecasts.”
Photo courtesy of DSW