Designer Brands Withdraws Guidance After Dramatic Miss

Here's a former "Stocks Under $10" holding that we're sure glad that we got rid of (profitably, I might add) back in the day.

Designer Brands DBI, the once-promising shoe (and other accessories) chain, reported the firm's fiscal first quarter earnings on Tuesday morning. The numbers, my friends, are ugly with a capital "U."

For the three-month period ended May 3, Designer Brands posted an adjusted EPS of -$0.26 (GAAP EPS: -$0.36) on revenue of $686.909 million. While that top-line number was "good" for a year-over-year contraction of 8%, that number and the adjusted bottom-line number both fell horrifically short of Wall Street's expectations. Wall Street had seen the quarter at an adjusted EPS of -$0.06 on revenue of about $733 million. Total comp sales decreased by 7.8%.

Operations

As revenue contracted 8% to $686.909 million, the cost of those sales decreased 6% to $391.783 million. This left a gross profit of $295.126 million (-10.6%). as gross margin dropped from 44.2% to 43%. As normal operating expenses decreased 6.7% to $301.862 million and the firm took impairment charges of $2.953 million, operating income/losses came to -$7.262 million, down from the year-ago comp of $9.382 million.

After accounting for interest, other income and expenses, and taxes, net income/losses attributable to shareholders, printed at -$17.424 million down from $783,000 for the year-ago period. This works out to a GAAP EPS of -$0.36 versus $0.01 a year ago. Not good. Once adjusted net income/losses came to -$12.508 million, down from $4.809 million and EPS printed at -$0.26, down from $0.08.

Segment Performance

U.S. Retail: generated sales of $573.24 million (-7.7%), with comp sales at -7.3%. This produced a gross profit of $242.796 million (-11.5%). Finally, this left an operating profit of $39.608 million (-38.3%).
Canadian Retail generated sales of $53.95 million (-2.9%), with comp sales at -9.2%. This produced a gross profit of $25.404 million (-3.7%). Finally, this left an operating profit of $365,000 (-88.5%). Yes, that's in the thousands.
Brand Portfolio (DTC): generated sales of $95.898 million (-7.9%), with comp sales at -27%. This produced a gross profit of $26.671 million (-20.3%). Finally, this left an operating profit of $2.591 million (32.5%). Yes, that's a plus positive growth.
Corporate losses plus eliminations reduced total operating profit by $49.826 million.

The Balance Sheet

DBI ended the quarter with a cash position of $46.0125 million and inventories of $623.584 million. This left current assets at $773.743 million. Current liabilities add up to $607.915 million, of which just $6.75 million is in maturing debt. That puts the firm's current ratio at 1.27, which would pass muster. That is if the inventories are valued at their listed values, which is questionable. We don't like to do quick ratios for retailers as the business is necessarily inventory heavy, but if we did produce a quick ratio for Designer Brands, it would be just 0.25, which is kind of awful.

Total assets amount to $2.092 billion including $215.776 million in goodwill and other intangibles. At about 10% of total assets, that's not a problem. Total liabilities less equity comes to $1.821 billion including $516.192 billion in long-term debt. Not this year, but that's likely to eventually be a problem. That long-term debt is up $46.8 million just over the past year, which is more than the firm's cash position. The firm does have access to a $125.5 million asset backed revolving credit facility, but once you go there, it can sometimes be said that the fat lady starts warming up her vocal cords.

Speaking of a Sad Song...

CEO Doug Howe commented in the press release, "We experienced a soft start to 2025 amid an unpredictable macro environment and deteriorating consumer sentiment. We have shifted our near-term focus to amplifying value in our retail channels, preserving margins, controlling costs, and mitigating the impact of tariffs as part of our response to this volatility. Thanks to our team's focus and discipline, we expect to deliver between $20 million to $30 million in cost savings over the course of 2025."

However...

Howe went on: "Given the persistent instability and pressure on consumer discretionary spend, we've made the decision to withdraw our 2025 guidance for the time being. Moving forward, our efforts remain focused on disciplined execution of the initiatives within our control to build a business rooted in the strength of our brand, centered on the customer, and positioned for long-term value creation."

Oh boy.

The Chart

Readers will see that DBI just broke down from a rising wedge pattern of bearish reversal. Relative strength is falling rapidly. The daily MACD is set up bearishly as well with the histogram of the nine-day EMA in negative territory and the 12-day EMA having crossed below the 26-day EMA.

Buy the dip for an investment? Not a chance. Buy the dip for a trade? Maybe a rough 57% of the entire float is held in short positions so this is a short-squeeze candidate. That said, I don't think I even consider biting until that April low of $2.44 comes under fire.

At the time of publication, Guilfoyle had no positions in any securities mentioned.