Footwear and accessories discount retailer Designer Brands (NYSE: DBI) missed Wall Street’s revenue expectations in Q4 CY2024, with sales falling 5.4% year on year to $713.6 million. Its GAAP loss of $0.80 per share was 66.7% below analysts’ consensus estimates.
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Designer Brands (DBI) Q4 CY2024 Highlights:
- Revenue: $713.6 million vs analyst estimates of $719.5 million (5.4% year-on-year decline, 0.8% miss)
- EPS (GAAP): -$0.80 vs analyst expectations of -$0.48 (66.7% miss)
- EPS (GAAP) guidance for the upcoming financial year 2025 is $0.40 at the midpoint, missing analyst estimates by 32.2%
- Operating Margin: -3.6%, up from -4.8% in the same quarter last year
- Locations: 669 at quarter end, up from 642 in the same quarter last year
- Same-Store Sales were flat year on year (-7.3% in the same quarter last year)
- Market Capitalization: $182.1 million
"Positive comparable sales in the fourth quarter reflect a return to growth for the first time in nine quarters, highlighting the success of our strategic initiatives throughout the year," stated Doug Howe, Chief Executive Officer.
Company Overview
Founded in 1969 as a shoe importer and distributor, Designer Brands (NYSE: DBI) is an American discount retailer focused on footwear and accessories.
Footwear Retailer
Footwear sales–like their apparel counterparts–are driven by seasons, trends, and innovation more so than absolute need and similarly face the bigger-picture secular trend of e-commerce penetration. Footwear plays a part in societal belonging, personal expression, and occasion, and retailers selling shoes recognize this. Therefore, they aim to balance selection, competitive prices, and the latest trends to attract consumers. Unlike their apparel counterparts, footwear retailers most sell popular third-party brands (as opposed to their own exclusive brands), which could mean less exclusivity of product but more nimbleness to pivot to what’s hot.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.
With $3.01 billion in revenue over the past 12 months, Designer Brands is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.
As you can see below, Designer Brands’s demand was weak over the last five years (we compare to 2019 to normalize for COVID-19 impacts). Its sales fell by 2.9% annually despite opening new stores. This implies its underperformance was driven by lower sales at existing, established locations.
This quarter, Designer Brands missed Wall Street’s estimates and reported a rather uninspiring 5.4% year-on-year revenue decline, generating $713.6 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 2.1% over the next 12 months. Although this projection suggests its newer products will fuel better top-line performance, it is still below average for the sector.
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Store Performance
Number of Stores
A retailer’s store count often determines how much revenue it can generate.
Designer Brands operated 669 locations in the latest quarter. It has opened new stores quickly over the last two years, averaging 2.4% annual growth, faster than the broader consumer retail sector.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.
Designer Brands’s demand has been shrinking over the last two years as its same-store sales have averaged 5.3% annual declines. This performance is concerning - it shows Designer Brands artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.
In the latest quarter, Designer Brands’s year on year same-store sales were flat. This performance was a well-appreciated turnaround from its historical levels, showing the business is improving.
Key Takeaways from Designer Brands’s Q4 Results
We were impressed by how significantly Designer Brands blew past analysts’ gross margin expectations this quarter. On the other hand, its full-year EPS guidance missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $3.81 immediately following the results.
So should you invest in Designer Brands right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
