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Designer Brands Inc. Reports First Quarter 2019 Financial Results

- First quarter revenue increased 23.4% to $878.5 million; comparable sales increased 3.0%.

- First quarter Reported EPS of $0.40 per diluted share, including net charges of $0.03 per diluted share from adjusted items.

- First quarter Adjusted EPS of $0.43 per diluted share.

- Raised fiscal 2019 guidance for Adjusted EPS to the range of $1.87 to $1.97 per diluted share.

- Acquired businesses performed above expectations. The Canada Retail segment had positive operating profit and the Brand Portfolio segment delivered $90.7 million in sales to external customers; and is on track to assume private label sourcing for the U.S. Retail segment at year end.

- Repurchased 3.4 million shares in the first quarter of fiscal 2019 and 5.4 million have been repurchased since the first quarter of fiscal 2018.

- Board of Directors declared quarterly dividend of $0.25 per share.

COLUMBUS, Ohio, May 30, 2019 /PRNewswire/ -- Designer Brands Inc. (NYSE: DBI), one of North America's largest designers, producers and retailers of footwear and accessories, announced financial results for the three months ended May 4, 2019, compared to the three months ended May 5, 2018.

Chief Executive Officer, Roger Rawlins stated, "We had a strong start to the year, delivering double-digit increases in both revenue and earnings as we start to demonstrate the power of an integrated global Designer Brands Inc. The quarter saw strength across the board - with growth in key operating metrics, segments, and geographies. In fact, our DSW banner, the Shoe Company banner and Camuto Group all performed at or above our expectations, with the U.S. Retail and ABG segments delivering positive comparable sales. Under Designer Brands' leadership, our Canada business turned a first-quarter profit for the first time in its past five years and we are ahead of schedule in integrating the newly acquired Camuto Group. The infrastructure we have created combined with the talent of our teams have elevated our operating model giving us the platform to accelerate market share growth in North America. We expect to build upon our progress throughout the year and remain excited about our business and increased ability to generate long term value for our DBI shareholders."

First Quarter Operating Results

  • Total revenue increased by 23.4% to $878.5 million, including $51.8 million from the consolidation of the Canada Retail segment and $94.0 million from the Brand Portfolio segment.
  • Comparable sales increased 3.0% for first quarter of fiscal 2019 following a 2.2% increase in the first quarter of fiscal 2018.
  • Reported gross profit, as a percent of sales, increased by 50 bps due to margin expansion in the U.S. Retail segment and the impact of the exit of Ebuys during the previous year, partially offset by lower margins from the wholesale business of the Brand Portfolio segment.
  • Reported operating expenses, as a percent of revenue, increased by 180 bps, driven by the impact of the acquired businesses.
  • Reported net income was $31.2 million, or $0.40 per diluted share, including pre-tax charges totaling $3.2 million, or $0.03 per diluted share, from integration and restructuring expenses, amortization of intangible assets and foreign currency transaction losses.
  • Adjusted net income was $33.6 million, or $0.43 per diluted share, a 10.3% increase from the first quarter of fiscal 2018.

Balance Sheet Highlights

  • Cash and investments totaled $121.9 million compared to $268.9 million at the end of the first quarter last year, and debt totaled $235.0 million compared to no debt outstanding at the end of the first quarter last year, reflecting the funding of the two acquisitions in fiscal 2018 and share repurchase activity.
  • The Company ended the quarter with inventories of $642.0 million compared to $539.7 million last year. Excluding inventories from the acquisitions, inventories per square foot decreased 3.6% year over year.
  • For the first quarter of fiscal 2019, the Company repurchased 3.4 million shares for a total of $75.0 million with $401.6 million remaining under its share repurchase program.

Regular Dividend

The Company's Board of Directors declared a quarterly cash dividend of $0.25 per share. The dividend will be paid on July 5, 2019 to shareholders of record at the close of business on June 19, 2019.

Fiscal 2019 Annual Outlook

The Company raised its full year outlook for Adjusted EPS in the range of $1.87 to $1.97 per diluted share, compared to its previous range of $1.80 to $1.90 per diluted share.

Comparison of Current to Previous Outlook



Current outlook


Previous outlook

Revenue outlook

Low double-digit growth


Low double-digit growth

Comparable sales growth

Low single-digit growth


Low single-digit growth

Tax rate

27%


27%

Shares outstanding

77 million


81 million

Webcast and Conference Call

The Company is hosting a conference call today at 8:30 am Eastern Time. Investors and analysts interested in participating in the call are invited to dial 888-317-6003, or the international dial in, 412-317-6061, and reference conference ID number 6798297 approximately ten minutes prior to the start of the call. The conference call will also be broadcast live over the internet and can be accessed through the following link: https://www.webcaster4.com/Webcast/Page/1213/30546.  For those unable to listen to the live webcast, an archived version will be available at the same location until July 11, 2019.

About Designer Brands

Designer Brands is one of North America's largest designers, producers and retailers of footwear and accessories. The Company operates a portfolio of retail concepts in nearly 1,000 locations under the DSW Designer Shoe Warehouse®, The Shoe Company®, and Shoe Warehouse® banners and services footwear departments in the U.S. through its Affiliated Business Group. Designer Brands designs and produces footwear and accessories through Camuto Group, a leading manufacturer selling in more than 5,400 doors worldwide. Camuto Group owns licensing rights for the Jessica Simpson® footwear business, and footwear and handbag licenses for Lucky Brand® and Max Studio®. In partnership with a joint venture with Authentic Brands Group, Designer Brands also owns a stake in Vince Camuto®, Louise et Cie®, Sole Society®, CC Corso Como®, Enzo Angiolini® and others. More information can be found at www.designerbrands.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Any statements in this release that are not historical facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company's current expectations and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to: our success in growing our store base and digital demand; related to our acquisitions of Camuto Group and TSL, our ability to successfully integrate our businesses or realize the anticipated benefits of the acquisitions after we complete our integration efforts; our ability to protect our reputation and to maintain the brands we license; maintaining strong relationships with our vendors, manufacturers and wholesale customers; our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations; risks related to the loss or disruption of our distribution and/or fulfillment operations; continuation of agreements with and our reliance on the financial condition of Stein Mart; our ability to execute our strategies; fluctuation of our comparable sales and quarterly financial performance; risks related to the loss or disruption of our information systems and data; our ability to prevent or mitigate breaches of our information security and the compromise of sensitive and confidential data; failure to retain our key executives or attract qualified new personnel; our reliance on our loyalty programs and marketing to drive traffic, sales and customer loyalty; risks related to leases of our properties; our competitiveness with respect to style, price, brand availability and customer service; our reliance on foreign sources for merchandise and risks inherent to international trade, including escalating trade tensions between the U.S. and other countries, as well as U.S. laws affecting the importation of goods, such as recent tariffs imposed on Chinese goods imported to the U.S.; uncertainty related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation; uncertain general economic conditions; risks related to holdings of cash and investments and access to liquidity; and fluctuations in foreign currency exchange rates. Additional factors that could cause our actual results to differ materially from our expectations are described in the Company's latest annual report, as filed with the Securities and Exchange Commission. All forward-looking statements speak only as of the time when made. The Company undertakes no obligation to revise the forward-looking statements included in this press release to reflect any future events or circumstances.

DESIGNER BRANDS INC.

SEGMENT RESULTS

(unaudited)


Net Sales by Segment


Three months ended


Change

(dollars in thousands)

May 4, 2019


May 5, 2018


Amount


%


Comparable Sales %

Segment net sales:










U.S. Retail

$

691,840



$

669,784



$

22,056



3.3

%


3.0%

Canada Retail

51,816





51,816



NM



NA

Brand Portfolio

100,867





100,867



NM



NA

Other

35,607



40,653



(5,046)



(12.4)

%


3.2%


880,130



710,437



169,693



23.9

%



Elimination of intersegment net sales

(10,138)





(10,138)



NM




Consolidated net sales

$

869,992



$

710,437



$

159,555



22.5

%


3.0%


NM - Not meaningful


NA - Not applicable

 

Store Data


May 4, 2019


May 5, 2018

(square footage in thousands)

Number of
Stores


Square
Footage


Number of
Stores


Square
Footage

U.S. Retail segment - DSW Designer Shoe Warehouse

520



10,591



517



10,566


Canada Retail segment:








The Shoe Company / Shoe Warehouse

113



617






DSW Designer Shoe Warehouse

27



534







140



1,151






Total operating stores

660



11,742



517



10,566


ABG stores serviced

284





289




 

Gross Profit by Segment(1)


Three months ended




May 4, 2019


May 5, 2018


Change

(dollars in thousands)

Amount


% of
Segment
Net Sales


Amount


% of
Segment
Net Sales


Amount


%


Basis
Points

Segment gross profit:














U.S. Retail

$

209,891



30.3

%


$

198,344



29.6

%


$

11,547



5.8

%


70


Canada Retail

15,747



30.4

%




%


$

15,747



NM



NM


Brand Portfolio

21,994



21.8

%




%


$

21,994



NM



NM


Other

9,311



26.1

%


6,881



16.9

%


$

2,430



35.3

%


920



256,943





205,225










Intercompany eliminations

(907)














Consolidated gross profit

$

256,036





$

205,225











(1) Gross profit is defined as net sales, which excludes commission, franchise and other revenue, less cost of sales.

 

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)



May 4, 2019


February 2, 2019


May 5, 2018

Assets






Cash and cash equivalents

$

70,671



$

99,369



$

197,162


Investments

51,259



69,718



71,708


Accounts receivable, net

78,287



68,870



13,571


Inventories

642,045



645,317



539,700


Prepaid expenses and other current assets

54,463



71,945



56,815


Total current assets

896,725



955,219



878,956


Property and equipment, net

405,156



409,576



352,550


Operating lease assets

993,622






Goodwill

90,881



89,513



25,899


Intangible assets

42,298



46,129



135


Deferred tax assets

27,909



30,283



28,174


Equity investments

60,193



58,125



2,401


Notes receivable from TSL





123,710


Other assets

32,384



31,739



19,793


Total assets

$

2,549,168



$

1,620,584



$

1,431,618


Liabilities and shareholders' equity






Accounts payable

$

224,576



$

261,625



$

186,038


Accrued expenses

186,992



201,535



139,346


Current operating lease liabilities

184,456






Total current liabilities

596,024



463,160



325,384


Debt

235,000



160,000




Non-current operating lease liabilities

921,145






Other non-current liabilities

34,148



165,047



145,366


Total liabilities

1,786,317



788,207



470,750


Total shareholders' equity

762,851



832,377



960,868


Total liabilities and shareholders' equity

$

2,549,168



$

1,620,584



$

1,431,618



 

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)



Three months ended


May 4, 2019


May 5, 2018

Revenue:




Net sales

$

869,992



$

710,437


Commission, franchise and other revenue

8,523



1,665


Total revenue

878,515



712,102


Cost of sales

(613,956)



(505,212)


Operating expenses

(222,806)



(168,420)


Income from equity investment in ABG-Camuto

2,228




Operating profit

43,981



38,470


Interest income (expense), net

(1,801)



664


Non-operating expenses, net

(342)



(2,137)


Income before income taxes and loss from equity investment in TSL

41,838



36,997


Income tax provision

(10,644)



(11,390)


Loss from equity investment in TSL



(1,310)


Net income

$

31,194



$

24,297


Diluted earnings per share

$

0.40



$

0.30


Weighted average diluted shares

78,263



80,758



 

DESIGNER BRANDS INC.

NON-GAAP RECONCILIATION

(unaudited and in thousands, except per share amounts)



Three months ended


May 4, 2019


May 5, 2018

Reported net income

$

31,194



$

24,297


Pre-tax adjustments:




Included in operating expenses:




Lease exit and other termination costs



3,994


Acquisition-related costs and target acquisition costs



508


Integration and restructuring expenses

2,488




Amortization of intangible assets

318




Included in non-operating expenses, net:




Foreign currency transaction losses

430



1,978


Total pre-tax adjustments

3,236



6,480


Tax effect of adjustments

(825)



(1,550)


Tax expense impact as a result of Ebuys exit



2,265


Total adjustments, after tax

2,411



7,195


Adjusted net income

$

33,605



$

31,492


Reported diluted earnings per share

$

0.40



$

0.30


Adjusted diluted earnings per share

$

0.43



$

0.39


Non-GAAP Measures

In addition to diluted earnings per share and net income determined in accordance with accounting principles generally accepted in the United States ("GAAP"), the Company uses adjusted diluted earnings per share and adjusted net income, which adjust for (i) the effects of the lease exit and other termination costs; (ii) acquisition-related costs and target acquisition costs; (iii) integration and restructuring expenses; (iv) amortization expense of intangible assets; (v) foreign currency transaction losses; and (vi) the net tax expense impact of such items and the net tax expense impact as a result of the Ebuys exit. The unaudited reconciliation of adjusted results should not be construed as an alternative to the reported results determined in accordance with GAAP. These financial measures are not based on any standardized methodology and are not necessarily comparable to similar measures presented by other companies. The Company believes these non-GAAP measures provide useful information to both management and investors to increase comparability to the prior periods by adjusting for certain items that may not be indicative of core operating measures and to better identify trends in our business. The adjusted financial results are used by management to, and allow investors to, evaluate the operating performance of the Company on a comparable basis, when reviewed in conjunction with the Company's GAAP statements. These amounts are not determined in accordance with GAAP and therefore should not be used exclusively in evaluating the Company's business and operations.

SOURCE Designer Brands Inc.

For further information: Allison Malkin, ICR, allison.malkin@icrinc.com