In a Nutshell: Designer Brands said it used its “best-in-class” inventory controls to keep inventory units on hand flat in the first quarter of 2020 versus 2019’s comparable period.
Inventory in the first quarter totaled $533.6 million, down 16.9 percent year-over-year.
“We have adjusted our near-term areas of focus to prioritize growing with the top fifty brands in footwear and further emphasizing our everyday value,” Designer Brands CEO Roger Rawlins said. “We are also laser-focused on maintaining and preserving sufficient liquidity.”
Though the company said it has no immediate need to raise new capital, it intends to reassess its options after amending its $400 million credit facility and increasing borrowings by $203 million in the quarter.
The company has reopened 90 percent of its store fleet as of June 18 and expects to have doors at “nearly all” of its North American brick-and-mortar base open by the end of the month.
Designer Brands said it has forged agreements with landlords and “all major vendors” regarding payments that are past due, and has also extended payment terms going forward.
Sales: Designer Brands reported net sales of $482.8 million, 44.7 percent lower than the comparable period and below the $505 million Wall Street estimate.
Comparable sales fell by 42.3 percent, while most DSW stores were closed for a significant portion of the quarter, slightly tempered by accelerated e-commerce growth.
“Over the past several years, we have made significant investments in our digital infrastructure, and, as a result, we were able to generate strong digital demand during the first quarter, which resulted in digital demand representing 50 percent of total demand for the quarter, growing 25 percent over last year,” Rawlins said.
Reported consolidated gross profit fell to a loss of $26.5 million in the quarter, compared to profit of $259.3 million in the same period last year. This was due in part to increased promotional activity and higher shipping costs amid the e-commerce surge, the company said.
Earnings: Designer Brands reported a net loss of $215.9 million, or a loss of $3.00 per diluted share, in the first quarter. On an adjusted basis, earnings per share rose to a loss of $1.83. Wall Street expected a 60-cent loss.
Impairment charges, restructuring expenses and coronavirus costs led to pre-tax charges of $112.3 million or $1.17 per share, the company said.
Citing the uncertainty the coronavirus pandemic has caused, Designer Brands did not provide an update on guidance. It previously declined to issue guidance on March 17.
CEO’s Take: “As we said last quarter, the effect of COVID-19 on our industry has been unprecedented and has created many significant near-term challenges. The pandemic necessitated store closures and heavily impacted consumers, resulting in total comparable sales being down 42 percent during the first quarter. I am proud of how our team has responded to the challenges and what we were able to accomplish in the first quarter,” Rawlins said.