Q1 2025 Designer Brands Inc Earnings Call
Good morning, and welcome to the designer Brands' first quarter 'twenty to 'twenty five results conference call all participants will be in listen only mode.
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Ashley Furlan: I would now like to turn the conference over to Ashley Furlan, Investor Relations. Please go ahead.
Ashley Freeland: I would now like to turn the conference over to Ashley Freeland Investor Relations. Please go ahead.
Speaker Change: Good morning earlier today, the company issued a press release comparing results of operations for the 13 week period ended May 32025 to the 13 week period ended may four 2024.
Speaker Change: Please note that the financial results that we will be referencing during the remainder of today's call excludes certain adjustments recorded under GAAP.
Speaker Change: Decided otherwise for a complete reconciliation of GAAP to adjusted earnings. Please reference our press release. Additionally.
Speaker Change: Additionally, please note that remarks made about the future expectations plans and prospects of the company constitute forward looking statements results may differ materially due to the various factors listed in today's press release and the company's public filings with the SEC.
Speaker Change: Except as may be required by applicable law. The company assumes no obligation to update any forward looking statements.
Ashley Furlan: Joining us today are Doug Howe, Chief Executive Officer, and Jared Poff, Chief Financial Officer. I'll now turn the call over to Doug.
Speaker Change: Joining us today are Doug Howe, Chief Executive Officer, and Jared Poff, Chief Financial Officer, I'll now turn the call over to Doug.
Douglas Howe: Good morning, and thank you everyone for joining us. I'd like to begin by saying a special thank you to our associates for their continued hard work and dedication to designer brands throughout the first quarter. Over one year ago, we began to refresh our business, bringing in new leaders, modernizing our assortment, implementing a more compelling marketing approach, and right-sizing our brand portfolio organization. We've moved decisively to reset and transform our business and our team to focus on the customer. We began to see the fruits of those changes materialize in the back half of fiscal 2024, posting two consecutive quarters of year-over-year adjusted operating income growth and the first positive sales comp at DSW in nine quarters.
Speaker Change: Good morning, and thank you everyone for joining us I'd like to begin by saying a special thank you to our associates for their continued hard work and dedication to designer brands throughout the first quarter.
Speaker Change: Over one year ago, we began to refresh our business, bringing in new leaders modernizing our assortments implementing a more compelling marketing approach and right sizing our brand portfolio organization.
Speaker Change: We've moved decisively to reset and transform our business and our team to focus on the customer.
Speaker Change: We began to see the fruits of those changes materialize in the back half of fiscal 2020 for posting two consecutive quarters of year over year adjusted operating income growth and the first positive sales comp at DSW in nine quarters.
Douglas Howe: Heading into fiscal 2025, we were confident in our plans to build on this momentum.
Speaker Change: Heading into fiscal 2025, we were confident in our plans to build on this momentum.
Douglas Howe: However, as the macro environment has evolved rapidly, it has introduced increased uncertainty and reduced planning visibility, particularly around consumer behavior. We are responding with agility and adjusting accordingly to navigate these shifting dynamics. As a result of these dynamics, we experienced a softer start to the year with first quarter comparable sales declining 8%, directly reflecting continuing weakening in consumer sentiment. February was the weakest month of the quarter, with unfavorable weather causing further challenges. We saw sequential improvement as the quarter progressed, and I am proud of our team's efforts to navigate through this unprecedented environment. Specifically, we have thoroughly evaluated our cost structure and implemented expense cuts, which helped to deliver a 6% reduction in our operating expenses for the quarter versus first quarter last year.
Speaker Change: However, as the macro environment has evolved rapidly. It is introduced increased uncertainty and reduce planning visibility, particularly around consumer behavior, we are responding with agility and adjusting accordingly to navigate these shifting dynamics.
Speaker Change: As a result of these dynamics, we experienced a softer start to the year with first quarter comparable sales declining 8%.
Speaker Change: Correct, Lee, reflecting continuing weakening in consumer sentiment fab.
Speaker Change: February was the weakest month of the quarter with unfavorable weather, causing further challenges.
Speaker Change: We saw sequential improvement as the quarter progressed and I am proud of our team's efforts to navigate through this unprecedented environment.
Speaker Change: Specifically, we have thoroughly evaluated our cost structure and implemented expense cuts, which helped to deliver a 6% reduction in our operating expenses for the quarter versus first quarter last year.
Douglas Howe: In total for the year, we are implementing cuts that are expected to deliver between 20 to 30 million dollars in savings over the course of 2025 compared to last year. Jared will provide more color about these savings a little later.
Speaker Change: In total for the year, we are implementing cuts that are expected to deliver between $20 million to $30 million in savings over the course of 2025 compared to last year.
Speaker Change: Jared will provide more color about these savings a little later.
Douglas Howe: As part of our response to this volatility, we have shifted our near-term focus to opportunities to amplify value in our retail channels, preserve margins, control costs, as well as evaluate tariff mitigation strategies. I will share more color on these pivots later.
Speaker Change: As part of our response to this volatility we have shifted our near term focus to opportunities to amplify value in our retail channels preserve margins control cost as well as evaluate tariff mitigation strategy.
Speaker Change: We'll share more color on these pivots later.
Douglas Howe: Let's first review some of the financial highlights of each segment from the first quarter. starting with our retail business. For the first quarter, U.S. retail reported comps were down 7.3% and total sales were down 7.7%, driven by lower traffic, especially earlier in the quarter where weather had a more material impact. This led to a challenging seasonal business across all demographics in the quarter. Turning to our Canadian business for the first quarter sales declined 2.9% with comps down 9.2%. The difference reflects the addition of Rubino, which is not yet included in our comp. Overall, performance remains challenging as many of the conditions leading to a depressed U.S.
Speaker Change: Let's first review some of the financial highlights of each segment from the first quarter.
Speaker Change: Starting with our retail businesses for.
Speaker Change: For the first quarter U S retail reported comps were down seven 3% and total sales were down seven 7% driven by lower traffic, especially early in the quarter, where weather had a more material impact this.
Speaker Change: This led to a challenging seasonal business across all demographics in the quarter.
Speaker Change: Turning to our Canadian business for the first quarter sales declined two 9% with comps down nine 2%.
Speaker Change: The difference reflects the addition of Rubino, which is not yet included in our comp base.
Speaker Change: Overall performance remains challenging as many of the conditions, leading to a depressed U S. Consumer are also affecting the Canadian consumer.
Douglas Howe: consumer are also affecting the Canadian consumer. We are actively evaluating ways to better connect with the Canadian consumer in today's environment.
Speaker Change: We are actively evaluating ways to better connect with the Canadian consumer in today's environment.
Douglas Howe: Now to our Brand Portfolio segment. Although sales were down 7.9%, we saw strong underlying performance in several key areas. Topo continued its impressive growth trajectory, growing at 84% year-over-year, reinforcing its momentum as an emerging growth brand.
Speaker Change: Now to our brand portfolio segment, although sales were down 7.9%, we saw strong underlying performance in several key areas.
Speaker Change: <unk> continued its impressive growth trajectory growing at 84% year over year reinforcing its momentum as an emerging growth brands.
Speaker Change: In addition, our focus on operational efficiencies that began last year enabled our brands portfolio to grow operating income by over 30% over last year. Despite the decline in total sales.
Speaker Change: Turning to our near term areas of focus as I mentioned earlier, we were encouraged by the progress we made in the back half of fiscal 2024.
Douglas Howe: Importantly, we remain confident in our strategy and will continue to focus on the pillars of customer and product within our retail businesses while driving brand portfolio growth by scaling private label, building a more profitable wholesale model, and investing in strategic brands like Topo and Ken. However, near-term volatility necessitates that we adapt our focus on clear, tactical actions across the business, prioritizing value, optimizing our assortment, and diversifying our sourcing, and leading into growth brands. Our customer remains our first priority, and we are committed to delivering meaningful, consistent value to them across all channels. Today's customer is more value conscious, and we are responding with a multifaceted approach to meet that need.
Speaker Change: Importantly, we remain confident in our strategy and we'll continue to focus on the pillars of customer and product within our retail businesses, while driving brand portfolio growth by scaling private label building, a more profitable wholesale model and investing in strategic brands like Turbo and Kent.
Speaker Change: However, near term volatility necessitates that we adapt our focus unclear tactical actions across the business prioritizing value optimizing our assortment and diversifying our sourcing and leading into growth brands.
Speaker Change: Our customer remains our first priority and we are committed to delivering meaningful.
Speaker Change: Value to them across all channels.
Speaker Change: Today's customer has more value conscious and we are responding with a multi faceted approach to meet that need.
Douglas Howe: Sales declines have closely tracked with lower traffic, which we view as a direct reflection of consumer sentiment. In response, our team is evolving our approach to how we communicate our value proposition across pricing, promotions, and messaging. As is consistent with our past approach, we have continued to monitor and aggregate weekly customer data to inform a more targeted and effective approach. We're emphasizing simplicity and more clearly positioning our offerings in a competitive marketplace which includes more visible and purposeful in-store marketing that reinforces our value proposition across the assortment. We're also focused on reinforcing the value we provide beyond price, from being a one-stop shop for family footwear to our differentiated assortment and growing our non-footwear accessory offer.
Speaker Change: Sales declines have closely tracked with lower traffic, which we view as a direct reflection of consumer sentiment.
Speaker Change: In response, our team as a board being our approach to how we communicate our value proposition across pricing promotions and messaging.
Speaker Change: As is consistent with our past approach, we have continued to monitor and aggregate weekly customer data to inform a more targeted and effective approach.
Speaker Change: We're emphasizing simplicity and more clearly positioning our offerings in a competitive marketplace, which includes more visible and purposeful in store marketing that reinforces our value proposition across the assortment.
Speaker Change: Okay.
Speaker Change: We're also focused on reinforcing the value we provide beyond price from being a one stop shop for family footwear to our differentiated assortment and growing our non footwear accessory offerings.
Douglas Howe: Our VIP rewards program, which accounts for roughly 90% of transactions, has been a key platform for testing our enhanced value messages. We plan to leverage loyalty even more strategically to deliver targeted promotions, enabling us to deliver greater value with fewer exclusions to our most engaged customers while driving marketing efficiency. Our goal is to deepen customer relationships beyond transactions and create a rewards experience that feels both meaningful and unique.
Speaker Change: Our VIP rewards program, which accounts for roughly 90% of transactions has been a key platform for testing our enhanced value messaging.
Speaker Change: We plan to leverage the loyalty, even more strategically to deliver targeted promotions, enabling us to deliver greater value with fewer exclusions to our most engaged customers while driving marketing efficiency.
Speaker Change: Our goal is to deepen customer relationships beyond transactions and create a rewards experience that feels both meaningful and unique.
Douglas Howe: As mentioned last quarter, we are preparing to transform and relaunch the program next year.
Speaker Change: As mentioned last quarter, we are preparing to transform and relaunched the program next year.
Douglas Howe: Shifting to our product filler, we continue to operate with laser focus on elevating and optimizing our assortment through strategic partnerships and data-driven insights, helping to improve inventory availability and productivity. Compared to last year, we are meaningfully reducing our choice count while simultaneously increasing our depth on key styles throughout the year. The work we've done so far has meaningfully improved store conversion rates, up 60 basis points year over year, underscoring both the strength of our product offering and how it is resonating at the point of sale. Athletic and athleisure continue to outperform relative to other categories, with minimal disruption, supported by resilient global demand and a well diversified sourcing network.
Speaker Change: Shifting to our product pillar, we continue to operate with a laser focus on elevating and optimizing our assortment through strategic partnerships and data driven insights, helping to improve inventory availability and productivity.
Speaker Change: Compared to last year, we are meaningfully reducing our choice count while simultaneously increasing our depth on key styles throughout the year.
Speaker Change: Okay.
Speaker Change: The work we've done so far has meaningfully improved store conversion rate at 60 basis points year over year underscoring both the strength of our product offering and how it is resonating at the point of sale.
Speaker Change: Athletic and athleisure continue to outperform relative to other categories with minimal disruption supported by resilient global demand and a well diversified sourcing network.
Douglas Howe: As a result, we see notable opportunity for these categories to grow organically and expand their penetration in the current environment. In fact, according to Sakana data, for Q1, DSW gained 10 basis points in a seizure footwear market share. As it relates to our new product inventory, we are pursuing strategic expansion focused on full family premium product launches with top brand partners and the introduction of digitally native brands. Additionally, we're growing our footprint with well-known designers, offering a more exciting assortment for our customers. Ensuring strong product availability at the store level remains a key priority. To support this, we have begun to shift inventory allocation in the U.S.
Speaker Change: As a result, we see notable opportunity for these categories to grow organically and expand their penetration in the current environment.
Speaker Change: In fact, according to <unk> data for Q1, DSW gained 10 basis points and our leisure footwear market share.
Speaker Change: As it relates to our new product inventory, we are pursuing strategic expansion focused on Paul family premium product launches with top brand partners and the introduction of digitally native brands.
Speaker Change: Additionally, we're growing our footprint with well known designers operating a more exciting assortment for our customers.
Speaker Change: Ensuring strong product availability at the store level remains a key priority.
Speaker Change: To support this we have begun to shift inventory allocation in the U S between digital fulfillment centers and our store locations to optimize in store product availability.
Douglas Howe: between digital fulfillment centers and our store locations to optimize in-store product availability. Specifically, we are improving the customer experience through better in-store product availability and faster fulfillment. The percentage of digital orders fulfilled through our logistics center increased by 56% over Q1 last year. which has helped increase store in-stock levels by 13 percentage points compared to Q4. This adjustment has allowed us to maintain broader assortment levels in-store where improved availability is directly contributing to higher in-store conversion. This has also delivered efficiencies on our digital order fulfillment with fewer packages per order being mailed as more fulfillment is routed through our single point fulfillment center.
Speaker Change: Typically we are improving the customer experience through better in store product availability and faster fulfillment.
Speaker Change: The percentage of digital orders fulfilled through our logistics center increased by 56% over Q1 last year.
Speaker Change: Which has helped to increase store in stock levels by 13 percentage points compared to Q4.
Speaker Change: This adjustment has allowed us to maintain broader assortment levels in store, where improved availability is directly contributing to higher in store conversion.
Speaker Change: This is also delivered efficiencies on our digital order fulfillment with fewer packages per order being mailed as more fulfillment is routed through our single point fulfillment center.
Douglas Howe: Overall, we remain focused on inventory management, productivity, and buying flexibility, which are foundational elements to better serve our customers.
Speaker Change: Overall, we remain focused on inventory management productivity and buying flexibility, which are foundational elements to better serve our customers.
Douglas Howe: As we look to our brand segment for 2025, we remain committed to re-establishing our private label brands as margin drivers and building a more profitable wholesale business, which includes investing in our core growth names like Topo and Keds to drive top and bottom lines. As we've adjusted within retail, we've similarly redirected our near-term focus in the brand segment towards proactive sourcing diversification strategies. While we previously expected tariffs to be a headwind, they have emerged as a significantly more substantial cost than anticipated across the industry. and we are actively managing the potential impact on our business.
Speaker Change: As we look to our brand segment for 2025, we remain committed to reestablishing our private label brands as margin drivers and building a more profitable wholesale business, which includes investing in our core growth names like turbo and Ted to drive top and bottom line.
Speaker Change: As we've adjusted within retail we similarly, we redirected our near term focus in the brand segment towards proactive sourcing diversification strategies.
Speaker Change: While we previously expected tariffs to be a headwind they have emerged as a significantly more substantial costs than anticipated across the industry.
Speaker Change: And we are actively manage that managing the potential impact on our business.
Douglas Howe: We've accelerated our sourcing diversification efforts, rebalancing and optimizing production to mitigate risk, maximize flexibility, and decrease cost as we work to ensure we are not overly dependent on any one country. Recognizing that the trade and tariff negotiations are fluid, we have built in optionality and have activated plans to minimize cost exposure and supply chain disruption. The environment remains unpredictable, with our exposure fluctuating significantly within the quarter and continuing to shift into the second quarter, while the potential for significant cost headwinds, supply chain disruption, and demand volatility remains. We will continue to monitor the environment and our supply chain closely and adapt as needed.
Speaker Change: We've accelerated our sourcing diversification efforts rebalancing and optimizing production to mitigate risk and maximize flexibility and decreased cost as we work to ensure we are not overly dependent on any one country.
Speaker Change: Recognizing that the trade and tariff negotiations or fluid we have built in optionality and have activated plans to minimize cost exposure and supply chain disruptions.
Speaker Change: The environment remains unpredictable, but our exposure fluctuating significantly within the quarter and continuing to shift into the second quarter, while the potential for significant cost headwinds supply chain disruption and demand volatility remains we.
Speaker Change: We will continue to monitor the environment and our supply chain closely and adapt as needed.
Douglas Howe: Regardless, we currently expect less than half of our sourcing will come from China by the end of the year, down from 70% at the start of the year. We continue to view private label as a long-term margin driver and truly a unique differentiator for DVI given our design and sourcing capabilities and our commanding retail distribution and market share at DSW and the SHUCO.
Speaker Change: Regardless, we currently expect less than half of our sourcing will come from China by the end of the year down from 70% at the start of the year.
Speaker Change: We continue to view private label as a long term margin driver and truly a unique differentiator for <unk>, given our design and sourcing capabilities and our commanding retail distribution and market share at DSW and the shoe co.
Douglas Howe: turning to our brands themselves. We continue to advance our brand strategy for our wholesale brands and continue to invest in key brands such as Topo and Keds that are well-positioned to long-term growth. Topo continues to perform exceptionally well, with sales up 84% during the quarter. This was primarily built on the brand's continued strategic distribution expansion as well as strong sell-through and reorders from existing accounts. As of the end of the quarter, the brand was in over 1,200 points of domestic distribution, an increase of 43% versus the first quarter of 2024. Topol also saw great results in new product launches, most notably the Phantom 4, a brand's top road shoe, and Mountain Racer, the brand's top trail shoe.
Speaker Change: Turning to our brands themselves.
Speaker Change: We continue to advance our brand strategy for our wholesale brands and continue to invest in key brands, such as <unk> and <unk> that are well positioned to long term growth.
Speaker Change: Telco continues to perform exceptionally well with sales up 84% during the quarter.
Speaker Change: This was primarily built on the brand's continued strategic distribution expansion as well as strong sell through and Reorders from existing accounts.
Speaker Change: As of the end of the quarter. The brand was in over 200 points of domestic distribution, an increase of 43% versus the first quarter of 2024.
Speaker Change: Total also saw great results of new product launches, most notably the Phantom four our brands top Roadshow and mountain racer, the brand's top trail shoe.
Douglas Howe: In addition, the brands had already begun diversifying out of China before the current tariff took effect, leaving it well-positioned to drive margins while continuing to scale revenue. Ted's continues to see increased momentum as we have cleaned up the marketplace of excess inventory and relaunched some key styles and franchises with new comfort features. Although this produced top-line headwinds, it resulted in gross margin improvement of approximately 700 basis points year-over-year. This improvement was primarily driven by the transition from Wolverine Worldwide production to Designer Brands-owned production in the first quarter, resulting in a significant reduction in landed costs.
Speaker Change: In addition, the brand had already begin diversifying out of China before the current tariffs took effect, leaving it well positioned to drive margins, while continuing to scale revenue.
Speaker Change: <unk> continues to see increased momentum as we have cleaned up the marketplace of excess inventory and relaunched in key styles and franchises with new comfort features.
Speaker Change: Although this produce topline headwinds a resulted in gross margin improvement of approximately 700 basis points year over year.
Speaker Change: This improvement was primarily driven by the transition from Wolverine worldwide production to designer Brands' home production in the first quarter, resulting in a significant reduction in landed costs.
Douglas Howe: We believe that both Topo and Keds demonstrate pricing power and expect demand for these brands to withstand anticipated pricing increases. We are also reviewing pricing across our portfolio, including our exclusive brands, as one lever to help mitigate the impact of tariffs and increased sourcing costs.
Speaker Change: We believe that both cocoa and can demonstrate pricing power and expect demand for these brands can withstand anticipated pricing increases.
Speaker Change: We are also reviewing pricing across our portfolio, including our exclusive brands as one lever to help mitigate the impact of tariffs and increased sourcing cost.
Douglas Howe: Additionally, we are focused on managing other items that we can control, including preserving and enhancing liquidity by reducing planned CapEx and tightly focusing on inventory levels.
Speaker Change: Additionally, we are focused on managing other items that we can control, including preserving and enhancing liquidity by reducing planned capex and tightly focusing on inventory levels.
Douglas Howe: Before I conclude, I want to share a few thoughts on our 2025 guidance. As you know, the current environment remains volatile, bringing heightened anxiety to an already cautious discretionary consumer. Consumer sentiment reached its second lowest point on record in May. His volatility makes any future forecast highly unpredictable. As a result, we, like many companies in this space, have determined that forward-looking projections are likely to evolve as we navigate through this time of extreme uncertainty.
Speaker Change: Before I conclude I wanted to share a few thoughts on our 2025 guidance.
Speaker Change: As you know the current environment remains volatile, bringing heightened anxiety to an already cautious discretionary consumer.
Speaker Change: Consumer sentiment reached its second lowest point on record and May.
Speaker Change: There's volatility makes any future forecast highly unpredictable.
Speaker Change: As a result, we like many companies in this space have determined that forward looking projections are likely to evolve as we navigate through this time of extreme uncertainty.
Douglas Howe: Therefore, we have made the decision to withdraw our guidance for the time being. We will continue to focus on disciplined execution of the levers within our control to navigate the near-term environment. I'm confident that in doing so, we are building a business rooted in the strength of our brand, focused on the customer, and well-positioned for long-term value creation.
Speaker Change: Therefore, we have made the decision to withdraw our guidance for the time being.
Speaker Change: We will continue to focus on disciplined execution of the levers within our control to navigate the near term environment.
Speaker Change: I'm confident that in doing so we are building a business rooted in the strength of our brand focused on the customer and well positioned for long term value creation.
Douglas Howe: Before I close, I want to emphasize that we remain committed to our strategy and our transformation. I am incredibly proud of our team members who have worked hard to advance our near-term priorities and I am confident that we are putting ourselves in a strong position to navigate the near-term while building on our long-term strategy.
Speaker Change: Before I close I want to emphasize that we remain committed to our strategy and our transformation.
Speaker Change: I am incredibly proud of our team members, who have worked hard to advance our near term priorities and I am confident that we are putting ourselves in a strong position to navigate the near term while building on our long term strategy.
Jared Poff: With that, I'll turn it over to Jared. Jared?
Speaker Change: With that I'll turn it over to Jared Jared.
Jared Poff: Thank you, Doug, and good morning, everyone. Amidst a tough quarter, I want to commend our team for staying focused and executing against our strategic priorities. As Doug noted, our results came in softer than anticipated, reflecting the ongoing macro environment and pressure on consumer discretionary spending. Despite these headwinds, we remain committed to advancing our strategy.
Jared Poff: Thank you, Doug and good morning, everyone.
Jared Poff: Amidst a tough quarter I want to commend our team for staying focused and executing against our strategic priorities as Doug noted our results came in softer than anticipated, reflecting the ongoing macro environment and pressure on consumer discretionary spending.
Jared Poff: Despite these headwinds we remain committed to advancing our strategy let.
Jared Poff: Let me provide a bit more detail on our first quarter financial results. For the first quarter of fiscal 2025, net sales of $687 million were down 8% and comps were down 7.8%. In our US retail segment, sales were down 7.7% with comps down 7.3%. Both in-store and online traffic were pressured through the period, but improved sequentially on a monthly basis. We also saw fewer returns during the quarter, which we believe underscores the strong work we've done with our assortment. Sales of our top eight brands achieved a flat comp compared to the first quarter last year, performing much stronger than the balance of the assortment, and increased penetration, growing to 43% of sales from 40% last year.
Jared Poff: Let me provide a bit more detail on our first quarter financial results.
Jared Poff: For the first quarter of fiscal 2025, net sales of $687 million were down 8% and comps were down seven 8%.
Jared Poff: And our U S retail segment sales were down seven 7% with comps down seven 3%.
Jared Poff: Both in store and online traffic were pressured through the period, but improved sequentially on a monthly basis.
Jared Poff: We also saw fewer returns during the quarter, which we believe underscores the strong work we've done with our Assortments.
Jared Poff: Sales of our top eight brands achieved a flat comp compared to the first quarter last year performing much stronger than the balance of the assortment and increased penetration growing to 43% of sales from 40% last year.
Jared Poff: Our seasonal products remain pressured, and even our strongest categories, like Athletic, experience compression with sales down 4%. In our Canada Retail segment, sales were down 2.9% in the first quarter compared to last year, with comps down 9.2%, primarily due to lower traffic due to the compressed consumer spend. Total sales benefited from the addition of the Rubino business, but also faced exchange rate headwinds, resulting in a decline in total sales versus last year. Finally, in our Brand Portfolio segment, total sales were down 7.9% to last year as most retailers in this space are approaching the year with the same level of conservatism that we are at DSW.
Jared Poff: Our seasonal product remained pressured and even our strongest categories like athletic experienced compression with sales down 4%.
Jared Poff: In our Canada retail segment sales were down two 9% in the first quarter compared to last year with comps down nine 2%, primarily due to lower traffic due to the compressed consumer spending.
Jared Poff: Total sales benefited from the addition of the <unk> business, but also faced exchange rate headwinds, resulting in a decline in total sales versus last year.
Jared Poff: Finally in our brand portfolio segment total sales were down seven 9% to last year as most retailers in this space are approaching the year with the same level of conservatism that we are at DSW.
Jared Poff: However, thanks to the expense efficiency work that began last year, the Brands Portfolio segment saw a 23% reduction in operating expenses, allowing operating income to grow by over 30% despite the challenging top line. While it was a challenging quarter for many of our brands, we are pleased that the Topo brand continues to be a stronghold in our assortment, posting 84% growth in sales year over year. Jessica also remained a bright spot in our dress and seasonal assortment with sales up 6% and wholesale sales to partners outside of DSW. Consolidated gross margin of 43% in the first quarter decreased by nearly 120 basis points versus the prior year, primarily driven by increased markdowns compared to last year, deployed to respond to the weaker traffic and clear through inventory.
Jared Poff: However, thanks to the expense efficiency work that began last year. The brand portfolio segment saw a 23% reduction in operating expenses, allowing operating income to grow by over 30%. Despite the challenging top line.
Speaker Change: Well it was a challenging quarter for many of our brands. We are pleased that the Tokyo brand continues to be a strong hold in our assortment posting 84% growth in sales year over year Jessica.
Speaker Change: Jessica also remained a bright spot in our dress and seasonal assortments with sales up 6% and wholesale sales to partners outside of DSW.
Jared Poff: Consolidated gross margin of 43% in the first quarter decreased by nearly a 120 basis points versus the prior year, primarily driven by increased markdowns compared to last year deployed to respond to the weaker traffic and clear through inventory.
Jared Poff: For the first quarter, Adjusted Operating Expenses dropped $20 million versus last year, but deleveraged by 80 basis points to 43.4% of sales given the sales decline. Nearly half of that decline was related to the annual bonus still being accrued in Q1 of last year. However, with no accrual occurring this year, given the current performance, we will have a headwind of roughly $10 million in the third quarter of this year. Additionally, as Doug mentioned earlier, in light of the highly volatile macro environment and the impact it is having on our business, We have been looking aggressively at our expense structure and capital expenditure.
Jared Poff: For the first quarter adjusted operating expenses dropped $20 million versus last year, but deleveraged by 80 basis points to 43, 4% of sales given the sales decline.
Jared Poff: Nearly half of that decline was related to the annual bonus still being accrued in Q1 of last year. However, with no accrual occurring this year given the current performance, we will have a headwind of roughly $10 million in the third quarter of this year.
Jared Poff: Additionally, as Doug mentioned earlier in light of the highly volatile macro environment and the impact it is having on our business.
Jared Poff: We have been looking aggressively at our expense structure and capital expenditures.
Jared Poff: General reductions in spend across various line items are anticipated to deliver approximately $20 to $30 million in expense dollar savings across fiscal 2025 as compared to 2024. For the first quarter, adjusted operating income was essentially break-even compared to operating income of $14.7 million last year. In the first quarter of 2025, we had $11.9 million of net interest expense compared to $11.6 million last year. Our effective tax rate in the first quarter on our adjusted results was negative 1.7 percent compared to negative 53.3 percent last year. Our first quarter adjusted net loss was $12.5 million versus a gain of $4.8 million last year, or a loss of $0.26 and diluted earnings per share compared to a gain of $0.08 last year.
Jared Poff: General reductions in spend across various line items are anticipated to deliver approximately $20 million to $30 million and expense dollar savings across fiscal 2025 as compared to 2024.
Jared Poff: For the first quarter adjusted operating income was essentially breakeven compared to operating income of $14 $7 million last year.
Jared Poff: In the first quarter of 2025, we had $11 9 million of net interest expense compared to $11 $6 million last year.
Jared Poff: Our effective tax rate in the first quarter on our adjusted results was negative one 7% compared to negative 53, 3% last year.
Jared Poff: Our first quarter adjusted net loss was $12 $5 million versus a gain of $4 $8 million last year or a loss of 26 and diluted earnings per share compared to a gain of eight last year.
Jared Poff: Turning to our inventory, we ended the first quarter with total inventories up 0.5% versus the prior year as we moved to deliver product ahead of tariff increases. Given the current environment, we feel we have the right mix of inventory and have the flexibility to chase into demand where we are seeing momentum. We ended the first quarter with $46 million of cash. Our total liquidity, which includes cash and availability under our revolver, was $171.5 million.
Jared Poff: Turning to our inventory we ended the first quarter with total inventories up 0.5% versus the prior year as we move to deliver product ahead of tariff increases.
Jared Poff: Given the current environment, we feel we have the right mix of inventory and have the flexibility to chase into demand, where we are seeing momentum.
Jared Poff: We ended the first quarter with $46 million of cash our total liquidity, which includes cash and availability under our revolver was $171 5 million total debt outstanding was $522 $9 million as of the end of the quarter.
Jared Poff: Total debt outstanding was $522.9 million as of the end of the Before I conclude, I would like to echo Doug's comments regarding the highly volatile forward-looking environment we are facing. While we feel it is appropriate to withdraw our forward-looking guidance at this time, rest assured we are doing everything within our control to operate the business as optimally as possible during this time. The operating expense cuts I noted earlier have been implemented and every dollar spent is being highly scrutinized. Additionally, we have pulled down our anticipated annual capital spending from $50 million to $40 million. And as Doug noted earlier, we are leaning into the value we offer our customers through inventory pricing and strong messaging.
Speaker Change: Before I conclude I would like to Echo Doug's comments regarding the highly volatile forward looking environment, we are facing.
Jared Poff: While we feel it is appropriate to withdraw our forward looking guidance at this time rest assured we are doing everything within our control to operate the business as optimally as possible. During this time.
Jared Poff: The operating expense cuts I noted earlier have been implemented and every dollar of spend as being highly scrutinized. Additionally.
Jared Poff: Additionally, we have pulled down our anticipated annual capital spending from 50 million to $40 million.
Jared Poff: We are closely monitoring inventory investments to ensure we have the products available for the demand that is generated but are maintaining a highly flexible open to buy to respond to a dynamic consumer environment.
Jared Poff: And as Doug noted earlier, we are leaning into the value we offer our customers through inventory pricing and strong messaging.
Jared Poff: While this is a challenging time, I believe we will emerge from this leaner and more nimble and ready to deliver even more strongly on our strategy once the environment stabilizes.
Doug Howe: While this is a challenging time I believe we will emerge from this leaner and more nimble and ready to deliver even more strongly on our strategy once the environment stabilizes.
Unknown Executive: With that, we will open the call to questions. Operator. Thank you.
Doug Howe: With that we will open the call to questions operator.
Doug Howe: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Unknown Executive: We will now begin the question and answer session. To ask a question, you may press the star then 1 on your telephone. If you are using a speakerphone, please pick up your handset before pressing the button. If at any time your question has been addressed and you would like to withdraw your At this time, we will pause momentarily to assemble our roster.
Doug Howe: If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Doug Howe: At this time, we will pause momentarily to assemble our roster.
Dylan Carden: Today's first question comes from Dylan Carden with William Blair. Please go ahead. Thank you. Jared, I think you kind of addressed it there towards the end, but the $20 to $30 million in savings related to the $50 million that you had anticipated sort of increasing SG&A into this year. Can you kind of just speak to the relationship between those two numbers and where you're cutting? Yeah. Yep, yep, for sure, Dylan. So, you know, initially when we started the year, we knew we had close to a $30 million headwind coming our way because we didn't have a bonus accrued for FY24.
Speaker Change: Today's first question comes from Dylan Carden with William Blair. Please go ahead.
Dylan Carden: Thank you.
Speaker Change: Jerry I think you kind of address it there towards the end, but the $20 million to $30 million in savings.
Doug Howe: Weighted to the $50 million that.
Doug Howe: So you would anticipate sort of increase in SG&A into this year can you kind of just speak to the relationship between those two numbers and where youre cutting yep yep.
Doug Howe: Yes, yes for sure Donlin. So initially when we started the year. We knew we had close to a 30 million dollar headwind coming our way because we didn't have a bonus accrued for FY 'twenty four and of course, we start every year, assuming we're going to be able to pay a bonus.
Jared Poff: And of course, we start every year assuming we're going to be able to pay a bonus. The way that that materialized in 24 was we were accruing it fully in Q1, partially in Q2, but then we reversed it all in Q3. And so for the year, we had zero, but it did show up as part of our expense structure throughout that year last year. Given, you know, the complete turnaround of the business this year in Q1, there was no bonus accrual at all. So that provided about $10 million, just under $10 million of year-over-year favorability and expenses in Q1 of this year.
Doug Howe: The way that that materialized in 24 was we were accruing at full way in Q1, partially in Q2, but then we've reversed at all in Q3 and so for the year, we had zero, but it did show up as part of our expense structure throughout that year last year given the.
Doug Howe: The complete turnaround of the business this year in Q1.
Doug Howe: There was no bonus accrual at all so that that provided about $10 million just under $10 million of.
Doug Howe: Year over year.
Doug Howe: Favorability in expenses in Q1 of this year, but as I mentioned in the script, we will see the reverse of that or headwinds of that come out in Q3, when we had our bonus reversal last year get reversed so like for like that incremental expenses that we referenced last.
Jared Poff: But as I mentioned in the script, we will see the reverse of that or headwinds of that come out in Q3 when we had our bonus reversal last year get reversed. So like for like, that incremental expenses that we referenced last year or at our original guidance related to bonus is not going to be there.
Doug Howe: Year at our original guidance related to bonus is not going to be there. In addition, we have implemented cuts of about $20 million to $30 million below last year. So while we're not giving guidance for the year.
Jared Poff: In addition, we have implemented cuts of about $20 to $30 million below last year. So while we're not giving guidance for the year, if you do look at our SG&A for the full year, the cuts we've made, we believe, will result in $20 to $30 million below that number for all of 2025. Thanks.
Doug Howe: If you do look at our SG.
Doug Howe: SG&A for the full year. The cuts. We've made we believe will result in $20 million to $30 million below that number for all of 2025.
Dylan Carden: And then just, can you just add a little bit more on the reversal and the Canadian and brand portfolio? And particularly on sort of like the comp side for the brand portfolio, was that mostly Keds? And in Canada, you know, it's been weak. Some other Canadian retailers are talking about that situation with particularly sort of the adjustable mortgages getting better. kind of what you're seeing between those two.
Doug Howe: Thanks, and then just can you just add a little bit more on the reversal in the Canadian and brand portfolio.
Speaker Change: And particularly on sort of like the comp side for the brand portfolio is that mostly keds.
Doug Howe: And in Canada, it's been weak some other Canadian retailers are talking about that situation with basically towards the adjustable mortgages getting better.
Doug Howe: Just kind of what youre seeing between those two.
Douglas Howe: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. And then on the brand side, I mean, it was a little bit of a mixed bag. Obviously, the Topo business continues to be really strong. It's up 84% in the quarter. And then, as I said in the script, Keds had a little bit of headwinds on the top line, but that was because we were up against some liquidation for last year and they actually had quite an expansion on the gross margin side.
Speaker Change: Segments. Thanks.
Speaker Change: Thanks, John This is Doug I mean on the Canadian market I'd say a lot of the consumer sentiment that we're seeing in the U S is obviously very consistent with what the Canada business is seeing as well just downward pressure on the volatility and the uncertainty in that environment.
Speaker Change: Given the negative negative comp, we had a little bit of noise in there as you know because <unk> was not in our last year comp but.
Doug Howe: Again, very similar kind of customer sentiment.
Doug Howe: That's happening in the U S is also happening in Canada.
Doug Howe: And then on the brand side I mean, it was a little bit of a mixed bag. Obviously the turbo business continues to be really strong it's up 84% in the quarter.
Speaker Change: And then as I said in the script KED had a little bit of headwinds on the top line, but that was because we were up against some liquidation for last year and they actually.
Doug Howe: Got an expansion on the gross margin side.
Doug Howe: Thanks.
Speaker Change: Thank you as a reminder to ask a question press Star then one.
Unknown Executive: Thank you.
Mauricio Cerna: The next question comes from Mauricio Cerna with UBS. Please go ahead. Yes, hi. Good morning. Thanks for taking my question. Maybe could you talk a little bit about what you're seeing quarter to date?
Speaker Change: The next question comes from Mauricio Serna with UBS. Please go ahead.
Mauricio Serna: Yeah, Hi.
Mauricio Serna: Good morning, Thanks for taking my question, maybe could you talk a little bit about what you're seeing.
Mauricio Serna: Quarter to date and sorry, if I missed this have you talked about.
Mauricio Cerna: And sorry, sorry if I missed this, if you talked about, you know, any expectations Sure. Thank you. you to, you're already anticipating an impact from tariffs, yeah, that would be. Yeah, thanks, Mauricio.
Mauricio Serna:
Mauricio Serna: Any expectations for.
Doug Howe: For Q2, you are already anticipating an impact from tariffs.
Doug Howe: Yes that would be my first two questions.
Doug Howe: Yes, Thanks, Greg This is Doug.
Douglas Howe: This is Doug. We are experiencing a similar trend in Q2, similar to how we exited Q1. So that'd be my comment on Q2. And then the tariff impact, as we had shared earlier, the biggest concern we have overall as designer brands is the indirect impact that tariffs are having on just the uncertainty and the volatility on customer sentiment. If you think about the brand portfolio, which is well less than 20% of our overall business, the team has done a really good job of mitigating what at one point we thought was $100 million of pressure on the gross profit line, has mitigated that down significantly through factory negotiations, resourcing product, taking very select pricing increases to be able to mitigate that.
Doug Howe: We are experiencing a similar trend in Q2 <unk>.
Doug Howe: Similar to how we exited Q1.
Doug Howe: That'd be my my comment on Q2, and then the tariff impact as we had shared earlier.
Doug Howe: Biggest concern we have overall a designer brands is the indirect impact that tariffs are having on just the uncertainty and the volatility volatility on customer sentiment. If you think about the the brand portfolio, which you know.
Doug Howe: Less well less than 20% of our overall business.
Doug Howe: The team has done a really good job of mitigating what at one point, we thought it was $100 million of.
Doug Howe: Pressure on the gross profit line is mitigated that down significantly through factory negotiations resourcing product.
Doug Howe: <unk> very select.
Doug Howe: Pricing.
Speaker Change: Increases to be able to mitigate that again, but you know our retail businesses.
Douglas Howe: Again, our retail business is heavily relying on our national brand partners, and we're obviously working very closely with them as they are also selectively passing on price increases. Our overall approach is to maintain our IMU, but again, we're working very closely with our brand partners to closely manage any price increases.
Doug Howe: Lying on a national brand partners and we're obviously working very closely with them.
Doug Howe: They are also selectively passing on price increases our overall approach is to maintain.
Doug Howe: Maintain our IMU.
Doug Howe: But again, we're working very closely with our brand partners to closely.
Doug Howe: Manage any price increases.
Speaker Change: Very helpful and then on top bowl exceptional growth and very good performance too could you remind me about how everything involved.
Douglas Howe: and Marcin. Douglas Howe, Mauricio Vega, Dustin Howe, Mauricio Vega, Dustin Howe, Mauricio Vega, Leading into over the last couple of quarters. So just curious to hear like, you know, how you saw that business performance during Yeah, as I said, athletic and athleisure definitely perform stronger than the balance of the assortment. We picked up market share at DSW and Q1 as well. So again, those businesses continue to outperform pretty materially the balance of the assortment, which is aligned with the strategy that the team's been executing now for the past 18 months or so.
Doug Howe: Or how big the Brian is right now for you and what are your expectations for Tony can you talk about how much revenue do I was talking about business I'm trying to I'm sorry.
Doug Howe: Well again as it.
Doug Howe: As we shared it grew 20 or 84% in the quarter.
Doug Howe: Just exceptional growth team has done a really good job of continuing to focus on door expansion as I said, it's in 200 points of distribution. So there's been.
Doug Howe: Of constant flow of new product launches and innovation, which I talked about on the call as well. So we're very optimistic that that trend would continue again, we're just really getting started with the brand.
Speaker Change: Got it and sorry, if I missed this but could you talk about maybe what you saw on slide Atlantic where in the U S business that kind of hasn't been like from the company has been leaning into over the last couple of quarters or just curious to hear like how you saw that business performance during the quarter.
Speaker Change: Yeah, as I said athlete athletic and athleisure definitely performed stronger than the balance of the assortment, we picked up market share and DSW in Q1 as well. So again those businesses continue to outperform pretty materially the balance of the assortment.
Speaker Change: Is aligned with the executing the strategy that the team has been executing now for the past 18 months or so.
Speaker Change: Got it what did you say like if that business was up or down like any any signs of trouble.
Douglas Howe: Thank you, everyone. What we shared was that the top eight brands, seven of which were athletic, were essentially flat in the first quarter of the year. So again, gives you kind of an understanding of the relative performance relative to balance of the assortment. Thank you so much.
Speaker Change: How that business performed.
Speaker Change: While we shared was that the top eight brands seven of which were athletic were essentially flat in the first quarter of the year.
Speaker Change: And it gives you kind of an understanding of the relative performance relative to the balance of the assortment.
Speaker Change: Understood. Thank you so much.
Unknown Executive: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question is from Dana Telsey with Telsey Group. Please go ahead.
Dana Telsey: The next question is from Dana Telsey with Telsey Group. Please go ahead. Hi, good morning, everyone.
Dana Telsey: Hi, good morning, everyone given the environment, how are you planning for back to school.
Douglas Howe: Given the environment, how are you planning for back to school? How do you think about your inventory for the holiday season? And when you think about the range of outcomes for mitigation of tariffs, where do you see yourselves falling in terms of diversification versus price increase or sharing the cost? How are you navigating? Thank you. Yeah, Dana, thanks for your question. This is Doug. We're actually cautiously optimistic about back to school, you know, we had a relatively strong performance at DSW last year for back to school. Last year was really the first year that we were, excuse me, more overt about getting out there and marketing and really messaging, overt back to school messaging.
Speaker Change: How do you think about your inventory.
Speaker Change: With the holiday season, and when you think about the range of outcomes for mitigation.
Speaker Change: Harris.
Speaker Change: Where do you see yourself falling in terms of diversification versus price increase of sharing the costs. How are you navigating thank you.
Doug Howe: Yes, Dana Thanks for your question this is Doug.
Doug Howe: We're actually cautiously optimistic about back to school, we had a relatively strong performance at DSW last year for back to school last year was really the first year that we were [noise] excuse me more overt about getting out there and marketing and really messaging.
Speaker Change: Over back to school messaging.
Douglas Howe: And again, those businesses have been more buoyant than the balance of the business, particularly the kids business, which is obviously heavily reliant on the athletic category. So, we're cautiously optimistic about that. I just would balance that with you know, the kind of the ongoing uncertainty in the volatility that, you know, the discretionary consumer is definitely under pressure. But the teams have done a really nice job of managing the inventory there. As you know, that category is much more diversified from a sourcing perspective, so a little bit less subject to the pressure of tariffs. And we'll carefully monitor the inventory.
Speaker Change: And again those businesses have been more buoyant.
Speaker Change: And then the balance of the business, particularly the kids business, which is obviously heavily relying on the athletic category. So we're cautiously optimistic about that I just would balance that with.
Speaker Change: The kind of ongoing uncertainty and the volatility that.
Speaker Change: The discretionary consumer is definitely under pressure, but the teams have done a really nice job of managing the inventory there.
Speaker Change: As you know that category is much more diversified from a sourcing perspective, so a little bit less subject to the pressure of tariffs.
Speaker Change: And we will carefully monitor the inventory, but again the team did a really good job navigating that in Q1 as well that's always been kind of a strong suit of of the company specifically at DSW.
Douglas Howe: But again, the team did a really good job navigating that in Q1 as well. That's always been kind of a strong suit of the company, specifically at DSW.
Douglas Howe: And then as it relates to holiday, I mean, we'll obviously stay very close to it. The teams are monitoring it every day with regards to reading and reacting to consumers and how they're responding, you know, in the moment. But if there's, you know, any relief in this, I mean, we'll be well-positioned to take advantage of that. But and again, that was a strong suit for us last year as we really into gifting and the messaging and marketing of how that actually showed up in stores as well. So we have that playbook ready to execute again this year.
Speaker Change: And then as it relates to holiday I mean, we will obviously stay very close to what the teams are monitoring. It every day with regards to reading and reacting to consumers and how they're responding in a moment, but.
Speaker Change: Yes.
Speaker Change: Any relief in this I mean, we will be well positioned to take advantage of that but.
Speaker Change: And again that was a strong suit for us last year, as we really leaned into gifting.
Speaker Change: The messaging and marketing of how that actually showed up in store as well. So we have that playbook ready to execute again this year and I'd say overall, we're cautiously optimistic it's just.
Douglas Howe: And, you know, I'd say overall, we're cautiously optimistic. It's just the uncertainty of what's happening with customer sentiment.
Speaker Change: The uncertainty of what's happening with the with customer sentiment.
Douglas Howe: And Dana, on your second question around the mitigation options on tariffs, the one thing I would reiterate is, you know, we certainly were already looking even before the tariff announcements to start more aggressively diversifying outside of China. We certainly accelerated that. We've got options that could take us all the way down to almost 5%. But on the flip side, you know, there's still a much more stable and cheaper supply chain in China for non-athletic footwear. So, you know, being something more than five might be more desirable, but it really will depend on where things shake out.
Dana Telsey: And Dana on your second question around the mitigation options on tariffs. There's one thing I would reiterate is we.
Dana Telsey: We certainly were already looking even before the tariff announcements to diverse start more aggressively diversifying outside of China. We certainly accelerated that we've got options that could take us all the way down to almost 5%, but on the flip side. There is still a much more stable and cheaper supply chain in China for non athletic.
Dana Telsey: So being something more than five might be more desirable, but it really will depend on where things shake out.
Douglas Howe: But lower than where we started is certainly, you know, where we will end up the year. I will just remind you, only less than 20% of the products that we sell, do we actually control where they're made. The rest of them we buy from someone else and certainly are not part of this decision. I just add to what Jared said. I mean, our team has done a really nice job accelerating our diversification efforts, so that we have greater optionality, you know, on those categories, but we want to stay close to it. Because again, in many cases, the prices in China are still quite a bit favorable, particularly in the dress category where we we over penetrate.
Dana Telsey: But lower than where we started is certainly.
Dana Telsey: Where we will end up the year I will just remind you only less than 20% of the products that we sell do we actually control where they're made the rest of them we buy from someone else and certainly are not part of this decision.
Dana Telsey: Decisions.
Dana Telsey: I would just add to what George said I mean, our team has done a really nice job.
Dana Telsey: Accelerating our diversification efforts so that we have greater optionality on those categories, but we wanted to stay close to it because again in many cases the prices in China are sold quite a bit favorable.
Dana Telsey: Particularly in the dress category, where.
Dana Telsey: We over penetrate.
Unknown Executive: Thank you.
Dana Telsey: Thank you.
Dana Telsey: Okay.
Dana Telsey: Thank you.
Douglas Howe: This concludes our question and answer session.
Speaker Change: This concludes our question and answer session I would now like to turn the conference back over to Mr. Howe for any closing remarks.
Douglas Howe: I would now like to turn the conference back over to Mr. Howe for any closing remarks. In closing, I'd like to just say thank you again to all of our Designer Brands Associates for their continued hard work and dedication throughout the quarter. And thanks to everyone who joined us today. We look forward to updating you in future months as we advance through the balance of the year. Thank you.
Doug Howe: In closing I'd like to just say, thank you again to all of our designer brands associates for their continued hard work and dedication throughout the quarter and thanks to everyone who joined US today, we look forward to updating you.
Doug Howe: In future months as we advance through the balance of the year. Thank you.
Doug Howe: Okay.
Unknown Executive: The conference is now concluded. Thank you for attending today's presentation.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Unknown Executive: You may now disconnect your line.
Speaker Change: Okay.
Speaker Change: [music].