Q2 2025 Designer Brands Inc Earnings Call
Ashley Furlan: Good morning and welcome to the Designer Brands Inc. Q2 2025 Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing * then 0 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then 1 on your telephone keypad. To withdraw your question, please press * then 2. Please note this event is being recorded. I would now like to turn the conference over to Ashley Furlan, Investor Relations. Please go ahead.
Good morning and welcome to the designer brand. Second quarter, 2025 results conference call. All participants will be in listen-only mode. Should you need assistance? Please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star then 1 on your telephone keypad to withdraw your question. Please press star then 2. Please note. This event is being recorded. I would now
Ashley Furlan: Good morning. Earlier today, the company issued a press release comparing results of operations for the 13-week period ended August 2, 2025, to the 13-week period ended August 3, 2024. Please note that the financial results that we will be referencing during the remainder of today's call exclude certain adjustments recorded under GAAP unless specified otherwise. For complete reconciliation of GAAP to adjusted earnings, please reference our press release. 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. Except as may be required by applicable law, the company assumes no obligation to update any forward-looking statements. Joining us today are Doug Howe, Chief Executive Officer, and Jared Poff, Chief Financial Officer.
Like to turn the conference over to Ashley Furlan investor relations. Please go ahead. Good morning earlier today. The company issued, a press release comparing results of operations for the 13th. Period, ended August 2nd, 2025 to the 13-week, period ended August 3rd. 2024, please note that the financial results that we will be referencing. During the remainder of today's call exclude certain adjustments, recorded under gaap unless specified. Otherwise, for a complete reconciliation of gaap to adjusted earnings. Please reference, our press release.
Additionally, please note that remarks made about the future expectations plans and Prospects of the company constitute for 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.
Except as may be required by applicable law, the company assumes no obligation to update any forward-looking statements.
Ashley Furlan: Now, let me turn the call over to Doug.
Joining us today are Doug Howe, Chief Executive Officer, and Jared Poff, Chief Financial Officer. Now, let me turn the call over to Doug.
Doug Howe: Good morning and thank you, everyone, for joining us. I'd like to begin by saying how proud I am of the improvements we've made throughout the quarter, due in no small part to the hard work and dedication of our associates. We are pleased with the meaningful progress against our strategic initiatives throughout the second quarter and are excited to report this positive momentum has carried forward into August. In the second quarter, we delivered sequential improvement over Q1, reflecting the impact of targeted operational efforts and the resilience of our team. Our total sales for the quarter were down 4% year over year, with a 5% decline in comparable sales. This was a 280 basis point improvement from the first quarter comps, and despite remaining volatility and uncertainty, we believe this reflects the effectiveness of our strategies and gradual improvement in consumer sentiment.
Good morning, and thank you, everyone, for joining us.
I'd like to begin by saying how proud I am of the improvements we've made throughout the quarter. This is in no small part due to the hard work and dedication of our Associates.
We are pleased with the meaningful progress against our strategic initiatives, throughout the second quarter, and are excited to report this positive momentum has carried forward into August.
In the second quarter, we delivered sequential improvement over Q1, reflecting the impact of targeted operational efforts and the resilience of our team.
Our total sales for the quarter were down, 4% year-over-year with a 5% decline in comparable sales.
Doug Howe: On the expense side, adjusted operating expenses were down over $14 million last year, and we achieved 350 basis points of leverage compared to Q1, demonstrating disciplined cost management and supporting year-over-year EPS growth. Let me review some highlights from each segment with the second quarter, starting with our retail businesses. For the second quarter, U.S. retail comps were down 5%, with total sales also down 5%. These declines were an improvement from the first quarter, correlated with slightly improved consumer sentiment and sequential improvement in store traffic as we move through the quarter. While broader macroeconomic pressures persist, these trends offer encouraging signs that some headwinds may be starting to ease. Additionally, we know that the largest number of signups for our VIP Rewards program happened in stores. As store traffic improves, it should have a positive impact on the program, whose members drive over 90% of our transactions.
this was a 2008 basis, point improvement from the first quarter comps and despite remaining volatility and uncertainty, we believe this reflects the effectiveness of our strategies and gradual Improvement in consumer sentiment
On the expense side, adjusted operating expenses were down over 14 million dollars to last year and we achieved 350 basis points of Leverage compared to q1.
Grow up.
Let me review some highlights from each segment with the second quarter.
Starting with our retail businesses.
For the second quarter us, retail comps were down 5% with total sales, also down 5%.
These declines were an improvement from the first quarter correlated with slightly improved consumer sentiment and sequential Improvement in store traffic as we move through the quarter.
While broader macroeconomic pressures persist, these trends are offering signs that some headwinds may be starting to ease.
Doug Howe: Store conversion was up 1% versus last year, as our strong assortment and improved in-stock levels resonated with customers. To support further improvements in traffic and conversion, we are continuing to invest in marketing both in and outside of stores, meeting our customers where they are, with the styles they are seeking. In stores, we've seen positive results from the collateral and branded in-caps that have echoed consistent, improved messaging. Our simplified pricing strategy also helped drive clearance sales up 3% versus last year. Delivering value has always been a core part of our model, and this approach reinforces our commitment to making it even easier for customers to find. As we utilize marketing to acquire new customers, we've also successfully launched a new partnership with DoorDash.
Additionally, we know that the largest number of signups for our VIP Rewards program happened in stores. So, as store traffic improves, it should have a positive impact on the program, whose members drive over 90% of our transactions.
Store conversion was up 1% versus last year, as our strong assortment and improved in-stock levels resonated with customers.
To support further improvements in traffic and conversion, we are continuing to invest in marketing, both in and outside of stores, meeting our customers where they are with the styles that they are seeking.
In stores, we've seen positive results from the collateral and branded in gaps that have echoed consistent, improved messaging.
Our simplified pricing strategy. Also helped Drive clearance sales of 3% versus last year.
Delivering value has always been a core part of our model and this approach reinforces our commitment to making it even easier for customers to find.
Doug Howe: While it's early in this relationship, we're encouraged that approximately 85% of our transactions from the DoorDash marketplace so far represent customers that are new to DSW. We believe this is also helping to bolster interest in our stores across local geographies. Within our stores, we launched several trend-driven campaigns with key national brands this summer. Specifically, we executed a Birkenstock front-of-store takeover across all locations. The campaign was fully integrated across all channels, reinforced by a revitalized digital storefront and VIP program integration. Additionally, social engagement continued to climb in Q2, fueled by stronger content strategies and creator partnerships that continue to build relevancy with the consumer. We are excited to continue to leverage these partnerships throughout the back-to-school season. In our U.S. retail business, a few categories meaningfully outpaced the balance of the business.
As we utilize marketing to acquire new customers, we've also successfully launched a new partnership with DoorDash.
While it's early in this relationship, we're encouraged that approximately 85% of our transactions from the door, Dash Marketplace. So far, represent customers that are new to dssw.
We believe that this is AI helping to bolster interest in our stores across local geographies.
Within our stores, we launched several trend-driven campaigns with key national brands this summer.
Specifically, we executed a Birkenstock front of store takeover across all locations.
The campaign was fully integrated across all channels, reinforced by a revitalized digital storefront and VIP program integration.
Additionally, social engagement continued to climb in Q2 fueled by stronger content, strategies, and Creator Partnerships. That continued to build relevancy with the consumer.
We are excited to continue to leverage these Partnerships throughout the back to school season.
Doug Howe: This was led by strength in the women's dress category, which delivered a positive 5% comp, a 900 basis point improvement from the first quarter. Our top eight brands also continued to outperform the balance of chain with a positive 1% comp for the quarter. Penetration of our top eight brands grew 300 basis points over last year, accounting for 45% of total sales in the quarter. On the athletic side, our adult business showed sequential improvement, and Kids Athletic posted a flat comp, representing a 500 basis point improvement over the prior quarter, underpinned by a strong start to the back-to-school season. As we discussed last quarter, we have been leaning more overtly into our back-to-school marketing to reinforce our position as a true destination and see this resonating as we continue to see positive momentum in August, with further sequential improvement in comps.
In our U.S. retail business, a few categories meaningfully outpaced the balance of the business.
This was led by strength in the women's dress category which delivered a positive 5% comp a 900 basis, point improvement from the first quarter.
Our top 8 brands also continued to outperform the balance of change with a positive 1% comp for the quarter.
Penetration of our top 8 Brands. Grew 300 basis points over last year accounting for 45% of total sales in the quarter.
On the athletic side, our adult business showed sequential improvement, and kids' athletic posted a flat comp, representing a 500 basis point improvement over the prior quarter, underpinned by a strong start to the back-to-school season.
As we discussed last quarter, we have been leaning more overtly into our back to school marketing, to reinforce our position as a true destination. And see this resonating. As we continue to see positive momentum in August with further sequential Improvement in comps
Doug Howe: We spoke last quarter about our improved distribution strategy and increased focus on enhancing digital profitability. We made progress on this in the second quarter, optimizing our marketing spend and placing stronger focus on cultivating customers across channels. Looking ahead, we plan to continue leaning into our omnichannel approach to deepen relationships and enhance customer lifetime value. Turning to our Canadian business, total sales in the second quarter showed sequential improvement over Q1 and held flat year over year. The trajectory continued to sequentially improve throughout the quarter, with July turning to a positive comp. Overall, this steady progress gives us cautious optimism as we look ahead. Now to our brand portfolio segment. Although sales were down 24% compared to last year, this was largely driven by lower internal sales as anticipated. Importantly, wholesale activity across all other external retail partners delivered year-over-year growth.
We spoke last quarter about our improved, distribution strategy, and increased focus on enhancing digital profitability.
We made progress on this in the second quarter, optimizing our marketing spend and placing stronger focus on cultivating customers across channels.
Looking ahead, we plan to continue leaning into our Omni Channel approach to deepen relationships and enhance customer lifetime value.
Turning to our Canadian business.
Total sales in the second quarter showed sequential improvement over Tier 1 and helped flat year-over-year.
To sequentially improve throughout the quarter with July turning to a positive call.
Overall, this steady progress gives us cautious optimism as we look ahead.
now, to Our Brands portfolio segments,
All those sales were down 24% compared to last year. This was largely driven by lower internal sales, as anticipated.
Doug Howe: Turning to our near-term areas of focus, we remain confident in our strategy and will continue to focus on the two pillars of customer and product within our retail businesses. In brands, we will drive growth by scaling private label, building a more profitable wholesale model, and investing in strategic growth brands like Topo Athletic and Keds. Our customer remains our first priority, and we are committed to delivering meaningful, consistent value to them across all channels. With our customer squarely in mind, we are excited about the DSW brand repositioning that we recently launched. This includes implementation of newly branded customer-facing assets, including an updated DSW logo, a refreshed fall marketing campaign, gift cards, and evergreen signage.
Turning to our near-term areas of focus, we remain confident in our strategy and will continue to focus on the two areas of customer and product within our retail businesses.
In Brands, we will drive growth by scaling private label.
Building a more profitable wholesale model and investing in strategic growth Brands like toppo and Kent.
Our customer remains our first priority, and we are committed to delivering meaningful, consistent value to them across all channels.
With our customer. Squarely in mind, we are excited about the DSW. Brand repositioning that we recently launched
Doug Howe: As part of our brand repositioning, we were excited to unveil our new tagline, "Let Us Surprise You." This marks a pivotal step in reinvigorating our DSW brand identity and leans back into what truly differentiates the DSW shoe buying experience. We are actively bringing the campaign to life with an optimized marketing approach, which will help to balance spend between top-of-funnel and personalized activations, raise brand awareness, and deepen customer engagement. We're also consistently focusing on highlighting the value we provide. As we discussed before, we have moved clearance pricing to a flat % off versus the multiple discount levels we used in the past. We are selectively offering additional discounts on clearance, marketed as buzzworthy, as well as rolling out exciting limited-time events. While it's early, we're encouraged by the trends we are seeing, particularly as average clearance markdown rates are trending lower than in prior periods.
This includes the implementation of newly branded customer-facing assets, including an updated DSW logo, a refreshed marketing campaign, gift card, and Evergreen signage.
As part of our brand repositioning we were excited to unveil our new tagline. Let us surprise you. This marks the pivotal step in reinvigorating, our DSW brand identity and leans back into to what truly differentiates the DSW shoe buying experience.
We are actively bringing the campaign to life with an optimized marketing approach, which will help to balance spends between top of funnel and personalized. Activations, raise brand awareness and deepen customer engagement.
We're also consistently focusing on highlighting the value we provide as we discussed before, we have moved clearance pricing to a flat percentage off versus the multiple discount levels. We used in the past.
We are selectively offering additional discounts on clearance marketed as buzzworthy as well as rolling out exciting limited time events.
Doug Howe: Shifting to our product pillar, we continue to operate with focus on elevating and evolving our assortment while driving improvement in inventory availability and productivity. We are meaningfully reducing our choice count while simultaneously increasing our depth on key styles throughout the year. Our choice count for the back half of 2025 is planned down 25% versus last year, and our depth is planned up 15%, underscoring our focus on inventory productivity. Looking ahead, we are adding depth in our core styles, including our top eight brands, ensuring we are focusing on the areas of highest demand. Going into fall, we are also seeing positive signs as it relates to regular price boosts, which we believe may signal potential strength in our seasonal merchandise this fall. On the product availability side, we have continued to shift inventory allocation in the U.S.
While it's early, we're encouraged by the trends. We are seeing particularly as average clearance markdown rates are trending lower than in Prior periods.
Shifting to our product filler, we continue to operate with focus on elevating and evolving. Our assortment while driving improvement in inventory, availability and productivity.
We are meaningfully reducing our choice count while simultaneously increasing our depth on key styles throughout the year.
Our choice count for the back. Half of 2025 is planned down, 25% versus last year and our depth is planned up. 15% underscoring, our focus on inventory productivity.
Looking ahead, we are adding depth in our core styles, including our top 8 brands, ensuring we are focusing on the areas of highest demand.
Going into fall, we are also seeing positive signs as it relates to regular price boots, which we believe may signal potential strength in our seasonal merchandise this fall.
Doug Howe: between digital fulfillment centers and our store locations to optimize in-store product availability. Our in-stock levels of regular-priced products materially improved to approximately 70%, a clear sign of progress in our inventory availability. We are seeing this strategy validated by our DSW store customers, who are driving our positive conversion comps. We continue to optimize our digital fulfillment through our distribution center, which is operationally more efficient than fulfilling from stores, while also protecting store inventory to ensure the shoe she wants is in the store when she visits. In the second quarter, we fulfilled over 80% more of our digital demand through our logistics center compared to last year. Overall, this adjustment has allowed us to protect our in-store inventory, focus on cost efficiencies, and post higher store conversion rates, all of which are foundational elements to better serve our customers.
on the product availability side, we have continued to shift inventory, allocation in the US between digital fulfillment centers and our store locations to optimize in-store product availability.
Our in-stock levels of regular price products materially improved to approximately 70%, a clear sign of progress, and our inventory availability.
We are seeing this strategy validated by our DSW store customers, who are driving our positive conversion comps.
We continue to optimize our digital fulfillment through our distribution center, which is operationally more efficient than fulfilling from stores, while also protecting store. Inventory to ensure the shoe she wants is in the store when she visits.
In the second quarter, we fulfilled over 80% more of our digital demand through our Logistics Center compared to last year.
Overall, this adjustment has allowed us to protect our in-store inventory, focus on cost efficiencies, and post higher store conversion rates; all of which are foundational elements to better serve our customers.
Doug Howe: As we continue to focus on the pillars of customer and product in our retail businesses, we recently unveiled a reimagined DSW store in Framingham, Massachusetts. This store is the first within the DSW fleet to fully integrate the DSW brand positioning of "Let Us Surprise You," with immersive, playful elements designed to drive deeper customer engagement and discovery within our curated assortment. As we pilot new and emerging technologies for potential integration across our retail footprint, this store location will be an important testing ground for modern and innovative shopping experiences. Aligned with our larger retail strategy to transform and differentiate our retail experience, this new store format features a suite of services, including Fitfinder technology, shoe protection services, and a dedicated try-on area with augmented reality-enabled try-on kiosks that allow customers to build complete outfits from toe to head.
As we continue to focus on the pillars of customer and product in our retail businesses, we recently unveiled a re-imagined DSW store in Framingham, Massachusetts.
This store is the first within the DSW Fleet to fully integrate. The DSW brand positioning of lettuce. Surprise you with immersive. Playful elements designed to drive deeper customer engagement and Discovery within our curated assortment
As we pilot, new and emerging Technologies for potential integration across our retail footprint, this store location will be an important testing round for modern and Innovative shopping experiences.
Doug Howe: A customization station further elevates the experience, enabling customers to personalize their purchases through embroidery, engraving, and digital printing. We believe this initiative represents a meaningful step forward in our efforts to evolve the DSW brand, deepen customer loyalty, leverage our stores as differentiators, and unlock long-term value. Turning to our brand segment, our sourcing team has done an admirable job mitigating the impact of tariffs and has made meaningful progress in our strategy to continue to diversify our supply base. Moving forward, we will continue to prioritize diversification to avoid over-reliance on any one country of origin, as the tariff environment remains highly unpredictable. Turning to our brands themselves, at Topo, we continue to meaningfully expand door count and shelf space in existing locations. Additionally, our DTC business continues to deliver outsized growth.
Build complete outfits from toe to head.
A customization station further, elevates The Experience. Enabling customers to personalize their purchases through an embroidery engraving and digital printing.
We believe this initiative represents a meaningful step forward in our efforts to evolve the DSW brand, deepen customer loyalty, leverage our stores as differentiators, and unlock long-term value.
Turning to our brand segment.
Our sourcing team has done an admirable job mitigating, the impact of tariffs and has made meaningful progress in our strategy to continue to diversify our supply base.
Moving forward. We will continue to prioritize diversification to avoid over, Reliance on any 1 country of origin as the Tariff environment remains highly unpredictable.
Turning to Our Brands themselves.
At too, we continue to meaningfully expand door count and shelf space in existing locations.
Doug Howe: Topo was early in raising prices as we saw tariff risks materialize, and they have helped to mitigate a significant portion of these costs. We have seen no impact on sales or growth rates by doing so. Before I conclude, I want to share a few thoughts on our 2025 guidance. Given the ongoing volatility with the recent tariff increases extended and the continued consumer caution around discretionary spending, we decided to continue to withhold our guidance. We will remain focused on disciplined execution across the areas within our control as we navigate the near-term environment. By doing so, I'm confident we're building a business grounded in the strength of our brands, centered on the customer, and positioned to drive sustainable long-term value. I want to emphasize that we remain committed to our strategy and our transformation.
Additionally, our DTC business continues to deliver outside growth.
Toppo is early in raising prices. As we saw tariff, risks materialize and they have helped to mitigate a significant portion of these costs.
And we have seen no impact on sales or growth rates by doing so.
Before I conclude, I want to share a few thoughts on our 2025 guidance.
Given the ongoing volatility with a recent tariff increases extended and the continued consumer caution around discretionary spending, we decided to continue to withhold our guidance.
We will remain focused on disciplined execution across the areas within our control as we navigate the near-term environment.
By doing so, I'm confident. We're building a business grounded in the strength of our brands.
Centered on the customer and positioned to drive sustainable long-term value.
Doug Howe: We are encouraged by the early signs of positive momentum and pleased with the sequential improvement we've delivered. We remain cautiously optimistic for the remainder of the year, as there is still a lot of macro uncertainty. As always, I am deeply proud of our team members, whose commitment, resilience, and focus have been the driving force behind our progress. Their ability to navigate challenges while continuing to deliver excellence exemplifies the culture and strength of our organization and will position us well for long-term growth. With that, I'll turn it over to Jared. Jared?
I want to emphasize that we remain committed to our strategy and our transformation.
We are encouraged by the early signs of positive momentum and pleased with the sequential Improvement. We've delivered
We remain cautiously optimistic for the remainder of the year, as there is still a lot of macro uncertainty.
As always, I am deeply proud of our team members whose commitment, resilience, and focus have been the driving force behind our progress.
Their ability to navigate challenges, while continuing to deliver excellence, exemplifies the culture and strength of our organization and will position us well for long-term growth.
With that, I'll turn it over to Jared.
Jared Poff: Thank you, Doug, and good morning, everyone. I want to begin by echoing Doug's comment that the sequential improvement we've seen this quarter is a significant step forward. Despite ongoing macroeconomic headwinds and continued pressure on consumer discretionary spending, our focus on advancing our strategy is delivering improved results. Let me provide a bit more detail on our second quarter financial results. For the second quarter of fiscal 2025, our net sales of $739.8 million declined 4.2% year over year, with comp sales down 5%. This represents a significant improvement from Q1, where net sales were down 8% from last year. In our U.S. retail segment, sales declined 4.8% year over year, with comp sales down 4.9%. This represents another significant improvement from Q1.
Jared.
Thank you, Doug and good morning everyone. I want to begin by echoing Doug's comment that the sequential Improvement we've seen this quarter is is a significant step forward.
Despite ongoing macroeconomic headwinds and continued pressure on consumer, discretionary spending our focus on advancing. Our strategy is delivering improved results.
Let me provide a bit more detail on our second quarter financial results.
For the second quarter of fiscal 2025, our net sales of 739.8 million declined, 4.2% year-over-year with comp sales down 5%.
This represents a significant improvement from q1 where net sales were down 8% from last year.
and our us retail statement, sales declined 4.8% year-over-year with comp sales down 4.9%
Jared Poff: We are also encouraged by our women's dress performance, which posted a 5% positive comp in the quarter and represents a significant part of the business at almost 12% of total sales. While athletic sales were a slightly negative comp of down 2%, we did see a 2-point comp improvement from the first quarter. In our Canada retail segment, sales were up 0.4% in the second quarter compared to last year, with comps down 0.6%, another significant improvement from the first quarter. Finally, in our brand portfolio segment, total sales were down 23.8% to last year, largely driven by the anticipated decline of internal sales to DSW. I would like to echo Doug's comment about the strength of our brand's external wholesale business, which was up 7%.
This represents another significant improvement from Q1.
We are also encouraged by our women's dress performance, which posted a 5% positive comp in the quarter and represents a significant part of the business at almost 12% of total sales.
While athletic sales were a slightly negative comp of down 2%, we did see a 2-point comp improvement from the first quarter.
And our Canada. Retail segment, and sales were up 0.4% in the second quarter compared to last year. With comps down 0.6%, another significant improvement from the first quarter.
Finally, in our brand portfolio segment, total sales were down 23.8% compared to last year, largely driven by the anticipated decline of internal sales to DSW.
Jared Poff: While we continued to see challenges throughout the quarter, Topo Athletic remained a standout in our assortment, posting 45% growth in sales year over year. Within our dress and seasonal assortment, Jessica Simpson and Vince Camuto continued to be strong performers, achieving sales growth of 12% and 17% in wholesale sales to partners outside of DSW. Consolidated gross margin was 43.7% in the second quarter and decreased by 30 basis points versus the prior year, primarily driven by lower IMU due to increased penetration of the athletic category, but leveraged 70 basis points from the first quarter. For the second quarter, adjusted operating expenses dropped $14.1 million versus last year, slightly leveraging by 20 basis points year over year.
I would like to echo Doug's comment about the strength of our brand's external wholesale business, which was up 7%.
Partners outside of DSW.
Consolidated. Gross margin was 43.7% in the second quarter, and decreased by 30 basis points versus the prior year. Primarily driven by lower IMU, due to increased penetration of the athletic category. But leverage, 70 basis points from the first quarter.
Jared Poff: As we discussed in our last call, in response to the highly volatile macro environment and its impact on our business, we have taken an aggressive, disciplined approach to managing our expense structure and capital expenditures. With these actions, we currently are on track to deliver approximately $20 million to $30 million in expense dollar savings across fiscal 2025 as compared to 2024. As a reminder, our third quarter will include a headwind of $9 million compared to the prior year from our bonus accrual reversal last year during Q3. For the second quarter, adjusted operating income was $30.3 million compared to operating income of $32.5 million last year. In the second quarter of 2025, we had $11.7 million of net interest expense compared to $11 million last year. Our effective tax rate in the second quarter on our adjusted results was 10.1% compared to 20.6% last year.
For the second quarter, adjusted operating expenses dropped $14.1 million versus last year, slightly leveraging by 20 basis points year-over-year.
as we discussed in our last call and response to the highly volatile macro environment.
And its impact on our business, we have taken an aggressive disciplined approach to managing our expense structure and capital expenditures.
With these actions, we currently are on track to deliver approximately $20 million to $30 million in expense dollar savings around fiscal 2025 as compared to 2024.
As a reminder, our third quarter will include a headwind of $9 million compared to the prior year from our bonus or accrual reversal last year during Q3.
For the second quarter, adjusted operating income was 30.3 Million compared to operating income of 32.5 Million last year.
In the second quarter of 2025, we had $11.7 million of net interest expense compared to $11 million last year.
Jared Poff: Our second quarter adjusted net income was $16.7 million versus $17.1 million last year, and $0.34 in adjusted diluted earnings per share for the quarter, which I'm happy to report was above last year's EPS of $0.29. Turning to our inventory, we ended the second quarter with total inventories down 5% to last year. During the quarter, we utilized excess cash to pay down debt, ending the quarter with total debt outstanding of $516.3 million. Subsequent to the end of the second quarter, we have further paid down debt to end fiscal August with outstanding debt of $476.1 million. We ended the second quarter with $44.9 million of cash, and our total liquidity as of the end of the second quarter, which includes cash and availability under our revolver, was $149.2 million.
Our effective tax rate in the second quarter on our adjusted results. Was 10.1% compared to 20.6% last year.
Our second quarter adjusted net income was $16.7 million versus $17.1 million last year, and $0.34 in adjusted diluted earnings per share for the quarter. I’m happy to report that this was above last year's EPS of $0.29.
Returning to our inventory. We ended the second quarter with total inventories down 5% to last year.
During the quarter, we utilized excess cash to pay down debts, ending the quarter with total debt outstanding of 516.3 million.
Subsequent to the end of the second quarter, we have further paid down debt to end fiscal August without standing debt of 476.1 million.
We ended the second quarter with 44.9 million of cash and our total liquidity. As of the end of the second quarter, which includes cash and availability. Under our revolver was 149.2 Million.
Jared Poff: While we are encouraged by the progress made since Q1 and remain cautiously optimistic about the second half of fiscal 2025, there is still work ahead. Persistent macro headwinds and uncertainties related to tariffs have led us to the decision to continue to withhold full-year guidance as we focus on the factors within our control. To conclude, I'm encouraged by the progress we achieved during the second quarter, and as the macro environment stabilizes, I am confident that we are well positioned to advance our strategy. With that, we will open the call to questions. Operator?
Well, we are encouraged by the progress made since q1 and remain cautiously. Optimistic about the second half of fiscal 2025, there is still work ahead.
Persistent macro headwinds and uncertainties related to tariffs have led us to the decision to continue to withhold guidance as we focus on the factors within our control.
To conclude I'm encouraged by the pro progress. We achieved during the second quarter.
And as the macro environment stabilizes, I'm confident that we are well positioned to advance our strategy.
With that, we will open the call to questions.
Ashley Furlan: We will now begin the question and answer session. To ask a question, you may press * then 1 on your telephone keypad. If you're 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 * then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Mauricio Serna at UBS. Please go ahead.
Operator.
We will now begin the question and answer session to ask a question. You may press stars and 1 on your telephone keypad. If you're using a speaker-phone, 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 to at this time we will pause momentarily to assemble our roster.
The first question comes from Mauricio Serna and UBS.
Please go ahead.
Mauricio Serna: Great. Good morning. Thanks for taking my question. I guess I wanted to ask if you could elaborate on the interquarter trends. It seems like things really got better as the quarter progressed. Could you give us a sense of what were the comps, how the comp sales looked during the quarter, and how to think about that, considering that you mentioned the momentum continued into August so far? Thank you.
Great. Good morning. Thanks for taking my question. Uh, I guess I wanted to ask if you could elaborate on the inter quarter Trends, you know it seems like things really got better as the quarter progress. Could you give us a sense of like what were the comps, how the comp sales looked uh during the quarter and how to think about that uh considering that you mentioned the momentum continued into, you know, August so far. Thank you.
Doug Howe: Yeah. Hi, Mauricio. This is Doug. Thanks for your question. We saw sequential improvement as we moved through the quarter. As we said in the prepared remarks, we're obviously very encouraged by the trend that we saw in athletics, both in kids and adults. Most notably, the dramatic improvement that we saw in women's dress, which was a 900 basis point improvement in the quarter, that's always been an area of strength for us, obviously. That has continued even as we've advanced in August, as we said. We're very encouraged by that. I mentioned very early on that the initial boot selling, specifically regular price, is very encouraging as well. We think that bodes well for not only the, you know, it's really a fashion inning, so we feel really strongly about that assortment and are cautiously optimistic as we move through the back half of the year.
Well, we think that bodes well for not only the, you know, it's really a passion inning. So we feel really strongly about that assortment and our cautiously optimistic as we move through, uh, the backup of the year.
Mauricio Serna: Got it. I guess just wondering, at the end of the quarter, were you still on negative comps, or were you actually positive as a total company?
Doug Howe: Still slightly negative. We've seen sequential improvement as we've now moved through August.
Got it and I guess just wondering like in like at the end of the quarter, were you still, uh, on negative comps or just trying to or like, were you actually like positive on as a total company?
Jared Poff: You know, Mauricio, one thing I would remind you, and we talked about it on the last call, we are taking a very different approach than we historically have towards our digital business. Recognizing there's a large part of that that it's very difficult to make actual money on. We have been very deliberately pulling back the marketing we spend to chase some of those empty calorie sales, as well as the sales themselves. We're really focused on where we can provide a differentiation, which is our stores, and are seeing some really strong trends there. As Doug mentioned in his script, we saw that turn to positive in August in our stores' comps.
Still slightly negative, and then again we've seen sequential improvement as we've now moved through August.
Jared Poff: When you do look at the total, you do need to make sure and understand there's a piece of it that we're okay with negative comps on, on the digital specifically, as long as we're improving our profitability.
Mauricio Serna: To Jared's point, we are seeing positive conversion in stores as a result of both the assortment and the inventory fulfillment strategy that we've spoken about. That is actually very encouraging to see that the assortment is resonating with customers, specifically in stores. Just one quick follow-up on the topic of profitability. Could you maybe give us a little bit more detail on Q3, like how much of a pressure are you foreseeing because of tariffs? I guess at this point, you already have that inventory, so you probably have an idea of what's the weighted average tariff or the incremental cost just related to that in Q3, in your Q3, yeah.
You know, Mauricio 1 thing, I I would remind you, um, and we talked about it on the last call. We are, um, taking a very different approach than we historically have towards our digital business. Um, you know, recognizing there's, there's a large part of that, that it's very difficult to make actual money on and so, you know, we we have been very deliberately pulling back. Um, you know, the marketing we spend to chase some of those empty calories sales, um, as well as the sales themselves. And so, you know, we're really focused on where we can provide a differentiation which is our stores and our seeing, you know, some really strong um Trends there. And as as Doug mentioned in his script you know we saw that turn to positive in August in our in our stores uh comps. So um you know when you do look at the total um you do need to make sure and and understand there's a piece of it that we're okay with negative comps on on the digital specifically. Um, as long as we're improving our profitability,
And then, to Jared's point, I mean, we are seeing positive conversion in stores as a result of both the assortment and the inventory fulfillment strategy that we've spoken about. So that was actually very encouraging to see that the assortment is resonating with customers, specifically in stores.
Doug Howe: Yeah, Mauricio, let me kind of give you some high level and Jared can add some color here as well. I just want to remind everyone that the overwhelming concern that we've had from the onset has not been the direct impact of tariffs. When you look at it in the grand scheme of things, our brand portfolio only imports about 20% of product. The rest of it, we land domestically. At DSW, obviously, we're largely reliant on our brand partners. We have always been most concerned about the indirect impact of tariffs. We've been working very closely on the retail side. We've had brand partners strategically, very selectively pass on price increases. We've largely passed those on and maintained our IMU. The majority of those are just now coming customer-facing in the last couple of weeks. We're cautiously optimistic, that's why we have concern.
Not and just 1 quick. Follow-up on the topic of profitability, could you maybe give us a a little bit more detail on the Q3, you know, like how much of a pressure are you foreseeing? Because of, you know, tariffs I guess at this point like you already have that inventory so you probably have an idea of like, you know, how what's like the weighted average tariff. You know, or the incremental cost just related to to that in in in the in the Q3 in your Q3? Uh yeah.
Yeah, Yeahs Mauricio, let me kind of give you some high level and, and Jared can answer the color here as well. I just want to remind everyone that, you know, the overwhelming concern that we've had from the onset, has not been the direct impact of tariffs, because when you look at it in the grand scheme of things, like Our Brands portfolio, only import about 20% of products, the rest of it. Um, we land, uh, the best way. And ideally, obviously, we're largely reliant on our, um, brand Partners. So we are have always been most concerned about the indirect impact of tariffs
Uh, we've been working very closely on the retail side. We've had brand partners.
Doug Howe: It's always been more around that indirect impact that it would have on overall consumer sentiment as opposed to the direct impact. We've selectively taken price increases in some of our private label products. Haven't had a negative reaction to that. Again, it's early days and we are kind of cautiously optimistic as we move through the balance of the back half.
strategically, you know, very collectively passed on price increases. We've largely passed those on and maintained our IMU, um, but the majority of those are just now coming customer facing in the last couple of weeks. So, um, we're cautiously optimistic but that's, you know why we have concern, but it's always been more around that indirect impact that it would have on overall consumer sentiment as opposed to the direct, uh, impact we've selectively, um, take in price increases in some of our private label products, um, haven't had, you know, negative reaction to that. But again, it's early days and we are kind of cautiously optimistic as we as we move through the balance of the back out.
Mauricio Serna: Thank you so much.
Thank you so much.
Ashley Furlan: Again, if you have a question, please press * then 1. The next question comes from Dana Tulsey at Tulsey Group. Please go ahead.
again, if you have a question, please press star then 1
Dana Tulsey: Hi, good morning, everyone. As you just put out the new marketing campaign with "Let Us Surprise You," what are the markers that you're looking for given that 70% of your customer base shops in store? You mentioned the store in Framingham, Massachusetts. How are you thinking of store productivity with this campaign? How are you thinking of openings and closings? Is there any real estate bent to it that you'll get from the enhanced marketing? Marketing as a percent of sales, how are you thinking about that this year? Thank you.
The next question comes from Dana tulsy and Tulsa group. Please go ahead.
Hi, good morning everyone. I wanted to ask about the new marketing campaign with lettuce. Can you share what the markers are that you're looking for? Given that 70% of your customer base shops in-store, and you mentioned the store in Framingham, how do you think of store productivity with this campaign? How do you think of openings and closings? Is there any real estate component to it that you'll get from the enhanced marketing? Also, marketing is a percent of sales—how are you thinking about that?
Doug Howe: Yeah, good morning, Dana. This is Doug. Yeah, we're very excited about the brand campaign. It is really early days. We just launched that actually in Q3. It went live on September 2. I'd say anecdotally, the feedback has been very, very positive from both customers' interactions, certainly from our associates. We are very happy with just the positioning of it. It's a bit of a wink and a nod. It's whimsical. It just feels like encouraging her to come in and kind of enjoy shopping in our stores, which again, we believe are very much our core differentiator. You walk into one of our stores, there's 2,000 choices of footwear. We want her to really enjoy that experience. We spend well over 30 minutes in the store. We're happy about that. It's very early days as it relates to the reaction.
About that, this year. Thank you.
Doug Howe: That's got a lot of impressions and pickup on the press. That's all been very overwhelmingly positive as well. To your point, we're going to be very thoughtful around how this shows up in-store, in our CRM, and all of our marketing channels. We're obviously, as Jared said, really focusing on channel profitability. We want to make sure that we're continuing to focus on optimizing that marketing investment. We'll be happy to report out as we get a little bit further along, but it's fairly anecdotal at this point. Again, very encouraged by the work. It was all informed by qualitative and quantitative research. We took the appropriate time to actually get to the messaging. To me, it feels kind of reminiscent of, you know, DSW's core strength. Surprising by great brands, great value, great assortment in our stores.
But it's very early days as it relates to, uh, the reaction. That's gotten a lot of impressions and pick up on the press. That's all been very overwhelmingly positive as well. Uh, and then to your point, I mean, we're going to be very thoughtful around how this shows up in store, in our CRM, and all of our marketing channels. We're obviously, uh, as Jared said, really focusing on uh, channel profitability. So we want to make sure that we're continuing to focus on optimizing that marketing investment. Um, and we'll be happy to report out as we get a little bit further along, but it's fairly anecdotal at this point. But again,
Doug Howe: We look forward to reporting out on the specifics, but a bit premature to do that at this point. Dana, from the marketing as a percentage of sales, I would say we are certainly cognizant. We are probably at the higher end of much of our peer set, but we think it's important to highlight where the differentiation is for DSW versus other shoe chain and shoe stores that are out there. We have mentioned when we kicked this off, it has been a minute, a very long minute since we have done some DSW brand marketing. Also, we just talked about how we are pulling back on aggressively chasing some of those empty calorie digital sales, which has freed up some marketing dollars on that front. Overall, we're not seeing or expecting significant deleverage on our marketing SG&A line.
very encouraged by the work and it was all informed by qualitative and quantitative research. So we took uh the appropriate time to actually get to the messaging. Um but to me it feels like kind of reminiscent of um you know, dfw's core strength. Um surprising by great Brands, Great Value, great assortment in our store. So um, again we look forward to reporting out on the specifics, but the event premature to do that at this point.
You know, you know, Dana from from the marketing as a as a percentage of sales. You know, I I would say we have, we are certainly cognizant. We we are probably at the higher end of much of our peer set, but we think it's, you know, important to highlight where the differentiation is, uh, for DSW versus other, um, shoe chain and shoe stores that are out there. Um, you know, we have, we have mentioned when we kicked this off, it has been a minute, a very long minute since we have done some
Doug Howe: We think it's more of an optimizing and kind of pivoting. As long as it's getting the returns that we're seeing and we're tracking that and we're tracking it very closely, we'll continue to fund that where it makes sense.
Dana Tulsey: Got it. You had mentioned Birkenstock is one of the brands with an activation that performed well. What are you seeing from brands? How is Nike performing? Any highlights of what you're expecting for brand activations or performance in Q4? Thank you.
DSW brand marketing. Um, but but also, you know, we we just talked about how we are pulling back on aggressively chasing some of those empty calorie digital sales, which is freed up some marketing dollars on that front. So overall we're not seeing um, or expecting significant, um, uh, de-lever on our marketing sgna line. We think it's more of an optimizing and kind of pivoting. Um, but, you know, as long as it's, it's getting the returns that we're seeing and, and we're tracking that and we're tracking it very closely, you know, we'll continue to to fund that, uh, where it makes sense.
Doug Howe: Yeah, Dana, that's a great question. You know, Birkenstock was among the top eight brands that we're tracking. We're really encouraged by the fact that those brands, as we said, delivered a 1% comp and their penetration increased to 45% of total sales. Birkenstock is one example, but the team has done a really good job of providing more brand collateral in stores, really telling a brand story, getting behind those brands that the customers are craving right now. That'll continue to be our focus going forward. We're fortunate to have great partnerships with those key brands. We're maintaining better in-stock levels with them, getting more access to product, and continue to be very encouraged by those top eight brands, of which Nike is obviously one of them.
Got it. And then you had mentioned Birkenstock is one of the brands of the activation that performed. Well, what are you seeing from brands? How is Nike performing, and any highlights of what you're expecting for brand activations or performance in Q4? Thank you.
Yeah, Dana that's a great question. Um you know, Birkenstock was among the top 8 brands that we're tracking. We're really encouraged by the fact that those Brands. As we said, delivered a 1% comp and their penetration increased to 45% of total sales. So, um, that Birkenstock is 1 example. But the team has done a really good job of, um, providing more brand collateral in stores, really, telling a Brand Story getting behind those brands that the customers are craving right now, and that'll continue to be our Focus going forward. But we're fortunate to have great Partnerships with those key. Uh, Brands we're maintaining better in stock levels with them getting more access to product.
Product and continue to be very encouraged by those top 8 brands, of which Nike is obviously one of them.
Dana Tulsey: Thank you.
Thank you.
Doug Howe: Sure.
Ashley Furlan: We have a follow-up from Mauricio Serna of UBS. Please go ahead.
Sure.
Mauricio Serna: Great. Thanks. Just a quick follow-up. I think I recall you mentioned you're planning to have like deeper assortment. Could you elaborate a little bit more on what you're bringing, maybe from a brand's perspective or category perspective? Like where is this deepening in assortment taking place? Just as a reminder, maybe on the puts and takes on your expectation of SG&A dollars to be down $20 to $30 million for the full year. Could you break that out into what are the different buckets that are driving that decline? Thank you.
And we have a follow-up from Mauricio Serna of UBS. Please go ahead.
Right. Uh, thanks. Just a quick follow-up. I think, uh, you know, I recall you mentioned, uh, you planning to have like deeper, uh, deeper assortment. Uh, could you elaborate a little bit more on what you're bringing? You know, maybe from a brand perspective or category perspective? You know, where is this deepening and assortment, uh, taking place? And just as a reminder, maybe on the put and takes on your, uh.
Expectation of sgna dollars to be down, 20 to 30 million dollars for the full year. Like, could you break that out like into what are the different buckets? That are driving that decline. Thank you.
Doug Howe: Yeah, thanks, Mauricio. I'll take the first part of that, and then I'll let Jared answer the SG&A piece. From an inventory perspective, as we've shared earlier this year, the teams are really focused on increasing our product availability, so our in-stock. That applies to the top brands. It applies to the top categories. As I said in my prepared remarks, our choice count for the back half is down 25%, but our depth is up 15%. That's a meaningful change, and it's driving a pretty strong result in store conversion. When we do customer intercept interviews, the number one reason when a customer leaves a store without a purchase is they didn't find their size. This goes squarely at that with regards to making sure that we have the style she wants and the size she wants when she comes into the store.
Yeah, thanks, Bri. I'll take the first part of that, and then I'll let Jared answer the SDNA piece from the invoice perspective, as we've shared. Earlier this year, the teams focused on increasing our product availability, so our in-stock...
Doug Howe: That's the benefit we're actually seeing on the inventory productivity.
Jared Poff: On the $20 to $30 million, I would kind of bucket it this way. About a third of that is professional fees, consultants, and things like that that we had been using for various initiatives that, you know, we have certainly ratcheted that down to things that are just absolutely critical. We're getting an immediate payback. We've got roughly around half of the savings from personnel-related type of actions. There were some corporate actions taken earlier in the year, as well as the flex that goes with the comps that we're seeing out in the storeland. The balance is just some puts and takes along lines like depreciation, occupancy, things like that.
So that applies to the top brands at a price of applied, to the top categories. But as I said in my prepared remarks, um, our choice count for the back half is down 25%, but our depth is up, 15%. Um, that's a meaningful change and uh, is driving a pretty strong. Uh, result in store conversion when we do customer intercept interviews, the number 1 reason, when a store, when a customer leaves a store without a purchase is, they didn't find their size. So, again, this goes squarely at that, with regards to making sure that we have the Styles, she wants in the size, she wants when she comes into the store. So that's the benefit. We're actually seeing on the inventory productivity.
20 to 30 million. I would kind of bucket it this way. About a third of that is, um, a professional fees, consultants, and, and things like that, that we had been using for various, uh, initiatives, that that, you know, we had certainly, uh, ratcheted that down to things that are just absolutely critical. We're getting an immediate payback. Um, we've got, um, you know, roughly around half of the savings from Personnel related type of actions. So, um, there was some corporate actions taken earlier in the year as well as the flex that goes with, um, the comps that we're seeing out in out in the store Land, um, and then the balance is just some puts and takes along lines like depreciation, um, occupancy, things like that.
Mauricio Serna: Understood. Thank you very much.
I understand. Thank you very much.
Ashley Furlan: This concludes our question and answer session. I would like to turn the conference back over to Doug Howe for any closing remarks.
This concludes our question and answer session. I would like to turn the conference back over to Doug howl for any closing remarks.
Doug Howe: I'd just close by saying that we are encouraged by the early signs of positive momentum, and we were pleased with the sequential improvement that we delivered throughout the quarter. I want to say thank you again to all of our team members for their unwavering commitment and their focus as they continue to operate with a sense of urgency to move the business forward. Thanks to all of you for joining us today.
I just closed by saying that we are encouraged by the early signs of positive momentum. And we were pleased with the sequential Improvement uh, that we delivered throughout the quarter. And I'd want to say thank you again to all of our team members for their unwavering commitment and uh, their focus as they continue to operate with a sense of urgency, to move the business forward, and thanks to all of you for joining us today.
Ashley Furlan: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded, thank you for attending today's presentation. You may now disconnect