Let’s open a thread for this one as well. Many US retailers have taken a significant hit while tech stocks have been rallying toward new highs. Designer Brands (ticker DBI) is no exception, and the share price is starting to approach levels seen during the financial crisis lows. There is still over 50% to go down to the March 2020 lows, but we might get there with the help of a recession.
Market cap is approximately $430 million and P/E is around 3.
The company’s description of itself:
“Designer Brands is one of the world’s largest designers, producers and retailers of the most recognizable footwear brands and accessories, transforming and defining the footwear industry by inspiring self-expression across every facet of its enterprise. Through its portfolio of world-class owned brands, led by the industry-setting Vince Camuto brand, Designer Brands delivers on-trend footwear and accessories through its robust direct-to-consumer omni-channel infrastructure, featuring a billion-dollar digital commerce business and nearly 650 stores across the U.S. and Canada. Its retailing operations under the DSW Designer Shoe Warehouse and The Shoe Company banners deliver current, in-line footwear and accessories from most of the largest national brands in the industry and hold leading market share positions in key product categories across Women’s, Men’s and Kid’s in the U.S. and Canada. Designer Brands also distributes its owned brands through select wholesale relationships while leveraging its design and sourcing expertise to build private label product for national retailers. Designer Brands is also committed to being a difference maker in the world, taking steps forward to advance diversity, equity, and inclusion in the footwear industry and supporting our global community and the health of our planet through donating more than six million pairs of shoes to the global non-profit Soles4Souls.”
FY 2022 highlights:
- Net sales increased 3.7% to $3.3 billion.
- Comparable sales increased by 4.4%.
- Gross profit was flat to last year at $1.1 billion, and gross margin was 32.6% as compared to 33.4% last year.
- Reported net income attributable to Designer Brands Inc. was $162.7 million, or diluted EPS of $2.26, including net benefits of $0.41 per diluted share from adjusted items, primarily related to the change in valuation allowance on deferred tax assets, partially offset by the loss on extinguishment of debt and write-off of debt issuance costs, restructuring and termination costs, CEO transition costs, and impairment charges.
- Adjusted net income was $133.7 million, or adjusted diluted EPS of $1.85.
Liquidity is also at a tolerable level:
- Cash and cash equivalents totaled $58.8 million at the end of 2022, compared to $72.7 million at the end of 2021, with $243.9 million available for borrowings under our senior secured asset-based revolving credit facility (“ABL Revolver”). Debt totaled $281.0 million at the end of 2022 compared to $225.5 million at the end of 2021.
- The Company ended the year with inventories of $605.7 million compared to $586.4 million at the end of 2021.
Share buybacks are underway, and a small dividend is also being paid, at least for now.
For the year ended January 28, 2023, we repurchased 10.7 million Class A common shares (14.6% of Class A and Class B common shares at the beginning of the fiscal year) at an aggregate cost of $147.5 million, with $187.4 million of Class A common shares that remain authorized under the program as of January 28, 2023.
• A dividend of $0.05 per share of Class A and Class B common shares will be paid on April 14, 2023 to shareholders of record at the close of business on March 31, 2023.
Guidance offers some hope:
The Company has announced the following guidance for the full year 2023:
Net Sales:
Designer Brands net sales growth, excluding Keds: Down mid-single digits
Incremental net sales from Keds acquisition: $75.0 million to $85.0 million
Diluted EPS: Designer Brands, excluding Keds: $1.65 - $1.75
Contribution from Keds acquisition ~$0.00.
The company’s brands include Reebok, which is familiar to many:
I haven’t taken a position in this company yet as it’s in such a lethal downtrend, but at some point, I believe the market will turn favorable again for DBI. At that point, I expect the company’s market cap could at least triple from its current level. The company’s peers may also offer interesting opportunities.
