Designer Brands reports mixed results in Q4 2024, expects sales growth in fiscal 2025
From Yahoo Finance: 2025-03-20 14:30:00
In 2024, company sales were down 2% excluding the 53rd week, with costs down 1.7%. Adjusted EPS was $0.27, at the upper end of guidance. Initiatives included leadership changes, assortment refresh, marketing optimization, and enhancing the omnichannel experience, leading to improved performance and market share growth.
In U.S. retail, comps were up 1% in the fourth quarter, driven by strength in athletic, women’s dress, luxury accessories, and kids. DSW outpaced footwear market growth, gaining market share. Canadian comps were up 5% in the fourth quarter, with strong performance in athletic and kids categories.
For the full year, U.S. retail comps were down over 1%, while Canadian comps were down 2%. The brand portfolio segment saw sales up approximately 12% in the fourth quarter and roughly 14% for the full year. Operating profitability was achieved, with improved gross margin and reduced operating expenses.
Topo Athletic and Jessica Simpson brands saw significant sales growth in 2024. Transformation efforts are expected to stabilize and improve sales and profitability in 2025, with a focus on customer insights, brand positioning, and VIP rewards program enhancements. Strategic areas for 2025 include customer-centric initiatives and brand evolution. DSW is revamping VIP rewards and FERC, set to relaunch in early 2026. The company plans to enhance promotions, sales events, and the omnichannel customer experience. New stores, tech-enabled services, and product assortment improvements are on the horizon for 2025 to drive profitable growth. Private label brands and wholesale business investments aim to boost margins and revenue. Topo Athletic and Keds brands are targeted for growth with strategic distribution and product launches. Tariff policies may impact consumer behavior, but DSW remains optimistic about positive comps and operating income growth for 2025. Initiatives to drive demand and value are in place, expecting gradual quarterly performance improvement throughout the year. CEO expresses confidence in the company’s transformational journey and strategies for long-term value creation. In the fourth quarter of fiscal 2024, net sales for the company were up 0.5% on a 13-week comp basis, with positive comps in the U.S. and Canada retail segments, and a 12.3% increase in the brand portfolio segment. Full-year net sales were down 1.7% and 2.1% versus last year. Gross profit in the fourth quarter increased by 80 basis points to 39.6%, and full-year gross margin was 42.7%.
Adjusted operating expenses in the fourth quarter were 43.5% of sales, a 40-basis-point deleverage from the prior year, while full-year adjusted operating expenses were 40.9% of sales, a 50-basis-point deleverage from last year. The company experienced deleverage primarily due to the inclusion of the 53rd week of sales last year against a partial fixed cost base. Adjusted operating loss in the fourth quarter improved to $23.5 million, with adjusted operating profit for the full year at $67.3 million.
Net interest expense for the company in the fourth quarter was $11.1 million, compared to $9.9 million last year, with higher interest expense due to a term loan installed the previous year and higher interest rates on the ABL. The effective tax rate in the fourth quarter was 38.6%, compared to 37% last year, and for the year it was 31.6%, compared to 24.8% last year. The fourth quarter adjusted net loss was $21.3 million, and full-year adjusted net income was $15 million.
The brand portfolio segment saw notable sales growth in Topo Athletic, with a 57% increase versus last year, driven by wholesale and DTC channels. The company has implemented expense savings measures and has a detailed expense savings roadmap for 2025 to reduce costs, including fewer promotions. The company remains focused on financial improvement throughout the year. Designer Brands ended the fourth quarter with a 5% increase in total inventories from the prior year, focusing on clean inventory and new product placement. They returned $79 million to shareholders in fiscal 2024 through dividends and share repurchases, with $19.7 million remaining for repurchases. They declared a $0.05 per share dividend for the first quarter of 2025.
For fiscal 2025, Designer Brands expects low single-digit sales growth, with the first quarter performance anticipated to be below last year. U.S. retail segment projects low single-digit net sales growth, Canada retail segment expects mid- to high single-digit growth, driven by strategic initiatives. Sales and brand portfolios forecast a mid-single-digit increase, emphasizing growth in specific brands.
Designer Brands focuses on driving profitable growth through efficiency improvements and expense evaluations. They anticipate benefits from expense reductions and technology advancements. Their newly opened distribution center in Arizona will enhance store fulfillment in the Western region, reducing service time. They are returning to a normalized level of incentive-based compensation and anticipate an effective tax rate of roughly 3% for fiscal 2025.
Designer Brands is optimistic about returning to consistent top and bottom line growth in the long term. They project earnings per share to be in the range of $0.30 to $0.50 for fiscal 2025, a nearly 50% increase at the midpoint compared to 2024. Capital expenditures for the year are expected to be between $45 million to $55 million. They express gratitude for the hard work of their associates and look forward to achieving their goals in the upcoming year. Designer Brands reports a decrease in boot category sales offset by seasonal business. Q1 performance slower than expected due to macroeconomic uncertainty. Gross margin strategy focuses on inventory availability and conversion rates. SG&A expenses increase due to infrastructure investments and bonus plans. Operating margin expansion expected to be modest. CEO expresses gratitude for team’s dedication. 1. Breaking news: A new study reveals that eating a diet rich in fruits and vegetables can lower the risk of heart disease by up to 25%. Researchers recommend incorporating a variety of colorful produce into daily meals for optimal health benefits.
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Read more: Designer Brands (DBI) Q4 2024 Earnings Call Transcript