Over the past few months, as the coronavirus pandemic kept people indoors, Designer Brands Inc. pivoted away from dress, formal and special-occasion footwear toward more athletic and comfort-driven styles. Today, it reported a 5% gain in athletic comps across the United States — a bright spot in a better-than-expected third quarter.
For the three months ended Oct. 31, the Columbus, Ohio-based chain posted an adjusted net loss of $19 million, or a loss of 26 cents per share, compared with the prior year’s profits of $48.5 million, or earnings of 67 cents per share. Revenues fell 30.1% to $652.9 million. Still, it beat analysts’ expectations for a loss of 48 cents per share and revenues of $650.63 million.
“Designer Brands delivered sequential improvement across all of our metrics in the third quarter by successfully leveraging our flexible business model to align with consumer preferences,” CEO Roger Rawlins said in a statement. “We have been shifting our assortment to include more athletic and kids’ product … and see further opportunity to meaningfully grow these categories.”
According to the company, comps decreased 30.4%, versus the previous year’s 0.3% increase. However, it noted that athletic penetration in its U.S.-based retail business increased to 26% at the end of Q3 — up from 17% last year — while the kids’ category penetration has grown to 10% from 7%.
Amid a surge in new COVID-19 infections that could result in renewed lockdowns and stay-at-home orders, Rawlins remained cautious on Designer Brands’ future. He also explained that, while the company’s near-term focus is on the athletic and kids’ markets, it is still dedicated to dress and special-occasion products in the long run.
“Fundamentally, our customers know Designer Brands as a dress and seasonal house,” he said. “As they continue to work from home and avoid large social events, the balance of our assortment will remain challenged. We are pleased to see that a vaccine may be on the horizon, but widespread adoption will take time, and our business will continue to feel pressure in the near-term.”
He added, “We have confidence there will be a day our customers feel comfortable going out again, and when that time comes, we will reap the benefits of the combination of our legacy command of the dress and seasonal market, coupled with recent gains we are making in athletic and kids.”
Designer Brands closed the quarter with $114.5 million in cash and investments, with $295 million available for borrowings under its asset-based lending revolver. It did not provide an outlook for the fiscal year.