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Why Designer Brands Stock Jumped Today

By Evan Niu, CFA – Aug 7, 2020 at 4:46PM

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The shoe designer and retailer gave investors business updates, including details on its measures to improve liquidity.

What happened

Shares of Designer Brands (DBI 0.46%) have jumped today, closing out the session with a 12% gain, after the company announced new measures to strengthen its financial flexibility amid the COVID-19 pandemic. Designer Brands also provided investors with other updates regarding the business.

So what

The shoe retailer, which operates the DSW chain, is retiring a $400 million revolver and replacing it with a new $400 million asset-based revolver (ABL) that matures in August 2025. The company drew $150 million from the ABL upon closing the new deal, which includes more generous covenants that provide greater financial flexibility compared to the old credit facility. Designer Brands also closed a $250 million secured term loan to further boost liquidity.

Person wearing high heels walking up the outdoor steps of a building

Image source: Getty Images.

"Since confronted with the challenges posed by COVID-19, we have acted decisively to prioritize the health and safety of our associates and customers and protect the long-term sustainability of our business," CEO Roger Rawlins said in a statement. "Today's announcement represents another critical step that increases our financial flexibility and total liquidity."

Now what

Designer Brands had previously announced an internal reorganization that included a workforce reduction. Annual pre-tax cost savings from these efforts are estimated at $40 million. The company said that at the end of the second quarter, 99% of its retail locations had reopened. The last four stores will reopen once local conditions and government guidelines permit.

"However, store traffic continues to be impacted as the resurgence of the virus weighs on the minds of the consumer," Rawlins added. "We have accelerated our markdown activity in seasonal and dress to ensure a clean inventory position exiting Spring."

The chief executive also noted that the company is working with its landlords to renegotiate lease terms.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Designer Brands Inc. The Motley Fool has a disclosure policy.

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