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Why Designer Brands Plunged 24% Today

By Howard Smith – Sep 3, 2020 at 10:38AM

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The parent of shoe retailer DSW announced that comp-store sales plummeted a more-than-expected 42.7%.

What happened

The stock of Designer Shoe Warehouse (DSW) parent Designer Brands (DBI -1.28%) is down 24% as of 10:50 a.m. EDT, after it announced second-quarter results that disappointed investors. 

So what

Designer Brands reported that second-quarter comparable-store sales dropped 42.7% and an adjusted net loss of $1.28 per share. Results lagged consensus estimates of a comp sales drop of 26.5% and an expected loss of $0.85 per share, according to FactSet.

A woman shopping for shoes

Image source: Getty Images.

The retailer said for its three-month period ending Aug. 1, 2020, the COVID-19 pandemic continued to impact its business. Temporary store closures and reduced customer traffic upon reopening forced the company to implement "aggressive promotional activity." The result was higher costs related to inventory reserves, shipping, and lower sales volume. 

Now what

The company says it has bolstered liquidity, including from a $250 million secured loan taken following the close of the quarter. Cash and investments totaled $206.7 million at the end of Q2, compared with $77.3 million at the same time last year. Debt totaled $393 million, versus $235 million for the previous-year period. 

"Given that we have further strengthened our balance sheet, we are well prepared to focus on growing our business' profitability," said Chief Executive Officer Roger Rawlins. He said the company is steering fall inventory away from seasonal and dress products and toward athleisure, its highest-performing category. The company said that nearly all of its stores are now open, with health and safety measures in place. 

Howard Smith 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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