What happened
Shares of shoe retailer Designer Brands (DBI +7.24%) got crushed on Tuesday after the company reported financial results for the second quarter of 2021. I wish I could say that every stock move has a logical explanation. But sometimes investors, myself included, are left scratching their heads, as is the case with Designer Brands stock's 8% drop today.
So what
Designer Brands' second-quarter results actually looked relatively good. During the quarter, the company's net sales surged 67% year over year. Granted, as a brick-and-mortar shoe retailer, its sales were down a lot last year, making for an easy comparison. That said, net sales were only down 4.5% from the second quarter of 2019, meaning the business has almost fully rebounded.
Image source: Getty Images.
To underline this point, Designer Brands' management said it achieved a quarterly gross-profit record during the second quarter. This translated to solid profitability of $42.9 million in net income. In short, Designer Brands seems to have completely recovered from the impact of the pandemic. And yet the stock dropped today and sits well below where it traded prior to the coronavirus.
For these reasons, it doesn't make complete sense why Designer Brands stock fell so sharply today. But that's how investing is sometimes: In the short term, things don't always make sense.
DBI data by YCharts.
Now what
If I had to place Designer Brands in a category, I'd probably call it a value stock, trading at less than 11 times next year's estimated earnings. However, a note of caution: As a brick-and-mortar retailer, Designer Brands was struggling prior to the pandemic, as more and more shoe brands continue selling direct to consumers. That challenge remains for Designer Brands.
Therefore, investors shouldn't just be looking at the stock's valuation but also at the company's near-term prospects for profitably growing the business.
