What happened
Shares of Designer Brands (DBI -1.17%) were taking a dive today after the footwear retailer missed estimates in its third-quarter earnings report and slashed its full-year guidance due to macroeconomic headwinds.
As of 1:26 p.m. ET, the stock was down 22.7%.
So what
Designer Brands, which is best known for its ownership of DSW, reported decent third-quarter results with comparable sales up 3% and overall revenue up 1.4% to $865 million. Yet that result still missed expectations of $871.5 million.
Higher inventory caused gross margin to fall 370 basis points to 33%, and so adjusted earnings per share decreased from $0.86 to $0.67. Inventory levels were up 12% to $681 million.
The percentage of sales coming from the company's owned brands increased from 21.5% to 26.5%, showing results from a key strategic initiative, and management highlighted the improvement in gross margin since 2019 following the adoption of a better customer acquisition strategy. However, the company is still struggling to escape the macroeconomic headwinds.
CEO Roger Rawlins said, "While we are seeing many of the same pressures across the consumer landscape that most retailers are seeing, our flexible business model continues to support our efforts to navigate a dynamic macro environment."
Now what
Looking ahead, the company dialed down its profit expectations for the year, and now projects earnings per share of $1.75 to $1.85, down from its previous forecast of $2.05 to $2.15 and worse than the consensus analyst estimate of $2.06.
Designer Brands maintained its top-line guidance of mid-single-digit comparable-sales growth, indicating that gross margins will continue to be weak as it deals with excess inventory and a promotional retail environment.
The stock looks cheap at a price-to-earnings ratio under 7, but investors may want to wait on the sidelines until earnings are moving in the right direction.
