Shares of Designer Brands (DBI +12.99%) were climbing today after the parent of DSW posted better-than-expected results in its second-quarter earnings report, even as sales fell.
As a result, the stock was up 5.2% as of 11:04 a.m. ET.
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Designer Brands hops over low expectations
During a challenging time for the footwear industry, Designer Brands, which also owns brands like Keds, Vince Camuto, and Lucky Brand, reported a comparable sales decline of 2.4%, as overall revenue fell 1.2% to $730.6 million, which missed estimates at $744.7 million.
However, the company impressed on the profit side. Adjusted gross margin significantly improved from 43.6% to 47.9%, due to better product selection and tighter inventory control. It also received $15.3 million in tariff refunds, though that wasn't factored into the adjusted gross margin.
On the bottom line, adjusted earnings per share rose from $0.33 to $0.34, which beat estimates at $0.26.
CEO Doug Howe said, "Our second quarter results represent significant improvement in profitability year-over-year, highlighted by meaningful gross margin expansion as well as impressive sales growth in our Brand Portfolio segment." Its Brand Portfolio business, which grew comps by 7.1%, remains much smaller than its retail business but represents a strategic pivot for the company.
NYSE: DBI
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What's next for Designer Brands
Management also noted a strong start to the third quarter, and raised its guidance for the full year, calling for overall revenue growth of flat to 1%, up from a previous range of -1% to +1%. It also sees adjusted earnings per share of $0.47-$0.52, compared to an earlier forecast of $0.28-$0.38.
After that hike, the stock looks cheap at a forward P/E of just 11, but the company will have to return to meaningful top-line growth to move higher over the long term, as margin expansion can only take it so far.
