Shares of Designer Brands (NYSE: DBI) were falling today after the parent of DSW and other footwear brands posted disappointing results in its second-quarter earnings report and cut its guidance for the year.
As a result, the stock was down 13.9% as of 1:10 p.m. ET on the news.
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Designer Brands continues to shrink
In a difficult retail environment, Designer Brands said comparable sales fell 1.4%, leading to a 2.6% decline in revenue to $771.9 million, well below the consensus at $816.1 million. Gross margin in the quarter also shrunk, falling from 34.5% to 32.8% due primarily to weakness in the company's biggest segment, the U.S. retail segment. Overall operating expenses rose 6% to $226.9 million.
As a result, profits fell sharply, with adjusted earnings per share (EPS) down from $0.59 to $0.29, missing estimates at $0.53.
CEO Doug Howe said, "We saw sustained pressure on challenged categories such as dress and seasonal in the second quarter, which we were able to partially mitigate through providing a greater selection of athletic and athleisure brands in our assortment."
He noted that athleisure sales were up 8% in the quarter, and the U.S. segment outperformed the overall footwear sector by one percentage point.
Designer Brands is still a work in progress
While Howe expressed confidence that the company's investment would help drive growth, its lowered guidance indicates otherwise. For the full year, the company now sees flat to low-single-digit revenue growth, down from an earlier forecast of low-single digits, and it cut adjusted EPS guidance from $0.70-$0.80 to $0.50-$0.60.
Based on that forecast, the DSW parent looks cheap at a forward price-to-earnings ratio (P/E) of less than 10, but the stock doesn't seem investable until it can return to revenue and earnings growth.
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