Dive Brief:
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Designer Brands, which runs a slew of footwear labels as well as retailer DSW, has cut capital expenditures and pulled its guidance for the year. Q1 net sales plummeted 8% year over year to $687 million, with total comps down 7.8% and U.S. comps down 7.3%.
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“While we previously expected tariffs to be a headwind, they have emerged as a significantly more substantial cost than anticipated across the industry, and we are actively managing the potential impact on our business,” CEO Doug Howe told analysts Tuesday.
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The company sliced $10 million from this year’s capex plans to $40 million, Chief Financial Officer Jared Poff told analysts. In Q1, Designer Brands swung to a $17.4 million net loss in the period, from $783,000 in net income last year, and gross margin contracted to 43% from 44.2%.
Dive Insight:
Despite a weak quarter for both its top and bottom lines, Designer Brands seems sanguine about upcoming peak shopping periods.
“We're actually cautiously optimistic about back to school,” Howe said, later saying the same about the holidays.
Last year, the retailer strengthened its back-to-school marketing, employing “overt back-to-school messaging,” and for the holidays “leaned into gifting and messaging and marketing.”
“I just would balance that with kind of the ongoing uncertainty and the volatility,” he said. “The discretionary consumer is definitely under pressure, but the teams have done a really nice job of managing the inventory there.”
The company anticipated $100 million of pressure on the gross profit line due to tariffs, but has “mitigated that down significantly through factory negotiations, re-sourcing, product, taking very select pricing increases,” Howe said.
“But our retail business is heavily reliant on our national brand partners, and we're obviously working very closely with them as they are also selectively passing on price increases,” he also said. “Our overall approach is to maintain our [initial markup], but, again, we're working very closely with our brand partners to closely manage any price increases.”
In the last five years or so, prices have risen and name brands have proliferated at DSW, which is also known as Designer Shoe Warehouse, according to Nancy Mair, president of NCM Consulting. That has undercut its original promise to customers, said Mair, whose 30-plus years in merchandising and off-price strategy includes executive stints at Nordstrom Rack and Burlington.
“They need to be clearer with the customer on what they represent, and why a customer should shop them,” she said by phone. “That to me is their biggest issue. I don't know who they are, and I don't know if they know who they are.”
DSW now has the brands and prices found at Nordstrom full-line stores, for example, without the store experience or customer service, while for online orders shipping is relatively slow, she said. Most stores still resemble warehouses.
“It's more about the clarity on who they are, and I don't think they're sending that message very well to a customer,” she said. “If you're going in there and you want customer service, you're not getting any. So what do you really get for the prices that you're paying?”
