Q1 2025 Earnings Summary
- Sequential improvement in sales trends, with the company exiting Q1 stronger than it entered, and this positive trend continued through May, indicating momentum in business performance.
- The athletic category increased by 15% in Q1, with expectations of stronger penetration moving into the back-to-school season, representing a significant growth opportunity.
- The acquisition of Rubino, a profitable Canadian footwear retailer generating CAD 47 million in sales in 2023, is expected to be immediately accretive, expanding DBI's presence into Quebec, which represents nearly 25% of Canada's population where they previously had no presence.
- The company is experiencing increased SG&A expenses due to returning to normalized incentive compensation, representing a net headwind of over $30 million evenly dispersed across all four quarters. This increase places pressure on profitability despite recent cost-saving measures resulting in around $12 million of savings.
- There is a fair amount of uncertainty in the economy, and as a company in a discretionary category, Designer Brands acknowledges the need to be prudent in managing promotional activities. This economic uncertainty could negatively impact consumer spending and the company's sales performance.
- Despite gross margin expansion, the U.S. Retail segment may not be contributing significantly as the expansion is primarily driven by the Brand Portfolio segment. This suggests potential challenges within the core retail business impacting overall profitability.
-
SG&A Expenses
Q: Why is SG&A decelerating? Any details on acceleration?
A: Management explained they returned to a normalized incentive compensation posture this year, adding a net headwind of over $30 million spread evenly across all four quarters. Additionally, a recent reorganization is resulting in $12 million of savings this year. In the first two quarters, they're spending more due to incentive compensation and some marketing, but expect the overall SG&A rate to slightly leverage in the fall as sales build. -
Rubino Acquisition Impact
Q: How does the Rubino acquisition affect Canada's top line?
A: Rubino generated CAD 47 million in sales last year. The acquisition will contribute sales for three quarters this year, expecting similar operating income from Rubino as from their entire Canadian segment. Rubino stores are essentially The Shoe Company stores rebranded, serving Quebec. -
U.S. Promotional Environment
Q: What is happening with promotions in U.S. Retail?
A: Management invested in fewer markdowns than in Q4. They have early pilots for more targeted offers but consider promotional activity steady. Despite economic uncertainty, they saw favorability compared to Q4, which is incorporated into their guidance. -
Comp Sales Trends
Q: How did comp sales trend through the quarter and into May?
A: They exited Q1 stronger than they entered, with trends continuing into May. The athletic category increased by 15% in Q1 , with stronger penetration expected heading into the back-to-school season. They saw sequential improvement over Q4 and are pleased with the progress.