Q2 2025 Earnings Summary
- The company achieved positive comparable sales (positive comps) in the current quarter for the first time since September 2022, marking a critical inflection point and signaling strong momentum heading into the fall season. They anticipate positive comps throughout the fall, driven by buoyant athletic and athleisure categories. ,
- The strategic shift towards athletic and athleisure categories is yielding strong results, with significant growth in these segments. Investments in growing brands like Topo Athletic and Keds are paying off, and the company is energized by the traction they're seeing with brands like Jessica Simpson, indicating effective brand portfolio realignment towards growing market segments. ,
- The company has seen a digital sales increase for the third consecutive quarter and improvements in store traffic, indicating positive trends in both online and brick-and-mortar channels. The team's effective inventory management has allowed them to capitalize on these trends, contributing to the positive comps in Q3.
- Pressure on gross margins due to the shift towards higher penetration of lower-margin national athletic brands, resulting in flat gross profit expectations for the year. The company stated that the increased focus on athletic brands continues to put pressure on Initial Markup (IMU), and overall they are seeing offsets to deliver an overall year that is a bit flattish in gross profit.
- Limited flexibility in reducing SG&A expenses due to a relatively fixed expense structure, with only $5 million to $10 million of SG&A dollars to flex. The company has engaged an outside consultant to examine its expense structure, indicating potential cost control challenges and the need for a multiyear execution plan to get more efficient.
- Potential sales pressure in Q4 due to the loss of the 53rd week, which accounted for over $40 million in total sales in the prior year. Despite positive comps expected, total sales may be flat or under pressure, affecting overall performance and possibly investor perceptions.
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Guidance Confidence
Q: How confident are you in second-half guidance?
A: Management is encouraged by positive momentum, noting a shift to a positive comparable sales in Q3, the first since September 2022. They anticipate positive comps throughout the fall but acknowledge losing the 53rd week in Q4, which accounted for about $40 million in sales. While optimistic, they remain cautious due to macroeconomic factors. -
Gross Margin Outlook
Q: How should we think about gross margin for the full year?
A: Full-year gross margins are expected to be relatively flat. While there's pressure on initial markups (IMU) due to higher penetration of national athletic brands—which have lower margins than dress brands—the expected markdown leverage in the fall should offset this. Last year's aggressive boot clearance won't recur, aiding gross profit stabilization. -
SG&A Flexibility
Q: Any changes to SG&A due to lower sales guidance?
A: The expense structure is relatively fixed, but management can adjust $5 million to $10 million in SG&A if performance trends lower. They've engaged an outside consultant to review expenses and plan a robust multiyear execution plan to improve efficiency. -
Brand Portfolio Adjustments
Q: Will you buy or sell brands to reflect current trends?
A: Recent investments focus on growth areas like athletic and athleisure, with Topo and Keds performing well. Legacy dress brands are licensed and mid-license, but they're leaning into winning areas like wide calf and oversized boots in the Vince Camuto brand. The Jessica Simpson brand is also performing well, resonating despite being dress-focused. -
Inventory Management
Q: What are your inventory expectations for year-end?
A: The team is managing inventory effectively, pulling forward athletic receipts for back-to-school, which is paying off with positive comps in Q3. They've seen an uptick in average unit retail (AUR) and improved store traffic, though it's more muted than anticipated. -
Freight Expenses Update
Q: Any updates on freight expenses?
A: While direct importing isn't a major part of DBI's business, they're seeing substantial increases in container costs for East Coast deliveries in the brands business. West Coast imports for DSW haven't faced similar pressures. -
Interest Expense Expectations
Q: What are your expectations for interest expenses?
A: Interest expenses are projected to be just under $40 million for the full year 2024.