Q4 2024 Earnings Summary
- Designer Brands is expecting mid-single-digit organic growth in its Brand Portfolio segment, driven by its owned brands like Keds and Topo Athletic.
- The company is pleased with the quarter-to-date comp sales performance, showing significant improvement over Q4, particularly in the casual, athletic, and kids categories.
- The company has made key strategic hires, including Andrea O'Donnell as Brands' President, who is focused on profitability and prioritizing brands with significant growth potential, such as Keds, Topo, Hush Puppies, and Le Tigre.
- Continued macroeconomic headwinds and consumer uncertainty could dampen sales recovery efforts, especially given the discretionary nature of footwear purchases. The company acknowledges that while early Q1 trends are positive, there is still significant volatility in the market.
- Rising interest expenses due to increased borrowing and higher interest rates are impacting profitability and may continue to do so. The company reported that interest expense nearly doubled from $17 million in 2022 to $32.2 million in 2023, and expects similar levels in 2024.
- The benefits from recent acquisitions may take longer to materialize, and integration risks remain. The company's growth plans rely on integrating new brands like Keds and Topo Athletic, but leadership indicates it is "early days" and specifics on gains are yet to be provided.
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Sales Performance and Outlook
Q: How does current comp sales compare to Q4?
A: We're pleased with results season to date, driven by strength in casual, athletic, and kids segments, showing a significant improvement over Q4. While it's early with market volatility, the quarter is starting well. -
Operating Margin Expectations
Q: Are you expecting modest operating margin expansion year-over-year?
A: Yes, we anticipate a modest expansion in operating income rate. -
Interest Expenses Guidance
Q: How should we think about 2024 interest expenses?
A: With the full term loan over the year, offset by cash flow paying down the ABL, we anticipate yearly interest expense to be relatively the same, maybe just a couple million dollars more than last year. -
Nike Business Update
Q: How is the Nike business performing?
A: Nike quickly became one of our top national brands, nearing pre-pandemic penetration levels. We're gaining access to products we've never had before, boosting our kids' business and positively impacting women's as well. -
Brand Segment Growth
Q: Is the mid-single-digit growth on the brand side organic?
A: Yes, the mid-single-digit growth on the brand side is organic growth. -
Assortment Changes and Own Brands
Q: How does the assortment look next year at DSW level?
A: We're revitalizing the assortment, leaning into underpenetrated areas like athletic and kids. We're maintaining our commitment to own brands, with penetration essentially flat but evolving with acquisitions like Keds and Topo. -
Consumer Health and Trends
Q: How has the consumer changed exiting '23 into '24?
A: We're encouraged by the trend change into Q1 compared to Q4. Customers respond to newness, with growth in athletic, casual, and kids. The trajectory has changed, though volatility remains. -
Strategies to Mitigate Volatility
Q: How can you mitigate weather volatility?
A: We'll focus on what we can control, manage inventory effectively, and have open-to-buy to chase categories and products that are working. We're staying close to market dynamics throughout 2024. -
Store Base Plans
Q: What's planned for the store base in 2024?
A: In Canada, we're opening eight net new stores. No material changes for DSW stores, but we're updating them with improvements like LED lighting, paint, and flooring to enhance the shopping experience. -
Impact of New Hire Andrea
Q: What changes will Andrea bring to assortment and margins?
A: Andrea is focused on profitability and prioritizing brands with significant growth potential, given recent investments like Keds, Topo, Hush Puppies, and Le Tigre. It's early days, but we're pleased with her progress.