DSW parent DBI’s stock craters as earnings are hurt by shrinking demand for footwear

“The third quarter was difficult for our business,” Chief Executive Douglas Howe told analysts on the company’s earnings call, according to a FactSet transcript.

“Macro headwinds continued to impact us most acutely within our retail-segment traffic as consumers remain under pressure and the overall footwear market contracted for the first time since the pandemic. Because our business is heavily weighted towards Dress and Seasonal, unseasonably warm weather also had an outsized impact on our top line,” he said.

But that wasn’t the only issue.

“We also faced headwinds that we believe demonstrate our need to operate with even greater speed while increasing the level of innovation, newness and fashion in our assortments,” he added.

Weak demand for boots posed a special challenge, Howe said. And while retail continued to perform well, driven by value-leaning customers, and clearance sales were down 3%, it was not enough to offset the declines elsewhere, he said.

Also read: Under Armour no longer expects revenue to grow this year

“Within our retail segments, which include DSW Stores, Shoe Company and their related e-commerce sites, our top line fell short of our expectations, driven by seasonal product demand, specifically boot demand, falling meaningfully year over year. This was a dynamic fall industry-wide,” he said.

Laura Denk, who has just completed her first 100 days as president of DSW, acknowledged that product assortment is part of the problem.

“At DSW, and across all of designer brands, it starts and ends with products,” she said. “We can’t lose sight of how important an optimal and differentiated assortment is.”

Maintaining a trend-right assortment “is even more critical today when the customer has substantially more options from brands that are moving more quickly than ever,” she said.

On a brighter note, DSW is seeing strong demand for Nike
NKE,
+0.43%
products, which began to come back online in September and were fully restored by early November, instantly becoming a top-five seller.

See now: Sports apparel retailers hope holidays will improve a postpandemic slump

In spring, the company is planning to bring Under Armour
UA,
-3.86%
products back and will expand existing relationships with Skechers and Birkenstock, she said.

The company posted net income of $10.1 million, or 17 cents a share, for the quarter, down from $45.2 million, or 65 cents a share, in the year-earlier period. Adjusted per-share earnings came to 24 cents, well below the 46 cent FactSet consensus.

Sales fell to $786.3 million from $865 million a year ago, also below the $824 million FactSet consensus.

The company expects the pressure to continue and lowered its full-year guidance for EPS to a range of 40 cents to 70 cents, from $1.20 to $1.50 previously. It expects sales to be down in the high single digits, compared with prior guidance of down in the mid to high single digits.

The stock has fallen 10% in the year to date, while the S&P 500
SPX
has gained 19%.

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