Designer Brands Posts 17% EPS Jump in Q2

Key Points

• Adjusted diluted earnings per share increased 17.2% to $0.34 compared to Q2 FY2024, even as revenue declined.

• Revenue fell 4.2% to $739.8 million, with a 5.0% drop in comparable sales.

• Management withheld full-year fiscal 2025 guidance, citing macroeconomic uncertainty.

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Designer Brands (NYSE:DBI), a large North American footwear retailer and brand builder behind banners like DSW and The Shoe Co, released its second-quarter fiscal 2025 results on September 9, 2025. The headline news: adjusted diluted earnings per share climbed 17.2% from a year earlier, but revenue dropped 4.2% year over year and comparable sales slipped further, continuing a recent trend of year-over-year declines. Management improved profitability and cash management but again declined to provide guidance for fiscal 2025, reflecting ongoing uncertainty in retail demand and trade policy. The quarter showed operational improvements in some areas, yet persistent headwinds in sales and gross margin.

Business Model and Strategic Focus

Designer Brands operates as a footwear retailer and brand house with hundreds of DSW stores in the United States, The Shoe Co. and Rubino in Canada, and several owned and licensed footwear brands. It sells to customers directly via stores and online, and also supplies products through its Brand Portfolio segment to several wholesale partners. The company manages a range of national and owned brands, including recent acquisitions such as Keds (casual footwear).

Recently, its strategic priorities have revolved around building owned brands, investing in omni-channel retail (blending the in-store and digital shopping experience), managing inventory tightly, and maximizing customer loyalty through rewards programs. Success factors include the ability to grow higher-margin owned brands, optimize its store footprint and online presence, and keep supply chain and inventory controls tight as fashion cycles and consumer demand shift rapidly.

Key Developments in the Quarter

The second quarter saw sequential improvement but ongoing year-over-year pressures across sales, margins, and store traffic. While adjusted diluted earnings per share grew versus last year, revenue declined, indicating that disciplined cost-cutting and share buybacks drove the profit rise more than fundamental sales growth.

In the U.S. Retail segment, total comparable sales declined 4.9%, a deeper slump than the prior year's 1.1 % dip, though improved from the 7.3% drop in the previous quarter. Management pointed to a strong back-to-school start and some recovery in store customer traffic and conversion rates, aided by omni-channel investments. Store count was down slightly with 668 total stores at quarter-end.

The Canada Retail segment delivered flat net sales with a 0.4% gain and slightly lower comparable sales. Margins in Canada slipped a bit, showing that stabilization in sales came with some profitability challenges. The Brand Portfolio segment, responsible for designing and wholesaling footwear—including owned labels like Keds and Topo—had a difficult period. Segment sales dropped 23.8%, and its direct-to-consumer channel saw a sharp 29.2% drop in comparable sales. This reflected ongoing caution among wholesale partners and weaker demand for certain private label or new brands, even after prior quarters highlighted Topo's growth and the broader importance of owned brands.

Gross margin, a metric that measures the percentage of revenue left after covering product costs, fell modestly to 43.7% compared to 44.0% in the prior year period. Operating expenses declined both in dollar terms and as a percentage of net sales—Net income was $10.8 million compared to $13.8 million in Q2 FY2024. The company recognized $1.47 million in impairment charges, which are one-time write-downs on assets such as stores or inventory. Cash and cash equivalents grew to $44.9 million, and inventory levels dropped by $31.9 million year over year, Debt levels rose $50.6 million year over year to $516.3 million at quarter-end.

Revenue Streams, Brands, and Customer Initiatives

The company's business mix spans U.S. and Canadian retail sales (both in-store and e-commerce), as well as sales to third-party wholesale partners through its Brand Portfolio segment. Historically, they represented roughly a quarter of sales. In the quarter, management continued to orient its efforts towards boosting these higher-margin lines, though results were mixed: Keds and Topo saw strong periods in prior quarters, but Brand Portfolio struggled this period, especially in direct sales to customers.

The company's loyalty programs—VIP Rewards in the U.S. and Canada—are key to sales and marketing. These programs have driven high engagement, with past data showing that 86% of retail segment sales came from members in FY2024. While no update was given on membership figures, the programs remain central to Designer Brands' customer retention and promotional strategies. Operations also focused on integrating digital and store fulfillment, rolling out systems to let customers buy online and pick up in store, or order from the location with the highest inventory availability.

Looking Ahead

Designer Brands' management declined to reinstate full-year guidance for fiscal 2025, citing persistent uncertainty tied to global trade policies and shifting consumer demand patterns. This continues the cautious stance first adopted in the prior quarter when the company also withheld its outlook. Leadership stated that while operational improvements will continue and investments in marketing, omni-channel, and owned brands remain priorities, macroeconomic trends are too unpredictable to project results for the rest of the year.

In the upcoming quarters, investors should watch for ongoing shifts in brand mix, progress in optimizing the store base, further reductions in inventory, and results from supply chain changes like the distribution center move to Arizona. Trends in comparable sales, especially in Brand Portfolio and U.S. Retail, and any changes in loyalty program performance, will help reveal whether sequential stabilization is becoming sustainable recovery or if persistent headwinds remain.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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Motley Fool Markets Team is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. The Motley Fool takes ultimate responsibility for the content of these articles. Motley Fool Markets Team cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool recommends Designer Brands. The Motley Fool has a disclosure policy.