Designer Brands (DBI)

Footwear and accessories discount retailer Designer Brands (NYSE:DBI) met Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 4.2% year on year to $739.8 million. Its non-GAAP profit of $0.34 per share was 52.2% above analysts’ consensus estimates.

Company Overview

Founded in 1969 as a shoe importer and distributor, Designer Brands (NYSE:DBI) is an American discount retailer focused on footwear and accessories.

Footwear sales–like their apparel counterparts–are driven by seasons, trends, and innovation more so than absolute need and similarly face the bigger-picture secular trend of e-commerce penetration. Footwear plays a part in societal belonging, personal expression, and occasion, and retailers selling shoes recognize this. Therefore, they aim to balance selection, competitive prices, and the latest trends to attract consumers. Unlike their apparel counterparts, footwear retailers most sell popular third-party brands (as opposed to their own exclusive brands), which could mean less exclusivity of product but more nimbleness to pivot to what’s hot.

Retail competitors offering discount or mid-priced footwear and accessories include Foot Locker (NYSE:FL), Genesco (NYSE:GCO), and TJX (NYSE:TJX).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $2.92 billion in revenue over the past 12 months, Designer Brands is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.

As you can see below, Designer Brands struggled to generate demand over the last six years (we compare to 2019 to normalize for COVID-19 impacts). Its sales dropped by 2.5% annually despite opening new stores. This implies its underperformance was driven by lower sales at existing, established locations.

This quarter, Designer Brands reported a rather uninspiring 4.2% year-on-year revenue decline to $739.8 million of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection implies its newer products will catalyze better top-line performance, it is still below the sector average.

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

Designer Brands sported 668 locations in the latest quarter. Over the last two years, it has opened new stores quickly, averaging 2.5% annual growth. This was faster than the broader consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Designer Brands’s demand has been shrinking over the last two years as its same-store sales have averaged 4.5% annual declines. This performance is concerning - it shows Designer Brands artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.

In the latest quarter, Designer Brands’s same-store sales fell by 5% year on year. This performance was more or less in line with its historical levels.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Designer Brands has great unit economics for a retailer, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 46.9% gross margin over the last two years. That means Designer Brands only paid its suppliers $53.12 for every $100 in revenue.

This quarter, Designer Brands’s gross profit margin was 43.7%, up 10.9 percentage points year on year and in line with analysts’ estimates. Designer Brands’s full-year margin has also been trending up over the past 12 months, increasing by 2.6 percentage points. If this move continues, it could suggest the company has less pressure to discount products and is realizing better unit economics due to stable or shrinking input costs (such as labor and freight expenses to transport goods).

Designer Brands’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same. The company broke even over the last two years, inadequate for a consumer retail business. Its large expense base and inefficient cost structure were the main culprits behind this performance.

Analyzing the trend in its profitability, Designer Brands’s operating margin might fluctuated slightly but has generally stayed the same over the last year, which doesn’t help its cause.

This quarter, Designer Brands generated an operating margin profit margin of 3.6%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Designer Brands broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Designer Brands historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.3%, lower than the typical cost of capital (how much it costs to raise money) for consumer retail companies.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Designer Brands’s $1.32 billion of debt exceeds the $44.94 million of cash on its balance sheet. Furthermore, its 12× net-debt-to-EBITDA ratio (based on its EBITDA of $110.5 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Designer Brands could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Designer Brands can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was good to see Designer Brands beat analysts’ EPS expectations this quarter. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 9.6% to $4.57 immediately after reporting.

Updated: December 4, 2025 at 9:39 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Designer Brands.

Designer Brands falls short of our quality standards. First off, its revenue has declined over the last three years. And while its gross margins are a strong starting point for the overall profitability of the business, the downside is its declining EPS over the last three years makes it a less attractive asset to the public markets. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Designer Brands’s EV-to-EBITDA ratio based on the next 12 months is 7.2x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $4.75 on the company (compared to the current share price of $4.69).