Designer Brands' Q2 2025: Contradictions Emerge on Tariff Impact, SG&A Savings, Gross Margin, and Boot Performance

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 9, 2025

Financials Results

• Revenue: $739.8M, down 4.2% YOY; improved vs Q1 (net sales were down 8% YOY in Q1)
• EPS: $0.34 adjusted diluted EPS, up from $0.29 last year
• Gross Margin: 43.7%, down 30 bps YOY; up 70 bps sequentially
• Operating Margin: Approximately 4.1% (adjusted operating income of $30.3M on $739.8M sales), vs approximately 4.2% last year

Business Commentary:

• Sales and Comps Trend:
• Designer Brands reported net sales of $739.8 million for Q2 2025, down 4.2% year-over-year, with comp sales down 5%.

• Despite the decline, the company saw sequential improvement, reflecting effective operational efforts and improving consumer sentiment.

• Operational Efficiency and Cost Management:

• Designer Brands achieved over $14 million in adjusted operating expense leverage compared to the previous year.

• This was driven by disciplined cost management and strategic investments to enhance customer lifetime value and digital profitability.

• Brand and Product Focus:

• The top 8 brands accounted for 45% of total sales, with a 1% comp for the quarter, contributing to the company's positive sales momentum.

• The focus on elevating assortment and enhancing inventory availability has facilitated a stronger connection with consumers, particularly in the women's dress category.

• Inventory Optimization and Store Performance:

• In-stock levels of regular priced products improved to approximately 70%, enhancing store conversion and driving positive customer response.
• The strategic shift in inventory allocation and digital fulfillment has allowed for better protection of in-store inventory and improved operational efficiency.

Sentiment Analysis:

• Net sales declined 4.2% YOY with comps down 5%, but EPS rose to $0.34 from $0.29 and gross margin improved 70 bps sequentially. Management highlighted sequential comp improvement and positive August store comps, yet withheld guidance citing macro and tariff uncertainty. Expense savings of $20–$30M planned for FY25.

Q&A:

• Question from Mauricio Serna Vega (UBS): Could you elaborate on intra-quarter trends, comps through the quarter, and the momentum into August?
  Response: Comps improved sequentially; women’s dress led with a 900 bps improvement and remained strong into August; early boot sales encouraging.

• Question from Mauricio Serna Vega (UBS): Were comps positive by the end of the quarter, or for the total company?
  Response: Quarter-end comps were still slightly negative; store comps turned positive in August while digital is intentionally managed down to improve profitability.

• Question from Mauricio Serna Vega (UBS): How much Q3 profit pressure from tariffs should we expect?
  Response: Direct impact is limited (brands import ~20%); selective price increases largely preserve IMU; the main risk is indirect consumer sentiment—too early but cautiously optimistic.

• Question from Dana Telsey (Telsey Advisory Group): How will the new 'let us surprise you' campaign affect store productivity, real estate, and marketing spend as a percent of sales?
  Response: Campaign just launched; reallocating spend from low-ROI digital to brand marketing without significant SG&A deleverage; closely monitoring returns.

• Question from Dana Telsey (Telsey Advisory Group): Brand performance highlights (e.g., Nike, Birkenstock) and plans for Q4 activations?
  Response: Top 8 brands comped +1% and reached 45% of sales; better in-stocks and storytelling driving gains; Nike included, with ongoing brand-focused activations.

• Question from Mauricio Serna Vega (UBS): Where are you deepening assortment, and what are the buckets for the $20–$30M SG&A savings?
  Response: Choice count down 25% and depth up 15% to improve in-stocks and conversion; SG&A savings: ~1/3 professional fees, ~1/2 personnel, remainder depreciation/occupancy.