Designer Brands' Q2 2025: Contradictions Emerge on Tariff Mitigation, SG&A Cuts, and Consumer Sentiment Impact

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 from Q1’s 8% YOY decline
• EPS: $0.34 adjusted diluted EPS, above last year’s $0.29
• Gross Margin: 43.7%, down 30 bps YOY; up 70 bps sequentially vs Q1

Business Commentary:

• Sales and Profitability Trends:
• Designer Brands reported net sales of $739.8 million for Q2 2025, down 4.2% year-over-year, with a 5% decline in comparable sales.

• Sequential improvement was observed in sales and comps compared to Q1, driven by targeted operational efforts and improved consumer sentiment.

• Retail Segment Performance:

• U.S. retail comps were down 5% in Q2, marking an improvement from the first quarter, with total sales also down 5%.

• The improvement was attributed to slightly increased consumer sentiment, improved store traffic, and effective marketing strategies.

• Brand and Product Strategy:

• Topo, a standout brand, achieved 45% growth in sales year-over-year, with no negative impact on sales despite raising prices to mitigate tariff risks.

• The focus on scaling private label, strategic brands, and optimizing marketing spend has contributed to this growth.

• Inventory and Marketing Strategy:

• Inventories were down 5% year-over-year, with a strategic shift in inventory allocation between digital fulfillment centers and stores to enhance in-store availability.
• Marketing investments were optimized, with a focus on personalization and meeting customers where they are, contributing to improved store conversion rates.

Sentiment Analysis:

• Management highlighted sequential improvement (comps improved through Q2; store comps positive in August) and cost discipline ($14.1M lower opex; targeting $20–$30M FY25 savings) but noted sales were still down 4.2% YOY and comps –5%. They withheld full-year guidance due to macro/tariff uncertainty, citing concern over indirect demand effects.

Q&A:

• Question from Mauricio Serna Vega (UBS): How did intra-quarter trends evolve, and did the momentum continue into August?
  Response: Comps improved sequentially through Q2 and continued to improve into August.

• Question from Mauricio Serna Vega (UBS): Were comps positive by the end of the quarter at the total company level?
  Response: Total comps were still slightly negative exiting Q2; store comps turned positive in August while digital was intentionally pulled back for profitability.

• Question from Mauricio Serna Vega (UBS): How much profit pressure do you expect in Q3 from tariffs?
  Response: Direct tariff impact is limited; the main risk is indirect demand effects, with selective price increases taken and largely passed through so far.

• Question from Dana Telsey (Telsey Advisory Group): What are you tracking for the new 'let us surprise you' campaign, and how are you thinking about marketing spend and store productivity?
  Response: Campaign launched Sept 2; it’s early, with spend optimized toward brand/store differentiation and no expected SG&A deleverage.

• Question from Dana Telsey (Telsey Advisory Group): How are key brands performing and what should we expect from brand activations?
  Response: Top 8 brands delivered a +1% comp and 45% penetration; partnerships and in-stock levels are improving (Nike included).

• Question from Mauricio Serna Vega (UBS): Where are you deepening assortment and how?
  Response: Choice count is down ~25% while depth is up ~15% in H2 to improve in-stock and store conversion.

• Question from Mauricio Serna Vega (UBS): Can you break down the $20–$30M SG&A savings for FY25?
  Response: About one-third from professional/consulting fees, about half from personnel actions, and the balance from items like depreciation and occupancy.