Designer Brands Slips On Sales Miss And Raised Expenses, Analyst Concerned About Dependence On Camuto Group's Rapid Growth

Telsey Advisory Group analyst Dana Telsey reiterated a Market Perform rating on the shares of Designer Brands Inc DBI with a price target of $8.

The analyst said the miss reflected weaker sales and higher expenses, offset by marginally better gross margin with the operating margin coming in-line and the higher interest expense was largely the driver of the EPS shortfall.

Total sales fell 10.7% to $742.1 million, coming in below the consensus of down 9.4% to $752.1 million.

While expectations were certainly moderated heading into the Q1 report, DBI reduced its annual EPS guidance well below the consensus estimate, noted the analyst.

The more conservative outlook is likely prudent at this point, in the analyst’s view, given ongoing uncertainties and challenges in the macro-operating environment that continue to impact the mass footwear channel.

The analyst noted that the move to lever up to complete the buyback in this environment certainly bucks the trend from retailers year-to-date, primarily focused on cash flow preservation along with debt and expense reduction to offset near-term pressures.

While the analyst believes the company's long-range plan remains intact and provides visibility to the financial framework beyond this year, the plan is almost entirely leveraged to somewhat consistent and rapid growth in the Camuto Group, particularly in light of the secular headwinds to the national brand business.

Price Action: DBI shares are trading higher by 20.88% at $8.72 on the last check Thursday.