From Le Tigre To Nike: Analyst Sees Bright Spots For Designer Brands Amid Concerns

Telsey Advisory Group analyst Dana Telsey reiterated the Market Perform rating on Designer Brands Inc. DBI, raising the price target to $14 from $8.

DBI reported a second-quarter FY23 sales decline of 7.8% year-on-year to $792.2 million, beating the analyst consensus of $785.74 million. Adjusted EPS of $0.59 beat the analyst consensus of $0.44.

Overall, the Q2 results are encouraging, as the company was able to maneuver a choppy consumer backdrop and deliver a beat across sales, gross margin, and expenses, and maintained its prior FY23 outlook.

The margin expansion was driven by a consolidation of DBI's fulfillment centers (Ohio and New Jersey) and significantly lower freight, shipping, and distribution expenses, according to the analyst.

The company's new offerings from Le Tigre and Keds, as well as lean inventory levels, provide some incremental confidence in the H2 outlook, Telsey adds.

In addition, the new brands' performances have been in line with expectations, and DBI sees opportunities with the acquisitions through upcoming product launches and collaborations, according to the analyst.

DBI launched its athleisure Le Tigre brand early in Q3, and its retro-inspired athletic styles are being well-received. 

The Branded Portfolio is also expected to benefit from DBI becoming the exclusive licensee for Hush Puppies in the U.S. and Canada, including taking over e-commerce and international expansion.

The analyst thinks that casual footwear continued to perform well in Q2. 

And while it is still early in the season, DBI has seen "a nice initial reception" to boots.

Going ahead, management cautioned that its outlook anticipates some recovery of consumer spending later in the year, but there continues to be the risk of trends deteriorating from here.

Benefiting H2 should be easier topline compares, a brand-building campaign for DSW, and Nike, Inc. NKE returning, adds the analyst. 

Also Read: Wholesale Strategy Debate May Deter Incremental Buyers Despite Nike's Q4 Performance: Morgan Stanley

Price Action: DBI shares are trading lower by 5.33% to $11.98 on the last check Friday.