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Why Did Designer Brands Stock Drop Despite 4x EPS Growth?
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Why Did Designer Brands Stock Drop Despite 4x EPS Growth?

Story Highlights

Designer Brands posted stronger-than-expected Q1 results, topping both earnings and revenue estimates. Despite the Q1 beat, management lowered the financial guidance for FY2022.

Designer Brands Inc. (NYSE: DBI) reported upbeat Q1 results, topping both earnings and revenue estimates.

However, DBI, which is one of the largest designers, producers, and retailers of footwear and accessories in the U.S., lowered its FY2022 guidance below analysts’ expectations.

Although investors were impressed by the beat, they were left disappointed by the muted outlook. As a result, despite a blowout quarterly beat, DBI shares closed 1% lower.

Q1 Beat

The company reported stellar quarterly earnings of $0.48 per share, doubling analysts’ estimates of $0.24 per share. Notably, the earnings quadrupled compared to earnings of $0.12 per share reported for the prior-year period.

Additionally, revenue climbed 18.1% to $830.5 million compared to the prior-year period and outpaced the analysts’ estimate of $810.66 million.

The revenue growth is attributed to higher comparable sales of 15.3% coupled with the relaunch of the Vince Camuto brand and sales that grew by 80%.

Additionally, gross margin expanded by 250 basis points year-over-year to 33.2%, while operating profit grew by 200%.

Lowered FY2022 Outlook

Despite robust Q1 results, management slashed financial guidance for FY2023.

The company now forecasts FY22 comparable sales to grow by mid-single digits compared to the previous outlook of high-single digit growth.

Further, adjusted earnings are forecast to be in the range of $1.90 per share to $2.00 per share, lower than the prior guided range of $1.80 per share to $1.90 and the consensus estimate of $1.80.

CEO’s Comments

Speaking on various news partnerships to spur business growth, Designer Brands CEO, Roger Rawlins, commented, “These are just a few ways Designer Brands is reaching new customers, partnering differently with our National Brand partners and leveraging new distribution channels that will enable us to deliver long-term shareholder growth.”

Wall Street’s Take

Deutsche Bank analyst Gabriella Carbone reiterated a Hold rating and a price target of $22 (43.3% upside potential).

The Wall Street community has a Hold consensus rating based on two unanimous  Holds. The average Designer Brands stock forecast of $18.50 implies 20.5% upside potential to current levels.

Concluding Thoughts

Shares of Designer Brands have returned almost 15% to investors in the past six months, impressively outpacing benchmark indices.

Further, it reported upbeat revenues, gross margin, and earnings per share (EPS) during the current quarter, which is commendable, especially when other stocks are tumbling due to global uncertainties.

The company is executing its brand-building initiatives quite well and remains confident to achieve doubled owned brand sales by 2026, albeit it chose to be cautious on its short-term outlook

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