DBI Q1 Earnings Call: Management Focuses on Cost Controls Amid Soft Consumer Demand

Footwear and accessories discount retailer Designer Brands (NYSE: DBI) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 8% year on year to $686.9 million. Its non-GAAP loss of $0.26 per share was significantly below analysts’ consensus estimates.

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StockStory’s Take

Designer Brands’ first quarter results were shaped by a challenging retail environment and weaker consumer sentiment, which pressured both store and digital traffic. CEO Doug Howe cited “increased uncertainty and reduced planning visibility, particularly around consumer behavior,” leading to an 8% drop in comparable sales. Management attributed the softness in the U.S. and Canada to macroeconomic factors and unfavorable weather, particularly in February, which further dampened seasonal demand. The shift in consumer preferences toward value and heightened caution among discretionary shoppers forced the company to increase markdowns and adjust its approach to inventory and promotions. Howe noted that the team implemented a 6% reduction in operating expenses, with a broader plan to save $20 million to $30 million this year.

Looking forward, Designer Brands withdrew its forward-looking guidance due to ongoing volatility and unpredictability in consumer demand. Management emphasized a near-term focus on cost controls, tariff mitigation, and enhancing the value proposition for customers. Howe stated, “This volatility makes any future forecast highly unpredictable,” explaining the decision to refrain from providing projections. The company is prioritizing expense reductions, optimizing inventory levels, and diversifying sourcing to manage tariff impacts. Investments will continue in growth brands like Topo and Keds, which management believes are well-positioned even as discretionary spending remains under pressure. CFO Jared Poff highlighted ongoing efforts to “operate the business as optimally as possible during this time,” with capital spending and inventory investments being tightly managed.

Key Insights from Management’s Remarks

Designer Brands’ leadership attributed the quarter’s results to persistent consumer softness, cost-cutting measures, and a strategic shift toward value and sourcing diversification.

• Consumer demand volatility: Management emphasized that lower store and online traffic reflected ongoing weakness in consumer sentiment, which was exacerbated by unfavorable weather early in the quarter and continued economic uncertainty for discretionary shoppers.
• Cost structure adjustments: The company implemented a 6% reduction in operating expenses for the quarter and expects $20 million to $30 million in annual savings as part of a broader cost management initiative in response to revenue pressures.
• Product assortment strategy: Designer Brands is reducing its choice count while increasing depth on key styles, prioritizing higher-converting products, and leveraging partnerships with top brands. This approach has shown improvement in store conversion rates and better inventory productivity, according to management.
• Brand performance divergence: While the overall Brand Portfolio segment saw lower sales, specific brands like Topo achieved 84% year-over-year growth, driven by expanded distribution and new product launches. Keds also improved gross margins by shifting production in-house and cleaning up excess inventory, despite top-line headwinds.
• Sourcing and tariff response: Management accelerated efforts to diversify sourcing away from China due to higher-than-anticipated tariffs, aiming for less than half of sourced products from China by year-end. They noted that only about 20% of products are directly sourced, limiting their ability to adjust for all categories.

Drivers of Future Performance

Management’s outlook centers on continued cost control, sourcing diversification, and focusing investment on key growth brands amid consumer demand uncertainty.

• Tariff mitigation and sourcing shifts: Designer Brands is prioritizing diversification of its supplier base to reduce reliance on China, especially in anticipation of ongoing tariff pressures. Management expects less than half of all sourcing to come from China by the end of the year, which should help limit cost increases, though some categories—like dress footwear—remain more dependent on established Chinese suppliers.
• Expense discipline and capital allocation: The company aims to deliver $20 million to $30 million in expense savings this year, with further reductions in planned capital expenditures. CFO Jared Poff noted that every dollar of spend is being "highly scrutinized," and inventory investments are being managed for flexibility to respond quickly to demand shifts.
• Brand investment and product focus: Despite near-term headwinds, management is investing in brands like Topo and Keds, which are seen as long-term growth drivers with pricing power. The company will also relaunch its VIP Rewards program next year, aiming to deepen customer engagement and drive more targeted promotions, even as overall consumer sentiment remains volatile.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will watch (1) whether cost reduction efforts yield sustained margin improvement, (2) the effectiveness of sourcing diversification in mitigating tariff and supply chain risks, and (3) further growth in brands like Topo and Keds. The relaunch of the VIP Rewards program and any stabilization in consumer demand will also be important milestones for tracking the company’s recovery.

Designer Brands currently trades at a forward P/E ratio of 12.2×. At this valuation, is it a buy or sell post earnings? Find out in our full research report (it’s free).

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