Designer Brands Inc. (DBI) just reminded Wall Street why you can't judge a retailer by its sales alone. The footwear company reported third-quarter results on Tuesday that featured an earnings beat so substantial it sent shares soaring and analysts scrambling to update their models.
The headline number: adjusted earnings per share of 38 cents, more than doubling the analyst consensus estimate of 18 cents. That's not a small beat—that's the kind of surprise that makes people wonder what they missed. Revenue came in at $752.4 million, down 3.2% year over year and slightly below the Street's expectation of $763.4 million. Total comparable sales decreased by 2.4%.
So sales are down, but profits are way up. What's happening here? It's the turnaround story in action. CEO Doug Howe explained it this way: "Our third quarter performance represents another meaningful step forward in our transformation, as we demonstrated continued sequential improvement across multiple financial and operating metrics."
Translation: the company is getting better at making money from the sales it does have, which is arguably more important than raw revenue growth in a challenging retail environment.
Looking ahead, Designer Brands expects fiscal year 2025 adjusted operating profit between $50 million and $55 million. The company projects net sales to decline 3% to 5%, so management isn't sugarcoating the top-line challenges. But apparently the margin story is convincing enough.
Designer Brands shares jumped 8.6% to $7.82 on Wednesday following the earnings release.
Wall Street analysts moved quickly to adjust their outlooks. Telsey Advisory Group analyst Dana Telsey maintained a Market Perform rating but raised her price target from $5 to $7. Meanwhile, UBS analyst Jay Sole kept his Neutral rating while boosting his target from $4.50 to $7.
Both firms increased their price targets by roughly 40% to 56%, which tells you something about how meaningful this earnings beat was. When you more than double earnings expectations, people start rethinking their assumptions about what this business can do.
