Designer Brands Cuts Costs as Q2 Sales Dip

Designer Brands(NYSE:DBI) reported second-quarter 2025 results on Sept. 9, 2025, noting a 4.2% year-over-year decline in net sales to $739.8 million, a 5% drop in comparable sales, and adjusted EPS of $0.34, up from $0.29 in the prior year. Management highlighted sequential improvements in core categories. The launch of new customer initiatives and disciplined expense reduction set the stage for a cautiously optimistic but guidance-free outlook amid persistent macro pressures.

The following insights explore DBI's evolving channel strategy, merchandising initiatives, and cost actions with direct implications for the long-term investment thesis.

Designer Brands pivots strategy to prioritize profitable stores over digital expansion

Management explicitly deprioritized unprofitable digital sales in favor of optimizing in-store conversion, consistent with commentary elsewhere about reallocating marketing from “empty calorie” online efforts to in-store activations. Store comps turned positive in August, while total comps remained slightly negative at the end of the quarter. Over 90% of transactions flow through the company’s VIP loyalty program. Store conversion was up 1% year-over-year, signaling a material shift in omni-channel focus.

"We are taking a very different approach than we historically have towards our digital business, recognizing there's a large part of that that it's very difficult to make actual money on. We have been very deliberately pulling back the marketing we spend to chase some of those empty calorie sales as well as the sales themselves. We're really focused on where we can provide a differentiation, which is our stores, and are seeing some really strong trends there. As Doug mentioned in his script, we saw that turn to positive in August in our stores' comps. When you do look at the total, you do need to make sure and understand there's a piece of it that we're okay with negative comps on, on the digital specifically, as long as we're improving our profitability."
-- Jared Poff, Chief Financial Officer

This deliberate shift from growth-at-all-costs in digital to prioritizing profitable in-store transactions signals a more disciplined capital allocation paradigm, directly addressing previous margin leakage and favoring sustainable returns over superficial sales gains.

Designer Brands achieves expense reductions and meaningful SG&A leverage

Adjusted operating expenses declined by $14.1 million year over year, with management on track for $20 million to $30 million in annual cost savings split across reductions in professional fees, personnel, and other overhead. Adjusted operating expense leverage improved by 20 basis points year over year despite sales declines, and total inventories were reduced by 5% year over year, reinforcing the focus on cash flow and efficiency. Total debt was paid down by $40.2 million between the end of the quarter and fiscal August.

"For the second quarter, adjusted operating expenses dropped $14.1 million versus last year, slightly leveraging by 20 basis points year over year. As we discussed in our last call, in response to the highly volatile macro environment and its impact on our business, we have taken an aggressive, disciplined approach to managing our expense structure and capital expenditures. With these actions, we currently are on track to deliver approximately $20 million to $30 million in expense dollar savings across fiscal 2025 as compared to 2024. As a reminder, our third quarter will include a headwind of $9 million compared to the prior year from our bonus accrual reversal last year during Q3. For the second quarter, adjusted operating income was $30.3 million compared to operating income of $32.5 million last year."
-- Jared Poff, Chief Financial Officer

This level of cost discipline not only preserves earnings power in a challenging retail environment but also creates operating flexibility to invest in strategic growth levers or withstand external shocks, favorably positioning the company’s balance sheet for long-term value creation.

DSW brand repositioning and targeted inventory depth drive category outperformance

The new brand campaign “Let Us Surprise You” launched on Sept. 2, integrating updated branding, refreshed store experiences, and an omnichannel marketing push. In Q2, women’s dress posted a 5% positive comparable, up 900 basis points from the first quarter, and top eight brands drove a 45% penetration of total sales, up 300 basis points year-over-year. Management plans to decrease choice count by 25% while increasing SKU depth by 15% for the back half of 2025, directly addressing prior out-of-stocks and improving in-store availability to approximately 70% in regular-priced items.

"Our choice count for the back half of 2025 is planned down 25% versus last year, and our depth is planned up 15%, underscoring our focus on inventory productivity. Looking ahead, we are adding depth in our core styles, including our top eight brands, ensuring we are focusing on the areas of highest demand. Going into fall, we are also seeing positive signs as it relates to regular price boosts, which we believe may signal potential strength in our seasonal merchandise this fall. On the product availability side, we have continued to shift inventory allocation in the U.S. between digital fulfillment centers and our store locations to optimize in-store product availability. Our in-stock levels of regular priced products materially improved to approximately 70%, a clear sign of progress in our inventory availability. We are seeing this strategy validated by our DSW store customers, who are driving our positive conversion comps."
-- Doug Howe, Chief Executive Officer

This data-driven approach to merchandising, combining SKU rationalization with greater inventory depth in high-velocity categories, substantially limits lost sales from stockouts and gives the company a stronger competitive proposition in key consumer segments.

Looking Ahead

Management is withholding quantitative full-year guidance due to continued macro headwinds and ongoing uncertainty around tariffs, though it reaffirms its targeted $20 million to $30 million in expense savings. Sequential improvement in store traffic, conversion, and regular-price sales provides cautious optimism into the back-to-school and fall seasons. No additional store openings, closures, or explicit revenue or earnings guidance were disclosed for the remainder of 2025.

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