The Market Perform rating on Designer Brands Inc. (DBI) has been reiterated by Telsey Advisory Group analyst Dana Telsey, who also set a price target of $8.
DBI is scheduled to report its second-quarter results on Thursday, September 7, before the market opens.
The analyst noted that while the first quarter was predicted to face some challenges, the actual performance ended up being more difficult than expected.
DBI has continued to experience below-average performance in the second quarter, with initial trends below previous expectations.
As a result, management anticipates a further delay in the recovery of discretionary spending, which was initially expected to stabilize in the third quarter and return to growth in the fourth quarter.
For the upcoming quarter, the analyst forecasts an earnings per share (EPS) of $0.46, compared to $0.62 in the prior year and a consensus estimate of $0.44.
In terms of revenue, the analyst predicts a total sales decline of 6.8% year-on-year (YoY) to $801 million, driven by a contraction in same-store sales. This is in line with the consensus estimate.
While casual sales remain strong, growth in this category has not been sufficient to offset declines in dress and seasonal items, particularly sandals.
The analyst estimates a gross margin of 33.5%, down 90 basis points from the previous year’s 34.4%, and an operating expense deleverage of 100 basis points to 27.4%.
Telsey is particularly interested in DBI’s ability to capture market share during the competitive back-to-school season. As DBI enters its third year, it plans to expand its children’s back-to-school business and gain a larger market share.
Overall, the analyst expects a 180 basis point contraction in operating margin to 6.4%, compared to a consensus estimate of 6.1% and last year’s 8.2%.
With one quarter already completed (slightly below internal expectations) and ongoing uncertainty, DBI is now forecasting a slower recovery in discretionary spending compared to previous expectations.
Looking ahead, Telsey believes that the reintroduction of Nike, Inc. (NKE) will help drive additional revenue starting in Q4.
DBI shares are currently trading higher at $10.52, representing a 1.79% increase.