Designer Brands Inc "A Slower Recovery Ahead; Lowering PT and Stay Neutral"

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Designer Brands Inc "A Slower Recovery Ahead; Lowering PT and Stay Neutral"

Designer Brands Inc UBS Research

UBS Research THESIS MAP Thesisa guideMapto our thinking and what´s where in this report

Pivotal Questions Q: How much can the North American footwear industry grow?

We expect it to rise at a 2% CAGR, highly skewed to sports footwear and the online channel.

Athleisure should continue driving sports footwear at a mid-to-high-single-digit annual pace. We

think Department Stores and Specialty Retail will likely continue losing share.

Q: Will DBI’s business model allow them to grow in tomorrow's retail landscape?

Potentially, but we think DBI faces secular headwinds. The company has a relatively high exposure to

fashion footwear, while consumers are generally moving towards athletic categories. DBI's main

banner DSW has 10M+ sq. footage amid declining industry traffic trends. We forecast a 1% 6-yr.

sales CAGR (FY24-30). This implies long-term revenues slightly below pre-pandemic levels.

Q: Can Designer Brands maintain the EBIT margin improvement it generated in FY21?

No. We believe DBI's initiatives should help it maintain MSD% margin. We forecast its EBIT margin

should contract to 4.2% by FY30 from a recent 6.7% peak in FY21 given a more promotional

environment and cost deleverage. This weak operating income outlook along with share repurchases

should lead to long-term EPS slightly below pre-pandemic levels.

UBS VIEW We rate DBI Neutral. DBI is primarily known as a fashion footwear retailer and thus faces structural

headwinds: (1) a 600+ store-based business model amid intense competition across retail channels,

and (2) consumers' increasing affinity for athletic and casual footwear. We model a 32% 6-yr. EPS