Designer Brands Q4 2025 Earnings Call Transcript

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Provided by Quartr
March 20, 2025

Key Takeaways

  • DSW returned to positive comps in Q4, with a 1% comp increase excluding the extra week and marking the first positive comp result in nine quarters.
  • The Brand Portfolio segment achieved operating profitability for the first time, with Q4 sales up 12% and full-year sales up 14%, driven by margin expansion and cost reductions.
  • U.S. Retail comps rose 1% in Q4 and DSW outpaced the footwear market, gaining 10 basis points of market share versus last year.
  • Consumer spending showed increased caution in January due to inflation and less discretionary income, leading to expectations that Q1 sales will be below last year’s levels.
  • For 2025 the company forecasts low-single-digit sales growth, positive comps, and a ~50% increase in adjusted EPS to $0.30–$0.50, supported by omnichannel initiatives and product optimization.
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Earnings Conference Call
Designer Brands Q4 2025
00:00 / 00:00

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Operator

Good day, and welcome to the Designer Brands fourth quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Dustin Hauenstein, Senior Vice President of Finance. Please go ahead.

Dustin Hauenstein
Dustin Hauenstein
SVP of Finance at Designer Brands

Good morning. Earlier today, the company issued a press release comparing results of operations for the 13-week and 52-week periods ended February 1st, 2025, to the 14-week and 53-week periods ended February 3, 2024. Please note that the financial results that we will be referencing during the remainder of today's call exclude certain adjustments recorded under GAAP unless specified otherwise. For a complete reconciliation of GAAP to adjusted earnings, please reference our press release. Additionally, please note that remarks made about the future expectations, plans, and prospects of the company constitute forward-looking statements. Results may differ materially due to the various factors listed in today's press release and the company's public filings with the SEC. The company assumes no obligation to update any forward-looking statements. Joining us today are Doug Howe, Chief Executive Officer, and Jared Poff, Chief Financial Officer. Now let me turn the call over to Doug.

Doug Howe
Doug Howe
CEO at Designer Brands

Good morning, and thank you, everyone, for joining us. I'd like to begin by saying a special thank you to our associates for their continued hard work and dedication to Designer Brands throughout the year. We are pleased to return to positive comps in the fourth quarter of fiscal 2024 for the first time in nine quarters, as results improved throughout the year with our transformation taking a greater hold. In the fourth quarter, given the inclusion of the 53rd week last year, we saw a 5% year-over-year decline in total sales. Excluding the 53rd week, our comps were up 1%. For the full year, total company sales were down roughly 2% to last year, and comps were down 1.7%, in line with our revised guidance. We also delivered full-year adjusted EPS of $0.27 at the upper end of our revised guidance range of $0.10-$0.30.

Doug Howe
Doug Howe
CEO at Designer Brands

As I reflect upon our performance this year, the improvement we saw was a direct result of our commitment to executing on those initiatives within our control. This included decisive actions to refresh our leadership team, revitalize and modernize our assortment, optimize our marketing, right-size our brand portfolio organization, and continuously improve our customers' omnichannel experience. Over the last year and a half, we've updated our leadership team, naming a new President of DSW, a new Brands President, a new Chief Marketing Officer, and a new Head of Merchandising to reinvigorate our teams, implement new ways of working, and bring in expertise we were previously lacking. We've also made considerable progress in revitalizing our assortment. We ended 2024 with a more relevant and balanced assortment that includes more athleisure than ever before, increasing our penetration by five percentage points and grabbing market share.

Doug Howe
Doug Howe
CEO at Designer Brands

We also rekindled and expanded our relationship with our top brand partners, deepening the number of styles offered with key brands to build an eye-catching in-store and online selection. Our top eight brands remain a primary driver of positive performance, with sales of those brands up 25% on a full-year basis. On the marketing front, this year, we leaned into the holiday season more than ever, focusing on giftable items. Black Friday, Cyber Monday, and a well-timed post-holiday sale helped generate buzz, capture consumer interest, and maintain strong momentum beyond the season. Additionally, we enhanced the customer experience. Leading with overt holiday messaging and strategic collaborations allowed us to establish our stores as a gifting destination. The holiday assortment had an impactful visual presence with impressive and attention-grabbing gift-giving collateral.

Doug Howe
Doug Howe
CEO at Designer Brands

Within our brand portfolio organization, we remained focused on cost reduction, brand optimization, higher product margins, and improved SKU productivity through streamlined operations. I'm pleased to share that we've successfully delivered on these goals, driving top-line growth and margin expansion. Let's quickly review some of the financial highlights from the fourth quarter and full year, starting with our retail businesses. In U.S. retail, we were pleased to post comps up 1% in the fourth quarter, reflecting a return to positive comps for the first time since the third quarter of 2022, driven by strength in athletic, women's dress and luxury, accessories, and kids. According to Circana data, DSW sales growth versus last year outpaced the footwear market in the fourth quarter, resulting in a 10 basis point gain of footwear market share versus last year for DSW.

Doug Howe
Doug Howe
CEO at Designer Brands

Sales for the quarter were down 7%, primarily due to the impact of the 53rd week last year. For the full year, U.S. retail comps were down a little over 1%, driven by weaknesses in seasonal. We saw strength in a number of categories throughout the year, such as athletic, women's affordable luxury, and kids. Sales for the year were down roughly 3%, driven by the impact of the 53rd week and the decline in comps. In Canada, fourth-quarter comps were up 5%, driven by strong performance in most categories, led by athletic and kids. Sales were up over 7% to last year. For the full year, comps were down 2% due to similar trends we saw in the U.S.: strong athletic, casual, and kids performance, which was offset by weakness in seasonal and dress.

Doug Howe
Doug Howe
CEO at Designer Brands

Sales were up 7% to last year, primarily as a result of adding Rubino to our store footprint. Turning to our brand portfolio segment, for the fourth quarter, sales were up approximately 12%. For the full year, sales were up roughly 14%. In 2024, we were able to reach operating profitability in this segment for the first time as our Brands President, Andrea's initiatives to reset the business have proven successful, and we believe have set this business up for continued profitable growth into the future. For the year, we expanded our gross margins by 100 basis points and reduced our segment operating expenses by nearly 700 basis points. The combination of the two has led to a significant improvement in operating margin. Operationally, our adoption rate of design proposals has increased from roughly 20% historically to 50% for our fall 2025 collection.

Doug Howe
Doug Howe
CEO at Designer Brands

We expect for this to continue to increase over time. On the product side, we're excited to have seen continued growth in Topo Athletic and Jessica Simpson. Both brands have been significantly outperforming expectations throughout the year. For the year, Topo was up nearly 80%, and Jessica was up over 20% in wholesale sales. As we move forward in 2025, we believe our ongoing business transformation will drive continued stabilization and improvement of sales and profitability, with expectations to significantly increase our adjusted EPS compared to 2024 results. Let me spend a few minutes discussing our strategic focus areas for 2025. In our retail segment, we'll use the pillars of customer and product to guide our focus.

Doug Howe
Doug Howe
CEO at Designer Brands

First and foremost, we are placing an even more deliberate focus on being customer-first in everything we do, leveraging insights and advanced analytics to refine the DSW brand identity and positioning, update our target customer segmentation, and enhance marketing tactic effectiveness. We've executed both qualitative and quantitative research and are embedding the focus into the organization in real time. In 2025, we'll be able to better understand what drives our most valuable customers and where and how we can acquire more of them. We will continue to evolve our brand positioning throughout 2025, which we believe will be exciting for our loyal customers as well as newcomers. We will also be revisiting our robust VIP Rewards program, which represents roughly 90% of our transactions. We'll be transforming VIP Rewards and perks with an aim to relaunch the program in early 2026.

Doug Howe
Doug Howe
CEO at Designer Brands

Additionally, we intend to continue evolving our approach to promotions and discounts to help serve customers searching for value. To this end, our semi-annual sale will continue to evolve as it becomes a more important promotional event to DSW. We will also continue to evolve our omnichannel customer experience in ways that are intended to drive both value for consumers and improve financial results. We will continue to enhance our in-store selection and displays, a key differentiator when it comes to the in-person shopping experience that drives over 70% of our sales. We'll also be adding DSW net new stores to our fleet for the first time since 2019, expanding access to product and aligning with population migration. In addition, we are rolling out simple, tech-enabled shoe fitting services and post-purchase protective shoe cleaning, which we believe will provide points of differentiation for our brand and incremental margin in 2025.

Doug Howe
Doug Howe
CEO at Designer Brands

We look forward to sharing updates on these and other initiatives across the course of the year that we expect to drive profitable omnichannel growth. Our next strategic pillar for 2025 is a continuation of our assortment revitalization journey. This year, we are further enhancing our product offering through a data-driven approach that we expect to drive improved inventory availability and productivity. We are rationalizing unproductive product, which will allow us to amplify our investments in key items and top-selling products. We are also optimizing our inventory allocation and digital order management to improve product availability across our network. We expect these enhancements to directly drive increases to in-stock rates, improve conversion on store traffic, and lower fulfillment costs for digital orders. These efficiencies are expected to build over the course of the year.

Doug Howe
Doug Howe
CEO at Designer Brands

As we look to our brand segment for 2025, we have outlined a number of ways we expect to deliver growth, notably reestablishing our private label brands as margin drivers and building a more profitable wholesale business, which includes investing in core names like Keds and Topo to drive top-line revenue. Our private label brands are those only sold at DSW, including Kelly & Katie, Mix No. 6, and Crown Vintage. All have a position of strength within key DSW women's categories, and we plan to leverage these strengths to grow our top line and drive margins for the business. Given our control over the design and production of these brands, we deliver over 1,500 basis points of incremental margin rate above our national brands, which drives our overall margin.

Doug Howe
Doug Howe
CEO at Designer Brands

Private label brands currently penetrate at less than 20% of DSW sales, and we believe this has the opportunity to expand in the future. As Andrea mentioned last year, we are also in the process of advancing our brand and product strategies for our wholesale brands, such as Vince Camuto, Lucky, and Jessica Simpson. Additionally, we will continue to invest in Topo and Keds, two well-positioned brands with strong heritage, growth potential, and solid distribution. In the short term, we are focused on rebuilding the foundation of Vince Camuto and Lucky. We have a number of initiatives in place, which include a new marketplace strategy, growing new channels of distribution, diversifying product assortment, and leaning into growing categories like casual for Lucky and dress for Vince Camuto.

Doug Howe
Doug Howe
CEO at Designer Brands

Jessica Simpson is another brand that is well-positioned to continue to capitalize on the resurgence of dress in the marketplace, which we aim to leverage by offering a strong assortment and delivering great value to consumers in this growing category. We plan to continue to invest in fueling growth in our Topo Athletic and Keds brands. Both brands are uniquely positioned within the portfolio, have compelling heritage, and are situated in growing categories. They already have access to excellent distribution and are delivering strong operational income contribution to the segment. At Topo specifically, we remain energized by the outsized growth potential the brand represents. Today, Topo represents over 10% of our total brand portfolio sales and grew over 70% in 2024.

Doug Howe
Doug Howe
CEO at Designer Brands

We anticipate another year of growth in 2025, driven by a strategic approach to distribution within the core specialty running area, strong product launches, and increasing investment in marketing to establish key franchise items, drive volume, and overall build a brand with a strong reputation. Our strategy to reposition the Keds brand for growth in 2025 is critical to building a healthy and sustainable brand. We will work to reposition ourselves in the comfort casual category, target the Gen X and above customer who already know and trust the brand, and add new technology-infused athleisure offerings powered by our exclusive Blitz Walk technology. We are seeing positive results from this evolved product already and are excited about expanding this approach in 2025. We believe that we will see double-digit growth over time with gross margin improvement as well.

Doug Howe
Doug Howe
CEO at Designer Brands

Before I conclude, I want to share a few thoughts on our 2025 guidance. While we do not expect a material impact on our business from currently anticipated tariff policies, we have seen our consumers being more cautious, starting in the back half of January as a result of ongoing inflation, rising prices, and less discretionary income. This was a marked change from the trends we were seeing exiting December, and we recognize that uncertainty remains as they continue to be selective with their discretionary income. As such, we are leaning into initiatives to drive demand and value. On balance, we expect to post positive comps for the full year as well as meaningful operating income growth for the year. We anticipate quarterly performance will improve gradually as we move through the year. Jared will discuss this more in a moment.

Doug Howe
Doug Howe
CEO at Designer Brands

I want to reiterate how pleased I am with our team's execution and unwavering dedication as we continue our transformational journey. I'm confident the strategies we are employing are the right ones to support long-term value creation for DSW. With that, I'll turn it over to Jared. Jared?

Jared Poff
Jared Poff
CFO at Designer Brands

Thank you, Doug, and good morning, everyone. We were pleased with the results from the fourth quarter, reporting positive comps for the first time since Q3 of 2022, and continued to focus on our financial improvement throughout the year. As noted in our earnings press release, we changed our financial statement presentation related to expenses associated with distribution and fulfillment and store occupancy for the U.S. retail and Canada retail segments. These expenses were previously included within cost of sales and are now included within operating expenses in order to present all of our operating segments on a consistent basis.

Jared Poff
Jared Poff
CFO at Designer Brands

Included in our earnings press release are schedules showing the impact of these reclassifications for each quarter for fiscal 2023 and 2024. We also changed the presentation of segment performance by including an operating profit measurement in addition to the previously reported gross margin measurement for our reportable segments. We have restated quarterly and annual historical results to be on a comparable basis, and our remarks will be based on this restated basis. Let me provide a bit more detail on our fourth quarter and full-year financial results. For the fourth quarter of fiscal 2024, net sales of $714 million were up 0.5% on a 13-week comp basis, and due to the 53rd week in the fourth quarter of 2023, net sales were down 5.4% versus the prior period as reported.

Jared Poff
Jared Poff
CFO at Designer Brands

For the full year of fiscal 2024, net sales of $3 billion were down 1.7% on a 52-week comp basis and down 2.1% versus last year, inclusive of the 53rd week. In our U.S. retail segment, comps were up 0.7% in the fourth quarter. We saw positive comps across the majority of our footwear categories with the strongest performance in Kids, Athletic, Accessories, namely socks, and Women's Dress. Our Canada retail segment comps were up 4.7% in the fourth quarter, primarily due to strength in Athletic and Kids and the reintroduction of Nike, Women's Casual and Dress, and Boots as we became more promotional in the quarter to help clear through our seasonal product. Finally, in our brand portfolio segment, sales were up 12.3% in the fourth quarter. From a segment perspective, full-year net sales versus last year ended at down 2.7% for our U.S.

Jared Poff
Jared Poff
CFO at Designer Brands

retail segment, up 7.1% in our Canada retail segment, and up 14.3% in our brand's portfolio segment. As a reminder, starting in fiscal 2024, we have harmonized our approach to how we transact business between our brand portfolio segment and our retail segments. This change resulted in approximately $21 million of year-over-year additional sales for our brand segment in the fourth quarter that were eliminated in consolidation. The brand portfolio segment also benefited from notable sales growth in Topo Athletic, which was up 57% versus last year, driven by both our wholesale and DTC channels. Consolidated gross profit of 39.6% in the fourth quarter increased 80 basis points versus the prior year, primarily driven by our U.S. retail segment with less promotional offers as well as decreased DTC shipping associated with lower rates and an improvement in packages per order.

Jared Poff
Jared Poff
CFO at Designer Brands

Full-year consolidated gross margin of 42.7% in 2024 deleveraged 40 basis points versus the prior year, primarily driven by lower IMU in our U.S. retail segment as a result of our continued penetration shift into more athletic footwear. For the fourth quarter, adjusted operating expense was 43.5% of sales, a 40 basis point deleverage from the fourth quarter last year. Although operating expense was down from last year, the deleverage was mostly driven by the inclusion of the 53rd week of sales last year against a partial fixed cost base. For the full year 2024, adjusted operating expense was 40.9% of sales, a 50 basis point deleverage from last year. Similar to the fourth quarter, full-year operating expense experienced deleverage that was primarily driven by the inclusion of the 53rd week of sales last year against a partial fixed cost base.

Jared Poff
Jared Poff
CFO at Designer Brands

Deleverage was in both retail segments as well as the corporate costs related to incremental technology expense associated with cloud-based service cost. This was partially offset by leverage in our brand portfolio segment operating expense related to cost savings efficiency measures. Recall that we said last quarter we now have a detailed expense savings roadmap for 2025, which we expect to aid in reducing our cost of sales through things like fewer promotions in 2025. For the fourth quarter, adjusted operating loss was $23.5 million, an improvement versus an operating loss of $30.2 million last year, inclusive of the 53rd week, which included $6.6 million of additional operating income. It was the second consecutive quarterly year-over-year improvement. For the full year, adjusted operating profit was $67.3 million versus $89.6 million last year, which again included operating income generated in the 53rd week as previously noted.

Jared Poff
Jared Poff
CFO at Designer Brands

In the fourth quarter of 2024, we had $11.1 million of net interest expense compared to $9.9 million last year. Higher interest expense is a direct result of the term loan we installed last year, as well as higher interest rates on our ABL. For the full year of 2024, we had $45.3 million of net interest expense compared to $32.2 million last year. Our effective tax rate in the fourth quarter on our adjusted results was 38.6% compared to 37% last year. For the year, our effective tax rate on our adjusted results was 31.6% compared to 24.8% last year. Our fourth quarter adjusted net loss was $21.3 million versus $25.3 million last year, or a loss of $0.44 in diluted earnings per share for both years.

Jared Poff
Jared Poff
CFO at Designer Brands

Finally, our full-year adjusted net income was $15 million, or $0.27 earnings per diluted share, compared to $43.2 million, or $0.68 earnings per share in fiscal 2023. Turning to our inventory, we ended the fourth quarter with total inventories up 5% versus the prior year as we continue to emphasize a clean inventory position and prioritize placement of our newest product. We feel good about our inventory levels heading into the new fiscal year and our flexibility to continue to chase and take actions on opportunistic buys. In fiscal 2024, I'm pleased to report that Designer Brands returned $79 million to shareholders through a combination of dividends and share repurchases. During the year, we repurchased an aggregate 10.3 million Class A common shares at an aggregate cost of $68.6 million and paid $10.5 million in dividends.

Jared Poff
Jared Poff
CFO at Designer Brands

As of February 1, 2025, $19.7 million of Class A common shares remained available under our share repurchase program, which, as a reminder, has no set expiration date. We have also once again reaffirmed our commitment to returning cash to shareholders, declaring a $0.05 per share dividend for the first quarter of 2025. For the full year, we again generated positive cash flow and ended 2024 with $44.8 million of cash, and our total liquidity, which includes cash and availability under our revolver, was $172.1 million. Total debt outstanding was $491 million as of the end of the year. Before I conclude, I want to share a few thoughts on our 2025 guidance. As Doug mentioned, our guidance incorporates continued macro uncertainty that may impact our consumers' spending habits. On a consolidated basis, we expect sales to be up low single digits for the year.

Jared Poff
Jared Poff
CFO at Designer Brands

The midpoint of our guidance suggests a nice improvement compared to 2024. Given the soft start to the year, we do anticipate first quarter performance to be below last year. We expect performance will gradually improve as we move through the year. For the U.S. retail segment in 2025, we expect net sales growth in the low single digits versus last year. We also expect comparable sales to be up low single digits. The comp growth is expected to be driven by our focus on improving our inventory availability, productivity, and assortment strategy, as well as optimizing marketing to drive DSW awareness. In our Canada retail segment for 2025, we expect a mid to high single-digit growth versus last year. The majority of this increase is expected through the addition of Rubino, modest comp growth driven by web enhancements and strategic initiatives to grow our base business.

Jared Poff
Jared Poff
CFO at Designer Brands

We anticipate sales in our brand portfolio segment for 2025 will increase mid-single digits, driven by strong growth in Topo Athletic, Keds, Jessica Simpson, and a return to growth of our private label brands at DSW. A critical foundation to our transformation is a focus on driving profitable growth. As a continuation of efforts that we initiated last year, we are evaluating expenses across the company and executing on roadmaps to drive efficiencies across all of the business. Some of these work streams are straightforward, with benefits contemplated in our 2025 guidance, primarily in sourcing costs, which will drive improvement in our gross margins. Others are more complex efforts, with benefits that will be realized over a multi-year period unlocked by some technology advancements and/or process changes.

Jared Poff
Jared Poff
CFO at Designer Brands

The inventory productivity work that Doug mentioned earlier is a great example of where we expect to see notable impacts this year, and we anticipate even more opportunity beyond 2025. To help accelerate this benefit, we opened a distribution center in Arizona dedicated to store fulfillment, which came online this month. This 3PL facility will reduce time to service our western stores, which currently can take up to 10 days longer to service than other stores within the fleet. For 2025, this is adding approximately $12 million of operating expense to our expense base. Additionally, this guidance takes into consideration that we are returning to a normalized level of incentive-based compensation in 2025, which will be an impact of roughly $30 million, and our Rubino operations in Quebec will add approximately $5 million of incremental SG&A as we annualize that acquisition.

Jared Poff
Jared Poff
CFO at Designer Brands

We anticipate the effective tax rate of roughly 30% for fiscal 2025 and expect earnings per share to be in the range of $0.30-$0.50, representing nearly a 50% increase at the midpoint when compared to our 2024 results. We expect capital expenditures to be in the range of $45 million-$55 million for this year. I want to echo Doug's comments and express my gratitude for the hard work of our DBI associates. We believe we are on a clear path to returning to more consistent top and bottom line growth over the long term, and I am excited for what we are set to accomplish this year. With that, we will open the call for questions. Operator.

Operator

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad.

Operator

If you are using a speakerphone, please pick up your handset before pressing the keys. At any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Mauricio Serna with UBS. Please go ahead.

Mauricio Serna
Mauricio Serna
Executive Director at UBS

Great. Good morning and thanks for taking my question. Just wanted to hear, could you tell us a little bit more on the quarter, the fourth quarter, how much did you see athleisur growth and maybe comment a little bit what you saw in terms of Nike's performance and DSW as you lap the brand's return at this point? Maybe could you elaborate on, I think you mentioned that you expect first quarter sales to be down versus last year.

Mauricio Serna
Mauricio Serna
Executive Director at UBS

Any details on what you're seeing quarter to date then? What does that imply for your expectation of the ranging of how much they can be down in the first quarter? Thank you.

Doug Howe
Doug Howe
CEO at Designer Brands

Yeah, thanks for your question, Mauricio. I'll start and then I'll ask Jared to elaborate on the second part of the question. As it relates to athleisure, I mean, as you heard, we saw a significant increase in the penetration of that business. A lot of that is driven obviously through the athletic brands. We are really pleased in particular with the top eight brands, which, as we said, had a 25% increase on the full-year basis. That trend that we've seen continuing is definitely a tailwind for us. We feel really good about that. Part of that is to offset some of the reliance on the seasonal businesses.

Doug Howe
Doug Howe
CEO at Designer Brands

We had a 900 basis point decrease in the boot category as an example. Again, the team's done a really nice job of kind of balancing that. I would say as it relates to Q1, we do not comment specifically in the quarter that we are in, but as we said, we have started out the year a little slower than anticipated. We are focusing on controlling what we could control. I think there is certainly a lot of uncertainty out there in the macro environment just given rising prices, less discretionary income, and lots of tariff conversation on the overall kind of sentiment. That is incorporated into our guidance that we provided for 2025, but I will let Jared elaborate.

Jared Poff
Jared Poff
CFO at Designer Brands

Yeah.

Jared Poff
Jared Poff
CFO at Designer Brands

I mean, the only thing I would add to that, Mauricio, is that while our initial budget and what we were seeing coming out of Q4 certainly showed year-over-year growth, as I mentioned in my comments, given what we've seen so far, we are now seeing a trending towards probably Q1 being a bit below last year's Q1. That is kind of what we've put in there when we put our guidance together. What we are anticipating is that that continues to improve as we move throughout the year, but certainly Q1 has started off more challenging than what we thought it would be.

Mauricio Serna
Mauricio Serna
Executive Director at UBS

Understood. Could you give us a sense of how you're thinking about gross margin for the year and SG&A dollar growth? I'm particularly interested in, could you maybe explain a little bit more too about the promotional strategy?

Mauricio Serna
Mauricio Serna
Executive Director at UBS

I'm having a little bit of a hard time understanding if you're going to be more promotional or less promotional, just trying to understand that and, again, the implications for gross margin and SG&A dollar growth. Thank you.

Jared Poff
Jared Poff
CFO at Designer Brands

Yeah. Yeah. I'll say just from the financial mechanics, our current guide and the way we've built the budget has our promotional activity actually giving us good news or leverage in the year to our gross margin rate. And that's primarily driven by the efforts that we talked about on inventory availability. A lot of the work that we did with the help of McKinsey and our own analysis showed us where we had opportunities, even on existing traffic patterns, to drive higher conversion just given store availability and kind of what had happened with our digital orders being pulled out of stores, so on and so forth.

Jared Poff
Jared Poff
CFO at Designer Brands

We had planned the year relatively flattish from a gross profit rate standpoint, but that's helping to offset some continued pressure on our IMU from continued growth in athletic and national brands being offset by a reduction in promotions. All that being said, we are certainly starting off Q1 a bit more challenging. We do not want to end with excess inventory, so we will always be measuring that, but that's kind of how we've positioned that. To answer your second question on the SG&A, there's about $50 million being added over last year's SG&A, primarily anchored on those three items that I talked about in my remarks. The West Coast Logistics Center, which is brand new to the infrastructure, but really necessary to support that initiative, the bonus or management incentive plan, and then annualizing Rubino.

Mauricio Serna
Mauricio Serna
Executive Director at UBS

Got it.

Mauricio Serna
Mauricio Serna
Executive Director at UBS

I guess if I take that into consideration, it seems like the midpoint of the revenue guiding kind of implies maybe just modest operating margin expansion. Is that the right way to think about it?

Jared Poff
Jared Poff
CFO at Designer Brands

Yep. Yep. I think that's spot on. Understood. Thank you so much.

Doug Howe
Doug Howe
CEO at Designer Brands

Thank you.

Operator

Again, if you have a question, please press star then one. This concludes our question and answer session. I would like to turn the conference back over to Doug for any closing remarks.

Doug Howe
Doug Howe
CEO at Designer Brands

I'd like to end where I started by, again, just expressing gratitude to the DBI team for their continued hard work and dedication. Thanks to all of you who joined us today. We look forward to continuing to update you on our progress as we advance through the year. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Dustin Hauenstein
      Dustin Hauenstein
      SVP of Finance
    • Doug Howe
      Doug Howe
      CEO
    • Jared Poff
      Jared Poff
      CFO
Analysts
    • Mauricio Serna
      Executive Director at UBS
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