Designer Brands Inc. has suffered a backlash from popular athletic fashion, but growth could hit a wall when its relationship with Nike Inc. ends, analysts at UBS say.
DBI designer brands,
DSW’s parent company, Shoe Warehouse and Camuto Group, has seen its shares climb 72.8% for the year to date and reported recent earnings that have far exceeded expectations.
The benchmark S&P 500 SPX is up 20.3% for 2021 so far.
“Athleisure continues to be the hottest shoe trend,” Bill Jordan, president of Designer Brands, told MarketWatch. The company has embarked on the more casual trends that took hold even before COVID-19, though there are also “green shoots” in dress shoes and optimism about seasonal items like boots. Jordan says the company is also reaping the benefits of the supply chain, like making its own shoes and investing in digital.
“The goal of acquiring Camuto was to be a more vertical brand to respond faster and offer a unique product,” he said.
Designer Brands and Authentic Brands, which filed for an IPO, announced the acquisition of the Camuto Group in October 2018. Analysts warned shortly after the deal.
See: Authentic Brands IPO: 5 things to know about the company behind Sports Illustrated, Forever 21 and Marilyn Monroe
UBS now says it’s Nike that could hurt the company.
“[W]e are reducing our sales growth forecast for fiscal 22 to 3.3% from 9.5%. We believe it will take longer for fashion shoes to recover, ”wrote analysts led by Jay Sole.
“Also, we would expect Designer Brands to have a tough FY22 as it loses Nike as a supplier and relaunches the stimulus. We expect more moderate gross margin expansion for FY 22-23 given slower penetration of Designer Brands’ internal sourcing products, inflationary pressures and limited leverage on fixed costs . “
Nike has focused on its direct-to-consumer business, pulling out relationships that no longer suit its transformation.
UBS rates Designer Brands stocks as neutral with a price target of $ 16. Designer Brands stock has fallen 23.7% in the past three months, ending Tuesday at $ 13.22.
Still, Designer Brands is optimistic about its future in the sports space.
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“At DSW, our backbone to athletics continues to perform well with lineups up 45% from 2019 and children’s lineup up 55%,” said Roger Rawlins, Managing Director of Designer Brands during the recent call for results, according to a FactSet transcript. . He went on to say that the retailer has taken market share in both categories since 2019.