Designer Brands Raises 2026 Outlook as Q2 Gross Margin Expands to 50%

Designer Brands raised its full-year 2026 outlook after a second quarter in which profitability improved sharply even as sales remained soft. Net sales fell 1.2% to $730.6 million, but reported gross margin climbed to 50.0% from 43.6% a year earlier.

For the full year, Designer Brands now expects net sales to be flat to up 1%, compared with its previous range of down 1% to up 1%. Adjusted diluted earnings per share is forecast at $0.47 to $0.52, up from the prior $0.28 to $0.38 range. Management said a positive start to the third quarter contributed to the decision to lift guidance.

Chief Executive Doug Howe linked the higher outlook to improved retail trends and progress against the company’s strategic plan. The release did not provide a third-quarter sales figure through the date of the announcement, so the reference to a positive start is management’s qualitative assessment rather than a disclosed interim sales result.

Reported margin reached 50%, with adjusted margin also higher

Designer Brands’ second-quarter earnings release filed with the SEC shows that reported gross profit rose to $365.4 million from $322.5 million. That pushed gross margin up 640 basis points year over year to 50.0%.

Tariff recoveries contributed to the headline margin figure, so the company’s adjusted measure gives useful context. Adjusted gross profit was $350.0 million and adjusted gross margin was 47.9%, compared with 43.6% in the prior-year quarter. The reconciliation removes $15.3 million of tariff recoveries recorded to cost of sales that were used to pay an investor for interest expense. Even after that adjustment, gross margin improved by 430 basis points.

Profit growth was also visible further down the income statement. Reported operating profit more than doubled to $54.7 million from $26.1 million, while operating margin increased to 7.5% from 3.5%. Adjusted operating profit rose to $39.4 million from $29.8 million, and adjusted operating margin improved to 5.4% from 4.0%.

Net income attributable to Designer Brands reached $17.6 million, or $0.31 per diluted share, compared with $10.5 million, or $0.21 per diluted share, a year earlier. Adjusted net income was $19.2 million, with adjusted diluted EPS of $0.34 versus $0.33 in the second quarter of 2025.

First-half figures point in the same direction. Consolidated gross margin for the first six months of 2026 was 47.7%, up from 43.2% in the comparable period, while adjusted gross margin was 46.6%. Reported operating profit reached $73.6 million versus $18.2 million a year earlier, and adjusted operating profit rose to $58.8 million from $28.7 million. Tariff-related recoveries affected the reported results, but the adjusted figures still show a material year-over-year improvement in profitability.

Brand Portfolio growth contrasted with weaker retail sales

Sales were not broadly stronger in the quarter. Total comparable sales declined 2.4%, and the Retail segment, which includes DSW Designer Shoe Warehouse, The Shoe Co. and Rubino, generated $671.1 million of net sales, down 2.2% from a year earlier. Retail comparable sales fell 2.6%.

Brand Portfolio moved in the opposite direction. Segment net sales increased 17.9% to $86.3 million, while comparable sales in its direct-to-consumer channel rose 7.1%. Gross margin for the segment expanded to 29.8% from 24.7%, and Brand Portfolio posted operating profit of about $1.0 million after recording a $4.0 million operating loss in the comparable quarter last year.

Retail gross margin still improved, rising to 44.9% from 43.7%, but retail operating profit declined to $62.0 million from $68.7 million. That mix helps explain why the quarter looks stronger on profitability at the consolidated level than it does on sales. The company generated better margins and stronger Brand Portfolio results without yet returning the overall business to top-line growth.

For the first six months of 2026, consolidated net sales were essentially flat at $1.427 billion. Brand Portfolio sales rose 18.8% over that period, while Retail segment sales declined 1.2%. The widening contribution from the brand business is becoming more important as Designer Brands works through weaker comparable sales in its larger retail operation.

Higher guidance arrives alongside lower debt and inventory

Balance-sheet metrics also improved from a year earlier. Designer Brands ended the quarter with $51.6 million of cash and cash equivalents, up from $44.9 million, and reported $146.2 million available under its senior secured asset-based revolving credit facility. Total debt fell to $423.1 million from $516.3 million, a reduction of about $93.0 million.

Inventory was $594.7 million at the end of the quarter, down from $610.9 million a year earlier. The store base remained at 668 locations in total, although the mix shifted slightly: DSW had 523 stores compared with 519 a year earlier, while The Shoe Co. and Rubino operated fewer locations. During the first six months of the year, Designer Brands opened seven stores, closed four and remodeled three.

Shareholders will also receive a quarterly cash dividend of $0.05 per share on both Class A and Class B common shares. Payment is scheduled for October 7 to holders of record at the close of business on September 24.

Guidance for adjusted EPS is not a GAAP forecast. Designer Brands said it did not provide a reconciliation to a comparable GAAP figure because the timing and effect of potential charges or gains, including tariff-related items, restructuring costs and other adjustments, are uncertain. That distinction matters in a quarter where reported gross margin reached 50.0%, but the company’s own adjusted gross margin was lower at 47.9%.