Key Highlights

● Net sales fell 1.2% to US$730.6 million.

● Gross Margin was 50.0%, up 640 basis points.

● Net Income was US$17.6 million.

● Adjusted EPS guidance rose to US$0.47 to US$0.52.

Designer Brands Inc. (NYSE:DBI), the owner of the DSW shoe stores, raised its 2026 profit guidance on 10 September 2026 after second-quarter Earnings improved sharply. The improvement came even though sales slipped, and management said a one-off Tariff refund played a significant role in the stronger margin, which is why the details matter.

Second-quarter results

For the quarter ended 1 August 2026, net sales were US$730.6 million, down 1.2% year on year. Comparable sales fell 2.4% overall, with the retail segment down 2.6% and the Brand Portfolio segment's direct-to-consumer Business up 7.1%. Retail net sales were US$671.1 million and Brand Portfolio sales were US$86.3 million, up 17.9%.

Gross margin was 50.0%, up 640 basis points, or 47.9% on an adjusted basis, up 430 basis points. Selling and operating expenses were US$313.4 million, equal to 42.9% of sales. Net income was US$17.6 million, or US$0.31 per diluted share, while adjusted net income was US$19.2 million, or US$0.34 per diluted share.

The tariff effect

Chief financial officer Sheamus Toal said on the Earnings Call that tariff refund claims of US$20.2 million retained by the company contributed 280 basis points of the margin improvement. The release also noted US$35.5 million of tariff recoveries and a one-off US$16.1 million of interest related to tariff claims sold during the quarter.

This means that part of the quarter's profit is unlikely to repeat. It is also the main reason to separate the company's underlying trading, which showed falling comparable sales and, according to chief executive Doug Howe, a "sequential traffic headwind" at DSW, from its reported earnings.

Guidance, Balance Sheet and dividend

The company now expects 2026 net sales to be flat to up 1%, compared with a previous range of down 1% to up 1%. Adjusted Diluted Earnings per Share guidance was lifted to US$0.47 to US$0.52 from US$0.28 to US$0.38. Mr Toal said the guidance assumes an effective tax rate of about 41% and an average diluted share count of 57 million.

Total Debt fell to US$423.1 million from US$516.3 million a year earlier, a reduction of more than US$93 million. Cash was US$51.6 million, with US$146.2 million available under the Credit facility, giving Liquidity of roughly US$198 million. Inventories were US$594.7 million, down from US$610.9 million. The board's Dividend of US$0.05 per share was payable on 7 October 2026.

The company operated 668 stores at quarter end: 523 DSW, 118 The Shoe Co. and 27 Rubino. Mr Howe said results "represent significant improvement in profitability year-over-year", with "impressive sales growth" in Brand Portfolio.

Risks

Management was frank about pressure. Mr Howe said sandals, the largest seasonal category, were hurt by early weather-related headwinds and "never fully rebounded", accounting for about 200 basis points of the retail decline. Mr Toal said the company expects "greater year-over-year pressure on profitability in the third quarter". With comparable sales negative, a high expected tax rate and a refund that is non-recurring, earnings quality is a fair question.

A Refund-Lifted Quarter and a Cautious Third-Quarter Outlook

Mr Howe said the third quarter is off to a strong start, with retail sales slightly positive quarter to date and back-to-school trading ahead of expectations despite a later start linked to Labor Day timing. He also said athletic Demand improved by 400 basis points in August. The third-quarter results, when published, will show whether that early momentum holds and how large the profit pressure flagged by the finance chief proves to be.