What made Designer Brands stock tank 25% on Thursday?

Designer Brands Inc (NYSE: DBI) is down nearly 25% this morning after the shoes and fashion accessories company reported a disappointing third quarter and lowered its guidance for the future.

Designer Brands’ update on inventory levels

According to Designer Brands, inventory has returned to more “normalised” levels but was still up 13% versus the same quarter last year. In the earnings press release, CEO Roger Rawlins said:

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We’re focused on meeting our customers’ footwear needs while we balance inventory and expenses in order to continue growing market share in this volatile environment.

Heading into this retail news, Wall Street had a consensus “hold” rating on Designer Brands stock.

Designer Brands third-quarter financial highlights

• Earned $45.2 million versus the year-ago $80.2 million
• Per-share earnings tanked from $1.04 to 65 cents
• On an adjusted basis, EPS came in at 67 cents
• Sales went up 1.50% year-on-year to $865 million
• Consensus was 72 cents a share on $877 million in sales
• Comparable sales up 3.0% were better-than-expected

Designer Brands ended the quarter with $62.5 million in cash and equivalents. Owned brands made up 26.5% of total sales this quarter versus 21.5% a year ago. CEO Rawlins noted:

Strategic shifts we’ve made over the past several years are driving sustainably higher gross margin rate than 2019 as we have a more targeted focus on customer acquisition, optimising assortment, and growing brands we own and control.

Designer Brands stock down on lowered guidance

For the full financial year, Designer Brands is now calling for $1.75 to $1.80 of per-share earnings on about a 5.0% increase in same-store sales. Still, the Chief Executive added:

While we’re seeing many of the same pressures across the consumer landscape that most retailers are seeing, our flexible business model continues to support our efforts to navigate a dynamic macro environment.

Versus its year-to-date high, Designer Brands stock is now down nearly 40%.