The trend we mentioned in our last insider weekends article where we discussed increased stock buybacks and insider buying at retail companies is alive and well. The company that topped our list of insider purchases this week is yet another retailer and one that I have followed for several years. Designer Shoe Warehouse (DSW) decided to rename itself Designer Brands and changed its ticker symbol to DBI in April 2019 to reflect the growing stable of brands the company owned or was associated with through a joint venture. The company currently operates over 500 DSW stores in the United States and Canada, 120 The Shoe Company and Show Warehouse stores in Canada and has a stake in The Camuto Group, whose products are sold across 6,400 locations worldwide.
Founded in 1991, Designed Brands went public in 2005 at $19 per share ($9.50 split adjusted). After a big drop during the financial crisis, saw its stock and performance rebound sharply through 2013. Despite an increase in sales every year during the decade preceding the COVID-19 pandemic, operating earnings peaked in fiscal 2015 at $247 million and began a steady decline that saw fiscal 2020 (ended February 2020) operating earnings drop to just $122 million. The stock had already lost nearly half its value to the $15 range before 2020 rolled around and then once again dropped precipitously to $2.60 in March 2020.
Traditional brick-and-mortar retailers were losing market share to both e-commerce companies as well as the discount/wholesale retailers like T.J. Maxx and Costco for the better part of the last two decades and their valuations reflected this shift. Amazon’s acquisition of Whole Foods in 2017 made investors realize that the future for retail was an omni-channel strategy but despite that growing realization traditional retail companies were slow to pivot. An external shock like a pandemic is sometimes necessary to accelerate change and retailers are now going to benefit from an omni-channel environment with e-commerce sales representing more than a tiny fraction of their overall sales.
Designer Brands has been digging itself out of the pandemic related shutdowns and recent revenue and earnings both beat analyst estimates. The company reported fiscal Q2 2022 results that saw the top line increase 67% to $817 million and earnings of 55 cents that beat analyst estimates of 29 cents per share. Same store sales, a key metric for brick-and-mortar retailers, increased 84.9%. Designer Brands now includes e-commerce revenue in its comparable store sales numbers. Comparing results this year to last year’s pandemic impacted quarters is not really equitable but it was encouraging to see that the company expected to achieve an adjusted operating income in the second half of fiscal 2021 that will be in-line or slightly better than fiscal 2019 levels.
Three insiders of the company stepped in and purchased shares near the March 2020 lows including the CEO, the CFO and Mr. Schottenstein but their purchases were not significant and Mr. Schottenstein purchased less than $1 million worth of DBI shares. His confidence appears to have increased significantly since then as he ponied up $12.63 million to buy shares at an average price of $13.99 per share in March 2021 and once again last week. His purchase last week has been his biggest purchase during the last decade. His timing as an insider is notable as he was a seller of the stock from March 2012 to October 2013 and his 2013 sales were at a split adjusted price of over $40 per share. Trading at a forward P/E of 12.31 and a forward EV/EBITDA of 8.65, I can see why Mr. Schottenstein is buying shares at these prices.