Here’s Why Unusual Options Volume for Designer Brands Presents a Vexing Challenge

With the major equity indexes printing red ink on Tuesday, Designer Brands (US:DBI) — one of North America’s largest designers, producers and retailers of footwear and accessories — popped conspicuously higher. To be fair, that “higher” wasn’t so big, but DBI stock is an investment in the consumer discretionary sector, an arena that remains challenged against historical norms.

Interestingly, diluted earnings per share came out to 66 cents for Designer Brands’ fiscal fourth quarter of 2022 (or the three months ended Jan. 28, 2023). In contrast, the company only managed to post diluted EPS of 19 cents in the year-ago quarter. Reported net income attributable to the fashion designer was $45.1 million.

On an adjusted basis, net income came out to $4.7 million or an EPS of 7 cents. Analysts polled by FactSet instead anticipated a loss of 2 cents a share.

“Our 2022 results clearly showcase the power and success of our brand building strategy with our Owned Brands growing over 32% to last year while delivering gross margins 400 basis points higher than those we saw in 2019. These results showcase the successful execution of our strategy,” then-CEO Roger Rawlins said in March.

Doug Howe, who now commands the helm, said in part that, “[l]ooking ahead, we are confident in the strength of our business as we work to integrate new and recognizable names into the Designer Brands family, including Keds, Le Tigre, Topo Athletic, and Hush Puppies.”

Screener Highlight

Adding to the enthusiasm for DBI stock, it emerged as a key highlight on Fintel’s screener for unusual stock options volume. Following the close of the May 16 session, call volume reached 19,912 contracts against an open interest reading of 9,459. On average, call volume reaches only 470 contracts.

On the other side of the fence, put volume mustered 1,192 contracts against open interest of 4,722. The average put volume comes out to 59 contracts.

Currently, the market prices DBI stock at a trailing earnings multiple of 3.03x. According to data from the NYU Stern School of Business’ website, the trailing price-earnings ratio for the apparel industry stands at 13.8x. Thus, Designer Brands seems like a steal.

Nevertheless, DBI stock presents a vexing proposition for prospective traders.

Half of Value

Financially, Designer Brands’ Q4 report showed that net sales decreased 7.5% on a year-over-year basis to $760.5 million. On the technical (price chart) front, DBI fell almost 18% since the January opener. In the trailing one-year period, it hemorrhaged over 47% of market value.

Additionally, recent data from Fintel’s options flow screener indicates the rise of bearish sentiment. With the beta of DBI stock clocking in at 1.32 – noticeably more volatile than the benchmark S&P 500 index – investors need to approach the footwear specialist with caution.

This article originally appeared on Fintel