Financial Performance - Operating profit in Q2 fiscal 2021 increased by 49% compared to Q2 2019, surpassing pre-COVID-19 levels [83]. - Net sales rose to $817.3 million in Q2 fiscal 2021, a 66.9% increase from $489.7 million in Q2 fiscal 2020, driven by an 84.9% increase in comparable sales [89]. - Gross profit as a percentage of net sales improved to 34.8% in Q2 fiscal 2021, compared to 7.6% in the same period last year [89]. - Net income for Q2 fiscal 2021 was $42.9 million, or $0.55 per diluted share, a significant recovery from a net loss of $98.2 million, or $1.36 per diluted share, in Q2 fiscal 2020 [90]. - Consolidated net sales for the six months ended July 31, 2021, were $1,520,490, a 56.3% increase from $972,497 for the same period last year [108]. - U.S. Retail segment net sales increased by 74.3% to $1,343,751 compared to $771,050 in the prior year [108]. - Net income for the three months ended July 31, 2021, was $59,886, compared to a net loss of $314,072 for the same period last year [106]. - Gross profit for the six months ended July 31, 2021, was $500.8 million, representing 32.9% of segment net sales, an increase from $490.2 million (31.8%) in the same period last year [111]. Sales and Comparable Performance - Comparable sales for the U.S. Retail segment increased by 94.3% in Q2 fiscal 2021, compared to a decline of 44.9% in Q2 fiscal 2020 [91]. - The Brand Portfolio segment saw a 10.6% increase in comparable sales, recovering from a 120.5% increase in the previous year [91]. - Comparable sales for the U.S. Retail segment increased by 74.5% during the six months ended July 31, 2021 [108]. Operating Expenses and Profitability - Operating expenses for the three months ended July 31, 2021, increased by $56.0 million, but as a percentage of sales improved to 27.5% from 34.4% in the same period last year [102]. - Operating expenses increased by $69.6 million year-over-year, but as a percentage of sales improved to 28.0% from 36.6% in the same period last year [112]. - The Brand Portfolio segment reported a gross profit of $8,533, which is 16.9% of segment net sales, compared to a loss of $11,440 (37.6%) in the prior year [99]. Inventory and Fulfillment - The company maintained tight inventory positions, resulting in less promotional activity during the second quarter of fiscal 2021 [101]. - The company plans to improve fulfillment times for digital orders from 5-7 business days to 2-3 calendar days [84]. Tax and Impairment - The effective tax rate decreased from 29.3% for the three months ended August 1, 2020, to 19.3% for the three months ended July 31, 2021 [104]. - The effective tax rate decreased to 3.6% for the six months ended July 31, 2021, down from 32.5% in the same period last year [115]. - Impairment charges for the three months ended July 31, 2021, were $1.2 million, down from $6.7 million in the same period last year [103]. - The company recorded an impairment charge of $1.2 million for abandoned equipment during the six months ended July 31, 2021 [114]. Liquidity and Financial Position - Net cash provided by operations for the six months ended July 31, 2021, was $96.2 million, a significant recovery from a net cash used of $79.6 million in the same period last year [118]. - Capital expenditures for the six months ended July 31, 2021, totaled $13.2 million, with an expected total spend of $35.0 million to $45.0 million for fiscal 2021 [128]. - The ABL Revolver had a borrowing base of $386.1 million as of July 31, 2021, with $16.8 million outstanding, leaving $364.0 million available for borrowings [122]. - The company expects to maintain sufficient liquidity to support operations and withstand business volatility, including the impact of COVID-19 [117]. - The company was in compliance with all financial covenants as of July 31, 2021 [126]. Market Risks - The company has market risk exposure related to interest rates and foreign currency exchange rates [130]. - There have been no material changes in primary risk exposures or management of market risks from those disclosed in the 2020 Form 10-K [130]. COVID-19 Impact - The company continues to face uncertainties related to COVID-19, including potential impacts on operations and consumer behavior [87].

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents the company's financial information, including statements, notes, and management's discussion and analysis [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents Designer Brands Inc.'s unaudited condensed consolidated financial statements, including operations, balance sheets, cash flows, and detailed accounting notes [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Provides a detailed overview of the company's net sales, gross profit, operating profit, and net income for the three months ended May 1, 2021 Condensed Consolidated Statements of Operations (Three Months Ended) | Metric | May 1, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :---------------------------------- | :--------------------------- | :--------------------------- | | Net sales | 703,155 | 482,783 | | Gross profit (loss) | 216,111 | (26,460) | | Operating profit (loss) | 17,005 | (323,958) | | Net income (loss) | 17,026 | (215,858) | | Basic earnings (loss) per share | 0.23 | (3.00) | | Diluted earnings (loss) per share | 0.22 | (3.00) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Details the company's net income and other comprehensive income components, including foreign currency translation, for the three months ended May 1, 2021 Condensed Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended) | Metric | May 1, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Net income (loss) | 17,026 | (215,858) | | Foreign currency translation gain (loss) | 543 | (3,541) | | Total comprehensive income (loss) | 17,569 | (219,572) | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position, including assets, liabilities, and shareholders' equity, as of May 1, 2021, and comparative periods Condensed Consolidated Balance Sheets (As of) | Metric | May 1, 2021 ($ in thousands) | January 30, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :-------------------------------- | :--------------------------- | :-------------------------------- | :--------------------------- | | Cash and cash equivalents | 49,301 | 59,581 | 250,874 | | Total current assets | 863,297 | 780,585 | 949,207 | | Total assets | 2,032,465 | 1,976,595 | 2,437,841 | | Total current liabilities | 800,222 | 752,683 | 732,726 | | Total liabilities | 1,769,653 | 1,733,578 | 1,939,735 | | Total shareholders' equity | 262,812 | 243,017 | 498,106 | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Outlines changes in shareholders' equity, including net income, stock-based compensation, and other comprehensive income, for the three months ended May 1, 2021 Condensed Consolidated Statements of Shareholders' Equity (Three Months Ended) | Metric | May 1, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Balance, January 30, 2021 / February 1, 2020 | 243,017 | 720,914 | | Net income (loss) | 17,026 | (215,858) | | Stock-based compensation activity | 2,226 | 3,924 | | Other comprehensive income (loss) | 543 | (3,714) | | Balance, May 1, 2021 / May 2, 2020 | 262,812 | 498,106 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash flows from operating, investing, and financing activities, showing the net change in cash for the three months ended May 1, 2021 Condensed Consolidated Statements of Cash Flows (Three Months Ended) | Metric | May 1, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Net cash used in operating activities | (1,356) | (39,469) | | Net cash provided by (used in) investing activities | (5,641) | 9,987 | | Net cash provided by (used in) financing activities | (3,589) | 193,900 | | Net increase (decrease) in cash and cash equivalents | (10,280) | 164,310 | | Cash and cash equivalents, end of period | 49,301 | 250,874 | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations of significant accounting policies, revenue disaggregation, related party transactions, and other financial disclosures [1. Significant Accounting Policies](index=9&type=section&id=1.%20Significant%20Accounting%20Policies) Details the company's operational segments, the impact of COVID-19, and key accounting policies for impairment charges and tax rates - Designer Brands Inc. operates in three reportable segments: U.S. Retail (DSW), Canada Retail (The Shoe Company, Shoe Warehouse, DSW), and Brand Portfolio (wholesale, First Cost, direct-to-consumer via vincecamuto.com)[25](index=25&type=chunk) - The COVID-19 pandemic led to temporary store closures, workforce reductions (approximately **1,000 positions**), and significantly reduced customer traffic and net sales in fiscal 2020[28](index=28&type=chunk)[29](index=29&type=chunk)[31](index=31&type=chunk) - In Q1 2020, the company recorded impairment charges of **$84.9 million** for retail segments, **$6.5 million** for Brand Portfolio customer relationship intangible, and **$20.0 million** for First Cost reporting unit goodwill, along with **$84.0 million** in additional inventory reserves[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) Government Credits Reducing Operating Expenses | Period | Amount ($ in millions) | | :-------------------- | :--------------------- | | Three months ended May 1, 2021 | 2.7 | | Three months ended May 2, 2020 | 4.5 | Effective Tax Rate Change | Period | Effective Tax Rate | | :-------------------- | :----------------- | | Three months ended May 1, 2021 | -89.2% | | Three months ended May 2, 2020 | 33.8% | [2. Revenue](index=12&type=section&id=2.%20Revenue) Disaggregates net sales by segment and details deferred revenue liabilities from gift cards and loyalty programs Disaggregation of Net Sales by Segment (Three Months Ended) | Segment | May 1, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :-------------------- | :--------------------------- | :--------------------------- | | U.S. Retail segment | 620,658 | 377,073 | | Canada Retail segment | 40,604 | 29,329 | | Brand Portfolio segment | 57,427 | 82,113 | | Other | — | 13,623 | | Total net sales | 703,155 | 482,783 | Deferred Revenue Liabilities (End of Period) | Metric | May 1, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Gift cards | 30,809 | 30,908 | | Loyalty programs deferred revenue | 12,955 | 14,568 | [3. Related Party Transactions](index=13&type=section&id=3.%20Related%20Party%20Transactions) Outlines transactions with related parties, including rent expense to Schottenstein Affiliates and royalty expense to ABG-Camuto - Schottenstein Affiliates beneficially owned approximately **17%** of the Company's outstanding common shares and approximately **52%** of the combined voting power as of May 1, 2021[48](index=48&type=chunk) Related Party Rent Expense (Three Months Ended) | Related Party | May 1, 2021 ($ in millions) | May 2, 2020 ($ in millions) | | :-------------------- | :-------------------------- | :-------------------------- | | Schottenstein Affiliates | 2.7 | 2.8 | Royalty Expense to ABG-Camuto (Three Months Ended) | Related Party | May 1, 2021 ($ in millions) | May 2, 2020 ($ in millions) | | :-------------------- | :-------------------------- | :-------------------------- | | ABG-Camuto | 4.6 | 4.4 | [4. Earnings (Loss) Per Share](index=13&type=section&id=4.%20Earnings%20(Loss)%20Per%20Share) Presents basic and diluted earnings per share, along with weighted average shares outstanding, for the three months ended May 1, 2021 Earnings (Loss) Per Share (Three Months Ended) | Metric | May 1, 2021 | May 2, 2020 | | :------------------------------------------ | :---------- | :---------- | | Basic earnings (loss) per share | $0.23 | $(3.00) | | Diluted earnings (loss) per share | $0.22 | $(3.00) | | Weighted average diluted shares outstanding | 76,976 | 71,914 | [5. Stock-Based Compensation](index=14&type=section&id=5.%20Stock-Based%20Compensation) Details stock-based compensation expense, including stock options and restricted/director stock units, for the three months ended May 1, 2021 Stock-Based Compensation Expense (Three Months Ended) | Type | May 1, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Stock options | 253 | 463 | | Restricted and director stock units | 7,204 | 4,454 | | Total | 7,457 | 4,917 | [6. Shareholders' Equity](index=14&type=section&id=6.%20Shareholders'%20Equity) Provides information on common shares issued and outstanding, and accumulated other comprehensive loss, as of May 1, 2021 Common Shares Information (As of) | Metric | May 1, 2021 (thousands) | January 30, 2021 (thousands) | May 2, 2020 (thousands) | | :-------------------- | :---------------------- | :--------------------------- | :-------------------- | | Class A Issued shares | 87,303 | 86,835 | 86,471 | | Class B Issued shares | 7,733 | 7,733 | 7,733 | | Class A Outstanding shares | 65,134 | 64,666 | 64,302 | | Class B Outstanding shares | 7,733 | 7,733 | 7,733 | Accumulated Other Comprehensive Loss (Net of Tax) | Metric | May 1, 2021 ($ in thousands) | January 30, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :------------------------------------------ | :--------------------------- | :-------------------------------- | :--------------------------- | | Accumulated other comprehensive loss - end of period | (2,743) | (3,286) | (6,209) | [7. Receivables](index=15&type=section&id=7.%20Receivables) Details the composition of net receivables, including income tax receivable, as of May 1, 2021, and comparative periods Receivables, Net (As of) | Metric | May 1, 2021 ($ in thousands) | January 30, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :------------------------------------------ | :--------------------------- | :-------------------------------- | :--------------------------- | | Income tax receivable | 158,890 | 149,824 | — | | Total receivables, net | 213,447 | 196,049 | 81,953 | [8. Goodwill and Intangible Assets](index=16&type=section&id=8.%20Goodwill%20and%20Intangible%20Assets) Presents net goodwill by segment and details intangible assets, including trademarks and customer relationships, as of May 1, 2021 Net Goodwill by Segment (End of Period) | Segment | May 1, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :-------------------- | :--------------------------- | :--------------------------- | | U.S. Retail | 93,655 | 93,655 | | Canada Retail | — | — | | Brand Portfolio | — | — | | Total Net Goodwill | 93,655 | 93,655 | Intangible Assets, Net (As of) | Metric | May 1, 2021 ($ in thousands) | January 30, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :------------------------------------------ | :--------------------------- | :-------------------------------- | :--------------------------- | | Definite-lived customer relationships | — | 118 | 427 | | Indefinite-lived trademarks and tradenames | 16,131 | 15,517 | 13,481 | | Total Intangible Assets, Net | 16,131 | 15,635 | 13,908 | [9. Accrued Expenses](index=17&type=section&id=9.%20Accrued%20Expenses) Lists various accrued expenses, such as gift cards, compensation, taxes, and loyalty programs, as of May 1, 2021 Accrued Expenses (As of) | Metric | May 1, 2021 ($ in thousands) | January 30, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :------------------------------------------ | :--------------------------- | :-------------------------------- | :--------------------------- | | Gift cards | 30,809 | 34,442 | 30,908 | | Accrued compensation and related expenses | 29,945 | 49,864 | 13,700 | | Accrued taxes | 32,093 | 24,206 | 21,628 | | Loyalty programs deferred revenue | 12,955 | 11,379 | 14,568 | | Sales returns | 20,422 | 17,333 | 47,625 | | Customer allowances and discounts | 5,276 | 4,579 | 5,600 | | Other | 63,737 | 58,523 | 97,330 | | Total Accrued Expenses | 195,237 | 200,326 | 231,359 | [10. Debt](index=17&type=section&id=10.%20Debt) Details the company's debt composition, including the ABL Revolver and Term Loan, and compliance with financial covenants Debt Composition (As of) | Metric | May 1, 2021 ($ in thousands) | January 30, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :------------------------------------------ | :--------------------------- | :-------------------------------- | :--------------------------- | | ABL Revolver | 104,843 | 100,000 | — | | Term Loan | 240,625 | 243,750 | — | | Credit Facility | — | — | 393,000 | | Total debt | 345,468 | 343,750 | 393,000 | | Long-term debt | 274,887 | 272,319 | 393,000 | - The ABL Revolver provides a revolving line of credit of up to **$400.0 million**, maturing in August 2025, with **$289.9 million** available for borrowings as of May 1, 2021[64](index=64&type=chunk)[108](index=108&type=chunk) - The Term Loan is a **$250.0 million** facility entered into on August 7, 2020, maturing in August 2025, with an interest rate of **9.8%** (effective **11.8%**) as of May 1, 2021[66](index=66&type=chunk)[68](index=68&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) - As of May 1, 2021, the company was in compliance with all financial covenants under both the ABL Revolver and Term Loan[69](index=69&type=chunk)[113](index=113&type=chunk) [11. Commitments and Contingencies](index=18&type=section&id=11.%20Commitments%20and%20Contingencies) Outlines insurance recovery receivables and guarantees for lease obligations, highlighting potential future financial impacts - The company recognized an insurance recovery receivable of **$3.0 million** in fiscal 2020 for losses from a third-party vendor service shutdown[71](index=71&type=chunk) - The company provides guarantees for lease obligations totaling approximately **$14.4 million**, scheduled to expire in fiscal 2023[72](index=72&type=chunk) [12. Segment Reporting](index=19&type=section&id=12.%20Segment%20Reporting) Provides disaggregated net sales and gross profit (loss) by U.S. Retail, Canada Retail, and Brand Portfolio segments Segment Net Sales (Three Months Ended) | Segment | May 1, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :-------------------- | :--------------------------- | :--------------------------- | | U.S. Retail | 620,658 | 377,073 | | Canada Retail | 40,604 | 29,329 | | Brand Portfolio | 57,427 | 82,113 | | Other | — | 13,623 | | Total segment net sales | 718,689 | 502,138 | Segment Gross Profit (Loss) (Three Months Ended) | Segment | May 1, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | | :-------------------- | :--------------------------- | :--------------------------- | | U.S. Retail | 193,113 | (32,970) | | Canada Retail | 10,835 | (2,311) | | Brand Portfolio | 11,926 | 13,904 | | Other | — | (5,428) | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results, focusing on Q1 2021 profitability, strategic responses to COVID-19, and liquidity [Executive Overview and Trends in our Business](index=20&type=section&id=Executive%20Overview%20and%20Trends%20in%20our%20Business) Highlights the company's return to profitability, inventory management, shift to athleisure, and strong digital demand in Q1 2021 - The company returned to profitability in the first quarter of fiscal 2021 for the first time since the onset of COVID-19[76](index=76&type=chunk) - Implemented inventory management actions to reduce markdowns in Q1 2021, allowing for increased investment in direct marketing[76](index=76&type=chunk) - Modified receipts to match a clear shift in consumer preferences towards athleisure (athletic and casual products) and away from dress and seasonal categories[76](index=76&type=chunk) - Generated strong digital demand in Q1 2021, well above the prior year, supported by Buy Online Pick Up in Store, Buy Online Ship to Store, and Curbside Pickup options[76](index=76&type=chunk) [Impact of COVID-19 on our Results of Operations](index=20&type=section&id=Impact%20of%20COVID-19%20on%20our%20Results%20of%20Operations) Discusses the effects of store closures, workforce reductions, reduced traffic, and ongoing uncertainties due to the COVID-19 pandemic - All U.S. and Canada stores were temporarily closed starting March 18, 2020, leading to significant reductions in net sales and cash flows[78](index=78&type=chunk)[80](index=80&type=chunk) - An internal reorganization and workforce reduction eliminated approximately **1,000 associate positions** from July 2020 into Q1 2021[79](index=79&type=chunk) - Customer traffic and net sales remained significantly reduced from pre-COVID-19 levels, particularly in Canada due to government-imposed restrictions[80](index=80&type=chunk) - The ultimate impacts of the COVID-19 outbreak remain highly uncertain and may lead to future write-downs or adjustments to assets[81](index=81&type=chunk)[83](index=83&type=chunk) [Financial Summary and Other Key Metrics](index=21&type=section&id=Financial%20Summary%20and%20Other%20Key%20Metrics) Presents key financial metrics, including net sales, comparable sales, gross profit, and net income, for the three months ended May 1, 2021 Key Financial Metrics (Three Months Ended) | Metric | May 1, 2021 | May 2, 2020 | Change (%) | | :------------------------------------------ | :---------- | :---------- | :--------- | | Net sales ($ in millions) | 703.2 | 482.8 | 45.6% | | Comparable sales (%) | 52.2% | (42.3)% | - | | Gross profit as % of net sales | 30.7% | (5.5)% | - | | Net income (loss) ($ in millions) | 17.0 | (215.9) | - | | Diluted earnings (loss) per share | $0.22 | $(3.00) | - | - Gross profit as a percentage of net sales for Q1 2021 (**30.7%**) tracked higher than the pre-COVID-19 rate of **29.7%** for Q1 2019, driven by tight inventory management and less promotional activity[85](index=85&type=chunk) [Comparable Sales Performance Metric](index=21&type=section&id=Comparable%20Sales%20Performance%20Metric) Details comparable sales increases and decreases across U.S. Retail, Canada Retail, and Brand Portfolio segments Comparable Sales Increase (Decrease) by Segment (Three Months Ended) | Segment | May 1, 2021 | May 2, 2020 | | :------------------------------------------ | :---------- | :---------- | | U.S. Retail segment | 56.3% | (42.4)% | | Canada Retail segment | 10.0% | (32.4)% | | Brand Portfolio segment - direct-to-consumer channel | 6.8% | 92.8% | | Total comparable sales | 52.2% | (42.3)% | [Number of Stores](index=22&type=section&id=Number%20of%20Stores) Provides the total number of DSW and Canada Retail stores at the end of the first quarter for current and prior periods Number of Stores (End of First Quarter) | Segment | May 1, 2021 | May 2, 2020 | | :------------------------------------------ | :---------- | :---------- | | U.S. Retail segment - DSW stores | 516 | 521 | | Canada Retail segment | 145 | 145 | | Total number of stores | 661 | 666 | [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Analyzes consolidated net sales, gross profit, operating expenses, and net income, highlighting changes and tax rate impacts Consolidated Results of Operations (Three Months Ended) | Metric | May 1, 2021 ($ in thousands) | May 2, 2020 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------------ | :--------------------------- | :--------------------------- | :---------------------- | :--------- | | Net sales | 703,155 | 482,783 | 220,372 | 45.6% | | Gross profit (loss) | 216,111 | (26,460) | 242,571 | NM | | Operating expenses | (200,814) | (187,221) | (13,593) | 7.3% | | Impairment charges | — | (112,547) | 112,547 | NM | | Operating profit (loss) | 17,005 | (323,958) | 340,963 | NM | | Net income (loss) | 17,026 | (215,858) | 232,884 | NM | - Operating expenses as a percentage of sales improved to **28.5%** in Q1 2021 from **38.8%** in Q1 2020, but remained elevated compared to the pre-COVID-19 rate of **24.9%** for Q1 2019[99](index=99&type=chunk) - The effective tax rate changed from **33.8%** in Q1 2020 to negative **89.2%** in Q1 2021, primarily due to maintaining a full valuation allowance on deferred tax assets and recording net discrete tax benefits[101](index=101&type=chunk) [Seasonality](index=24&type=section&id=Seasonality) Explains the seasonal trends of the business, noting disruptions caused by the COVID-19 pandemic - The business is generally subject to seasonal trends, with new spring styles introduced in Q1 and new fall styles in Q3, but these trends have been disrupted since the COVID-19 outbreak[102](index=102&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's ability to meet financial obligations, fund operations, and manage debt, including ABL Revolver and Term Loan details - The company believes cash generated from operations, current cash levels, and the ABL Revolver are sufficient to maintain ongoing operations, fund capital expenditures, and meet debt service obligations over the next 12 months[103](index=103&type=chunk) Cash Flows Summary (Three Months Ended) | Metric | May 1, 2021 ($ in millions) | May 2, 2020 ($ in millions) | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | (1.4) | (39.5) | | Net cash used in investing activities | (5.6) | 10.0 (provided) | | Net cash used in financing activities | (3.6) | 193.9 (provided) | - The company replaced its Credit Facility with a **$400.0 million** ABL Revolver and a **$250.0 million** Term Loan on August 7, 2020, both maturing in August 2025[108](index=108&type=chunk)[110](index=110&type=chunk) - As of May 1, 2021, **$104.8 million** was outstanding on the ABL Revolver (with **$289.9 million** available) and **$240.6 million** on the Term Loan, and the company was in compliance with all debt covenants[108](index=108&type=chunk)[110](index=110&type=chunk)[113](index=113&type=chunk) - Expected capital expenditures for fiscal 2021 are **$35.0 million** to **$45.0 million**, with **$5.6 million** invested during Q1 2021[114](index=114&type=chunk) [Critical Accounting Policies and Estimates](index=26&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Discusses significant estimates and assumptions in financial reporting, such as sales returns, inventory, impairments, and income taxes - The preparation of financial statements involves significant estimates and assumptions for areas such as sales returns, inventory valuation, impairments, lease accounting, and income taxes[115](index=115&type=chunk) - There have been no material changes to the application of critical accounting policies disclosed in the 2020 Form 10-K[115](index=115&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Details market risk exposures related to interest rates and foreign currency exchange rates, noting no material changes from the prior fiscal year - Primary market risk exposures are related to interest rates and foreign currency exchange rates[116](index=116&type=chunk) - No material changes in risk exposures or management have occurred since the 2020 Form 10-K[116](index=116&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting during the last quarter - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of May 1, 2021[117](index=117&type=chunk) - No material changes were made in internal control over financial reporting during the last fiscal quarter[118](index=118&type=chunk) [PART II. OTHER INFORMATION](index=27&type=section&id=PART%20II.%20OTHER%20INFORMATION) Presents additional information including legal proceedings, risk factors, equity security sales, debt defaults, and exhibits [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, but potential liabilities are not expected to be material to operations or financial condition - The company is involved in various legal proceedings, but the amount of any potential liability is not expected to be material[120](index=120&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the previously disclosed risk factors from the 2020 Form 10-K have occurred as of the filing date - No material changes to the risk factors as set forth in Part I, Item 1A of the 2020 Form 10-K have occurred as of the filing date[121](index=121&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has a share repurchase program but is restricted from dividends or repurchases until Q3 2021 due to debt covenants - The Board of Directors authorized the repurchase of an additional **$500 million** of Class A common shares under its share repurchase program[122](index=122&type=chunk) - The company is restricted from paying dividends or repurchasing stock until the third quarter of fiscal 2021 at the earliest, due to covenants in the ABL Revolver and Term Loan[123](index=123&type=chunk) - The company currently does not anticipate paying dividends or repurchasing additional shares under its share repurchase program[123](index=123&type=chunk) [Item 3. Defaults Upon Senior Securities](index=27&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported for the period - No defaults upon senior securities were reported[124](index=124&type=chunk) [Item 4. Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - This item is not applicable[125](index=125&type=chunk) [Item 5. Other Information](index=27&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - No other information was reported[126](index=126&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with Form 10-Q, including certifications from executive officers and iXBRL financial statements - Exhibits include Rule 13a-14(a)/15d-14(a) Certifications (31.1, 31.2), Section 1350 Certifications (32.1, 32.2), and iXBRL formatted financial statements (101)[128](index=128&type=chunk)

Financial Data and Key Metrics Changes - Sales increased by 45.6% to $703.2 million, marking the best quarterly sales performance since the onset of COVID-19 [42] - Total comparable store sales (comps) were up 52.2%, with US retail comps up 56.3% [42][36] - Gross profit increased to $216.1 million from a loss of $26.5 million in the prior year, with a gross margin rate of 30.7% compared to a loss of 5.5% last year [54][55] Business Line Data and Key Metrics Changes - Athleisure category sales increased by 92%, representing 58% of total sales compared to 47% in the same period last year [45] - Seasonal comps were up 56%, while dress category sales were down 10%, accounting for only 10% of sales compared to 22% in 2019 [46][47] - Camuto's net sales were $57.4 million, down 30.1% compared to the same period last year, but production increased by 3% year-over-year due to better-than-expected demand [53][51] Market Data and Key Metrics Changes - Digital demand represented 35% of total demand during the first quarter, up from 22% in the first quarter of 2019 [48] - In Canada, total comps were up 10%, with digital growth of 202% compared to 2019, despite in-store sales being down about 46% compared to 2019 [49][35] Company Strategy and Development Direction - The company is focusing on increasing penetration in the athleisure market, aiming for 55% of its assortment to be athleisure by the second half of the year [37] - A strategic emphasis on owned brands is being pursued, with aspirations to increase penetration from high-single digits to closer to 30% [73] - The company is also planning to relaunch the JLO brand in the fall, indicating a focus on expanding its brand portfolio [89] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued recovery as vaccination rates rise and consumer spending increases in categories affected by the pandemic [12][38] - The company anticipates that the positive trends observed in the first quarter will continue, particularly in athleisure and seasonal categories [71][37] - Management noted that they are prepared to make necessary inventory investments as demand returns, while maintaining a conservative inventory strategy [71] Other Important Information - The company ended the quarter with $49.3 million in cash and $289.9 million available to draw on its revolving credit facility, bringing total liquidity to just under $340 million [68] - The effective tax rate on adjusted results was 4.7% in the first quarter, significantly lower than the previous year's rate of 38.4% [66] Q&A Session Summary Question: Can you talk about the penetration of owned brands and where you think that could go? - Management indicated that penetration is currently in the high-single digits to low-double digits, with aspirations to reach closer to 30% [73] Question: How did store traffic levels progress through the quarter? - Management noted sequential improvement in store traffic throughout the first quarter and expects this trend to continue [78] Question: Are you dealing with any supply chain issues? - Management stated that their teams have managed supply chain challenges effectively, ensuring a good inventory position relative to planned sales [81] Question: How should we think about the second quarter compared to 2019? - Management anticipates continued improvement in the business, similar to the acceleration seen in Q1 [84] Question: Can you discuss the strategy for integrating Camuto into the assortment? - Management highlighted opportunities to enhance the athleisure offerings and mentioned plans to relaunch the JLO brand, indicating a focus on growth in this area [89]

Part I [Business](index=6&type=section&id=Item%201.%20Business) The company designs, produces, and retails footwear and accessories across North America through three primary operating segments - The company operates through three main segments: U.S. Retail, Canada Retail, and the Brand Portfolio[17](index=17&type=chunk) - The company's loyalty programs are a significant driver of sales, with **approximately 30 million members** generating about **84% of the retail segments' net sales** in fiscal 2020[25](index=25&type=chunk)[90](index=90&type=chunk) - In fiscal 2020, a notable consumer shift from dress footwear to **athleisure** prompted the company to adjust its product assortment[21](index=21&type=chunk) - The Brand Portfolio segment sourced **73% of its merchandise from China** in FY2020, a decrease from 83% in FY2019[33](index=33&type=chunk) - As of January 30, 2021, the company employed approximately **11,400 people** and emphasized diversity, with over **80% of its U.S. associates being female**[37](index=37&type=chunk)[47](index=47&type=chunk) [Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from the COVID-19 pandemic, supply chain disruptions, changing consumer trends, and substantial shareholder control - The **COVID-19 pandemic** is a primary risk, causing store closures, a sharp decline in net sales, and workforce reductions of approximately **1,000 positions**[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk) - The business is vulnerable to disruptions in its distribution systems, with **COVID-19 related port delays** creating significant risks[67](index=67&type=chunk)[71](index=71&type=chunk) - A consumer preference shift towards **athleisure** requires successful product mix adaptation to avoid decreased sales and increased markdowns[79](index=79&type=chunk) - Restrictive covenants in the ABL Revolver and Term Loan could limit operational funding and **restrict dividends or share repurchases** until at least Q3 2021[83](index=83&type=chunk)[84](index=84&type=chunk) - The Schottenstein Affiliates control approximately **52% of the company's voting power**, enabling substantial influence over shareholder votes[127](index=127&type=chunk)[128](index=128&type=chunk) [Properties](index=21&type=section&id=Item%202.%20Properties) The company operates from owned corporate and distribution facilities and leases its retail stores and additional fulfillment centers Principal Properties as of January 30, 2021 | Facility | Location | Owned/Leased | Segment | Approx. Square Feet | | :--- | :--- | :--- | :--- | :--- | | Principal corporate office | Columbus, Ohio | Owned | Corporate, U.S. Retail and Other | 178,000 | | Distribution center | Columbus, Ohio | Owned | U.S. Retail and Other | 625,000 | | Fulfillment center | Columbus, Ohio | Leased | U.S. Retail | 854,000 | | Distribution center | Westampton, New Jersey | Leased | Brand Portfolio | 683,000 | | U.S. retail stores | 519 various U.S. locations | Leased | U.S. Retail | 10,547,000 | | Canada retail stores | 144 various Canadian locations | Leased | Canada Retail | 1,156,000 | Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock (DBI) underperformed market indices, while dividends and share repurchases were suspended due to COVID-19 and credit restrictions - Dividends were discontinued after Q1 2020, and payments are restricted by credit agreements until at least **Q3 2021**[140](index=140&type=chunk)[142](index=142&type=chunk) - **No Class A common shares were repurchased** during fiscal 2020 under the existing share repurchase program[141](index=141&type=chunk) Cumulative Total Shareholder Return Comparison (2016-2021) | Company / Index | Jan 30, 2016 | Jan 28, 2017 | Feb 3, 2018 | Feb 2, 2019 | Feb 1, 2020 | Jan 30, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Designer Brands Inc. | $100.00 | $87.62 | $87.96 | $124.95 | $70.23 | $61.40 | | S&P MidCap 400 Index | $100.00 | $128.76 | $145.53 | $139.75 | $152.32 | $177.59 | | S&P MidCap 400 Retail Index | $100.00 | $101.22 | $101.46 | $102.09 | $99.88 | $173.05 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The COVID-19 pandemic drove a 36.0% decrease in net sales to $2.2 billion and a net loss of $488.7 million in fiscal 2020 - Key business trends in fiscal 2020 included aggressive inventory management (**down 25.2% YoY**) and leveraging strong digital demand to mitigate store traffic declines[149](index=149&type=chunk) Fiscal 2020 vs. 2019 Financial Summary | Metric | Fiscal 2020 | Fiscal 2019 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2.23B | $3.49B | -36.0% | | Comparable Sales | -34.2% | +0.8% | -35.0 p.p. | | Gross Profit | $311.2M | $999.7M | -68.9% | | Gross Profit % | 13.9% | 28.6% | -14.7 p.p. | | Operating (Loss) Profit | ($586.3M) | $127.3M | NM | | Net (Loss) Income | ($488.7M) | $94.5M | NM | | Diluted (Loss) EPS | ($6.77) | $1.27 | NM | Net Sales by Segment (Fiscal 2020 vs. 2019) | Segment | 2020 Net Sales (in thousands) | 2019 Net Sales (in thousands) | % Change | | :--- | :--- | :--- | :--- | | U.S. Retail | $1,800,323 | $2,745,395 | -34.4% | | Canada Retail | $182,659 | $249,017 | -26.6% | | Brand Portfolio | $248,646 | $448,285 | -44.5% | | Other | $62,909 | $122,090 | -48.5% | - The company recorded significant impairment charges of **$153.6 million** in fiscal 2020, primarily related to store-level long-lived assets and goodwill[168](index=168&type=chunk) - To enhance liquidity, the company secured a new **$400M ABL Revolver** and a **$250M Term Loan** in August 2020[178](index=178&type=chunk)[181](index=181&type=chunk)[195](index=195&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from variable-rate debt and foreign currency fluctuations from its Canadian operations - The company has interest rate risk due to variable rates on its **$100.0M ABL Revolver** and **$243.8M Term Loan** outstanding as of January 30, 2021[195](index=195&type=chunk) - Foreign currency exchange risk from Canadian operations could result in a **$2.2 million** equity translation fluctuation from a hypothetical 10% rate movement[196](index=196&type=chunk) [Financial Statements and Supplementary Data](index=34&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section incorporates the company's consolidated financial statements and the independent auditor's report into the filing - This item formally incorporates the company's audited consolidated financial statements into the Form 10-K[197](index=197&type=chunk) [Controls and Procedures](index=35&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that both disclosure controls and internal control over financial reporting were effective as of January 30, 2021 - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the fiscal year[200](index=200&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of January 30, 2021[201](index=201&type=chunk) Part III [Directors, Executive Compensation, and Corporate Governance](index=35&type=section&id=Item%2010%2C%2011%2C%2012%2C%2013%2C%2014) Information on directors, executive compensation, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information regarding Directors, Executive Officers, Corporate Governance, Executive Compensation, and Security Ownership is **incorporated by reference** from the company's 2021 Proxy Statement[206](index=206&type=chunk)[207](index=207&type=chunk)[209](index=209&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=36&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This item lists all financial statements and exhibits filed with the Form 10-K, including the consolidated statements of operations, balance sheets, and cash flows[211](index=211&type=chunk) Financial Statements and Supplementary Data [Report of Independent Registered Public Accounting Firm](index=42&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor issued an unqualified opinion on financial statements and internal controls, identifying asset impairment and inventory valuation as Critical Audit Matters - The auditor issued an **unqualified (clean) opinion** on both the financial statements and the effectiveness of internal control over financial reporting[232](index=232&type=chunk) - The report notes a change in accounting principle for leases (ASU 2016-02), adopted effective February 3, 2019[233](index=233&type=chunk) - **Critical Audit Matters** identified were the impairment of long-lived assets and the valuation of inventories due to significant management estimates[241](index=241&type=chunk)[249](index=249&type=chunk) [Consolidated Financial Statements](index=47&type=section&id=Consolidated%20Financial%20Statements) The company reported a net loss of $488.7 million on sales of $2.23 billion in fiscal 2020, with a significant decline in operating cash flow Consolidated Statement of Operations Highlights (in thousands) | Account | Fiscal 2020 | Fiscal 2019 | | :--- | :--- | :--- | | Net sales | $2,234,719 | $3,492,687 | | Gross profit | $311,241 | $999,670 | | Operating (loss) | ($586,314) | $127,299 | | Net (loss) income | ($488,719) | $94,497 | | Diluted (loss) EPS | ($6.77) | $1.27 | Consolidated Balance Sheet Highlights (in thousands) | Account | Jan 30, 2021 | Feb 1, 2020 | | :--- | :--- | :--- | | Total current assets | $780,585 | $900,810 | | Total assets | $1,976,595 | $2,465,070 | | Total current liabilities | $752,683 | $680,031 | | Total liabilities | $1,733,578 | $1,744,156 | | Total shareholders' equity | $243,017 | $720,914 | Consolidated Statement of Cash Flows Highlights (in thousands) | Account | Fiscal 2020 | Fiscal 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($153,793) | $196,707 | | Net cash provided by (used in) investing activities | $2,631 | ($27,439) | | Net cash provided by (used in) financing activities | $122,954 | ($183,353) | [Notes to Consolidated Financial Statements](index=53&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail significant COVID-19 impacts, including $153.6 million in impairments, new debt facilities, and a large deferred tax asset valuation allowance - Due to COVID-19 impacts, the company recorded impairment charges of **$127.1 million** for retail store assets and **$20.0 million** for goodwill[280](index=280&type=chunk)[281](index=281&type=chunk) - A valuation allowance of **$101.2 million** was recorded against its deferred tax assets due to uncertainty of realization following significant losses in fiscal 2020[193](index=193&type=chunk)[413](index=413&type=chunk) Net Sales by Product Category (in thousands) | Category | Fiscal 2020 | Fiscal 2019 | | :--- | :--- | :--- | | **U.S. Retail** | | | | Women's footwear | $1,161,836 | $1,853,265 | | Men's footwear | $386,338 | $539,917 | | **Canada Retail** | | | | Women's footwear | $92,623 | $133,762 | | **Brand Portfolio** | | | | Wholesale | $197,940 | $379,698 | - As of January 30, 2021, total debt was **$343.8 million**, consisting of $100.0 million on the ABL Revolver and $243.8 million on the Term Loan[389](index=389&type=chunk) - Total operating lease liabilities as of January 30, 2021, were **$922.5 million**, with a weighted-average remaining lease term of **5.3 years**[401](index=401&type=chunk)

Designer Brands, Inc. (NYSE:DBI) Q4 2020 Earnings Conference Call March 16, 2021 8:30 AM ET Company Participants Stacy Turnof – Investor Relations-Edelman Roger Rawlins – Chief Executive Officer Jared Poff – Chief Financial Officer Conference Call Participants Steve Marotta – C.L. King & Associates Jay Sole – UBS Gabe Carbone – Deutsche Bank Tom Nikic – Wells Fargo Dylan Carden – William Blair Sam Poser – Williams Trading Dana Telsey – Telsey Advisory Group Operator Good day, and welcome to the Designer Bra ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-32545 DESIGNER BRANDS INC. (Exact name of registrant as specified in its charter) Ohio 31-0746639 (State or other jurisdiction ...

Designer Brands Inc. (NYSE:DBI) Q3 2020 Earnings Conference Call December 9, 2020 8:30 AM ET Company Participants Stacy Turnof - Investor Relations, Edelman Roger Rawlins - Chief Executive Officer Jared Poff - Chief Financial Officer Conference Call Participants Sam Poser - Susquehanna Steve Marotta - CL King & Associates Jay Sole - UBS Gaby Carbone - Deutsche Bank Chris Svezia - Wedbush Dana Telsey - Telsey Advisory Group Tom Nikic - Wells Fargo Operator Good day and welcome to the Designer Brands, Inc. T ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) The company's financials reflect a significant negative impact from the COVID-19 pandemic, showing a sharp sales drop, a net loss, and increased debt [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a significant net loss of $98.2 million in Q2 2020, a reversal from a net income in Q2 2019, due to a 42.8% sales decline Condensed Consolidated Statements of Operations (Three Months Ended) | Metric | Three Months Ended Aug 1, 2020 (in thousands) | Three Months Ended Aug 3, 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $489,714 | $855,952 | -42.8% | | Operating profit (loss) | $(135,964) | $41,267 | NM | | Net income (loss) | $(98,214) | $27,407 | NM | | Diluted earnings (loss) per share | $(1.36) | $0.37 | NM | Condensed Consolidated Statements of Operations (Six Months Ended) | Metric | Six Months Ended Aug 1, 2020 (in thousands) | Six Months Ended Aug 3, 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $972,497 | $1,729,241 | -43.8% | | Operating profit (loss) | $(459,922) | $85,248 | NM | | Net income (loss) | $(314,072) | $58,601 | NM | | Diluted earnings (loss) per share | $(4.36) | $0.77 | NM | [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows decreased total assets, a significant increase in cash and debt, and a decline in both inventory and shareholders' equity Key Balance Sheet Items (in thousands) | Account | August 1, 2020 | February 1, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $206,720 | $86,564 | | Inventories | $445,044 | $632,587 | | Total assets | $2,273,257 | $2,465,070 | | Debt | $393,000 | $190,000 | | Total liabilities | $1,866,630 | $1,744,156 | | Total shareholders' equity | $406,627 | $720,914 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow from operations turned negative, offset by significant cash inflows from financing activities due to increased borrowings Cash Flow Summary (Six Months Ended, in thousands) | Cash Flow Category | August 1, 2020 | August 3, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(79,619) | $34,192 | | Net cash provided by (used in) investing activities | $6,780 | $4,491 | | Net cash provided by (used in) financing activities | $193,194 | $(87,203) | - The company's financing activities were driven by **$251.0 million in borrowings** on its revolving line of credit, partially offset by $48.0 million in payments[22](index=22&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail pandemic impacts including store closures, impairment charges, segment declines, debt changes, and subsequent events - The company operates in three reportable segments: **U.S. Retail, Canada Retail, and Brand Portfolio**[25](index=25&type=chunk) - Due to COVID-19, the company temporarily closed all stores on March 18, 2020, furloughed employees, and reduced pay; in July 2020, it **eliminated over 1,000 associate positions**[28](index=28&type=chunk)[29](index=29&type=chunk) - For the six months ended August 1, 2020, the company recorded total **impairment charges of $119.3 million**, including $92.8 million for retail store assets, $6.5 million for an intangible asset, and $20.0 million for goodwill[32](index=32&type=chunk)[33](index=33&type=chunk) - The company qualified for payroll tax credits under the CARES Act, which **reduced operating expenses by $7.9 million** in the first half of 2020[35](index=35&type=chunk) - Subsequent to the quarter's end, on August 7, 2020, the company replaced its credit facility with a new **$400 million ABL Revolver and a $250 million Secured Term Loan**[91](index=91&type=chunk) - On August 12, 2020, retail partner Stein Mart filed for Chapter 11 bankruptcy; Designer Brands had **$15.2 million in inventory** at Stein Mart locations and a $2.1 million receivable[97](index=97&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes poor performance to COVID-19, highlighting a drastic gross margin decline and actions taken to preserve liquidity [Executive Overview](index=28&type=section&id=Executive%20Overview) The company's performance was severely impacted by COVID-19, prompting workforce reductions, inventory management, and a focus on digital sales - All stores in the U.S. and Canada were **temporarily closed starting March 18, 2020**, to control the spread of COVID-19[99](index=99&type=chunk) - The company implemented inventory control actions, resulting in a **37% decrease in total inventory** at the end of Q2 2020 compared to the prior year[102](index=102&type=chunk) - A clear shift in consumer behavior towards **athleisure and casual products** and away from dress and seasonal categories was observed due to customers staying home[102](index=102&type=chunk) - **Strong digital sales** were generated across all segments during the first half of 2020, supported by investments in digital infrastructure and services[103](index=103&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Q2 2020 net sales fell 42.8% and gross margin collapsed to 7.6% due to store closures and aggressive promotional activity Q2 2020 vs Q2 2019 Performance | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Net Sales | $489.7M | $856.0M | | Comparable Sales Change | -42.7% | N/A | | Gross Profit % | 7.6% | 30.5% | | Net Income (Loss) | ($98.2M) | $27.4M | Q2 2020 Net Sales by Segment (in thousands) | Segment | Q2 2020 Net Sales | Q2 2019 Net Sales | Change (%) | | :--- | :--- | :--- | :--- | | U.S. Retail | $393,977 | $677,920 | -41.9% | | Canada Retail | $49,582 | $63,306 | -21.7% | | Brand Portfolio | $30,458 | $102,947 | -70.4% | - For the six months ended August 1, 2020, the company recorded total **impairment charges of $119.3 million**, including $92.8 million for long-lived assets, $6.5 million for an intangible asset, and $20.0 million for goodwill[131](index=131&type=chunk)[132](index=132&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company managed liquidity through increased borrowings and new credit facilities while reducing its 2020 capital expenditure plans - **Net cash used in operations was $79.6 million** for the six months ended August 1, 2020, compared to net cash provided by operations of $34.2 million in the prior year period[137](index=137&type=chunk) - The company had **net borrowings of $203.0 million** from its Credit Facility during the first six months of 2020 as a precautionary measure[139](index=139&type=chunk) - On August 7, 2020, the company secured new financing, including a five-year **$400.0 million ABL Revolver** and a five-year, **$250.0 million Secured Term Loan**[144](index=144&type=chunk) - Capital expenditures for fiscal 2020 are expected to be approximately **$30.0 million to $35.0 million**[150](index=150&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in its primary market risk exposures related to interest and foreign currency rates - The company's primary market risk exposures are related to interest rates and foreign currency exchange rates, with **no material changes reported** since the 2019 Form 10-K[155](index=155&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective as of August 1, 2020**[156](index=156&type=chunk) - **No changes in internal control over financial reporting** occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[157](index=157&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company believes the outcome of pending legal matters will not materially affect its financial condition or operations - The company does **not expect any current legal proceedings to have a material impact** on its financial condition or results of operations[158](index=158&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The company identifies the COVID-19 outbreak as a material risk, citing impacts on operations, consumer behavior, and supply chains - The **COVID-19 outbreak** is identified as a primary risk factor with potential for continued material adverse impact on business, operations, and financial results[160](index=160&type=chunk) - A shift in consumer preference to **athleisure and casual products** poses a risk if the company cannot anticipate and respond to these trends[172](index=172&type=chunk) - The business is exposed to supply chain disruptions, particularly as **83% of its Brand Portfolio segment's products were sourced from China** in fiscal 2019[167](index=167&type=chunk) - The **bankruptcy of retail partner Stein Mart**, announced on August 12, 2020, poses a risk to the recovery of inventory and receivables[179](index=179&type=chunk)[180](index=180&type=chunk) - The business relies on **consumer discretionary spending**, which may be adversely affected by economic downturns, high unemployment, and social unrest[176](index=176&type=chunk)[177](index=177&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No share repurchases were made in Q2 2020, and credit facilities restrict future repurchases and dividend payments - **No share repurchases were made** during the second quarter of fiscal 2020[181](index=181&type=chunk) - The company's credit facilities **restrict the payment of dividends and share repurchases**, and none are currently anticipated[182](index=182&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) The company entered into an agreement for a $100 million 'at the market offering' of its Class A common shares - On September 4, 2020, the company entered into an agreement for an **"at the market offering" (ATM) to sell up to $100.0 million** of Class A common shares[185](index=185&type=chunk) - Net proceeds from the ATM Offering are intended for **general corporate purposes**, which may include debt repayment and working capital[186](index=186&type=chunk)

Designer Brands Inc. (NYSE:DBI) Q2 2020 Earnings Conference Call September 3, 2020 8:30 AM ET Company Participants Stacy Turnof - IR, Edelman Roger Rawlins - CEO Jared Poff - CFO Conference Call Participants Rick Patel - Needham Tom Nikic - Wells Fargo Gabby Carbone - Deutsche Bank Chris Svezia - Wedbush Operator Good day and welcome to the Designer Brands, Inc. Second Quarter 2020 Conference Call. All participants will be in listen‑only mode. [Operator Instructions] After today’s presentation, there will b ...

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part contains the company's unaudited financial statements and management's analysis of its financial condition and results of operations [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, which reflect a significant net loss and impairment charges due to the COVID-19 pandemic [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company's operations resulted in a significant net loss, driven by a sharp decline in sales and substantial impairment charges Condensed Consolidated Statements of Operations | Metric (in thousands) | Three months ended May 2, 2020 | Three months ended May 4, 2019 | | :-------------------- | :----------------------------- | :----------------------------- | | Net sales | $482,783 | $873,289 | | Cost of sales | $(509,243) | $(613,956) | | Operating expenses | $(187,221) | $(217,580) | | Impairment charges | $(112,547) | — | | Operating profit (loss)| $(323,958) | $43,981 | | Net income (loss) | $(215,858) | $31,194 | | Basic EPS | $(3.00) | $0.41 | | Diluted EPS | $(3.00) | $0.40 | - Net sales decreased by **44.7%** year-over-year[12](index=12&type=chunk) - The company reported a **significant operating loss and net loss**, compared to profits in the prior year, largely due to impairment charges[12](index=12&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The company experienced a substantial comprehensive loss, primarily driven by the net loss recorded during the period Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric (in thousands) | Three months ended May 2, 2020 | Three months ended May 4, 2019 | | :-------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(215,858) | $31,194 | | Foreign currency translation loss | $(3,541) | $(714) | | Unrealized net gain on debt securities | $195 | $242 | | Reclassification adjustment for net gains realized in net income | $(368) | $(88) | | Total other comprehensive loss, net of income taxes | $(3,714) | $(560) | | Total comprehensive income (loss) | $(219,572) | $30,634 | - Total comprehensive loss for the three months ended May 2, 2020, was **$(219,572) thousand**, a significant decline from a comprehensive income of $30,634 thousand in the prior year, primarily driven by the net loss[13](index=13&type=chunk) [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a significant increase in cash and debt, alongside a decrease in inventories and shareholders' equity Condensed Consolidated Balance Sheets | Metric (in thousands) | May 2, 2020 | February 1, 2020 | May 4, 2019 | | :-------------------- | :---------- | :--------------- | :---------- | | **Assets** | | | | | Cash and cash equivalents | $250,874 | $86,564 | $70,671 | | Investments | — | $24,974 | $51,259 | | Inventories | $533,638 | $632,587 | $642,045 | | Total current assets | $949,207 | $900,810 | $896,725 | | Goodwill | $93,655 | $113,644 | $90,881 | | Total assets | $2,437,841 | $2,465,070 | $2,549,168 | | **Liabilities & Equity**| | | | | Accounts payable | $283,054 | $299,072 | $224,576 | | Accrued expenses | $231,359 | $194,264 | $186,992 | | Total current liabilities | $732,726 | $680,031 | $596,024 | | Debt | $393,000 | $190,000 | $235,000 | | Total liabilities | $1,939,735 | $1,744,156 | $1,786,317 | | Total shareholders' equity | $498,106 | $720,914 | $762,851 | - Cash and cash equivalents significantly increased to **$250.9 million** as of May 2, 2020, from $86.6 million at February 1, 2020[16](index=16&type=chunk) - Inventories decreased to **$533.6 million** as of May 2, 2020, from $632.6 million at February 1, 2020[16](index=16&type=chunk) - Total debt increased to **$393.0 million** as of May 2, 2020, from $190.0 million at February 1, 2020[18](index=18&type=chunk) - Total shareholders' equity decreased to **$498.1 million** as of May 2, 2020, from $720.9 million at February 1, 2020[18](index=18&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity declined substantially due to a significant net loss and dividend payments during the quarter Condensed Consolidated Statements of Shareholders' Equity | Item (in thousands) | Balance, Feb 1, 2020 | Net Loss | Stock-based Comp. | Dividends | Other Comp. Loss | Balance, May 2, 2020 | | :------------------ | :------------------- | :------- | :---------------- | :-------- | :--------------- | :------------------- | | Common shares paid-in capital | $971,380 | — | $3,924 | — | — | $975,304 | | Treasury shares | $(515,065) | — | — | — | — | $(515,065) | | Retained earnings | $267,094 | $(215,858)| — | $(7,160) | — | $44,076 | | Accumulated other comprehensive loss | $(2,495) | — | — | — | $(3,714) | $(6,209) | | Total | $720,914 | $(215,858)| $3,924 | $(7,160) | $(3,714) | $498,106 | - Shareholders' equity decreased significantly from **$720.9 million to $498.1 million** during the three months ended May 2, 2020, primarily due to a net loss of $215.9 million and dividend payments of $7.2 million[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company's cash position improved due to significant financing activities, which offset cash used in operations Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (in thousands) | Three months ended May 2, 2020 | Three months ended May 4, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(39,469) | $(3,026) | | Net cash provided by (used in) investing activities | $9,987 | $(6,188) | | Net cash provided by (used in) financing activities | $193,900 | $(19,889) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $164,310 | $(28,264) | | Cash and cash equivalents, end of period | $250,874 | $72,304 | - Operating activities used **$39.5 million** in cash, a significant increase from $3.0 million in the prior year, driven by the net loss[25](index=25&type=chunk) - Investing activities provided **$10.0 million**, primarily from sales of available-for-sale investments and reduced capital expenditures[25](index=25&type=chunk) - Financing activities provided **$193.9 million**, mainly due to net borrowings of $203.0 million from the Credit Facility as a precautionary measure[25](index=25&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of accounting policies and specific financial statement items [1. SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=1.%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the company's business structure, reporting segments, and the significant financial impacts of the COVID-19 pandemic - Designer Brands Inc operates as a leading North American footwear and accessories designer, producer, and retailer, with retail concepts under DSW, The Shoe Company, and Shoe Warehouse banners, and a Brand Portfolio segment through Camuto Group[27](index=27&type=chunk) - The company reports three segments: **U.S. Retail, Canada Retail, and Brand Portfolio**, which includes wholesale products, commissions, and direct-to-consumer e-commerce[28](index=28&type=chunk) - The COVID-19 outbreak led to temporary store closures, material adverse effects on business, and operational adjustments including employee leaves, pay reductions, and delayed payments[31](index=31&type=chunk) - Impairment charges of **$84.9 million** were recorded for under-performing stores in U.S. Retail ($65.2M) and Canada Retail ($19.7M), and **$6.5 million** for the Brand Portfolio customer relationship intangible[33](index=33&type=chunk) - Additional impairment charges of **$20.0 million** for the First Cost reporting unit (Brand Portfolio) and **$1.1 million** for The Shoe Company tradename (Canada Retail) were recorded due to reduced cash flows and market capitalization[34](index=34&type=chunk) - The company recorded **$84.0 million** of additional inventory reserves due to slow-moving and obsolete inventories caused by store closures during the peak spring selling season[35](index=35&type=chunk) - Qualified payroll tax credits from the CARES Act reduced operating expenses by **$4.5 million**[36](index=36&type=chunk) - The effective tax rate increased to **33.8% from 25.4%** due to the ability to carry back current year losses to a tax year with a higher U.S. federal statutory tax rate (35%)[37](index=37&type=chunk) - Incurred **$1.7 million** in incremental costs for COVID-19 safety precautions[38](index=38&type=chunk) [2. REVENUE](index=13&type=section&id=2.%20REVENUE) This note details the breakdown of net sales by segment, showing significant declines across all business units Revenue by Segment | Segment (in thousands) | May 2, 2020 | May 4, 2019 | | :--------------------- | :---------- | :---------- | | U.S. Retail segment | $377,073 | $691,840 | | Canada Retail segment | $29,329 | $51,816 | | Brand Portfolio segment| $82,113 | $104,546 | | Other | $13,623 | $35,607 | | Total net sales | $482,783 | $873,289 | - All segments experienced significant declines in net sales, with U.S. Retail decreasing by **45.5%** and Canada Retail by **43.4%**[51](index=51&type=chunk) Deferred Revenue | Deferred Revenue (in thousands) | May 2, 2020 | May 4, 2019 | | :------------------------------ | :---------- | :---------- | | Gift cards, end of period | $30,908 | $30,066 | | Loyalty programs, end of period | $14,568 | $16,153 | [3. RELATED PARTY TRANSACTIONS](index=14&type=section&id=3.%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions with affiliated entities, primarily concerning lease agreements and royalty expenses - The company leases its fulfillment center and certain store locations from Schottenstein Affiliates, who beneficially own approximately **16% of outstanding common shares** and **52% of combined voting power**[54](index=54&type=chunk) - Other purchases and services from Schottenstein Affiliates were **$1.3 million** for the three months ended May 2, 2020, down from $1.9 million in the prior year[55](index=55&type=chunk) - Royalty expense payable to ABG-Camuto (a 40% equity investment) was **$4.4 million** for the three months ended May 2, 2020, down from $5.7 million in the prior year[56](index=56&type=chunk) [4. EARNINGS (LOSS) PER SHARE](index=14&type=section&id=4.%20EARNINGS%20(LOSS)%20PER%20SHARE) This note provides the calculation details for basic and diluted earnings per share, including the number of shares used Weighted Average Shares Outstanding | Metric (in thousands) | Three months ended May 2, 2020 | Three months ended May 4, 2019 | | :-------------------- | :----------------------------- | :----------------------------- | | Weighted average basic shares outstanding | 71,914 | 77,004 | | Weighted average diluted shares outstanding | 71,914 | 78,263 | - **5.6 million** potentially dilutive stock-based compensation awards were excluded from diluted EPS calculation for the three months ended May 2, 2020, due to their anti-dilutive effect, compared to 2.0 million in the prior year[59](index=59&type=chunk) [5. STOCK-BASED COMPENSATION](index=15&type=section&id=5.%20STOCK-BASED%20COMPENSATION) This note details the stock-based compensation expenses recognized during the period Stock-Based Compensation Expense | Compensation Type (in thousands) | Three months ended May 2, 2020 | Three months ended May 4, 2019 | | :------------------------------- | :----------------------------- | :----------------------------- | | Stock options | $463 | $823 | | Restricted and director stock units | $4,454 | $3,547 | | Total stock-based compensation expense | $4,917 | $4,370 | - Total stock-based compensation expense increased to **$4.9 million** for the three months ended May 2, 2020, from $4.4 million in the prior year[60](index=60&type=chunk) [6. SHAREHOLDERS' EQUITY](index=15&type=section&id=6.%20SHAREHOLDERS'%20EQUITY) This note provides details on the company's share structure, repurchase activity, and components of accumulated other comprehensive loss Share Structure | Share Type (in thousands) | May 2, 2020 (Class A) | May 2, 2020 (Class B) | Feb 1, 2020 (Class A) | Feb 1, 2020 (Class B) | May 4, 2019 (Class A) | May 4, 2019 (Class B) | | :------------------------ | :-------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Authorized shares | 250,000 | 100,000 | 250,000 | 100,000 | 250,000 | 100,000 | | Issued shares | 86,471 | 7,733 | 86,202 | 7,733 | 85,935 | 7,733 | | Outstanding shares | 64,302 | 7,733 | 64,033 | 7,733 | 67,434 | 7,733 | | Treasury shares | 22,169 | — | 22,169 | — | 18,501 | — | - **No Class A common shares were repurchased** during the three months ended May 2, 2020, compared to $75.0 million in the prior year[64](index=64&type=chunk) - The Credit Facility amendment effective April 30, 2020, **no longer permits share repurchases**[64](index=64&type=chunk) Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss (in thousands) | Beginning of period (Feb 1, 2020) | Other comprehensive income (loss) before reclassifications | Amounts reclassified to non-operating expenses, net | End of period (May 2, 2020) | | :-------------------------------------------------- | :-------------------------------- | :--------------------------------------------------------- | :-------------------------------------------------- | :-------------------------- | | Foreign Currency Translation | $(2,668) | $(3,541) | — | $(6,209) | | Available-for-Sale Securities | $173 | $195 | $(368) | — | | Total | $(2,495) | $(3,346) | $(368) | $(6,209) | [7. ACCOUNTS RECEIVABLE](index=16&type=section&id=7.%20ACCOUNTS%20RECEIVABLE) This note presents the components of accounts receivable, showing a slight decrease in the net balance Accounts Receivable Breakdown | Accounts Receivable (in thousands) | May 2, 2020 | February 1, 2020 | May 4, 2019 | | :--------------------------------- | :---------- | :--------------- | :---------- | | Customer accounts receivables: | | | | | Serviced by third-party provider with guaranteed payment | $46,694 | $54,209 | $57,619 | | Serviced in-house | $5,702 | $7,630 | $12,169 | | Other receivables | $31,467 | $28,166 | $10,561 | | Allowance for doubtful accounts | $(2,547) | $(1,219) | $(2,230) | | Accounts receivable, net | $81,953 | $89,151 | $78,287 | - Net accounts receivable decreased to **$81.9 million** as of May 2, 2020, from $89.2 million at February 1, 2020, with a notable increase in the allowance for doubtful accounts[66](index=66&type=chunk) [8. INVESTMENTS](index=16&type=section&id=8.%20INVESTMENTS) This note indicates the company liquidated its available-for-sale investments during the period Available-for-Sale Investments | Investments (in thousands) | May 2, 2020 | February 1, 2020 | May 4, 2019 | | :------------------------- | :---------- | :--------------- | :---------- | | Carrying value of investments | — | $24,831 | $51,542 | | Fair value | — | $24,974 | $51,259 | - The company had **no available-for-sale investments** as of May 2, 2020, indicating liquidation of previous holdings[67](index=67&type=chunk) [9. PROPERTY AND EQUIPMENT](index=18&type=section&id=9.%20PROPERTY%20AND%20EQUIPMENT) This note details the carrying value of the company's property and equipment Property and Equipment, Net | Property and Equipment (in thousands) | May 2, 2020 | February 1, 2020 | May 4, 2019 | | :------------------------------------ | :---------- | :--------------- | :---------- | | Total property and equipment | $1,151,793 | $1,168,062 | $1,153,323 | | Accumulated depreciation and amortization | $(791,952) | $(773,053) | $(748,167) | | Property and equipment, net | $359,841 | $395,009 | $405,156 | - Net property and equipment decreased to **$359.8 million** as of May 2, 2020, from $395.0 million at February 1, 2020[69](index=69&type=chunk) [10. GOODWILL AND INTANGIBLE ASSETS](index=18&type=section&id=10.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) This note details significant impairment charges that fully wrote off goodwill in the Brand Portfolio segment Goodwill by Segment | Goodwill (in thousands) | Beginning of period (Feb 1, 2020) | Impairment charges | Currency translation adjustment | End of period (May 2, 2020) | | :---------------------- | :-------------------------------- | :----------------- | :------------------------------ | :-------------------------- | | U.S. Retail | $93,655 | — | — | $93,655 | | Canada Retail | — | — | — | — | | Brand Portfolio | $19,989 | $(19,989) | — | — | | Total Net Goodwill | $113,644 | $(19,989) | — | $93,655 | - Goodwill for the Brand Portfolio segment was **fully impaired** with a $19.989 million charge during the three months ended May 2, 2020[70](index=70&type=chunk) Intangible Assets, Net | Intangible Assets (in thousands) | May 2, 2020 (Net) | February 1, 2020 (Net) | May 4, 2019 (Net) | | :------------------------------- | :---------------- | :--------------------- | :---------------- | | Definite-lived customer relationships | $427 | $7,316 | $27,014 | | Indefinite-lived trademarks and tradenames | $13,481 | $15,530 | $15,284 | | Total Net Intangible Assets | $13,908 | $22,846 | $42,298 | - Net intangible assets decreased significantly to **$13.9 million** as of May 2, 2020, from $22.8 million at February 1, 2020, primarily due to impairment of customer relationships and tradenames[72](index=72&type=chunk) [11. ACCRUED EXPENSES](index=19&type=section&id=11.%20ACCRUED%20EXPENSES) This note provides a breakdown of accrued expenses, which increased primarily due to higher provisions for sales returns Accrued Expenses Breakdown | Accrued Expenses (in thousands) | May 2, 2020 | February 1, 2020 | May 4, 2019 | | :------------------------------ | :---------- | :--------------- | :---------- | | Gift cards and merchandise credits | $30,908 | $35,461 | $30,066 | | Accrued compensation and related expenses | $13,700 | $26,768 | $25,951 | | Accrued taxes | $21,628 | $19,399 | $23,242 | | Loyalty programs deferred revenue | $14,568 | $16,138 | $16,153 | | Sales returns | $47,625 | $21,408 | $21,692 | | Customer allowances and discounts | $5,600 | $11,528 | $14,436 | | Other | $97,330 | $63,562 | $55,452 | | Total Accrued Expenses | $231,359 | $194,264 | $186,992 | - Total accrued expenses increased to **$231.4 million** as of May 2, 2020, from $194.3 million at February 1, 2020, driven by increases in sales returns and other accrued expenses[73](index=73&type=chunk) [12. DEBT](index=19&type=section&id=12.%20DEBT) This note describes amendments to the company's Credit Facility, including new restrictions and adjusted covenants - The Credit Facility was amended on April 30, 2020, to include a lien on all company assets and reduced borrowing availability from **$400 million to $375 million** by October 31, 2020, further decreasing to $300 million by July 31, 2021[74](index=74&type=chunk) - Covenants were adjusted, changing the maximum leverage ratio to **3.50:1** as of May 2, 2020, and the minimum fixed charge coverage ratio to **1.25:1** as of May 2, 2020[74](index=74&type=chunk) - The amended Credit Facility **restricts the company from paying dividends, making share repurchases, and certain acquisitions**[74](index=74&type=chunk) - As of May 2, 2020, **$393.0 million was outstanding** under the Credit Facility, with an interest rate of 3.5%, leaving $2.0 million available for borrowings[77](index=77&type=chunk) [13. LEASES](index=21&type=section&id=13.%20LEASES) This note details the company's lease expenses and future minimum lease payment obligations Lease Expense | Lease Expense (in thousands) | Three months ended May 2, 2020 | Three months ended May 4, 2019 | | :--------------------------- | :----------------------------- | :----------------------------- | | Operating lease income | $3,163 | $2,212 | | Total operating lease expense | $68,968 | $69,020 | Future Fixed Minimum Lease Payments | Future Fixed Minimum Lease Payments (in thousands) | Unrelated Parties | Related Parties | Total | | :------------------------------------------------- | :---------------- | :-------------- | :---- | | Remainder of fiscal 2020 | $187,639 | $6,203 | $193,842 | | Fiscal 2021 | $222,551 | $8,697 | $231,248 | | Fiscal 2022 | $188,403 | $7,417 | $195,820 | | Fiscal 2023 | $148,960 | $4,574 | $153,534 | | Fiscal 2024 | $110,649 | $4,139 | $114,788 | | Future fiscal years thereafter | $225,594 | $11,352 | $236,946 | | Total operating lease liabilities | $969,432 | $37,585 | $1,007,017 | [14. COMMITMENTS AND CONTINGENCIES](index=22&type=section&id=14.%20COMMITMENTS%20AND%20CONTINGENCIES) This note discloses potential liabilities from legal proceedings and other commitments, which are not expected to be material - The company is involved in various legal proceedings, but believes potential liability will **not be material**[82](index=82&type=chunk) - A contingent liability of **$28.1 million** was recorded for unpaid foreign payroll and other taxes related to the Camuto Group acquisition, with an indemnification asset of $24.5 million expected from sellers[83](index=83&type=chunk) - The company has a guarantee for a lease commitment expiring in fiscal 2023, with total future minimum lease payments of approximately **$12.5 million**[84](index=84&type=chunk) [15. SEGMENT REPORTING](index=22&type=section&id=15.%20SEGMENT%20REPORTING) This note provides a performance breakdown by business segment, highlighting gross losses in the retail segments Segment Performance | Segment (in thousands) | Net Sales (May 2, 2020) | Gross Profit (Loss) (May 2, 2020) | Net Sales (May 4, 2019) | Gross Profit (May 4, 2019) | | :--------------------- | :---------------------- | :-------------------------------- | :---------------------- | :------------------------- | | U.S. Retail | $377,073 | $(32,970) | $691,840 | $209,891 | | Canada Retail | $29,329 | $(2,311) | $51,816 | $15,747 | | Brand Portfolio | $82,113 | $13,904 | $104,546 | $25,673 | | Other | $13,623 | $(5,428) | $35,607 | $9,311 | | Total | $482,783 | $(26,460) | $873,289 | $259,333 | - All retail segments (U.S. and Canada) reported **gross losses** for the three months ended May 2, 2020, a significant reversal from gross profits in the prior year, primarily due to COVID-19 impacts[86](index=86&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the severe impact of COVID-19 on operations and details measures taken to preserve liquidity and adapt the business model [Executive Overview](index=23&type=section&id=Executive%20Overview) The company's business was materially impacted by COVID-19, leading to store closures and significant operational adjustments - All U.S. and Canada stores were temporarily closed effective March 18, 2020, due to COVID-19, **materially impacting business, liquidity, and results**[88](index=88&type=chunk) - Operational adjustments include temporary employee leaves, pay reductions, delayed lease/vendor payments, and reduced capital expenditures[88](index=88&type=chunk) - Despite store closures, **robust digital sales** were generated, and the company expects to operate as a digital-focused retailer moving forward[90](index=90&type=chunk) - The company expects to spend approximately **$8.0 million** on health and safety protocols for store reopenings[88](index=88&type=chunk) - Aggressive promotional activity and significant inventory markdowns were implemented, impacting margins[89](index=89&type=chunk) [Comparable Sales Performance Metric](index=23&type=section&id=Comparable%20Sales%20Performance%20Metric) This section defines the comparable sales metric, which includes temporarily closed stores due to the pandemic - Comparable sales include stores in operation for at least 14 months, e-commerce sales, and temporarily closed stores due to COVID-19[92](index=92&type=chunk) - Canada Retail segment comparable sales exclude foreign currency translation impact[92](index=92&type=chunk) [Financial Summary](index=24&type=section&id=Financial%20Summary) The financial summary highlights a steep decline in net sales and a shift from gross profit to a gross loss - Net sales decreased by **44.7% to $482.8 million**, primarily due to a 42.3% decrease in comparable sales caused by COVID-19 store closures[95](index=95&type=chunk) - Gross loss as a percentage of net sales was **5.5%**, compared to a gross profit of 29.7% in the prior year, due to aggressive promotions, $84.0 million in increased inventory reserves, and higher shipping costs[96](index=96&type=chunk) - Net loss was **$215.9 million**, or $3.00 per diluted share, including $84.1 million in after-tax charges for impairments and COVID-19 related costs[97](index=97&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the significant changes in the company's operational results compared to the prior year Comparison of Three Months Ended May 2, 2020 and May 4, 2019 | Metric (in thousands) | May 2, 2020 | May 4, 2019 | Change Amount | Change % | | :-------------------- | :---------- | :---------- | :------------ | :------- | | Net sales | $482,783 | $873,289 | $(390,506) | (44.7)% | | Gross profit (loss) | $(26,460) | $259,333 | $(285,793) | NM | | Operating expenses | $(187,221) | $(217,580) | $30,359 | (14.0)% | | Impairment charges | $(112,547) | — | $(112,547) | NM | | Net income (loss) | $(215,858) | $31,194 | $(247,052) | NM | - Consolidated net sales decreased by **$390.5 million (44.7%)**, primarily due to a $328.8 million decrease in comparable sales and $24.5 million decrease in wholesale net sales from the Brand Portfolio segment[100](index=100&type=chunk) - Operating expenses decreased by **$30.4 million (14.0%)** due to temporary employee leaves and pay reductions, offset by $4.5 million in government payroll tax credits[104](index=104&type=chunk) - Total impairment charges of **$112.5 million** were recorded, including $84.9 million for under-performing stores and $27.6 million for Brand Portfolio customer relationship intangible, First Cost reporting unit goodwill, and The Shoe Company tradename[105](index=105&type=chunk)[106](index=106&type=chunk) - The effective tax rate increased to **33.8% from 25.4%** due to the ability to carry back current year losses to a tax year with a higher U.S. federal statutory tax rate[107](index=107&type=chunk) [Seasonality](index=26&type=section&id=Seasonality) The COVID-19 pandemic has disrupted the company's typical seasonal sales patterns, particularly impacting the spring selling season - The business is historically seasonal, with new spring styles in Q1 and fall styles in Q3; however, COVID-19 has negatively impacted the spring peak selling season, potentially altering historical trends for fiscal 2020[108](index=108&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) The company has taken significant measures to preserve liquidity, including drawing on its credit facility and implementing cost-cutting initiatives - The company believes current cash, operating cash flows, and the Credit Facility are sufficient for the next 12 months, assuming a gradual return of store traffic by end of June 2020[110](index=110&type=chunk) - Liquidity preservation measures include reducing inventory orders, cutting costs, delaying vendor/landlord payments, reducing quarterly cash dividend by 60% (now suspended), and executive/employee pay reductions[111](index=111&type=chunk) - The company expects a **$140.0 million tax refund** in fiscal 2021 due to CARES Act provisions allowing net operating loss carrybacks[112](index=112&type=chunk) - Net cash used in operations increased to **$39.5 million** from $3.0 million YoY, driven by the net loss, partially offset by working capital management[114](index=114&type=chunk) - Net cash provided by investing activities was **$10.0 million**, resulting from liquidating available-for-sale securities and reducing capital expenditures to $14.6 million[115](index=115&type=chunk) - Net cash provided by financing activities was **$193.9 million**, primarily from $203.0 million in net borrowings from the Credit Facility as a precautionary measure[117](index=117&type=chunk) - The Credit Facility was amended to provide a lien on all assets, reduce borrowing availability, adjust covenants, and restrict dividends and share repurchases[118](index=118&type=chunk) - Expected capital expenditures for fiscal 2020 are **$25.0 million to $35.0 million**, with $14.6 million already invested[121](index=121&type=chunk) [Critical Accounting Policies and Estimates](index=29&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's financial statements rely on significant estimates, with no material changes to critical policies from the 2019 annual report - The preparation of financial statements requires significant estimates and assumptions, particularly concerning sales returns, inventory valuation, impairments, and income taxes, with no material changes to critical accounting policies disclosed in the 2019 Form 10-K[124](index=124&type=chunk)[125](index=125&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposure from interest rates and foreign currency has not materially changed since the last annual report - Primary market risk exposures are related to **interest rates and foreign currency exchange rates**[126](index=126&type=chunk) - **No material changes** in market risk exposures or management since the 2019 Form 10-K[126](index=126&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls - Disclosure controls and procedures were evaluated and deemed **effective** by the CEO and CFO as of the end of the reporting period[127](index=127&type=chunk) - **No material changes** in internal control over financial reporting occurred during the last fiscal quarter[128](index=128&type=chunk) [PART II. OTHER INFORMATION](index=29&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part provides details on legal proceedings, risk factors, equity sales, and other required disclosures [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal claims but does not expect the outcomes to have a material financial impact - The company is involved in various legal claims and proceedings incidental to its business[129](index=129&type=chunk) - Management believes the amount of any potential liability from current legal proceedings will **not be material** to financial condition, results of operations, or liquidity[129](index=129&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) This section highlights the material adverse impact of the COVID-19 pandemic as a primary risk factor for the company's business - The COVID-19 outbreak has had, and may continue to have, a **material adverse impact** on the company's business, operations, liquidity, financial condition, and results of operations[130](index=130&type=chunk) - Temporary closure of all U.S. and Canada stores, along with decreased consumer spending, has led to an economic downturn[132](index=132&type=chunk) - Risks include a more promotional retail environment, potential inventory write-downs, and increased costs for updating inventory[133](index=133&type=chunk) - The pandemic may cause new or prolonged store closures, further operational adjustments, and changes in customer behaviors, including reduced consumer spending[134](index=134&type=chunk) - International operations and supply chain, particularly reliance on China for merchandise, are vulnerable to COVID-19 disruptions[137](index=137&type=chunk) - Reductions in sales to retailer customers due to their own business downturns from COVID-19 could materially affect the Brand Portfolio segment[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's amended Credit Facility now prohibits the payment of dividends - The Credit Facility **prohibits the company from paying dividends**, effective April 30, 2020[140](index=140&type=chunk) [Item 3. Defaults Upon Senior Securities](index=31&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon its senior securities - No defaults upon senior securities[141](index=141&type=chunk) [Item 4. Mine Safety Disclosures](index=31&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not Applicable[142](index=142&type=chunk) [Item 5. Other Information](index=31&type=section&id=Item%205.%20Other%20Information) There is no other information to report for this period - None[143](index=143&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists the various legal and financial agreements filed as exhibits with this report - Exhibits include the Third and Fourth Amendments to the Credit Agreement, a Pledge and Security Agreement, a Standard Executive Severance Agreement, and the Seventh Amendment to the Amended and Restated Supply Agreement with Stein Mart, Inc[145](index=145&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are also filed[145](index=145&type=chunk)