Business Segments and Operations - Designer Brands Inc. operates in three reportable segments: U.S. Retail, Canada Retail, and Brand Portfolio, with the U.S. Retail segment generating revenue through DSW stores and e-commerce, and the Brand Portfolio segment earning revenue from wholesale and direct-to-consumer sales[13] - The company operates three reportable segments: U.S. Retail, Canada Retail, and Brand Portfolio, with e-commerce platforms supporting omni-channel capabilities[13][16] - The company's e-commerce platforms, including www.dsw.com and www.dsw.ca, offer omni-channel capabilities such as Buy Online Pick Up in Store and Curbside Pickup[16] - The company's inventory management strategy focuses on meeting consumer demand while improving efficiency through enhanced systems and processes[22] - The company sources products from third-party manufacturers in China and Brazil, with inventory shipped directly from factories to the East Coast Logistics Center for distribution[26] - The company sources products from third-party manufacturers in China and Brazil, with strict quality and compliance standards[26][27] - The company's fiscal year 2023 includes an additional week, resulting in a 53-week fiscal year[14] Owned Brands and Growth Strategy - The company aims to double net sales from Owned Brands by 2026, targeting approximately one-third of total net sales from Owned Brands, while maintaining national brand sales[17] - Company aims to double net sales from Owned Brands by 2026, targeting one-third of total net sales from Owned Brands[71] - Owned Brands accounted for 8% of total merchandise purchases in 2022, with a long-term goal to reach approximately one-third of total net sales by 2026[18][17] - The top three national brand vendors contributed 22% of total merchandise purchases in 2022[18] - In 2022, 8% of purchases were from Owned Brands, while the top three national brand vendors accounted for 22% of purchases[18] Loyalty Programs and Customer Engagement - In 2022, 89% of retail segments' net sales were generated from VIP loyalty program members, with 32.1 million members enrolled, up from 28.2 million in 2021[20] - The company's VIP rewards programs drive higher-than-average customer spend, with loyalty members accounting for 89% of retail segments' net sales in 2022[19] - Loyalty programs generated 89% of combined U.S. and Canada Retail segments' net sales in 2022, with over 32 million members enrolled as of January 28, 2023[81] - The company's VIP loyalty program had 32.1 million members at the end of fiscal year 2022, generating 89% of retail segments' net sales[20] - Company relies on customer loyalty programs and marketing to drive traffic, with loyalty members contributing significantly to sales[81] - Company relies on customer loyalty programs and marketing to drive traffic, with loyalty members accounting for 89% of U.S. and Canada Retail net sales in 2022[81] Acquisitions and Investments - Designer Brands acquired a 33.3% ownership interest in Le Tigre for $8.2 million in July 2022, securing exclusive rights to design, source, and sell Le Tigre branded footwear[25] - The company acquired a 79.4% ownership interest in Topo Athletic LLC for $19.1 million on December 13, 2022[29] - The company acquired the Keds business for $123.3 million on February 4, 2023, and will include its results in the Brand Portfolio segment starting Q1 2023[30] - The company acquired a 79.4% ownership interest in Topo in Q4 2022 and the Keds business in Q1 2023[69] - The company holds a 40% interest in ABG-Camuto, which licenses trademarks for footwear and handbags with six years remaining on the initial license term[51] Supply Chain and Manufacturing - The Brand Portfolio segment sourced 76% of its merchandise units from China in 2022, up from 75% in 2021[28] - 76% of the products in the Brand Portfolio segment were sourced from China in 2022[59] - Three key third-party vendors supplied approximately 22% of the company's retail merchandise in 2022, with no single vendor providing more than 10%[63] - The COVID-19 pandemic has caused disruptions in global supply chains, including temporary factory closures and increased freight costs[58] - The company faces risks from international trade, including COVID-19, political instability, shipping cost increases, and transportation delays, which could disrupt operations and increase costs[88] - Reliance on manufacturers outside North America, such as China and Vietnam, exposes the company to risks of intellectual property theft and counterfeit products[89] - Reliance on manufacturers in China, Vietnam, and Brazil exposes the company to risks of intellectual property theft and counterfeit product distribution[89] Financial Performance and Risks - In 2022, the company experienced a decline in gross profit as a percentage of net sales due to inflationary pressures and a promotional retail environment[56] - The company faces risks from macroeconomic conditions, including inflationary pressures, rising interest rates, and potential recession impacts[55] - Net sales in the fall season of 2022 were slightly lower than the spring season due to global economic conditions and unseasonably warm weather[52] - The company's distribution systems are vulnerable to disruptions, which could lead to delays in product delivery and impact operations[64] - The CEO transition in 2023 may create uncertainty and disrupt business operations[66] - The company's CEO transition is planned for April 1, 2023, with potential risks to business continuity and institutional knowledge[66] Technology and Cybersecurity - Company is implementing a new ERP system, which may lead to operational disruptions, data loss, or increased costs[75] - IT systems are critical for operations, and disruptions could impact e-commerce, distribution centers, and merchandising teams[73] - E-commerce operations face risks such as IT infrastructure failures, credit card fraud, and information security breaches[74] - Cybersecurity risks include potential data breaches, ransomware attacks, and unauthorized access to sensitive information[77][78] - Rapid technological changes and the need for mobile-optimized platforms pose challenges, with significant resources required to adapt to evolving devices and operating systems[91][92] - Upgrading technologies and business applications requires substantial investments, and failure to adapt could harm customer growth and financial performance[93] - The company depends on interoperability with mobile operating systems like iOS and Android, and changes in their policies could negatively impact mobile app functionality[94] - Compliance with stringent and evolving privacy laws, such as the CCPA and CPRA, poses risks of fines, penalties, and reputational damage[95][96] - Compliance with stringent privacy laws, such as CCPA and CPRA, could result in fines, penalties, and litigation if violated[95][96] Corporate Social Responsibility and Sustainability - In 2022, the company donated 1.6 million pairs of shoes to Soles4Souls, totaling over 7 million pairs since 2018[43] - The company invested $2.0 million in 2022 to advance DE&I through a partnership with Pensole and JEMS by Pensole, the first Black-owned footwear factory in the U.S.[46] - The company's associates collected and donated over 74,000 meals during the 2022 holiday season to address food insecurity[43] - The company's associates collected and packed over 74,000 meals during the 2022 holiday season to address food insecurity[43] - Corporate social responsibility (CSR) and sustainability initiatives are critical to brand value, with risks including increased costs and regulatory pressures[84] - Climate change-related regulations and extreme weather events could increase costs and disrupt supply chains, impacting business operations[98] - Climate change-related regulations and extreme weather events could impact supply chains, facilities, and consumer buying patterns[98] Workforce and Employee Benefits - As of January 28, 2023, the company employed approximately 14,000 people worldwide, with 12,000 in the U.S.[34] - As of January 28, 2023, 79% of U.S. associates self-identified as female, and 55% self-identified as people of color[45] - Nearly 79% of U.S. associates self-identified as female, and over 55% as people of color as of January 28, 2023[45] - The company provided up to $4,000 per year for medical access travel benefits for associates and dependents in 2022[40] - The company provided up to $4,000 per year for medical access travel benefits for eligible associates in 2022[40] - In 2022, 11,500 associates completed approximately 100,000 learning experiences through the company's online learning platform[41] Competition and Market Risks - Footwear market competition is intense, with competitors influencing pricing, promotions, and marketing strategies[86] - E-commerce competition has increased due to improved user experience, low shipping fees, faster delivery, and favorable return policies, with suppliers launching their own platforms to compete directly[87] - E-commerce competition has intensified due to improved user experience, low shipping fees, faster delivery, and favorable return policies, with suppliers launching their own platforms to compete directly[87] - The company's trademarks and service marks, including DSW and Vince Camuto, are critical to its brand recognition and value[51] - Licensing agreements for key Owned Brands require minimum royalty payments, and failure to meet sales targets could result in additional costs[83] - Licensing agreements for key Owned Brands (e.g., Vince Camuto, Jessica Simpson) require minimum royalty payments, and failure to meet sales targets could result in termination or additional costs[83] International Operations and Trade Risks - International operations in China, Canada, and Brazil are subject to political, economic, and regulatory risks, including currency fluctuations and compliance challenges[90] - International operations in China, Canada, and Brazil are subject to political, economic, and regulatory risks, including currency fluctuations and tax law changes[90] - The company's business is subject to complex trade and customs laws, including tariffs and import restrictions, which could adversely affect operations[50] - The company faces risks from international trade, including COVID-19, political instability, shipping cost increases, and compliance with foreign laws, which could disrupt operations and increase costs[88] Corporate Governance and Shareholder Influence - The Schottenstein Affiliates control approximately 58% of the company's voting power, potentially influencing shareholder decisions and corporate governance[103] - ABL Revolver restricts certain financial activities, including asset sales, acquisitions, and stock repurchases, with a fixed charge coverage ratio covenant[85] - ABL Revolver credit facility has restrictions, including a fixed charge coverage ratio covenant of not less than 1:1 when availability is below $47.3 million or 10% of the maximum credit amount[85]

Designer Brands Inc. (NYSE:DBI) Q3 2022 Earnings Conference Call December 1, 2022 8:30 AM ET Company Participants Roger Rawlins - Chief Executive Officer Jared Poff - Executive Vice President, Chief Financial Officer Doug Howe - President, DSW Jesse Miller - Investor Relations Conference Call Participants Jay Sole - UBS Gabby Carbone - Deutsche Bank Operator Good morning and welcome to the Designer Brands Incorporated third quarter 2022 earnings call. All participants will be in listen-only mode. Should you ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I) This section provides the unaudited condensed consolidated financial statements and management's discussion for Designer Brands Inc [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including statements of operations, balance sheets, cash flows, and accompanying notes [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the third quarter of 2022, net sales slightly increased to $865.0 million from $853.5 million year-over-year, but net income decreased significantly to $45.2 million from $80.2 million, while nine-month net sales grew to $2.55 billion from $2.37 billion, and net income fell to $117.6 million from $140.1 million Condensed Consolidated Statements of Operations (Q3 & Nine Months, in thousands) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $865,020 | $853,467 | $2,554,882 | $2,373,957 | | **Gross profit** | $285,819 | $313,617 | $857,234 | $814,409 | | **Operating profit** | $64,528 | $104,308 | $185,319 | $182,725 | | **Net income** | $45,171 | $80,184 | $117,566 | $140,070 | | **Diluted EPS** | $0.65 | $1.04 | $1.60 | $1.81 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of October 29, 2022, total assets increased to $2.17 billion from $2.01 billion at the start of the fiscal year, driven by higher inventories and receivables, while total liabilities also rose to $1.79 billion from $1.60 billion, primarily due to a significant increase in long-term debt, resulting in a decrease in total shareholders' equity to $383.5 million from $412.4 million Key Balance Sheet Items (in thousands) | Account | Oct 29, 2022 | Jan 29, 2022 | Oct 30, 2021 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $62,507 | $72,691 | $83,069 | | Inventories | $681,843 | $586,429 | $602,101 | | Total assets | $2,171,378 | $2,014,634 | $2,093,944 | | Long-term debt | $415,467 | $225,536 | $165,422 | | Total liabilities | $1,787,866 | $1,602,238 | $1,700,283 | | Total shareholders' equity | $383,512 | $412,396 | $393,661 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended October 29, 2022, net cash from operating activities decreased sharply to $37.9 million from $164.3 million in the prior year, mainly due to changes in working capital, while net cash used in investing activities increased to $56.0 million, and financing activities provided a net cash inflow of $9.2 million, a reversal from a $117.9 million outflow in the prior year Cash Flow Summary (Nine Months Ended, in thousands) | Cash Flow Category | Oct 29, 2022 | Oct 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $37,940 | $164,294 | | Net cash used in investing activities | ($56,009) | ($22,061) | | Net cash provided by (used in) financing activities | $9,246 | ($117,863) | | Net (decrease) in cash | ($10,184) | $25,034 | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes provide details on the company's business structure, revenue recognition, debt facilities, and segment performance, including its operation across three segments, a new **$550.0 million** ABL Revolver, and the full settlement of its Term Loan - The company operates in three reportable segments: U.S. Retail (DSW), Canada Retail (The Shoe Company, DSW), and Brand Portfolio (wholesale, First Cost commissions, Vince Camuto e-commerce)[25](index=25&type=chunk) - A valuation allowance is maintained on substantially all U.S. net deferred tax assets due to a three-year cumulative loss position, but continued profitability may allow for a release of this allowance within the next twelve months[32](index=32&type=chunk) - On March 30, 2022, the company replaced its credit facility with a new senior secured asset-based revolving credit facility (ABL Revolver) of up to **$550.0 million**, maturing in March 2027[67](index=67&type=chunk) - On February 8, 2022, the company fully settled its **$231.3 million** Term Loan, incurring a **$12.7 million** loss on extinguishment of debt[70](index=70&type=chunk) [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 financial results for the third quarter of 2022, highlighting a 1.4% increase in net sales and a 3.0% increase in comparable sales, despite profitability declining due to a more promotional retail environment and increased freight costs, while also covering segment results, liquidity, and capital resources [Executive Overview and Trends](index=20&type=section&id=Executive%20Overview%20and%20Trends) In Q3 2022, net sales rose **1.4%** and comparable sales grew **3.0%** year-over-year, with a key strategic success being the **25.0%** increase in sales from Owned Brands, which now represent **26.5%** of total net sales, despite lower profits due to a highly promotional retail environment and increased clearance inventory Q3 2022 Performance vs. Q3 2021 | Metric | Change | | :--- | :--- | | Net Sales | +1.4% | | Comparable Sales | +3.0% | | Owned Brands Net Sales | +25.0% | - Profitability was negatively impacted by a more promotional retail environment as the industry shifted from tight to excess inventory[76](index=76&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) For Q3 2022, consolidated net sales increased **1.4%** to **$865.0 million**, but gross profit margin fell **370 basis points** to **33.0%** due to increased promotions and freight costs, leading to a **43.7%** drop in net income, while for the nine-month period, net sales grew **7.6%** to **$2.55 billion**, but net income decreased by **16.1%** to **$117.6 million** Q3 2022 vs Q3 2021 Performance (in millions) | Metric | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $865.0 | $853.5 | +1.4% | | Gross Profit | $285.8 | $313.6 | -8.9% | | Gross Margin | 33.0% | 36.7% | -370 bps | | Net Income | $45.2 | $80.2 | -43.7% | Nine Months 2022 vs Nine Months 2021 Performance (in millions) | Metric | Nine Months 2022 | Nine Months 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,554.9 | $2,374.0 | +7.6% | | Gross Profit | $857.2 | $814.4 | +5.3% | | Gross Margin | 33.6% | 34.3% | -70 bps | | Net Income | $117.6 | $140.1 | -16.1% | - The decrease in Q3 gross profit was driven by promotions in the U.S. Retail and Brand Portfolio segments, higher freight costs, and approximately **$6.0 million** in additional distribution costs related to moving digital fulfillment activities[89](index=89&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by cash from operations and its ABL Revolver, with operating cash flow decreasing significantly to **$37.9 million** for the first nine months of 2022, while the company repurchased **$147.5 million** of shares, settled its Term Loan, and had **$130.9 million** available under its ABL Revolver as of October 29, 2022 - Net cash from operating activities decreased by **$126.4 million** for the nine months ended Oct 29, 2022, compared to the prior year, primarily due to higher spend on working capital[108](index=108&type=chunk)[109](index=109&type=chunk) - During the first nine months of 2022, the company repurchased **10.7 million** Class A common shares for **$147.5 million**[105](index=105&type=chunk)[112](index=112&type=chunk) - As of October 29, 2022, the company had **$415.5 million** in outstanding borrowings and **$130.9 million** available under its **$550.0 million** ABL Revolver[113](index=113&type=chunk) - Capital expenditure guidance for fiscal 2022 is projected to be between **$55.0 million** and **$65.0 million**[116](index=116&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in its primary market risk exposures, which relate to interest rates and foreign currency exchange rates, from those disclosed in its 2021 Form 10-K - There have been no material changes in the company's market risk exposure related to interest rates and foreign currency exchange rates since the 2021 Form 10-K[120](index=120&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the quarter, with no material changes to the internal control over financial reporting during the last fiscal quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of October 29, 2022[121](index=121&type=chunk) - No material changes were made to the internal control over financial reporting during the last fiscal quarter[122](index=122&type=chunk) [PART II - OTHER INFORMATION](index=28&type=section&id=PART%20II) This section provides information on legal proceedings, risk factors, unregistered sales of equity securities, and required exhibits [Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 10 of the Condensed Consolidated Financial Statements, which states that the company is involved in various incidental legal proceedings that are not expected to have a material impact on its financial condition - The company is involved in various legal proceedings incidental to its business, which are not expected to have a material impact on its financial results or condition[71](index=71&type=chunk)[124](index=124&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) The company reports that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended January 29, 2022 - There have been no material changes to the risk factors as set forth in the company's 2021 Form 10-K[124](index=124&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's share repurchase activity and dividend declarations, noting that during the third quarter of 2022, the company repurchased **1.288 million** Class A common shares, and subsequently declared a quarterly cash dividend of **$0.05** per share Share Repurchases in Q3 2022 (Publicly Announced Program) | Period | Shares Purchased (thousands) | Average Price Paid Per Share | | :--- | :--- | :--- | | Jul 31 - Aug 27, 2022 | 306 | $14.41 | | Aug 28 - Oct 1, 2022 | 224 | $15.84 | | Oct 2 - Oct 29, 2022 | 758 | $14.89 | | **Total** | **1,288** | **$14.79 (approx.)** | - On November 17, 2022, the Board declared a quarterly cash dividend of **$0.05** per share, payable on December 28, 2022[129](index=129&type=chunk) [Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act, and the interactive data files (iXBRL) - Exhibits filed include CEO and CFO certifications (Exhibits **31.1**, **31.2**, **32.1**, **32.2**) and the Cover Page Interactive Data File in iXBRL format (Exhibit **104**)[134](index=134&type=chunk)[135](index=135&type=chunk)

Designer Brands Inc. (NYSE:DBI) Q2 2022 Earnings Conference Call August 31, 2022 8:30 AM ET Company Participants Jessica Miller - Investor Relations Roger Rawlins - Chief Executive Officer Doug Howe - President of DSW Jared Poff - Executive Vice President and Chief Financial Officer Conference Call Participants Steven Marotta - CL King & Associates, Inc. Jay Sole - UBS Dana Telsey - Telsey Advisory Group LLC Operator Good morning, everyone, and welcome to the Designer Brands Incorporated 2Q 2022 Earnings Co ...

Financial Performance - Net sales for the three months ended July 30, 2022, were $859,319, an increase of 5.2% compared to $817,335 for the same period in 2021[11]. - Gross profit for the six months ended July 30, 2022, was $571,415, representing a 14.1% increase from $500,792 for the same period in 2021[11]. - Operating profit for the three months ended July 30, 2022, was $67,599, up 10.7% from $61,412 in the same period last year[11]. - Net income for the six months ended July 30, 2022, was $72,395, a 20.8% increase compared to $59,886 for the same period in 2021[13]. - Basic earnings per share for the three months ended July 30, 2022, were $0.66, compared to $0.59 for the same period in 2021, reflecting an increase of 11.9%[11]. - Total net sales for the six months ended July 30, 2022, were $1.689862 billion, compared to $1.520490 billion for the same period in 2021, indicating an increase of approximately 11.1%[47]. - Net income for the three months ended July 30, 2022, was $46.2 million, or $0.62 per diluted share, compared to $42.9 million, or $0.55 per diluted share, in the same period last year, reflecting a 7.8% increase in net income[87]. - Operating profit increased by 54.0% to $120,791 thousand, compared to $78,417 thousand in the previous year[96]. - Net income rose to $72,395 thousand, a 20.9% increase from $59,886 thousand in the same period last year[96]. Assets and Liabilities - Total current assets increased to $1,001,247 as of July 30, 2022, from $803,761 as of July 31, 2021, marking a growth of 24.5%[15]. - Total assets as of July 30, 2022, were $2,102,439, up from $1,946,049 as of July 31, 2021, indicating an increase of 8.0%[15]. - Total liabilities increased to $1,741,491 as of July 30, 2022, compared to $1,634,937 as of July 31, 2021, reflecting a rise of 6.5%[16]. - Shareholders' equity decreased to $360,948 as of July 30, 2022, from $311,112 as of July 31, 2021, representing an increase of 15.9%[16]. - Total debt as of July 30, 2022, was $387.4 million, an increase from $231.3 million on January 29, 2022[69]. Cash Flow and Investments - Cash flows from operating activities provided $10,864 thousand, a significant decrease of 88.7% from $96,229 thousand in the prior year[24]. - Net cash used in investing activities was $40,234 thousand, compared to $13,189 thousand in the prior year, indicating increased investment outflows[24]. - The company incurred severance costs of $1,000 thousand for the six months ended July 30, 2022, down from $2,600 thousand in the same period in 2021[34]. - The company reported impairment charges of $2,888 thousand, up from $1,174 thousand in the same period last year, reflecting a 146.5% increase[24]. - Net cash provided by financing activities was $7,398 million, significantly improved from $(94,955) million in the prior year, a change of $102,353 million[112]. Sales and Revenue Segments - Direct-to-consumer sales for the U.S. Retail segment were $147.877 million for the three months ended July 30, 2022, compared to $102.152 million in the same period of 2021, reflecting a growth of approximately 44.7%[45]. - The U.S. Retail segment's net sales for women's footwear were $475.079 million for the three months ended July 30, 2022, compared to $467.518 million in the same period of 2021[49]. - The Brand Portfolio segment generated total net sales of $878.698 million for the three months ended July 30, 2022, up from $831.207 million in the same period of 2021[49]. - Net sales from Owned Brands increased by 40.4% year-over-year, representing 22.7% of consolidated net sales compared to 17.0% in the same period last year[79]. - Canada Retail segment net sales increased by 37.1% to $134,599 thousand, representing 7.8% of total segment net sales[96]. Expenses and Costs - Operating expenses increased by $4.3 million year-over-year, but as a percentage of sales improved to 26.6% from 27.5%[92]. - Interest expense, net, decreased by $5.3 million compared to the same period last year due to the termination of a higher-interest Term Loan[93]. - The increase in consolidated gross profit was primarily driven by increased sales, despite higher freight costs impacting all segments[90]. - Gross profit as a percentage of net sales was 34.4%, slightly down from 34.8% in the previous year[87]. - Operating expenses increased by $26.9 million, but as a percentage of sales improved to 26.8% from 28.0% in the prior year[100]. Shareholder Actions - The company declared a quarterly cash dividend payment of $0.05 per share for both Class A and Class B common shares on August 25, 2022[64]. - The company repurchased 9.4 million Class A common shares at an aggregate cost of $128.5 million during the six months ended July 30, 2022[66]. - The company issued $15,569,000 in gift cards during the three months ended July 30, 2022, compared to $17,092,000 in the same period of the previous year[50]. Tax and Compliance - The effective tax rate for the six months ended July 30, 2022, was 29.2%, significantly higher than 3.6% for the same period in 2021[36]. - The effective tax rate for the three months ended July 30, 2022, was 28.8%, up from 19.3% in the same period last year[94]. - As of July 30, 2022, the company was in compliance with all financial covenants associated with the 2022 ABL Revolver[73]. - The company remains in compliance with all financial covenants as of July 30, 2022[114]. Market Conditions - The COVID-19 pandemic continues to create supply chain disruptions and inflationary pressures, impacting the company's operations[80].

Designer Brands Inc. (NYSE:DBI) Q1 2022 Earnings Conference Call June 2, 2022 8:30 AM ET Company Participants Jessica Miller - IR Roger Rawlins - CEO Jared Poff - CFO Conference Call Participants Gabriella Carbone - Deutsche Bank Jay Sole - UBS Dylan Carden - William Blair Operator Good day, and welcome to the Designer Brands Incorporated First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I'd now like to turn the conference over to Jesse Miller ...

PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=item_1_financial_statements) Unaudited condensed consolidated financial statements are presented, including statements of operations, comprehensive income, balance sheets, shareholders' equity, and cash flows, along with detailed notes on business, accounting policies, revenue, related party transactions, earnings per share, stock-based compensation, shareholders' equity, receivables, accrued expenses, debt, commitments, and segment reporting [Condensed Consolidated Statements of Operations](index=4&type=section&id=condensed_consolidated_statements_of_operations) This statement details the company's net sales, cost of sales, gross profit, operating expenses, operating profit, net income, and earnings per share for the specified periods | Metric | Three months ended April 30, 2022 (in thousands) | Three months ended May 1, 2021 (in thousands) | Change (%) | | :-------------------------------- | :----------------------------------------------- | :-------------------------------------------- | :--------- | | Net sales | $830,543 | $703,155 | 18.1% | | Cost of sales | $(554,798) | $(487,044) | 13.9% | | Gross profit | $275,745 | $216,111 | 27.6% | | Operating expenses | $(223,426) | $(200,814) | 11.3% | | Operating profit | $53,192 | $17,005 | 212.8% | | Net income | $26,182 | $17,026 | 53.8% | | Basic earnings per share | $0.36 | $0.23 | 56.5% | | Diluted earnings per share | $0.34 | $0.22 | 54.5% | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=condensed_consolidated_statements_of_comprehensive_income) This statement presents the company's net income and other comprehensive income or loss, primarily from foreign currency translation adjustments, to arrive at total comprehensive income | Metric | Three months ended April 30, 2022 (in thousands) | Three months ended May 1, 2021 (in thousands) | | :-------------------------------- | :----------------------------------------------- | :-------------------------------------------- | | Net income | $26,182 | $17,026 | | Other comprehensive income (loss), net (Foreign currency translation gain (loss)) | $(81) | $543 | | Total comprehensive income | $26,101 | $17,569 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=condensed_consolidated_balance_sheets) This statement provides a snapshot of the company's financial position, including total current assets, total assets, total current liabilities, total liabilities, and total shareholders' equity at various reporting dates | Metric | April 30, 2022 (in thousands) | January 29, 2022 (in thousands) | May 1, 2021 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------ | :------------------------- | | Total current assets | $999,425 | $914,216 | $863,297 | | Total assets | $2,087,744 | $2,014,634 | $2,032,465 | | Total current liabilities | $757,299 | $758,917 | $800,222 | | Total liabilities | $1,670,951 | $1,602,238 | $1,769,653 | | Total shareholders' equity | $416,793 | $412,396 | $262,812 | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=condensed_consolidated_statements_of_shareholders_equity) This statement outlines changes in total shareholders' equity, reflecting net income, share repurchases, and dividend payments over the reporting period | Metric | Balance, January 29, 2022 (in thousands) | Net Income (in thousands) | Repurchase of Class A common shares (in thousands) | Dividends (in thousands) | Balance, April 30, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :------------------------ | :------------------------------------------------- | :----------------------- | :--------------------------------------- | | Total Shareholders' Equity | $412,396 | $26,182 | $(22,706) | $(3,592) | $416,793 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=condensed_consolidated_statements_of_cash_flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities, showing the net change in cash and cash equivalents | Metric | Three months ended April 30, 2022 (in thousands) | Three months ended May 1, 2021 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------------------------- | :-------------------------------------------- | :-------------------- | | Net cash used in operating activities | $(40,672) | $(1,356) | $(39,316) | | Net cash used in investing activities | $(17,101) | $(5,641) | $(11,460) | | Net cash provided by (used in) financing activities | $39,768 | $(3,589) | $43,357 | | Net decrease in cash, cash equivalents and restricted cash | $(17,890) | $(10,280) | $(7,610) | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=notes_to_the_condensed_consolidated_financial_statements) Detailed explanations and disclosures supporting the condensed consolidated financial statements are provided, covering business operations, accounting policies, and specific financial line items [Note 1. Description of Business and Significant Accounting Policies](index=10&type=section&id=note_1_description_of_business_and_significant_accounting_policies) This note describes the company's business segments and outlines the significant accounting policies used in preparing the financial statements - Designer Brands Inc. operates in three reportable segments: U.S. Retail (DSW), Canada Retail (The Shoe Company and DSW), and Brand Portfolio (wholesale, design/buying agent, and direct-to-consumer e-commerce)[25](index=25&type=chunk) - During the three months ended April 30, 2022, the company acquired the rights to the shoes.com tradename for **$4.9 million**, recorded as a **definite-lived intangible asset** with a **15-year useful life**[34](index=34&type=chunk) - An impairment charge of **$1.1 million** was recorded in the Brand Portfolio segment for the sublease of an abandoned leased space during the three months ended April 30, 2022[36](index=36&type=chunk) [Note 2. Revenue](index=12&type=section&id=note_2_revenue) This note disaggregates the company's net sales by segment and provides details on deferred revenue from gift cards and loyalty programs | Segment | Three months ended April 30, 2022 (in thousands) | Three months ended May 1, 2021 (in thousands) | | :---------------- | :----------------------------------------------- | :-------------------------------------------- | | U.S. Retail | $702,745 | $620,658 | | Canada Retail | $56,315 | $40,604 | | Brand Portfolio | $97,456 | $57,427 | | Total Net Sales | $830,543 | $703,155 | | Category | April 30, 2022 (in thousands) | May 1, 2021 (in thousands) | | :-------------------- | :---------------------------- | :------------------------- | | Gift cards (End of period) | $32,844 | $30,809 | | Loyalty programs (End of period) | $16,243 | $12,955 | [Note 3. Related Party Transactions](index=14&type=section&id=note_3_related_party_transactions) This note discloses transactions with related parties, including rent expense and royalty payments - Rent expense from leases with Schottenstein Affiliates was **$2.5 million** for the three months ended April 30, 2022, and other purchases and services amounted to **$1.1 million**[46](index=46&type=chunk)[47](index=47&type=chunk) - Royalty expense paid to ABG-Camuto was **$4.6 million** for both the three months ended April 30, 2022, and May 1, 2021[48](index=48&type=chunk) [Note 4. Earnings Per Share](index=14&type=section&id=note_4_earnings_per_share) This note details the calculation of basic and diluted earnings per share, including the weighted average shares outstanding and potentially dilutive awards | Metric | Three months ended April 30, 2022 (in thousands) | Three months ended May 1, 2021 (in thousands) | | :-------------------------------- | :----------------------------------------------- | :-------------------------------------------- | | Weighted average basic shares outstanding | 72,923 | 72,613 | | Weighted average diluted shares outstanding | 76,924 | 76,976 | - **3.0 million** potentially dilutive stock-based compensation awards were excluded from the computation of diluted earnings per share for the three months ended April 30, 2022, due to their anti-dilutive effect[50](index=50&type=chunk) [Note 5. Stock-Based Compensation](index=15&type=section&id=note_5_stock_based_compensation) This note provides a breakdown of stock-based compensation expense by type of award for the reported periods | Type | Three months ended April 30, 2022 (in thousands) | Three months ended May 1, 2021 (in thousands) | | :-------------------------- | :----------------------------------------------- | :-------------------------------------------- | | Stock options | $101 | $253 | | Restricted and director stock units | $8,493 | $7,204 | | Total | $8,594 | $7,457 | [Note 6. Shareholders' Equity](index=15&type=section&id=note_6_shareholders_equity) This note details changes in shareholders' equity, including dividend declarations and share repurchase activities - The Board of Directors declared a quarterly cash dividend payment of **$0.05 per share** for both Class A and Class B common shares on April 4, 2022, paid on May 6, 2022, with another **$0.05 dividend** declared on May 19, 2022, to be paid on July 6, 2022[57](index=57&type=chunk)[58](index=58&type=chunk) - During the three months ended April 30, 2022, the company repurchased **1.7 million** Class A common shares at an aggregate cost of **$22.7 million**, with **$312.2 million** remaining authorized under the program[60](index=60&type=chunk) [Note 7. Receivables](index=16&type=section&id=note_7_receivables) This note presents a breakdown of the company's receivables, including customer accounts, income tax, and other receivables | Category | April 30, 2022 (in thousands) | January 29, 2022 (in thousands) | May 1, 2021 (in thousands) | | :------------------------------------------ | :---------------------------- | :------------------------------ | :------------------------- | | Customer accounts receivables (total) | $54,069 | $30,692 | $42,953 | | Income tax receivable | $162,788 | $162,240 | $158,890 | | Other receivables | $6,573 | $8,026 | $13,305 | | Total receivables, net | $222,297 | $199,826 | $213,447 | [Note 8. Accrued Expenses](index=16&type=section&id=note_8_accrued_expenses) This note itemizes the company's accrued expenses, such as gift cards, compensation, taxes, loyalty programs, and sales returns | Category | April 30, 2022 (in thousands) | January 29, 2022 (in thousands) | May 1, 2021 (in thousands) | | :------------------------------------------ | :---------------------------- | :------------------------------ | :------------------------- | | Gift cards | $32,844 | $36,783 | $30,809 | | Accrued compensation and related expenses | $26,693 | $41,603 | $29,945 | | Accrued taxes | $32,526 | $28,327 | $32,093 | | Loyalty programs deferred revenue | $16,243 | $15,736 | $12,955 | | Sales returns, customer allowances and discounts | $23,030 | $20,671 | $25,698 | | Other | $76,946 | $72,692 | $63,737 | | Total Accrued Expenses | $208,282 | $215,812 | $195,237 | [Note 9. Debt](index=16&type=section&id=note_9_debt) This note describes the company's debt arrangements, including the new ABL Revolver and the settlement of the Term Loan - On March 30, 2022, the company replaced its previous revolving credit facility with the **2022 ABL Revolver**, providing up to **$550.0 million** in credit and maturing in March 2027[65](index=65&type=chunk) - As of April 30, 2022, the **2022 ABL Revolver** had **$306.9 million** in outstanding borrowings and **$238.2 million** available for borrowings[65](index=65&type=chunk) - On February 8, 2022, the company fully settled its **$231.3 million Term Loan**, incurring a **$12.7 million loss on extinguishment of debt**, including a **$6.9 million prepayment premium** and a **$5.7 million write-off** of unamortized debt issuance costs[68](index=68&type=chunk) [Note 10. Commitments and Contingencies](index=17&type=section&id=note_10_commitments_and_contingencies) This note outlines the company's legal proceedings and guarantees for lease obligations, assessing their potential financial impact - The company is involved in various legal proceedings, but the amount of any potential liability is not expected to be material to the results of operations or financial condition[69](index=69&type=chunk) - Guarantees for lease obligations, scheduled to expire in fiscal 2023, totaled approximately **$12.9 million** as of April 30, 2022[70](index=70&type=chunk) [Note 11. Segment Reporting](index=18&type=section&id=note_11_segment_reporting) This note provides financial information disaggregated by the company's operating segments, including net sales and gross profit | Segment | Three months ended April 30, 2022 (in thousands) | Three months ended May 1, 2021 (in thousands) | | :---------------- | :----------------------------------------------- | :-------------------------------------------- | | U.S. Retail | $702,745 | $620,658 | | Canada Retail | $56,315 | $40,604 | | Brand Portfolio | $97,456 | $57,427 | | Total segment net sales | $856,516 | $718,689 | | Segment | Three months ended April 30, 2022 (in thousands) | Three months ended May 1, 2021 (in thousands) | | :---------------- | :----------------------------------------------- | :-------------------------------------------- | | U.S. Retail | $233,067 | $193,113 | | Canada Retail | $18,873 | $10,835 | | Brand Portfolio | $23,842 | $11,926 | | Total segment gross profit | $275,782 | $215,874 | [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=19&type=section&id=item_2_managements_discussion_and_analysis_of_financial_condition_and_results_of_operations) Management's perspective on the company's financial performance and condition for the first quarter of 2022 is provided, discussing key trends, the impact of COVID-19, detailed results of operations, seasonality, liquidity, capital resources, and critical accounting policies [Executive Overview and Trends in Our Business](index=19&type=section&id=executive_overview_and_trends_in_our_business) This section provides a high-level summary of the company's financial performance and key business trends for the quarter - For the first quarter of 2022, consolidated net sales increased **18.1%** and comparable sales increased **15.3%** over the same period last year, with all three segments contributing to the growth[74](index=74&type=chunk) - Net sales from Owned Brands increased **68.3%** year-over-year, representing **25.4%** of consolidated net sales, up from **17.8%** in the prior year[74](index=74&type=chunk) [Impact of the COVID-19 Pandemic on Our Results of Operations](index=19&type=section&id=impact_of_the_covid_19_pandemic_on_our_results_of_operations) This section discusses the ongoing effects of the COVID-19 pandemic on the company's operations, supply chain, and financial results - The COVID-19 pandemic continues to impact the global economy, causing supply chain disruptions, inflationary pressures, higher freight and labor costs, and labor shortages[75](index=75&type=chunk) - Despite continued improvement in performance during Q1 2022, the extent of future impacts from COVID-19 and the sustainability of recent trends remain uncertain[75](index=75&type=chunk) [Financial Summary and Other Key Metrics](index=19&type=section&id=financial_summary_and_other_key_metrics) This section presents a concise overview of key financial performance indicators and operational metrics for the reported periods | Metric | Three months ended April 30, 2022 (in millions) | Three months ended May 1, 2021 (in millions) | YoY Change | | :-------------------------------- | :---------------------------------------------- | :------------------------------------------- | :--------- | | Net sales | $830.5 million | $703.2 million | +18.1% | | Gross profit as % of net sales | 33.2% | 30.7% | +2.5 pp | | Net income | $26.2 million | $17.0 million | +54.1% | | Diluted EPS | $0.34 | $0.22 | +54.5% | | Segment | Three months ended April 30, 2022 | Three months ended May 1, 2021 | | :-------------------------------- | :-------------------------------- | :----------------------------- | | U.S. Retail segment | 13.6% | 56.3% | | Canada Retail segment | 41.4% | 10.0% | | Brand Portfolio segment - direct-to-consumer channel | 19.7% | 6.8% | | Total comparable sales | 15.3% | 52.2% | | Segment | April 30, 2022 | May 1, 2021 | | :-------------------------------- | :------------- | :---------- | | U.S. Retail segment - DSW stores | 510 | 516 | | Canada Retail segment (Total) | 140 | 145 | | Total number of stores | 650 | 661 | [Results of Operations (First Quarter of 2022 Compared with First Quarter of 2021)](index=20&type=section&id=results_of_operations_first_quarter_of_2022_compared_with_first_quarter_of_2021) A detailed comparative analysis of the company's financial results for the first quarter of 2022 versus 2021 is provided [Net Sales](index=21&type=section&id=net_sales) This section analyzes the drivers behind the change in consolidated net sales, including comparable sales and segment contributions | Metric | April 30, 2022 (in thousands) | May 1, 2021 (in thousands) | Change (Amount in thousands) | Change (%) | | :-------------------------- | :---------------------------- | :------------------------- | :--------------------------- | :--------- | | Consolidated net sales | $830,543 | $703,155 | $127,388 | 18.1% | - The improvement in sales was primarily due to increased comparable sales across all segments, driven by recovery from reduced customer traffic in U.S. and Canada Retail segments due to the COVID-19 pandemic, and higher wholesale sales in the Brand Portfolio segment[82](index=82&type=chunk) [Gross Profit](index=21&type=section&id=gross_profit) This section examines the factors influencing gross profit and its percentage of net sales, such as sales volume, promotional activity, and freight costs | Metric | April 30, 2022 (in thousands) | May 1, 2021 (in thousands) | Change (Amount in thousands) | Change (%) | Basis Points Change | | :-------------------------- | :---------------------------- | :------------------------- | :--------------------------- | :--------- | :------------------ | | Gross profit | $275,745 | $216,111 | $59,634 | 27.6% | 250 | | Gross profit as % of net sales | 33.2% | 30.7% | | | | - The improvement in gross profit was primarily driven by increased sales and being less promotional, partially offset by higher freight costs[83](index=83&type=chunk) [Operating Expenses](index=22&type=section&id=operating_expenses) This section discusses the changes in operating expenses and their impact on profitability, including payroll and marketing costs - Operating expenses increased by **$22.6 million** year-over-year, primarily due to higher store payroll and marketing expenses in line with increased net sales[86](index=86&type=chunk) - Operating expenses as a percentage of sales improved to **26.9%** from **28.5%** in the prior year, reflecting leverage from increased net sales[86](index=86&type=chunk) [Loss on extinguishment of debt and write-off of deferred debt issuance costs](index=22&type=section&id=loss_on_extinguishment_of_debt_and_write_off_of_deferred_debt_issuance_costs) This section details the financial impact of debt settlement, including prepayment premiums and the write-off of associated costs - The company incurred a **$12.7 million loss on extinguishment of debt** related to the full settlement of its Term Loan on February 8, 2022, comprising a **$6.9 million prepayment premium** and a **$5.7 million write-off** of unamortized debt issuance costs[87](index=87&type=chunk) - An additional **$0.2 million** of debt issuance costs were written off due to the replacement of the 2020 ABL Revolver[87](index=87&type=chunk) [Income Taxes](index=22&type=section&id=income_taxes) This section explains the effective tax rates for the reported periods and the factors influencing them, such as permanent tax adjustments and valuation allowances | Period | Effective Tax Rate | | :-------------------------------- | :----------------- | | Three months ended April 30, 2022 | 30.0% | | Three months ended May 1, 2021 | -89.2% | - The effective tax rate for Q1 2022 was impacted by permanent tax adjustments, primarily non-deductible compensation, while the negative rate in Q1 2021 resulted from a full valuation allowance on deferred tax assets and net discrete tax benefits[88](index=88&type=chunk) [Seasonality](index=22&type=section&id=seasonality) This section describes the seasonal nature of the company's business and how external factors like weather and market trends can affect results - The business has two principal selling seasons: spring (Q1 and Q2) and fall (Q3 and Q4), with fall typically generating slightly higher net sales[89](index=89&type=chunk) - Seasonal results can fluctuate based on weather conditions and customer interest in new styles, though typical seasonal trends were not experienced in 2021 due to the COVID-19 pandemic[89](index=89&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=liquidity_and_capital_resources) This section assesses the company's ability to meet its short-term and long-term financial obligations, including cash flow, debt, and capital expenditure plans [Overview](index=22&type=section&id=overview) This section outlines the company's primary cash flow requirements and its strategy for maintaining sufficient liquidity and capital resources - Primary ongoing operating cash flow requirements include inventory purchases, lease obligations, licensing royalty commitments, other working capital needs, and capital expenditures[90](index=90&type=chunk) - The company believes that cash generated from operations, current cash levels, and the **2022 ABL Revolver** are sufficient to support ongoing operations, seasonal working capital, capital expenditures, and share repurchases for the next 12 months and beyond[92](index=92&type=chunk) [Operating Cash Flows](index=23&type=section&id=operating_cash_flows) This section analyzes the changes in cash flows from operating activities, highlighting the impact of working capital and net income - Net cash used in operating activities increased to **($40.7 million)** for the three months ended April 30, 2022, from **($1.4 million)** in the prior year[93](index=93&type=chunk) - The increase in cash used was driven by higher working capital spend, including increases in consolidated inventories and receivables on wholesale sales, and the timing of payments to vendors, partially offset by increased net income[95](index=95&type=chunk) [Investing Cash Flows](index=23&type=section&id=investing_cash_flows) This section details the cash flows used in investing activities, primarily focusing on capital expenditures for infrastructure and store improvements - Net cash used in investing activities increased to **($17.1 million)** for the three months ended April 30, 2022, from **($5.6 million)** in the prior year[93](index=93&type=chunk) - This was primarily due to capital expenditures related to infrastructure, information technology (IT) projects, and store improvements[96](index=96&type=chunk) [Financing Cash Flows](index=23&type=section&id=financing_cash_flows) This section explains the cash flows generated from or used in financing activities, including debt, share repurchases, and dividends - Net cash provided by financing activities was **$39.8 million** for the three months ended April 30, 2022, a significant increase from **($3.6 million)** used in the prior year[93](index=93&type=chunk) - This was due to net receipts of **$306.9 million** from revolving lines of credit, offset by **$238.2 million** in payments for the Term Loan settlement and **$22.7 million** for Class A common share repurchases[97](index=97&type=chunk) [Debt](index=23&type=section&id=debt) This section provides an overview of the company's debt structure, including revolving credit facilities and term loan settlements, and compliance with covenants - The company replaced its 2020 ABL Revolver with the **2022 ABL Revolver**, providing a revolving line of credit up to **$550.0 million**, with **$306.9 million** outstanding and **$238.2 million** available for borrowings as of April 30, 2022[98](index=98&type=chunk) - The Term Loan was fully settled on February 8, 2022, resulting in a **$12.7 million loss on extinguishment of debt**[100](index=100&type=chunk) - As of April 30, 2022, the company was in compliance with all financial covenants of the **2022 ABL Revolver**[99](index=99&type=chunk) [Capital Expenditure Plans](index=23&type=section&id=capital_expenditure_plans) This section outlines the company's planned capital investments for the current fiscal year and the primary areas of expenditure - The company expects to spend approximately **$70.0 million to $80.0 million** for capital expenditures in 2022, having invested **$12.2 million** during the three months ended April 30, 2022[101](index=101&type=chunk) - Future investments will primarily depend on store openings and remodels, as well as infrastructure and IT projects[101](index=101&type=chunk) [Recent Accounting Pronouncements](index=24&type=section&id=recent_accounting_pronouncements) This section discusses the potential impact of recently issued accounting standards on the company's financial statements - There are no recent accounting pronouncements that are expected to have a material impact on the company's consolidated financial statements when adopted[103](index=103&type=chunk) [Critical Accounting Policies and Estimates](index=24&type=section&id=critical_accounting_policies_and_estimates) This section highlights the accounting policies that require significant management judgment and estimates, and any changes to their application - The preparation of financial statements requires management to make significant estimates and assumptions, which are based on current events and future actions, and are subject to re-evaluation[104](index=104&type=chunk) - There have been no material changes to the application of critical accounting policies and estimates disclosed in the 2021 Form 10-K[104](index=104&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=24&type=section&id=item_3_quantitative_and_qualitative_disclosures_about_market_risk) The company's exposure to market risks, specifically related to interest rates and foreign currency exchange rates, is addressed, confirming no material changes from prior disclosures - The company has market risk exposure related to interest rates and foreign currency exchange rates[105](index=105&type=chunk) - There have been no material changes in primary risk exposures or management of market risks from those disclosed in the 2021 Form 10-K[105](index=105&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=24&type=section&id=item_4_controls_and_procedures) This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=24&type=section&id=evaluation_of_disclosure_controls_and_procedures) This section reports on the effectiveness of the company's controls designed to ensure timely and accurate disclosure of financial information - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of April 30, 2022[106](index=106&type=chunk) [Changes in Internal Control Over Financial Reporting](index=24&type=section&id=changes_in_internal_control_over_financial_reporting) This section addresses any material changes in the company's internal control over financial reporting during the last fiscal quarter - No change was made in the company's internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting[107](index=107&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=24&type=section&id=item_1_legal_proceedings) Information on legal proceedings from Note 10 of the financial statements is incorporated by reference, indicating no material expected liability - Information on legal proceedings is incorporated by reference from Note 10, Commitments and Contingencies, of the Condensed Consolidated Financial Statements[109](index=109&type=chunk) [ITEM 1A. RISK FACTORS](index=24&type=section&id=item_1a_risk_factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's 2021 Form 10-K - As of the filing date, there have been no material changes to the risk factors as set forth in Part I, Item 1A., Risk Factors, in the company's Annual Report on Form 10-K for the fiscal year ended January 29, 2022[109](index=109&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=25&type=section&id=item_2_unregistered_sales_of_equity_securities_and_use_of_proceeds) This section details the company's share repurchase program and dividend declarations, along with restrictions imposed by debt covenants [Share Repurchase Program](index=25&type=section&id=share_repurchase_program) This section details the company's share repurchase activities, including the number of shares bought back and the remaining authorization - During the three months ended April 30, 2022, the company repurchased **1.7 million** Class A common shares at an aggregate cost of **$22.7 million**[112](index=112&type=chunk) - **$312.2 million** of Class A common shares remain authorized under the share repurchase program as of April 30, 2022[112](index=112&type=chunk) [Dividends](index=25&type=section&id=dividends) This section provides information on the company's declared cash dividends for both Class A and Class B common shares - On April 4, 2022, the Board of Directors declared a quarterly cash dividend payment of **$0.05 per share** for both Class A and Class B common shares, paid on May 6, 2022[114](index=114&type=chunk) - On May 19, 2022, another quarterly cash dividend payment of **$0.05 per share** for both Class A and Class B common shares was declared, to be paid on July 6, 2022[115](index=115&type=chunk) [Restrictions](index=25&type=section&id=restrictions) This section outlines the covenants within the company's debt agreements that may restrict its ability to pay dividends or repurchase stock - The **2022 ABL Revolver** contains customary covenants restricting the company's ability to pay dividends or repurchase stock, with specific exceptions upon satisfying specified payment conditions based on availability[116](index=116&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=25&type=section&id=item_3_defaults_upon_senior_securities) This section states that there are no defaults upon senior securities - None[117](index=117&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=25&type=section&id=item_4_mine_safety_disclosures) This section indicates that mine safety disclosures are not applicable to the company - Not Applicable[118](index=118&type=chunk) [ITEM 5. OTHER INFORMATION](index=26&type=section&id=item_5_other_information) This section states that there is no other information to report - None[120](index=120&type=chunk) [ITEM 6. EXHIBITS](index=26&type=section&id=item_6_exhibits) This section lists all exhibits filed as part of the Form 10-Q, including the Credit Agreement, various certifications, and iXBRL financial statements - Exhibits include the Credit Agreement (10.1), 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, 104)[121](index=121&type=chunk) [SIGNATURE](index=27&type=section&id=signature) This section contains the signature of the authorized officer, Jared Poff, Executive Vice President and Chief Financial Officer, confirming the filing of the report - The report was signed by Jared Poff, Executive Vice President and Chief Financial Officer, on behalf of Designer Brands Inc. on June 2, 2022[125](index=125&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended January 29, 2022 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 1-32545 DESIGNER BRANDS INC. (Exact name of registrant as specified in its charter) Ohio 31-0746639 (State or other jurisdiction of incorp ...

Designer Brands Inc. (NYSE:DBI) Q4 2021 Earnings Conference Call March 17, 2022 8:30 AM ET Company Participants Stacy Turnof - Investor Relations, Edelman Roger Rawlins - Chief Executive Officer, Designer Brands and Interim President, DSW Jared Poff - Executive Vice President and Chief Financial Officer Conference Call Participants Steven Marotta - C.L. King & Associates Gabriella Carbone - Deutsche Bank Dylan Carden - William Blair Jay Sole - UBS Operator Good morning, everyone, and welcome to the Designer ...

Financial Data and Key Metrics Changes - Sales increased by 31% to $853.5 million compared to 2020, with total comps up 40.8% in Q3 compared to a decline of 30.4% last year [51] - Gross margin rose by 740 basis points to 36.7% in Q3 versus 29.3% in 2019, marking a significant improvement [45][74] - Adjusted operating profit reached an all-time record of $102.2 million in Q3, compared to a loss of $27.7 million last year [86] Business Line Data and Key Metrics Changes - U.S. Retail comp sales were up 43.9% in Q3, compared to a decline of 31.9% during the same quarter last year [52] - The athletic and athleisure categories saw comps up over 50% and 38% respectively compared to 2019 [12][55] - The women's dress category improved, with sales up 58% compared to 2020, while men's dress improved by 87% [20] Market Data and Key Metrics Changes - The company became a top destination for back-to-school shopping, with kids' sales growing 35 percentage points faster than the rest of the market [10] - Canadian stores saw a significant improvement, with comps down only 6% versus 2019, and digital sales gaining market share [42][43] - Digital demand in U.S. Retail was up 12% compared to 2019, indicating strong online performance [64] Company Strategy and Development Direction - The company is focused on narrowing its brand offerings to the top fifty brands, which now represent 77% of total sales, up from 65% in 2019 [16] - A strategic shift towards athleisure and casual products is expected to drive market share growth in non-fashion categories [9] - The company plans to continue investing in digital marketing and enhancing customer acquisition strategies [38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating supply chain challenges due to proactive inventory management and strategic partnerships with key brands [41] - The company anticipates continued strong performance in Q4, with expectations for sales growth significantly exceeding Q3 levels [28][96] - Management highlighted the importance of maintaining a strong balance sheet and liquidity position to support future growth initiatives [90][93] Other Important Information - The company opened four new stores in the U.S. and one in Canada, while closing four in the U.S., resulting in a total of 515 U.S. stores and 144 Canadian stores [95] - The company reported a significant reduction in debt, down to $227.9 million from $337.1 million last year [94] Q&A Session Summary Question: Can you discuss the supply chain actions and how they are affecting the business? - Management noted that strategic decisions made in previous years to narrow brand offerings have positioned the company favorably in the supply chain, allowing for better inventory access [100][101] Question: What are the Camuto penetration goals for fiscal 2022? - Management expressed satisfaction with the progress made at Camuto but did not provide specific penetration goals for 2022 [104] Question: Can you elaborate on the back-to-school strategy for kids? - The company reported significant market share gains in the kids' business, with a notable increase in customer acquisition during the back-to-school season [108][109]