Designer Brands(DBI) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION 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 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 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] - The company reported a significant operating loss and net loss, compared to profits in the prior year, largely due to impairment charges[12] Condensed Consolidated Statements of Comprehensive Income (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] Condensed Consolidated Balance Sheets 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] - Inventories decreased to $533.6 million as of May 2, 2020, from $632.6 million at February 1, 2020[16] - Total debt increased to $393.0 million as of May 2, 2020, from $190.0 million at February 1, 2020[18] - Total shareholders' equity decreased to $498.1 million as of May 2, 2020, from $720.9 million at February 1, 2020[18] Condensed Consolidated Statements of Shareholders' Equity 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] Condensed Consolidated Statements of Cash Flows 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] - Investing activities provided $10.0 million, primarily from sales of available-for-sale investments and reduced capital expenditures[25] - Financing activities provided $193.9 million, mainly due to net borrowings of $203.0 million from the Credit Facility as a precautionary measure[25] Notes to the Condensed Consolidated Financial Statements These notes provide detailed explanations of accounting policies and specific financial statement items 1. SIGNIFICANT ACCOUNTING POLICIES 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] - 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] - 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] - 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] - 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] - 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] - Qualified payroll tax credits from the CARES Act reduced operating expenses by $4.5 million[36] - 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] - Incurred $1.7 million in incremental costs for COVID-19 safety precautions[38] 2. REVENUE 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] 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 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] - 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] - 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] 4. EARNINGS (LOSS) PER SHARE 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] 5. STOCK-BASED COMPENSATION 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] 6. SHAREHOLDERS' EQUITY 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] - The Credit Facility amendment effective April 30, 2020, no longer permits share repurchases[64] 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 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] 8. INVESTMENTS 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] 9. PROPERTY AND EQUIPMENT 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] 10. GOODWILL AND INTANGIBLE ASSETS 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] 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] 11. ACCRUED EXPENSES 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] 12. DEBT 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] - 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] - The amended Credit Facility restricts the company from paying dividends, making share repurchases, and certain acquisitions[74] - 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] 13. LEASES 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 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] - 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] - 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] 15. SEGMENT REPORTING 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the severe impact of COVID-19 on operations and details measures taken to preserve liquidity and adapt the business model Executive Overview 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] - Operational adjustments include temporary employee leaves, pay reductions, delayed lease/vendor payments, and reduced capital expenditures[88] - Despite store closures, robust digital sales were generated, and the company expects to operate as a digital-focused retailer moving forward[90] - The company expects to spend approximately $8.0 million on health and safety protocols for store reopenings[88] - Aggressive promotional activity and significant inventory markdowns were implemented, impacting margins[89] Comparable Sales Performance Metric 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] - Canada Retail segment comparable sales exclude foreign currency translation impact[92] Financial Summary 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] - 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] - 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] Results of Operations 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] - 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] - 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][106] - 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] 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] Liquidity and Capital Resources 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] - 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] - The company expects a $140.0 million tax refund in fiscal 2021 due to CARES Act provisions allowing net operating loss carrybacks[112] - 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] - 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] - 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] - The Credit Facility was amended to provide a lien on all assets, reduce borrowing availability, adjust covenants, and restrict dividends and share repurchases[118] - Expected capital expenditures for fiscal 2020 are $25.0 million to $35.0 million, with $14.6 million already invested[121] Critical Accounting Policies and Estimates 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][125] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - No material changes in market risk exposures or management since the 2019 Form 10-K[126] Item 4. Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[128] PART II. OTHER INFORMATION This part provides details on legal proceedings, risk factors, equity sales, and other required disclosures Item 1. Legal Proceedings 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] - 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] Item 1A. Risk Factors 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] - Temporary closure of all U.S. and Canada stores, along with decreased consumer spending, has led to an economic downturn[132] - Risks include a more promotional retail environment, potential inventory write-downs, and increased costs for updating inventory[133] - The pandemic may cause new or prolonged store closures, further operational adjustments, and changes in customer behaviors, including reduced consumer spending[134] - International operations and supply chain, particularly reliance on China for merchandise, are vulnerable to COVID-19 disruptions[137] - Reductions in sales to retailer customers due to their own business downturns from COVID-19 could materially affect the Brand Portfolio segment[139] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities The company reports no defaults upon its senior securities - No defaults upon senior securities[141] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable[142] Item 5. Other Information There is no other information to report for this period - None[143] Item 6. Exhibits 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] - Certifications from the Principal Executive Officer and Principal Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are also filed[145]