Designer Brands(DBI) - 2026 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements Presents unaudited condensed consolidated financial statements, including operations, balance sheets, cash flows, and key notes Condensed Consolidated Statements of Operations Details the company's net sales, gross profit, operating profit, net income (loss), and diluted EPS for the reported periods | Metric | Three months ended Aug 2, 2025 (in thousands) | Three months ended Aug 3, 2024 (in thousands) | Six months ended Aug 2, 2025 (in thousands) | Six months ended Aug 3, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net sales | $739,762 | $771,900 | $1,426,671 | $1,518,496 | | Gross profit | $322,933 | $339,549 | $618,059 | $669,560 | | Operating profit | $26,583 | $28,589 | $19,321 | $37,971 | | Net income (loss) attributable to DBI | $10,827 | $13,824 | $(6,597) | $14,607 | | Diluted EPS | $0.22 | $0.24 | $(0.14) | $0.25 | - For the three months ended August 2, 2025, Net sales decreased by 4.2% YoY, and Net income attributable to Designer Brands Inc. decreased by 21.7% YoY. Diluted EPS also decreased from $0.24 to $0.22[11] - For the six months ended August 2, 2025, the company reported a Net loss attributable to Designer Brands Inc. of $(6.6) million, a significant decline from Net income of $14.6 million in the prior year period. Diluted EPS shifted from $0.25 to $(0.14)[11] Condensed Consolidated Statements of Comprehensive Income (Loss) Presents the company's net income (loss), foreign currency translation adjustments, and comprehensive income (loss) | Metric | Three months ended Aug 2, 2025 (in thousands) | Three months ended Aug 3, 2024 (in thousands) | Six months ended Aug 2, 2025 (in thousands) | Six months ended Aug 3, 2024 (in thousands) | | :------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income (loss) | $11,281 | $14,082 | $(5,855) | $14,967 | | Foreign currency translation gain (loss) | $9 | $(977) | $3,507 | $(1,880) | | Comprehensive income (loss) attributable to DBI | $10,836 | $12,847 | $(3,090) | $12,727 | - For the six months ended August 2, 2025, the company reported a Comprehensive loss attributable to Designer Brands Inc. of $(3.1) million, a significant decrease from Comprehensive income of $12.7 million in the prior year period, primarily due to the net loss and a foreign currency translation gain[12] Condensed Consolidated Balance Sheets Summarizes the company's assets, liabilities, and shareholders' equity at various reporting dates | Metric | August 2, 2025 (in thousands) | February 1, 2025 (in thousands) | August 3, 2024 (in thousands) | | :------------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Total assets | $2,061,731 | $2,009,224 | $2,107,134 | | Total liabilities | $1,777,720 | $1,727,449 | $1,748,070 | | Total shareholders' equity | $280,797 | $278,491 | $355,545 | | Cash and cash equivalents | $44,937 | $44,752 | $38,834 | | Inventories | $610,876 | $599,751 | $642,783 | | Long-term debt | $509,593 | $484,285 | $458,974 | - As of August 2, 2025, total assets increased to $2,061.7 million from $2,009.2 million at February 1, 2025, while total shareholders' equity saw a slight increase to $280.8 million from $278.5 million[14] - Long-term debt increased to $509.6 million as of August 2, 2025, compared to $484.3 million at February 1, 2025, and $459.0 million at August 3, 2024[14] Condensed Consolidated Statements of Shareholders' Equity Outlines changes in shareholders' equity, including retained earnings, net income (loss), and dividends | Metric | Balance, Feb 1, 2025 (in thousands) | Balance, Aug 2, 2025 (in thousands) | Balance, Feb 3, 2024 (in thousands) | Balance, Aug 3, 2024 (in thousands) | | :------------------------------------ | :---------------------------------- | :---------------------------------- | :---------------------------------- | :---------------------------------- | | Total Shareholders' Equity | $278,491 | $280,797 | $359,220 | $355,545 | | Retained Earnings | $77,895 | $66,493 | $98,896 | $107,774 | | Net income (loss) attributable to DBI | $(6,597) | $(6,597) | $14,607 | $14,607 | | Dividends ($0.10 per share) | N/A | $(4,805) | N/A | $(5,729) | - Total shareholders' equity increased slightly from $278.5 million at February 1, 2025, to $280.8 million at August 2, 2025, despite a net loss attributable to Designer Brands Inc. of $(6.6) million for the six months ended August 2, 2025[15] - Dividends paid for the six months ended August 2, 2025, totaled $4.8 million ($0.10 per share), a decrease from $5.7 million in the same period last year[15] Condensed Consolidated Statements of Cash Flows Presents cash flows from operating, investing, and financing activities, and their impact on cash and cash equivalents | Metric | Six months ended Aug 2, 2025 (in thousands) | Six months ended Aug 3, 2024 (in thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $1,077 | $21,898 | | Net cash used in investing activities | $(18,669) | $(41,471) | | Net cash provided by financing activities | $16,482 | $9,627 | | Net increase (decrease) in cash and cash equivalents | $185 | $(10,339) | | Cash and cash equivalents, end of period | $44,937 | $38,834 | - Net cash provided by operating activities significantly decreased to $1.1 million for the six months ended August 2, 2025, from $21.9 million in the prior year, primarily due to a net loss and lower income tax refunds[17][99] - Net cash used in investing activities decreased to $18.7 million from $41.5 million, driven by a reduction in capital expenditures and the absence of business acquisitions compared to the prior year[17][100] - Net cash provided by financing activities increased to $16.5 million from $9.6 million, mainly due to no Class A common share repurchases in the current period, partially offset by decreased net borrowings from the ABL Revolver[17][101] Notes to the Condensed Consolidated Financial Statements Explains significant accounting policies, acquisitions, revenue, related party transactions, and other financial items Note 1. Description of Business and Significant Accounting Policies Outlines the company's operating segments, changes in accounting policies, and impairment charges - Designer Brands Inc. operates in three reportable segments: U.S. Retail (DSW), Canada Retail (The Shoe Co., DSW, Rubino), and Brand Portfolio (wholesale of branded products and direct-to-consumer sales of Vince Camuto, Keds, Topo)[19] - The company changed its interim income tax calculation method from discrete effective tax to annual effective tax rate for the six months ended August 2, 2025, to improve comparability, with an immaterial impact for the three months ended August 2, 2025[25] | Period | Effective Tax Rate | | :------------------------------------ | :------------------- | | Three months ended August 2, 2025 | 24.0% | | Three months ended August 3, 2024 | 19.3% | | Six months ended August 2, 2025 | (36.7)% | | Six months ended August 3, 2024 | 1.0% | - The effective tax rate for the six months ended August 2, 2025, was negative 36.7% primarily due to permanent non-deductible compensation[27] - The company recorded impairment charges of $1.5 million for an underperforming U.S. store and $1.0 million for underperforming Canadian stores, plus a $2.0 million impairment for an equity security, totaling $4.5 million for the six months ended August 2, 2025. No impairment charges were recorded in the prior year period[30][93] Note 2. Acquisition Details the acquisition of Rubino Shoes Inc. and its impact on the company's assets and goodwill - On April 8, 2024, Designer Brands Inc. acquired Rubino Shoes Inc. for $16.144 million in cash, expanding its Canada Retail segment into Quebec[33] | Acquired Asset/Liability | Fair Value (in thousands) | | :----------------------- | :------------------------ | | Inventories | $7,245 | | Operating lease assets | $9,334 | | Goodwill | $7,067 | | Intangible assets | $5,116 | | Other assets | $2,443 | | Accounts payable and other current liabilities | $(5,727) | | Operating lease liabilities | $(9,334) | | Total Purchase Price | $16,144 | - Goodwill of $7.067 million from the Rubino acquisition is primarily attributable to acquiring an established retail banner in a new Canadian province[33] Note 3. Revenue Explains changes in net sales disaggregation and provides a breakdown of revenue by segment and deferred revenue - The company changed its net sales disaggregation presentation to include an athletic footwear category and exclude brand categories, aligning with management's evaluation of segment performance[34] | Segment/Category | Three months ended Aug 2, 2025 (in thousands) | Three months ended Aug 3, 2024 (in thousands) | Six months ended Aug 2, 2025 (in thousands) | Six months ended Aug 3, 2024 (in thousands) | | :----------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | U.S. Retail | $610,926 | $641,694 | $1,184,166 | $1,263,061 | | Canada Retail | $75,077 | $74,797 | $128,982 | $130,309 | | Brand Portfolio | $73,157 | $95,993 | $169,055 | $200,123 | | Total Net Sales | $739,762 | $771,900 | $1,426,671 | $1,518,496 | - Total net sales decreased by 4.2% for the three months ended August 2, 2025, and by 6.0% for the six months ended August 2, 2025, compared to the respective prior year periods[36][76][85] | Deferred Revenue Type | End of Period Aug 2, 2025 (in thousands) | End of Period Aug 3, 2024 (in thousands) | | :-------------------- | :--------------------------------------- | :--------------------------------------- | | Gift cards | $24,168 | $25,345 | | Reward programs | $12,918 | $14,554 | Note 4. Related Party Transactions Details transactions with related parties, including lease and royalty expenses - The Schottenstein Affiliates, who beneficially own approximately 30% of the Company's common shares and 66% of combined voting power, lease certain store and office locations to the Company[38] | Related Party Transaction | Three months ended Aug 2, 2025 (in thousands) | Three months ended Aug 3, 2024 (in thousands) | Six months ended Aug 2, 2025 (in thousands) | Six months ended Aug 3, 2024 (in thousands) | | :------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Rent expense (Schottenstein Affiliates) | $1,700 | $1,600 | $3,500 | $3,600 | | Royalty expense (ABG-Camuto) | $4,800 | $4,800 | $9,600 | $9,600 | - The Company has a 40.0% ownership interest in ABG-Camuto and pays royalties on net sales of licensed brands, with royalty expense remaining constant at $4.8 million for both three-month periods and $9.6 million for both six-month periods[41] Note 5. Earnings (Loss) Per Share Provides details on weighted average shares outstanding and anti-dilutive stock-based compensation awards | Metric | Three months ended Aug 2, 2025 (in thousands) | Three months ended Aug 3, 2024 (in thousands) | Six months ended Aug 2, 2025 (in thousands) | Six months ended Aug 3, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Weighted average basic shares outstanding | 49,109 | 57,162 | 48,678 | 57,313 | | Weighted average diluted shares outstanding | 49,734 | 58,576 | 48,678 | 58,978 | | Anti-dilutive stock-based compensation awards excluded | 8,800 | 4,100 | 7,500 | 3,600 | - The number of shares relating to potentially dilutive stock-based compensation awards excluded from diluted EPS calculations due to their anti-dilutive effect increased significantly to 8.8 million for the three months ended August 2, 2025, from 4.1 million in the prior year[43] Note 6. Stock-Based Compensation Reports stock-based compensation expense and activity for restricted stock units (RSUs) | Period | Stock-Based Compensation Expense (in thousands) | | :------------------------------------ | :-------------------------------------------- | | Three months ended August 2, 2025 | $6,000 | | Three months ended August 3, 2024 | $5,800 | | Six months ended August 2, 2025 | $12,100 | | Six months ended August 3, 2024 | $11,400 | | RSU Activity (Six months ended Aug 2, 2025) | Shares of Time-Based RSUs (in thousands) | Shares of Performance-Based RSUs (in thousands) | | :------------------------------------------ | :--------------------------------------- | :---------------------------------------------- | | Outstanding - beginning of period | 4,743 | 1,013 | | Granted | 6,389 | 880 | | Vested | (1,103) | (269) | | Forfeited | (821) | (497) | | Outstanding - end of period | 9,208 | 1,127 | - Stock-based compensation expense increased to $12.1 million for the six months ended August 2, 2025, from $11.4 million in the prior year period[44] Note 7. Shareholders' Equity Provides a breakdown of Class A and Class B common shares issued and outstanding, including treasury shares | Share Class | August 2, 2025 (in thousands) | February 1, 2025 (in thousands) | August 3, 2024 (in thousands) | | :------------ | :---------------------------- | :------------------------------ | :---------------------------- | | Class A Issued | 94,698 | 93,113 | 92,982 | | Class B Issued | 7,733 | 7,733 | 7,733 | | Class A Outstanding | 41,796 | 40,211 | 47,757 | | Class B Outstanding | 7,733 | 7,733 | 7,733 | | Treasury shares | 52,902 | 52,902 | 45,225 | - As of August 2, 2025, Class A common shares outstanding were 41.796 million, and Class B common shares outstanding were 7.733 million. Class B shares carry eight votes per share and are convertible to Class A shares[46][47] Note 8. Receivables Details receivables composition, including payment guarantees, and the allowance for credit losses | Receivables Category | August 2, 2025 (in thousands) | February 1, 2025 (in thousands) | August 3, 2024 (in thousands) | | :------------------- | :---------------------------- | :------------------------------ | :---------------------------- | | Receivables with payment guarantee | $23,210 | $25,030 | $24,405 | | Receivables without payment guarantee | $11,849 | $11,213 | $10,983 | | Other receivables | $21,462 | $14,579 | $14,731 | | Total receivables | $56,521 | $50,822 | $50,119 | | Allowance for credit losses | $(846) | $(451) | $(448) | | Receivables, net | $55,675 | $50,371 | $49,671 | - Receivables, net, increased to $55.7 million as of August 2, 2025, from $50.4 million at February 1, 2025, primarily driven by an increase in 'Other receivables'. The allowance for credit losses also increased[48] Note 9. Property and Leases Details changes in property, equipment, and lease assets and liabilities, including new distribution center leases - During the six months ended August 2, 2025, the company commenced operations of a new distribution center, resulting in $22.4 million in new operating leases and $32.5 million in new finance leases for equipment[49] | Asset Category | August 2, 2025 (in thousands) | February 1, 2025 (in thousands) | August 3, 2024 (in thousands) | | :--------------- | :---------------------------- | :------------------------------ | :---------------------------- | | Property and equipment, net | $227,141 | $208,199 | $216,313 | | Operating lease assets | $716,685 | $701,621 | $723,818 | | Finance lease assets | $31,008 | — | — | | Lease Liability Category | August 2, 2025 (in thousands) | February 1, 2025 (in thousands) | August 3, 2024 (in thousands) | | :----------------------- | :---------------------------- | :------------------------------ | :---------------------------- | | Current operating lease liabilities | $157,212 | $159,924 | $156,394 | | Non-current operating lease liabilities | $646,431 | $635,076 | $653,416 | | Current finance lease liabilities | $3,199 | — | — | | Non-current finance lease liabilities | $28,913 | — | — | - Non-cash activities for the six months ended August 2, 2025, included $36.617 million in operating lease liabilities and $32.482 million in finance lease liabilities arising from lease asset additions[52] Note 10. Accrued Expenses Provides a breakdown of accrued expenses, including gift cards, compensation, taxes, and customer returns | Accrued Expense Category | August 2, 2025 (in thousands) | February 1, 2025 (in thousands) | August 3, 2024 (in thousands) | | :----------------------- | :---------------------------- | :------------------------------ | :---------------------------- | | Gift cards | $24,168 | $28,963 | $25,345 | | Accrued compensation and related expenses | $20,875 | $16,969 | $31,579 | | Accrued taxes | $26,989 | $22,843 | $23,721 | | Customer returns and allowances | $17,667 | $18,053 | $19,247 | | Reward programs deferred revenue | $12,918 | $14,126 | $14,554 | | Other | $67,716 | $51,199 | $46,709 | | Total Accrued Expenses | $170,333 | $152,153 | $161,155 | - Total accrued expenses increased to $170.3 million as of August 2, 2025, from $152.2 million at February 1, 2025, primarily due to an increase in 'Other' accrued expenses and accrued compensation[53] Note 11. Debt Provides details on the company's ABL Revolver and Term Loan, including outstanding balances and compliance with covenants | Debt Category | August 2, 2025 (in thousands) | February 1, 2025 (in thousands) | August 3, 2024 (in thousands) | | :-------------- | :---------------------------- | :------------------------------ | :---------------------------- | | ABL Revolver | $397,914 | $370,090 | $342,280 | | Term Loan | $123,000 | $126,375 | $129,750 | | Total debt | $520,914 | $496,465 | $472,030 | | Long-term debt | $509,593 | $484,285 | $458,974 | - Total debt increased to $520.9 million as of August 2, 2025, from $496.5 million at February 1, 2025, primarily driven by increased ABL Revolver borrowings[54] - As of August 2, 2025, the ABL Revolver had $104.3 million available for borrowings, with $367.9 million outstanding and $4.0 million in letters of credit against a borrowing base of $476.2 million[56] - The Term Loan had an outstanding balance of $123.0 million as of August 2, 2025, and the company was in compliance with all debt covenants[60][103][104] Note 12. Commitments and Contingencies Discusses the company's involvement in legal proceedings and the assessment of potential liabilities - The company is involved in various legal proceedings, but believes the amount of any potential liability will not be material to its results of operations or financial condition[61] - For certain legal matters with agreed settlement terms, the company has recorded accrued expenses with corresponding receivables, as these matters are fully covered by insurance policies[61] Note 13. Segment Reporting Provides financial data disaggregated by the company's U.S. Retail, Canada Retail, and Brand Portfolio segments - The company operates in three reportable segments: U.S. Retail, Canada Retail, and Brand Portfolio, with the CEO identified as the Chief Operating Decision Maker (CODM)[62] | Segment | Three months ended Aug 2, 2025 Net Sales (in thousands) | Three months ended Aug 3, 2024 Net Sales (in thousands) | Six months ended Aug 2, 2025 Net Sales (in thousands) | Six months ended Aug 3, 2024 Net Sales (in thousands) | | :-------- | :------------------------------------------------------ | :------------------------------------------------------ | :---------------------------------------------------- | :---------------------------------------------------- | | U.S. Retail | $610,926 | $641,694 | $1,184,166 | $1,263,061 | | Canada Retail | $75,077 | $74,797 | $128,982 | $130,309 | | Brand Portfolio | $73,157 | $95,993 | $169,055 | $200,123 | | Total Consolidated Net Sales | $739,762 | $771,900 | $1,426,671 | $1,518,496 | | Segment | Three months ended Aug 2, 2025 Operating Profit (Loss) (in thousands) | Three months ended Aug 3, 2024 Operating Profit (Loss) (in thousands) | Six months ended Aug 2, 2025 Operating Profit (Loss) (in thousands) | Six months ended Aug 3, 2024 Operating Profit (Loss) (in thousands) | | :-------- | :-------------------------------------------------------------------- | :-------------------------------------------------------------------- | :------------------------------------------------------------------ | :------------------------------------------------------------------ | | U.S. Retail | $60,211 | $77,573 | $99,819 | $141,774 | | Canada Retail | $8,498 | $9,052 | $8,863 | $12,220 | | Brand Portfolio | $(3,606) | $(2,053) | $(1,015) | $(97) | | Consolidated Operating Profit | $26,583 | $28,589 | $19,321 | $37,971 | - Corporate shared services costs and impairment charges are not attributed to any specific segment[67] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, highlighting decreased sales, macroeconomic impacts, and mitigating actions Executive Overview and Trends in Our Business Provides an overview of key financial trends, including net sales, comparable sales, and gross profit margin performance - For the second quarter of 2025, net sales decreased by 4.2% and total comparable sales declined by 5.0% compared to the same period last year[68] - Gross profit as a percentage of net sales for Q2 2025 was 43.7%, a 30 basis point decrease YoY, with margin rates down across all segments[68] Effects of Macroeconomic Conditions and Tariffs Discusses the negative impact of macroeconomic conditions and tariffs on operating results and liquidity, and mitigating actions - Uncertain macroeconomic conditions, including tariffs, stock market volatility, elevated interest rates, inflation, and geopolitical unrest, have negatively impacted operating results and liquidity in the first half of 2025, leading to decreased consumer demand and traffic[69] - The company is implementing mitigating actions such as aligning inventory with demand, reducing expenses and capital expenditures, and accelerating sourcing diversification efforts, particularly for the Brand Portfolio segment which sources heavily from Asia[69][70] - New U.S. tax legislation (OBBB) signed on July 4, 2025, is not expected to have a material impact on the estimated 2025 annual effective tax rate[26] Financial Summary and Other Key Metrics Presents a summary of key financial metrics, including net sales, gross profit, net income, EPS, and comparable sales by segment | Metric | Three months ended Aug 2, 2025 | Three months ended Aug 3, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net sales | $739.8 million | $771.9 million | | Gross profit as % of net sales | 43.7% | 44.0% | | Net income attributable to DBI | $10.8 million | $13.8 million | | Diluted EPS | $0.22 | $0.24 | - Net income attributable to Designer Brands Inc. for the three months ended August 2, 2025, included net after-tax charges of $5.9 million ($0.12 per diluted share) primarily from restructuring and impairment charges, compared to $3.2 million ($0.05 per diluted share) in the prior year[72] | Segment | Change in Comparable Sales (Three months ended Aug 2, 2025) | Change in Comparable Sales (Three months ended Aug 3, 2024) | | :------------------------------------ | :---------------------------------------------------------- | :---------------------------------------------------------- | | U.S. Retail segment | (4.9)% | (1.1)% | | Canada Retail segment | (0.6)% | (3.1)% | | Brand Portfolio segment - direct-to-consumer channel | (29.2)% | (7.0)% | | Total | (5.0)% | (1.4)% | | Segment | Number of Stores (Aug 2, 2025) | Number of Stores (Aug 3, 2024) | | :-------------------- | :----------------------------- | :----------------------------- | | U.S. Retail - DSW | 493 | 499 | | Canada Retail | 175 | 177 | | Total Stores | 668 | 676 | Results of Operations Analyzes the company's financial performance for the second quarter and six months of 2025 compared to prior year periods Second Quarter of 2025 Compared with Second Quarter of 2024 Compares key financial metrics and segment performance for the second quarter of 2025 against the prior year | Metric | Aug 2, 2025 (in thousands) | Aug 3, 2024 (in thousands) | Change (Amount) | Change (%) | | :------------------------------------ | :------------------------- | :------------------------- | :-------------- | :--------- | | Net sales | $739,762 | $771,900 | $(32,138) | (4.2)% | | Gross profit | $322,933 | $339,549 | $(16,616) | (4.9)% | | Operating expenses | $(297,462) | $(313,531) | $16,069 | (5.1)% | | Operating profit | $26,583 | $28,589 | $(2,006) | (7.0)% | | Net income attributable to DBI | $10,827 | $13,824 | $(2,997) | (21.7)% | | Diluted EPS | $0.22 | $0.24 | $(0.02) | (8.3)% | - U.S. Retail segment net sales decreased by 4.8% due to a 4.9% decline in comparable sales, driven by a 7% decrease in comparable transactions, partially offset by increased average sales per transaction[77][78] - Brand Portfolio segment net sales decreased by 23.8% primarily due to a $22.6 million reduction in wholesale activity as retail customers pulled back on orders, partially offset by strong Topo wholesale activity[77][78] - Consolidated gross profit decreased by 4.9%, and gross profit as a percentage of net sales decreased by 30 basis points, primarily due to promotional activity in U.S. Retail and deleverage of fixed royalty expenses in Brand Portfolio[79] - Consolidated operating expenses decreased by 5.1%, mainly due to lower store selling expenses and personnel overhead in U.S. Retail and reduced marketing expenses in Brand Portfolio, along with lower corporate shared service costs[81] - Consolidated operating profit decreased by 7.0%, driven by lower gross profit, partially offset by reduced operating expenses and favorable corporate/eliminations activity[83][84] Six Months of 2025 Compared with Six Months of 2024 Compares key financial metrics and segment performance for the six months of 2025 against the prior year | Metric | Aug 2, 2025 (in thousands) | Aug 3, 2024 (in thousands) | Change (Amount) | Change (%) | | :------------------------------------ | :------------------------- | :------------------------- | :-------------- | :--------- | | Net sales | $1,426,671 | $1,518,496 | $(91,825) | (6.0)% | | Gross profit | $618,059 | $669,560 | $(51,501) | (7.7)% | | Operating expenses | $(599,324) | $(637,024) | $37,700 | (5.9)% | | Operating profit | $19,321 | $37,971 | $(18,650) | (49.1)% | | Net income (loss) attributable to DBI | $(6,597) | $14,607 | $(21,204) | NM | | Diluted EPS | $(0.14) | $0.25 | $(0.39) | NM | - U.S. Retail segment net sales decreased by 6.2% due to a 6.1% decline in comparable sales, driven by a 9% decrease in comparable transactions[86][87] - Brand Portfolio segment net sales decreased by 15.5% due to a $32.5 million reduction in wholesale activity, partially offset by a $10.0 million increase from Topo wholesale activity[86][87] - Consolidated gross profit decreased by 7.7%, and gross profit as a percentage of net sales decreased by 80 basis points, primarily due to increased promotional activity and product mix changes in U.S. Retail, and unfavorable customer mix and deleverage of fixed royalty expenses in Brand Portfolio[88][89][90] - Consolidated operating expenses decreased by 5.9%, mainly due to lower store selling expenses and personnel overhead in U.S. Retail, reduced marketing and personnel costs in Brand Portfolio, and lower corporate shared service costs[92] - Consolidated operating profit decreased by 49.1%, primarily due to lower gross profit and higher impairment charges, partially offset by lower operating expenses[94][95] Income Taxes Discusses the company's effective tax rate and the primary factors influencing it | Period | Effective Tax Rate | | :------------------------------------ | :------------------- | | Six months ended August 2, 2025 | (36.7)% | | Six months ended August 3, 2024 | 1.0% | - The negative effective tax rate for the six months ended August 2, 2025, was primarily due to the impact of permanent non-deductible compensation[96] Liquidity and Capital Resources Examines the company's cash flow requirements, sources of liquidity, and debt obligations Overview Summarizes the company's cash flow needs and management's assessment of liquidity sufficiency - The company's primary cash flow requirements include inventory purchases, lease obligations, licensing royalties, working capital, capital expenditures, and debt service[97] - Management believes that cash from operations, current cash levels, and availability under the ABL Revolver are sufficient to support ongoing operations, seasonal working capital, capital expenditures, and debt service for the next 12 months and beyond[97] - Macroeconomic conditions have negatively impacted operating results and liquidity in the first half of 2025, with potential for continued decreased consumer demand[97] Operating Cash Flows Analyzes changes in net cash provided by operating activities and their primary drivers - Net cash provided by operating activities decreased by $20.821 million for the six months ended August 2, 2025, primarily due to a net loss and lower income tax refunds, partially offset by improved working capital management[98][99] Investing Cash Flows Examines changes in net cash used in investing activities, including capital expenditures and acquisitions - Net cash used in investing activities decreased by $22.802 million for the six months ended August 2, 2025, mainly due to a $12.7 million reduction in capital expenditures and the absence of the Rubino acquisition (over $16.0 million) that occurred in the prior year[98][100] Financing Cash Flows Analyzes changes in net cash provided by financing activities, including share repurchases and debt borrowings - Net cash provided by financing activities increased by $6.855 million for the six months ended August 2, 2025, primarily because there were no Class A common share repurchases in the current period (compared to $18.0 million in the prior year), partially offset by a $13.0 million decrease in net borrowings from the ABL Revolver[98][101] Debt Details the terms and outstanding balances of the ABL Revolver and Term Loan, and compliance with covenants - The ABL Revolver provides a revolving line of credit up to $600.0 million, maturing in March 2027, with $104.3 million available for borrowings as of August 2, 2025[102] - The Term Loan, entered into on June 23, 2023, had an outstanding balance of $123.0 million as of August 2, 2025, and matures in March 2027 or June 2028[103] - The company was in compliance with all financial covenants of both the ABL Revolver and Term Loan as of August 2, 2025[104] Plans for Capitalized Costs Outlines expected capital expenditures for property, equipment, and cloud computing implementation costs in 2025 - The company expects to spend approximately $35.0 million to $45.0 million on capitalized property, equipment, and cloud computing implementation costs in 2025, with $21.5 million already spent during the first six months[106] Recent Accounting Pronouncement Discusses ASU 2024-03, its effective date, and the company's ongoing evaluation of its impact - ASU 2024-03, effective for the company's 2027 Annual Report on Form 10-K, requires disaggregated disclosures for specific cost and expense categories, and the company is currently evaluating its impact[31][107] Critical Accounting Policies and Estimates Reiterates the company's critical accounting policies and estimates, emphasizing monitoring for potential impairment charges - The company's critical accounting policies and estimates, including those for impairment of goodwill and indefinite-lived intangible assets, remain largely unchanged from the 2024 Form 10-K[108] - Despite no current impairment of goodwill or indefinite-lived tradenames as of August 2, 2025, the company continues to monitor macroeconomic conditions, potential tariffs, and stock price volatility due to heightened uncertainty, which could lead to future material impairment charges[109] Item 3. Quantitative and Qualitative Disclosures About Market Risk Reports no material changes to market risk exposures or management of interest rate and foreign currency risks - The company's market risk exposure primarily relates to interest rates and foreign currency exchange rates, with no material changes in these risks or their management since the 2024 Form 10-K[110] Item 4. Controls and Procedures Confirms effectiveness of disclosure controls and reports no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of August 2, 2025[111] - No material changes were made to the company's internal control over financial reporting during the last fiscal quarter[112] PART II. OTHER INFORMATION Covers legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings Incorporates legal proceedings information from Note 12, indicating no expected material liability - Information on legal proceedings is incorporated from Note 12, Commitments and Contingencies, of the financial statements[114] Item 1A. Risk Factors Reports no material changes to risk factors, except for updated discussion on U.S. trade policy and tariffs - No material changes to risk factors were noted, except for an updated discussion on the impact of U.S. trade policy changes and tariffs[115] - Increased tariffs on imported products, particularly from Asia, introduce heightened uncertainty and could materially adversely affect the company's cost structure, business, results of operations, and liquidity[116] - The company is accelerating sourcing diversification efforts to mitigate tariff risks, but there's no assurance these efforts will fully offset the impact, which could lead to product quality issues or higher costs[116] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the share repurchase program, noting no Class A common shares repurchased, and discusses dividend restrictions - As of August 2, 2025, $19.7 million of Class A common shares remain authorized for repurchase under the company's share repurchase program[117] - No Class A common shares were repurchased during the six months ended August 2, 2025[117] - Future dividend payments are at the discretion of the Board and are subject to restrictions imposed by the ABL Revolver and Term Loan covenants[118][119] Item 3. Defaults Upon Senior Securities Confirms that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[120] Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[121] Item 5. Other Information Reports no Rule 10b5-1 trading plan changes and an amendment to the Nonqualified Deferred Compensation Plan - No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the three months ended August 2, 2025[122] - The Board approved an amendment to the Nonqualified Deferred Compensation Plan on September 4, 2025, suspending new deferrals for Plan Years commencing after 2025 indefinitely[123] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including certifications and the deferred compensation plan amendment - Key exhibits include the Amendment to the Nonqualified Deferred Compensation Plan (Exhibit 10.1), Rule 13a-14(a)/15d-14(a) Certifications (Exhibits 31.1, 31.2), Section 1350 Certifications (Exhibits 32.1, 32.2), and iXBRL financial statements (Exhibit 101)[124] SIGNATURE Contains the certification signature of Designer Brands Inc.'s Chief Financial Officer for the report filing - The report was signed by Jared A. Poff, Executive Vice President, Chief Financial Officer and Chief Administrative Officer, on behalf of Designer Brands Inc. on September 9, 2025[128]