Designer Brands(DBI) - 2024 Q4 - Annual Report

Part I Business Designer Brands operates through U.S. Retail, Canada Retail, and Brand Portfolio segments, aiming to double Owned Brands sales by 2026, supported by its VIP loyalty program - The company operates through three reportable segments: U.S. Retail, Canada Retail, and Brand Portfolio[13] - A key long-term goal is to double net sales from Owned Brands by 2026, using 2021 as a baseline, with Owned Brands representing 25.8% of consolidated net sales in 2023, up from 19.6% in 2021[23] - The company's VIP loyalty programs are a critical driver of retail sales, with 32.1 million members generating 90% of the retail segments' net sales in 2023[19] - The Brand Portfolio segment sources the majority of its merchandise from China (76%) and Vietnam (10%)[28] - As of February 3, 2024, the company employed approximately 14,000 associates worldwide[32] Risk Factors The company faces significant macroeconomic, operational, external, and stock-related risks, including cybersecurity threats and reliance on foreign sourcing - Macroeconomic pressures, including recession concerns and inflation, adversely impacted consumer discretionary spending and led to lower sales and increased promotional activity in 2023[56][57] - The company faces significant operational risks from potential cybersecurity threats, data breaches, and disruptions to its IT systems, which are integral to its e-commerce and business operations[76][77] - Reliance on foreign-sourced merchandise, particularly from China, exposes the company to international political, economic, and logistical risks[89] - The Schottenstein Affiliates beneficially own approximately 26% of outstanding common shares, representing 62% of the combined voting power, giving them substantial influence over shareholder matters[101] Unresolved Staff Comments The company has no unresolved staff comments - None[104] Cybersecurity Cybersecurity risk oversight is managed by the Technology Committee and led by the DITSC, utilizing third-party assessments and a vendor risk program - Cybersecurity risk oversight is delegated to the Technology Committee of the Board, which regularly reviews risks and management's control measures[105] - The information security program is led by the Director of IT Security & Compliance (DITSC), who has over 20 years of cybersecurity experience[106][108] - The company utilizes third-party firms for vulnerability scans and penetration testing and maintains a vendor risk management program to oversee third-party threats[106] Properties The company operates 642 retail stores across the U.S. and Canada, with key owned and leased corporate and distribution facilities Principal Properties as of February 3, 2024 | Facility | Location | Owned/Leased | Segment | Approximate Square Feet | | :--- | :--- | :--- | :--- | :--- | | Principal corporate office | Columbus, Ohio | Owned | Corporate and U.S. Retail | 178,000 | | Distribution center | Columbus, Ohio | Owned | U.S. Retail | 625,000 | | East Coast Logistics Center | Westampton, New Jersey | Leased | U.S. Retail and Brand Portfolio | 683,000 | | U.S. retail stores | 499 various U.S. locations | Leased | U.S. Retail | 9,958,000 | | Canada retail stores | 143 various Canadian locations | Leased | Canada Retail | 1,114,000 | Legal Proceedings The company is involved in legal proceedings, but management does not expect a material impact on financial condition or operations - The company states that it does not expect any potential liability from current legal proceedings to be material to its results of operations or financial condition[280] Mine Safety Disclosures This item is not applicable to the company - Not applicable[112] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities DBI Class A shares trade on NYSE, with a recent dividend declaration and remaining share repurchase authorization, though stock underperformed benchmarks - The Board declared a quarterly cash dividend of $0.05 per share on March 14, 2024[116] - As of February 3, 2024, $87.7 million remained available for repurchase under the company's share repurchase program[117] - During the fourth quarter of fiscal 2023, the company repurchased 192,000 shares at an average price of $9.06 per share, representing shares withheld for tax payments upon vesting of employee stock awards[118] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2023 saw decreased net sales and net income due to lower traffic and promotions, alongside strategic acquisitions and new debt issuance Fiscal 2023 Financial Summary | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Sales | $3.1 billion | $3.3 billion | | Gross Profit % | 31.7% | 32.6% | | Net Income (attributable to DBI) | $29.1 million | $162.7 million | | Diluted EPS | $0.46 | $2.26 | Comparable Sales Performance (2023 vs 2022) | Segment | 2023 Change | | :--- | :--- | | U.S. Retail | (9.5)% | | Canada Retail | (5.9)% | | Total | (9.0)% | - Net sales decrease was primarily due to lower traffic and increased promotional activity in a competitive landscape, influenced by adverse macroeconomic conditions[124][125][131] - The company acquired Keds for $127.3 million in cash, funded by available cash and borrowings on the ABL Revolver[141] - The company entered into a new Term Loan, borrowing $135.0 million in 2023[141] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on variable-rate debt, with a 100 basis point increase impacting annual interest expense by $4.0 million, while foreign currency risk is immaterial - The company is exposed to interest rate risk on its $301.1 million ABL Revolver and $133.1 million Term Loan borrowings[169] - A hypothetical 100 basis point increase in interest rates would add approximately $4.0 million to annual interest expense[169] - Foreign currency exchange risk is considered immaterial[170] Financial Statements and Supplementary Data This section presents audited financial statements with an unqualified opinion from Deloitte & Touche LLP, highlighting inventory valuation as a critical audit matter - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal controls over financial reporting[173] - A critical audit matter was identified concerning the valuation of U.S. Retail segment inventories, specifically the significant estimates required for inventory markdowns[180][181][182] Consolidated Statement of Operations Highlights (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Sales | $3,074,976 | $3,315,428 | | Gross Profit | $974,886 | $1,079,225 | | Operating Profit | $72,401 | $187,390 | | Net Income Attributable to DBI | $29,062 | $162,676 | | Diluted EPS | $0.46 | $2.26 | Consolidated Balance Sheet Highlights (in thousands) | Metric | Feb 3, 2024 | Jan 28, 2023 | | :--- | :--- | :--- | | Total Current Assets | $777,432 | $789,931 | | Total Assets | $2,076,232 | $2,009,618 | | Total Current Liabilities | $622,271 | $636,126 | | Total Liabilities | $1,713,724 | $1,573,562 | | Total Shareholders' Equity | $359,220 | $432,901 | Consolidated Statement of Cash Flows Highlights (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $162,399 | $201,426 | | Net cash used in investing activities | $(182,493) | $(88,117) | | Net cash provided by (used in) financing activities | $10,479 | $(128,479) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[294] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of February 3, 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year[295] - Management concluded that the company's internal control over financial reporting was effective as of February 3, 2024[296] Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans in the fourth quarter of fiscal 2023 - No directors or executive officers adopted or terminated a Rule 10b5-1 trading plan in the fourth quarter[299] Disclosures Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[300] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - This section incorporates information by reference from the upcoming 2024 Proxy Statement[302] Executive Compensation Executive and director compensation information is incorporated by reference from the 2024 Proxy Statement - This section incorporates information by reference from the upcoming 2024 Proxy Statement[303] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and equity compensation plan details are incorporated by reference from the 2024 Proxy Statement - This section incorporates information by reference from the upcoming 2024 Proxy Statement[304] Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the 2024 Proxy Statement - This section incorporates information by reference from the upcoming 2024 Proxy Statement[305] Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2024 Proxy Statement - This section incorporates information by reference from the upcoming 2024 Proxy Statement[306] Part IV Exhibits and Financial Statements Schedules This section lists consolidated financial statements and various exhibits filed as part of the Form 10-K - Lists the consolidated financial statements and schedules filed with the report[308][309] - Provides a list of all exhibits filed with the Form 10-K, including material agreements and certifications[311][313][314] Form 10-K Summary The company provides no summary under this item - None[317]