UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OctoberApril 30, 20212022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission file number 001-325451-32545
dsw-20220430_g1.jpg
DESIGNER BRANDS INC.
(Exact name of registrant as specified in its charter)
Ohio31-0746639
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
810 DSW Drive,Columbus,Ohio43219
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (614) 237-7100
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Shares, without par valueDBINew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Number of shares outstanding of each of the registrant's classes of common stock,stock, as of November 30, 2021: 65,621,130May 27, 2022: 62,620,533 Class A common shares and 7,732,743 Class B common shares.




DESIGNER BRANDS INC.
TABLE OF CONTENTS

PART I
Item 1
Item 2
Item 3
Item 4
PART II
Item 1
Item 1A
Item 2
Item 3
Item 4
Item 5
Item 6

All references to "we," "us," "our," "Designer Brands," "Designer Brands Inc.," or the "Company" in this Quarterly Report on Form 10-Q for the three months ended April 30, 2022 (this "Form 10-Q") mean Designer Brands Inc. and its subsidiaries.

We have included our website addresses throughout this report as inactive textual references only. The information contained on the websites referenced herein is not incorporated into this Form 10-Q.




Cautionary Statement Regarding Forward-Looking Information for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995

Certain statements in this Quarterly Report on Form 10-Q (this "Form 10-Q") may constitute forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which1995. Such statements reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as "outlook," "could," "believes," "expects," "potential," "continues," "may," "will," "should," "would," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," or the negative version of those words or other comparable words. Any forward-looking statements contained in this Form 10-Q are based upon current plans, estimates, expectations, and assumptions relating to our operations, results of operations, financial condition, growth strategy, and liquidity. The inclusion of thisthese forward-looking informationstatements should not be regarded as a representation by us or any other person that the future plans, estimates, or expectations contemplated by us will be achieved. Such forward-looking statements are subject to numerous risks, uncertainties and other factors that may cause actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. In addition to thoseother factors describeddiscussed elsewhere in this report, under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended January 30, 202129, 2022 (the "2020"2021 Form 10-K"), filed with the Securities and Exchange Commission (the "SEC") on March 22, 2021,21, 2022, and otherwise in our reports and filings with the SEC, there are a number of important factors that could cause actual results, performance or achievements to differ materially from those discussed in forward-looking statements including,that include, but are not limited to, the following:
risks and uncertainty related to the continued outbreak of theongoing coronavirus ("COVID-19"), pandemic, any future COVID-19 resurgence, including the potential for more severe or contagious variants, and any other adverse public health developments;
risks relatedthat recent inflationary pressures, including higher freight costs, could have on our results of operations and customer demand based on pricing actions and operating measures taken to losses or disruptions associated with our distribution systems, including our distribution and fulfillment centers and our stores, whether as a resultmitigate the impact of the impacts of the COVID-19 pandemic, supply chain disruptions, labor shortages, reliance on third-party providers, cyber-related attacks, or otherwise;inflation;
labor disruptionsuncertain general economic conditions, including inflation and other risks as a resultsupply chain pressures, domestic and global political and social conditions and the potential impact of geopolitical turmoil or conflict, and the related impacts of vaccine mandates and other governmental regulations relating to the ongoing COVID-19 pandemic;consumer discretionary spending;
our ability to protect the health and safety ofexecute on our associates and our customers, which may be affected by current or future government regulations related to stay-at-home orders, vaccine mandates, and orders related to the operation of non-essential businesses;
risks related to our international operations, including international trade, our reliance on foreign sources for merchandise and related supply chain disruptions, exposure to political, economic, operational, compliance, and other risks, and fluctuations in foreign currency exchange rates;
maintaining strong relationships with our vendors, manufacturers, licensors, and retailer customers;long-term strategic plans;
our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations;
our ability to maintain strong relationships with our vendors, manufacturers, licensors, and retailer customers;
risks related to restrictionslosses or disruptions associated with our distribution systems, including our distribution centers and fulfillment center and stores, whether as a result of the COVID-19 pandemic, reliance on our senior secured asset-based revolving credit facility ("ABL Revolver") and senior secured term loan ("Term Loan") that could limit our ability to fund operations;third-party providers, or otherwise;
our reliance on our loyalty programs and marketing to drive traffic, sales, and customer loyalty;
failurerisks related to retaincyber security threats and privacy or data security breaches or the potential loss or disruption of our key executives or attract qualified new personnel;information systems;
our ability to protect our reputation and to maintain the brands we license;
our competitiveness with respect to style, price, brand availability, and customer service;
risks related to the loss or disruption of our information systemsinternational operations, including international trade, our reliance on foreign sources for merchandise, exposure to political, economic, operational, compliance and dataother risks, and our ability to prevent or mitigate breaches of our information security and the compromise of sensitive and confidential data;fluctuations in foreign currency exchange rates;
our ability to comply with privacy laws and regulations, as well as other legal obligations;
our ability to protect our reputationrisks associated with climate change and to maintain the brands we license;
uncertain general economic, political, and social conditions and the related impacts to consumer discretionary spending;
our competitiveness with respect to style, price, brand availability, and customer service;
our ability to provide customers cost-effective shopping platforms;other corporate responsibility issues; and
uncertainty related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results, performance, or achievements may vary materially from what we have projected. Furthermore, new factors emerge from time to time, and it is not possible for management to predict all such factors, nor can management assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.




DESIGNER BRANDS INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PART II. OTHER INFORMATION

All references to "we," "us," "our," "Designer Brands," "Designer Brands Inc.," or the "Company" in this Form 10-Q mean Designer Brands Inc. and its subsidiaries.




PART I.    FINANCIAL INFORMATIONI    

Item 1.     Financial Statements
ITEM 1. FINANCIAL STATEMENTS

DESIGNER BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
Three months endedNine months endedThree months ended
October 30, 2021October 31, 2020October 30, 2021October 31, 2020
(unaudited and in thousands, except per share amounts)(unaudited and in thousands, except per share amounts)April 30, 2022May 1, 2021
Net salesNet sales$853,467 $652,870 $2,373,957 $1,625,367 Net sales$830,543 $703,155 
Cost of salesCost of sales(539,850)(487,214)(1,559,548)(1,449,129)Cost of sales(554,798)(487,044)
Gross profitGross profit313,617 165,656 814,409 176,238 Gross profit275,745 216,111 
Operating expensesOperating expenses(211,909)(196,067)(637,108)(551,712)Operating expenses(223,426)(200,814)
Income from equity investmentIncome from equity investment2,600 1,902 6,598 6,325 Income from equity investment1,945 1,708 
Impairment chargesImpairment charges— (30,081)(1,174)(149,363)Impairment charges(1,072)— 
Operating profit (loss)104,308 (58,590)182,725 (518,512)
Operating profitOperating profit53,192 17,005 
Interest expense, netInterest expense, net(7,706)(9,009)(24,592)(14,955)Interest expense, net(2,952)(8,814)
Loss on extinguishment of debt and write-off of debt issuance costsLoss on extinguishment of debt and write-off of debt issuance costs(12,862)— 
Non-operating income, netNon-operating income, net172 24 734 680 Non-operating income, net6 806 
Income (loss) before income taxes96,774 (67,575)158,867 (532,787)
Income before income taxesIncome before income taxes37,384 8,997 
Income tax benefit (provision)Income tax benefit (provision)(16,590)26,932 (18,797)178,072 Income tax benefit (provision)(11,202)8,029 
Net income (loss)$80,184 $(40,643)$140,070 $(354,715)
Basic and diluted earnings (loss) per share:
Basic earnings (loss) per share$1.10 $(0.56)$1.92 $(4.92)
Diluted earnings (loss) per share$1.04 $(0.56)$1.81 $(4.92)
Net incomeNet income$26,182 $17,026 
Basic and diluted earnings per share:Basic and diluted earnings per share:
Basic earnings per shareBasic earnings per share$0.36 $0.23 
Diluted earnings per shareDiluted earnings per share$0.34 $0.22 
Weighted average shares used in per share calculations:Weighted average shares used in per share calculations:Weighted average shares used in per share calculations:
Basic sharesBasic shares73,191 72,344 72,911 72,134 Basic shares72,923 72,613 
Diluted sharesDiluted shares77,135 72,344 77,216 72,134 Diluted shares76,924 76,976 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

1


DESIGNER BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited and in thousands)
Three months endedNine months ended
October 30, 2021October 31, 2020October 30, 2021October 31, 2020
Net income (loss)$80,184 $(40,643)$140,070 $(354,715)
Other comprehensive income (loss), net of income taxes:
Foreign currency translation gain (loss)302 161 547 (2,090)
Unrealized net gain on debt securities— — — 195 
Reclassification adjustment for net gains realized in net loss— — — (368)
Total other comprehensive income (loss), net of income taxes302 161 547 (2,263)
Total comprehensive income (loss)$80,486 $(40,482)$140,617 $(356,978)
Three months ended
(unaudited and in thousands)April 30, 2022May 1, 2021
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 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

2


DESIGNER BRANDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands)
October 30, 2021January 30, 2021October 31, 2020
(unaudited and in thousands)(unaudited and in thousands)April 30, 2022January 29, 2022May 1, 2021
ASSETSASSETSASSETS
Current Assets:Current Assets:
Cash and cash equivalentsCash and cash equivalents$83,069 $59,581 $114,531 Cash and cash equivalents$54,802 $72,691 $49,301 
Receivables, netReceivables, net231,391 196,049 61,840 Receivables, net222,297 199,826 213,447 
InventoriesInventories602,101 473,183 545,954 Inventories672,490 586,429 540,088 
Prepaid expenses and other current assetsPrepaid expenses and other current assets53,756 51,772 54,577 Prepaid expenses and other current assets49,836 55,270 60,461 
Total current assetsTotal current assets970,317 780,585 776,902 Total current assets999,425 914,216 863,297 
Property and equipment, netProperty and equipment, net263,581 296,469 313,102 Property and equipment, net250,123 256,786 284,823 
Operating lease assetsOperating lease assets664,646 700,481 728,871 Operating lease assets635,334 647,221 686,704 
GoodwillGoodwill93,655 93,655 93,655 Goodwill93,655 93,655 93,655 
Intangible assets, netIntangible assets, net16,005 15,635 15,652 Intangible assets, net20,355 15,527 16,131 
Deferred tax assets— — 208,976 
Equity investmentEquity investment56,623 58,598 57,978 Equity investment55,118 55,578 57,012 
Other assetsOther assets29,117 31,172 31,585 Other assets33,734 31,651 30,843 
Total assetsTotal assets$2,093,944 $1,976,595 $2,226,721 Total assets$2,087,744 $2,014,634 $2,032,465 
LIABILITIES AND SHAREHOLDERS' EQUITYLIABILITIES AND SHAREHOLDERS' EQUITYLIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:Current Liabilities:
Accounts payableAccounts payable$401,280 $245,071 $371,382 Accounts payable$369,147 $340,877 $341,819 
Accrued expensesAccrued expenses211,017 200,326 171,261 Accrued expenses208,282 215,812 195,237 
Current maturities of long-term debtCurrent maturities of long-term debt62,500 62,500 62,500 Current maturities of long-term debt — 62,500 
Current operating lease liabilitiesCurrent operating lease liabilities206,065 244,786 226,423 Current operating lease liabilities179,870 202,228 200,666 
Total current liabilitiesTotal current liabilities880,862 752,683 831,566 Total current liabilities757,299 758,917 800,222 
Long-term debtLong-term debt165,422 272,319 274,635 Long-term debt306,861 225,536 274,887 
Non-current operating lease liabilitiesNon-current operating lease liabilities622,273 677,735 721,771 Non-current operating lease liabilities579,839 593,429 663,018 
Other non-current liabilitiesOther non-current liabilities31,726 30,841 28,228 Other non-current liabilities26,952 24,356 31,526 
Total liabilitiesTotal liabilities1,700,283 1,733,578 1,856,200 Total liabilities1,670,951 1,602,238 1,769,653 
Commitments and contingenciesCommitments and contingencies


0

0
Commitments and contingencies0


0
0Shareholders' equity:0Shareholders' equity:0Shareholders' equity:
Common shares paid-in capital, no par valueCommon shares paid-in capital, no par value1,000,180 990,153 985,125 Common shares paid-in capital, no par value1,006,384 1,005,382 992,379 
Treasury shares, at costTreasury shares, at cost(515,065)(515,065)(515,065)Treasury shares, at cost(537,771)(515,065)(515,065)
Retained deficitRetained deficit(88,715)(228,785)(94,781)Retained deficit(48,122)(74,304)(211,759)
Accumulated other comprehensive lossAccumulated other comprehensive loss(2,739)(3,286)(4,758)Accumulated other comprehensive loss(3,698)(3,617)(2,743)
Total shareholders' equityTotal shareholders' equity393,661 243,017 370,521 Total shareholders' equity416,793 412,396 262,812 
Total liabilities and shareholders' equityTotal liabilities and shareholders' equity$2,093,944 $1,976,595 $2,226,721 Total liabilities and shareholders' equity$2,087,744 $2,014,634 $2,032,465 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

3


DESIGNER BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited and in thousands, except per share data)
Number of sharesAmounts
Class A common sharesClass B common sharesTreasury sharesCommon shares paid in capitalTreasury sharesRetained earnings (deficit)Accumulated other comprehensive lossTotal
Three months ended October 30, 2021
Balance, July 31, 202165,236 7,733 22,169 $998,117 $(515,065)$(168,899)$(3,041)$311,112 
Net income— — — — — 80,184 — 80,184 
Stock-based compensation activity375 — — 2,063 — — — 2,063 
Foreign currency translation adjustment— — — — — — 302 302 
Balance, October 30, 202165,611 7,733 22,169 $1,000,180 $(515,065)$(88,715)$(2,739)$393,661 
Three months ended October 31, 2020
Balance, August 1, 202064,578 7,733 22,169 $980,749 $(515,065)$(54,138)$(4,919)$406,627 
Net loss— — — — — (40,643)— (40,643)
Stock-based compensation activity68 — — 4,376 — — — 4,376 
Foreign currency translation adjustment— — — — — — 161 161 
Balance, October 31, 202064,646 7,733 22,169 $985,125 $(515,065)$(94,781)$(4,758)$370,521 
Nine months ended October 30, 2021
Balance, January 30, 202164,666 7,733 22,169 $990,153 $(515,065)$(228,785)$(3,286)$243,017 
Net income— — — — — 140,070 — 140,070 
Stock-based compensation activity945 — — 10,027 — — — 10,027 
Foreign currency translation adjustment— — — — — — 547 547 
Balance, October 30, 202165,611 7,733 22,169 $1,000,180 $(515,065)$(88,715)$(2,739)$393,661 
Nine months ended October 31, 2020
Balance, February 1, 202064,033 7,733 22,169 $971,380 $(515,065)$267,094 $(2,495)$720,914 
Net loss— — — — — (354,715)— (354,715)
Stock-based compensation activity613 — — 13,745 — — — 13,745 
Dividends ($0.10 per share)— — — — — (7,160)— (7,160)
Other comprehensive loss— — — — — — (2,263)(2,263)
Balance, October 31, 202064,646 7,733 22,169 $985,125 $(515,065)$(94,781)$(4,758)$370,521 
Number of sharesAmounts
(unaudited and in thousands, except per share amounts)Class A
Common
Shares
Class B
Common
Shares
Treasury SharesCommon Shares Paid in CapitalTreasury SharesRetained DeficitAccumulated Other Comprehensive LossTotal
Three months ended April 30, 2022
Balance, January 29, 202265,624 7,733 22,169 $1,005,382 $(515,065)$(74,304)$(3,617)$412,396 
Net income     26,182  26,182 
Stock-based compensation activity482   4,594    4,594 
Repurchase of Class A common shares(1,656) 1,656  (22,706)  (22,706)
Dividends (0.05 per share)   (3,592)   (3,592)
Foreign currency translation adjustment      (81)(81)
Balance, April 30, 202264,450 7,733 23,825 $1,006,384 $(537,771)$(48,122)$(3,698)$416,793 
Three months ended May 1, 2021
Balance, January 30, 202164,666 7,733 22,169 $990,153 $(515,065)$(228,785)$(3,286)$243,017 
Net Income— — — — — 17,026 — 17,026 
Stock-based compensation activity468 — — 2,226 — — — 2,226 
Foreign currency translation adjustment— — — — — — 543 543 
Balance, May 1, 202165,134 7,733 22,169 $992,379 $(515,065)$(211,759)$(2,743)$262,812 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

4


DESIGNER BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Nine months endedThree months ended
October 30, 2021October 31, 2020
(unaudited and in thousands)(unaudited and in thousands)April 30, 2022May 1, 2021
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net income (loss)$140,070 $(354,715)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net incomeNet income$26,182 $17,026 
Adjustments to reconcile net income to net cash used in operating activities:Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortizationDepreciation and amortization59,178 66,139 Depreciation and amortization21,384 20,575 
Stock-based compensation expenseStock-based compensation expense18,646 15,176 Stock-based compensation expense8,594 7,457 
Deferred income taxesDeferred income taxes822 (179,098)Deferred income taxes(87)320 
Income from equity investmentIncome from equity investment(6,598)(6,325)Income from equity investment(1,945)(1,708)
Distributions received from equity investmentDistributions received from equity investment8,573 6,106 Distributions received from equity investment2,405 3,294 
Impairment chargesImpairment charges1,174 149,363 Impairment charges1,072 — 
Gain on settlement— (8,990)
Loss on extinguishment of debt and write-off of debt issuance costsLoss on extinguishment of debt and write-off of debt issuance costs12,862 — 
OtherOther1,598 43 Other3,485 (341)
Change in operating assets and liabilities:Change in operating assets and liabilities:Change in operating assets and liabilities:
Accounts receivableAccounts receivable(18,121)7,519 Accounts receivable(21,941)(8,160)
Income tax receivableIncome tax receivable(17,110)— Income tax receivable(548)(9,066)
InventoriesInventories(127,513)86,229 Inventories(86,240)(65,215)
Prepaid expenses and other current assetsPrepaid expenses and other current assets(988)13,785 Prepaid expenses and other current assets4,784 (8,524)
Accounts payableAccounts payable153,511 79,642 Accounts payable25,713 94,469 
Accrued expensesAccrued expenses10,204 4,629 Accrued expenses(11,406)(5,439)
Operating lease assets and liabilities, netOperating lease assets and liabilities, net(59,152)14,164 Operating lease assets and liabilities, net(24,986)(46,044)
Net cash provided by (used in) operating activities164,294 (106,333)
Net cash used in operating activitiesNet cash used in operating activities(40,672)(1,356)
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Cash paid for property and equipmentCash paid for property and equipment(22,061)(26,925)Cash paid for property and equipment(12,248)(5,641)
Sales of available-for-sale investments— 24,755 
Proceeds from settlement— 8,990 
Net cash provided by (used in) investing activities(22,061)6,820 
OtherOther(4,853)— 
Net cash used in investing activitiesNet cash used in investing activities(17,101)(5,641)
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Borrowing on revolving line under Credit Facility— 251,000 
Payments on revolving line under Credit Facility— (441,000)
Borrowing under ABL Revolver349,653 150,000 
Payments on borrowings under ABL Revolver(449,653)(50,000)
Proceeds from issuance of Term Loan— 250,000 
Payments on borrowings under Term Loan(9,376)(3,125)
Borrowing on revolving lines of creditBorrowing on revolving lines of credit757,640 250,513 
Payments on revolving lines of creditPayments on revolving lines of credit(450,779)(245,670)
Payments for borrowings and prepayment premium under Term LoanPayments for borrowings and prepayment premium under Term Loan(238,196)(3,125)
Payments of debt issuance costsPayments of debt issuance costs— (21,063)Payments of debt issuance costs(2,316)— 
Cash paid for treasury sharesCash paid for treasury shares(22,706)— 
Dividends paid— (7,160)
OtherOther(8,487)(1,502)Other(3,875)(5,307)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(117,863)127,150 Net cash provided by (used in) financing activities39,768 (3,589)
Effect of exchange rate changes on cash balancesEffect of exchange rate changes on cash balances664 330 Effect of exchange rate changes on cash balances115 306 
Net increase in cash, cash equivalents and restricted cash25,034 27,967 
Net decrease in cash, cash equivalents and restricted cashNet decrease in cash, cash equivalents and restricted cash(17,890)(10,280)
Cash, cash equivalents and restricted cash, beginning of periodCash, cash equivalents and restricted cash, beginning of period59,581 86,564 Cash, cash equivalents and restricted cash, beginning of period74,459 59,581 
Cash, cash equivalents and restricted cash, end of periodCash, cash equivalents and restricted cash, end of period$84,615 $114,531 Cash, cash equivalents and restricted cash, end of period$56,569 $49,301 
Supplemental disclosures of cash flow information:Supplemental disclosures of cash flow information:Supplemental disclosures of cash flow information:
Cash paid (received) for income taxesCash paid (received) for income taxes$13,228 $(12,979)Cash paid (received) for income taxes$62 $(3,926)
Cash paid for interest on debtCash paid for interest on debt$19,339 $12,581 Cash paid for interest on debt$4,097 $7,042 
Cash paid for operating lease liabilitiesCash paid for operating lease liabilities$209,045 $128,683 Cash paid for operating lease liabilities$73,621 $95,079 
Non-cash investing and financing activities:Non-cash investing and financing activities:Non-cash investing and financing activities:
Property and equipment purchases not yet paidProperty and equipment purchases not yet paid$3,250 $1,341 Property and equipment purchases not yet paid$7,069 $2,875 
Operating lease liabilities arising from lease asset additionsOperating lease liabilities arising from lease asset additions$13,379 $9,407 Operating lease liabilities arising from lease asset additions$4,143 $7,588 
Net increase to operating lease assets and lease liabilities for modificationsNet increase to operating lease assets and lease liabilities for modifications$72,698 $18,660 Net increase to operating lease assets and lease liabilities for modifications$27,621 $16,760 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

5


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Segment Reporting

6

Table of Contents     
DESIGNER BRANDS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Business Operations- Designer Brands Inc. ("we," "us," "our," and the "Company") is one of North America'sthe world's largest designers, producers, and retailers of footwear and accessories. We operate in 3 reportable segments: the U.S. Retail segment, the Canada Retail segment, and the Brand Portfolio segment. The U.S. Retail segment operates the DSW Designer Shoe Warehouse ("DSW") banner through its direct-to-consumer U.S. stores and e-commerce site. The Canada Retail segment operates The Shoe Company Shoe Warehouse, and DSW banners through its direct-to-consumer Canada stores and e-commerce sites. The Brand Portfolio segment earns revenue from the sale of wholesale products to retailers, commissions for serving retailers as the design and buying agent for products under private labels (which we refer to as "First Cost"), and the sale of branded products through the direct-to-consumer e-commerce site at www.vincecamuto.com. An integral part of the Brand Portfolio segment is our equity investment in ABG-Camuto, LLC ("ABG-Camuto"), which is a partnership between Camuto LLC, a wholly-owned subsidiary doing business as "Camuto Group," and Authentic Brands Group LLC, a global brand management and marketing company. Camuto Group has a 40% stake in ABG-Camuto, a joint venture that ownsholds several intellectual property rights, including, among others, Vince Camuto and Louise et Cie, and others, and focuses on licensing and developing new category extensions to support the global growth of these brands. Camuto Group has a licensing agreement with ABG-Camuto whereby we pay royalties on our net sales from the brands ownedmanaged by ABG-Camuto, subject to guaranteed minimums. Camuto Group also ownsholds footwear and certain handbag licensing rights of Jessica Simpson, Lucky Brand and, through a joint venture, JLO Jennifer Lopez. Our other operating segments are below the quantitative and qualitative thresholds for reportable segments and are aggregated into Other for segment reporting purposes.

Basis of Presentation- The accompanying unaudited, condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal, recurring nature. The condensed consolidated financial position, results of operations and cash flows for these interim periods are not necessarily indicative of the results that may be expected in future periods. The balance sheet at January 30, 202129, 2022 has been derived from the audited financial statements at that date. The financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the 20202021 Form 10-K.

Fiscal Year- Our fiscal year ends on the Saturday nearest to January 31. References to a fiscal year (e.g., "2022") refer to the calendar year in which the fiscal year begins. This reporting schedule is followed by many national retail companies and typically results in a 52-week fiscal year (including 2022 and 2021), but occasionally will contain an additional week resulting in a 53-week fiscal year (including 2023).

SIGNIFICANT ACCOUNTING POLICIES

Accounting Policies- The complete summary of significant accounting policies is included in the notes to the consolidated financial statements as presented in our 20202021 Form 10-K.

Impact of COVID-19- In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. On March 18, 2020, to help control the spread of the virus and protect the health and safety of our customers, employees, and the communities we serve, we temporarily closed all of our stores in the U.S. and Canada. In addition, we took several actions in late March 2020 to reduce costs and operations to levels that were more commensurate with then-current sales, including furloughs and pay reductions. During the second quarter and into the third quarter of fiscal 2020, we re-opened all of our stores, discontinued the furlough program, and restored pay for our associates that had taken pay reductions. Beginning in July 2020, we initiated an internal reorganization and reduction of our workforce with additional actions taken throughout fiscal 2020 and into the first quarter of fiscal 2021, resulting in the elimination of approximately 1,000 associate positions. The severance charges recorded as a result of this reorganization are included in our severance discussion below. As this continues to be an unprecedented period of uncertainty, we have made and may continue to make adjustments to our operational plans, inventory controls, and liquidity management, as well as changes to our expense and capital expenditure plans.

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DESIGNER BRANDS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

As a result of the material reduction in net sales and cash flows during fiscal 2020, we updated our impairment analyses for our U.S. Retail and Canada Retail segments at the store level, which represents the lowest level for which identifiable cash flows are independent of the cash flows of other assets. The carrying amount of the store asset group, primarily made up of operating lease assets, leasehold improvements and fixtures, is considered impaired when the carrying value of the asset group exceeds the expected future cash flows from the asset group. The impairment loss recognized is the excess of the carrying value of the asset or asset group over its fair value (categorized as Level 3 under the fair value hierarchy). Fair value at the store level is typically based on projected discounted cash flows over the remaining lease term. In addition, we evaluated other long-lived assets based on our intent to use such assets going forward. During the three months ended October 31, 2020, we recorded an impairment charge of $30.1 million for the U.S. Retail segment. During the nine months ended October 31, 2020, we recorded impairment charges of $122.9 million ($103.2 million and $19.7 million for the U.S. Retail segment and Canada Retail segment, respectively). Also during the nine months ended October 31, 2020, we recorded an impairment charge of $6.5 million for the Brand Portfolio segment customer relationship intangible resulting in a full impairment due to the lack of projected cash flows over the remaining useful life (categorized as Level 3 under the fair value hierarchy).

As a result of the material reduction in net sales and cash flows due to the temporary closure of all of our stores, the decrease in net sales from our retailer customers and the decrease in the Company's market capitalization due to the impact of the COVID-19 pandemic on macroeconomic conditions, we performed an impairment analysis for goodwill and other indefinite-lived intangible assets during the first quarter of fiscal 2020. We calculated the fair value of the reporting units with goodwill primarily based on a discounted cash flow analysis (categorized as Level 3 under the fair value hierarchy). Our analysis concluded that the fair value of the First Cost reporting unit within the Brand Portfolio segment did not exceed its carrying value. Accordingly, during the nine months ended October 31, 2020, we recorded an impairment charge of $20.0 million for the First Cost reporting unit in the Brand Portfolio segment, resulting in a full impairment.

The U.S. Retail segment inventory is accounted for using the retail inventory method and is stated at the lower of cost or market. Under the retail inventory method, the valuation of inventories reflects reductions for merchandise marked down with charges to cost of sales. As a result, earnings are negatively impacted as the merchandise is marked down prior to sale. Inventories for the Canada Retail and Brand Portfolio segments are accounted for using moving average cost method and are stated at the lower of cost or net realizable value. For all inventories, we also monitored excess and obsolete inventories in light of the temporary closure of stores during our fiscal 2020 peak spring selling season and reduced traffic experienced since re-opening stores. During the nine months ended October 31, 2020, we recorded $18.0 million of additional inventory reserves over the same period of the previous year.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which, among other things, provided employer payroll tax credits for wages paid to employees who were unable to work over a defined period and options to defer payroll tax payments. Based on our evaluation of the CARES Act, we qualified for certain employer payroll tax credits, which were treated as government subsidies to offset related operating expenses, as well as the deferral of payroll and other tax payments in the future. Similar credits were also available in Canada. During the three months ended October 30, 2021 and October 31, 2020, the qualified government credits reduced our operating expenses by $0.3 million and $1.4 million, respectively, on our condensed consolidated statements of operations. During the nine months ended October 30, 2021 and October 31, 2020, the qualified government credits reduced our operating expenses by $4.0 million and $9.3 million, respectively, on our condensed consolidated statements of operations. As of October 30, 2021, we had $10.0 million of deferred qualified payroll and other tax obligations, half of which is included in accrued expenses on the condensed consolidated balance sheets that we expect to pay at the end of fiscal 2021, with the remaining included in other non-current liabilities on the condensed consolidated balance sheets that we expect to pay at the end of fiscal 2022.

We recorded our income tax expense, income tax receivable, and deferred tax assets and related liabilities based on management’s best estimates. Additionally, we assessed the likelihood of realizing the benefits of our deferred tax assets. Our ability to recover these deferred tax assets depends on several factors, including our ability to project future taxable income. One of the provisions of the CARES Act allows net operating losses generated within tax years 2018 through 2020 to be carried back up to five years, including years in which the U.S. federal statutory tax rate was 35%, as opposed to the current rate of 21%. In evaluating future taxable income, significant weight is given to positive and negative evidence that is objectively verifiable. As a result of the losses incurred in fiscal 2020 due to the impacts of the COVID-19 pandemic, we are in a three-year cumulative loss position as of October 30, 2021, which is significant objective negative evidence in considering whether deferred tax assets are realizable. Such objective evidence limits the ability to consider other subjective evidence, such as the projection of future taxable income. A valuation allowance has been recognized as a reserve on the total deferred tax asset balance due to the uncertainty of realization of our loss carry forwards and other deferred tax assets. Our effective tax rate changed from 33.4% for the nine months ended October 31, 2020 to 11.8% for the nine months ended October 30, 2021. The
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DESIGNER BRANDS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

rate for the nine months ended October 30, 2021 is the result of maintaining a full valuation allowance on deferred tax assets while also recording net discrete tax benefits, primarily as a result of adjustments to our estimated fiscal 2020 return reflecting implemented tax strategies. The rate for the nine months ended October 31, 2020 is the result of the carry back of losses to a tax year where the U.S. federal statutory tax rate was 35%.

While trends improved during fiscal 2021 compared to fiscal 2020, we cannot reasonably estimate the extent to which our business will continue to be affected by the COVID-19 pandemic and to what extent the recent improved trends will continue. For instance, we have continued to experience reduced customer traffic and net sales when compared to pre-COVID-19 periods, and it is unclear whether customer behavior may continue to be slow to return to pre-COVID-19 patterns, if at all. The ongoing and prolonged nature of the outbreak may lead to further adjustments to our operations. As such, the ultimate impacts of the COVID-19 pandemic on our businesses will depend on future developments, including the availability of labor, global supply chain disruptions, the variants of COVID-19, and the global availability and use of vaccines, which are highly uncertain and cannot be predicted. As a result, we may have future write-downs or adjustments to inventories, receivables, long-lived assets, intangibles, goodwill, and the valuation allowance on deferred tax assets.

Severance- During the nine months ended October 30, 2021 and October 31, 2020, we incurred severance costs of $2.6 million and $10.0 million, respectively. These costs are included in operating expenses in the condensed consolidated statements of operations. As of October 30, 2021, January 30, 2021, and October 31, 2020, we had accrued severance of $2.5 million, $6.5 million, and $3.8 million, respectively, included in accrued expenses on the condensed consolidated balance sheets.

Gain on Settlement- During the nine months ended October 31, 2020, we collected $9.0 million, net of legal costs incurred, and recorded a gain to operating expenses in the condensed consolidated statements of operations, which was due to a settlement with a vendor for costs incurred on internal-use software that was capitalized and then impaired in a previous fiscal year.

Principles of Consolidation- The condensed consolidated financial statements include the accounts of Designer Brands Inc. and its subsidiaries, including variable interest entities. All intercompany accounts and transactions have been eliminated in consolidation. All amounts are in U.S. dollars.

Use of Estimates- The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and reported amounts of net sales and expenses during the reporting periods. Certain estimates and assumptions use forecasted financial information based on information reasonably available to us, along with the estimated, but uncertain, future impacts of the COVID-19 pandemic.us. Significant estimates and assumptions are required as a part of accounting for sales returns allowances, customer allowances and discounts, gift card breakage income, deferred revenue associated with loyalty programs, valuation of inventories, depreciation and amortization, impairments of long-lived assets, intangibles and goodwill, lease accounting, income taxes, and self-insurance reserves. Although we believe these estimates and assumptions are reasonable, they are based on management's knowledge of current events and actions we may undertake in the future. Changes in facts and circumstances may result in revised estimates and assumptions, and actual results could differ from these estimates.

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Severance- During the three months ended April 30, 2022 and May 1, 2021, we incurred severance costs of $0.7 million and $1.4 million, respectively. These costs are included in operating expenses in the condensed consolidated statements of operations. As of April 30, 2022, January 29, 2022, and May 1, 2021, we had accrued severance of $1.1 million, $1.9 million, and $5.1 million, respectively, included in accrued expenses on the condensed consolidated balance sheets.

Income Taxes- For the three months ended April 30, 2022 and May 1, 2021, our effective tax rate was 30.0% and negative 89.2%, respectively. The rate for three months ended April 30, 2022 was impacted by permanent tax adjustments, primarily non-deductible compensation. The negative rate for the three months ended May 1, 2021 was the result of maintaining a full valuation allowance on deferred tax assets along with net discrete tax benefits, primarily as a result of adjustments to our estimated 2020 return reflecting implemented tax strategies.

Cash, Cash Equivalents, and Restricted Cash- Cash and cash equivalents represent cash, money market funds, and credit card receivables that generally settle within three days. Restricted cash represents cash that is restricted as to withdrawal or usage and consists of a mandatory cash deposit maintained for certain insurance policies.policies and letters of credit.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:
(in thousands)(in thousands)October 30, 2021January 30, 2021October 31, 2020(in thousands)April 30, 2022January 29, 2022May 1, 2021
Cash and cash equivalentsCash and cash equivalents$83,069 $59,581 $114,531 Cash and cash equivalents$54,802 $72,691 $49,301 
Restricted cash, included in prepaid expenses and other current assetsRestricted cash, included in prepaid expenses and other current assets1,546 — — Restricted cash, included in prepaid expenses and other current assets1,767 1,768 — 
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flowsTotal cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows$84,615 $59,581 $114,531 Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows$56,569 $74,459 $49,301 

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TableIntangible Assets- During the three months ended April 30, 2022, we acquired the rights to the shoes.com tradename for $4.9 million, which was recorded as a definite-lived tradename intangible asset with a useful life of Contents
DESIGNER BRANDS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)15 years.

Fair Value- Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to the subjectivity associated with the inputs to fair value measurements as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Quoted prices for similar assets or liabilities in active markets or inputs that are observable.
Level 3 - Unobservable inputs in which little or no market activity exists.

The carrying value of cash and cash equivalents, restricted cash, receivables, and accounts payables approximated their fair values due to their short-term nature. The carrying value of borrowing under our ABL Revolver approximated the fair value. As of October 30, 2021, the fair value of borrowings under our Term Loan was $244.1 million compared to the carrying valuerevolving lines of $234.4 million. Thecredit approximated fair value of debt borrowings was estimated based on currentits term and variable interest rates offered for similar instruments (categorized as Level 2 under the fair value hierarchy).rate.

Impairment of Long-Lived Assets- Refer to section above, Impact of COVID-19, regarding impairment charges of long-lived assets during fiscal 2020. During the ninethree months ended OctoberApril 30, 2021,2022, we recorded an impairment charge of $1.2$1.1 million in the U.S. RetailBrand Portfolio segment for the sublease of an abandoned equipment we are replacing.leased space.

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2. REVENUE

DISAGGREGATION OF NET SALES
Disaggregation
Net Sales by Brand Categories- The following table presents net sales disaggregated by brand categories for each segment:
(in thousands)U.S. RetailCanada RetailBrand PortfolioEliminationsConsolidated
Three months ended April 30, 2022
Owned Brands:(1)
Direct-to-consumer$139,155 $ $6,527 $ $145,682 
External customer wholesale and commission income  64,956  64,956 
Intersegment wholesale and commission income  25,973 (25,973) 
Total Owned Brands139,155  97,456 (25,973)210,638 
National Brands563,590    563,590 
Canada Retail(2)
 56,315   56,315 
Total Net Sales$702,745 $56,315 $97,456 $(25,973)$830,543 
Three months ended May 1, 2021
Owned Brands:(1)
Direct-to-consumer$83,266 $— $5,453 $— $88,719 
External customer wholesale and commission income— — 36,440 — 36,440 
Intersegment wholesale and commission income— — 15,534 (15,534)— 
Total Owned Brands83,266 — 57,427 (15,534)125,159 
National Brands537,392 — — — 537,392 
Canada Retail(2)
— 40,604 — — 40,604 
Total Net Sales$620,658 $40,604 $57,427 $(15,534)$703,155 

(1)     Owned Brands include those brands we have rights to sell through ownership or license arrangements.
(2)    We currently do not report the Canada Retail segment net sales by brand categories.

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Net Sales-Sales by Product and Service Categories- The following table presents net sales disaggregated by product and service category for each segment:
Three months endedNine months endedThree months ended
(in thousands)(in thousands)October 30, 2021October 31, 2020October 30, 2021October 31, 2020(in thousands)April 30, 2022May 1, 2021
Net sales:Net sales:Net sales:
U.S. Retail segment:U.S. Retail segment:U.S. Retail segment:
Women's footwearWomen's footwear$448,879 $319,241 $1,321,697 $832,343 Women's footwear$469,131 $405,300 
Men's footwearMen's footwear154,523 105,587 454,688 260,954 Men's footwear145,807 131,947 
Kids' footwearKids' footwear69,159 48,570 178,003 109,985 Kids' footwear52,918 54,732 
Accessories and otherAccessories and other37,047 28,503 98,971 69,669 Accessories and other34,889 28,679 
709,608 501,901 2,053,359 1,272,951 702,745 620,658 
Canada Retail segment:Canada Retail segment:Canada Retail segment:
Women's footwearWomen's footwear34,495 28,864 85,156 70,165 Women's footwear30,004 20,431 
Men's footwearMen's footwear17,963 13,604 43,296 34,377 Men's footwear14,428 9,528 
Kids' footwearKids' footwear19,607 16,699 38,674 30,486 Kids' footwear9,817 9,513 
Accessories and otherAccessories and other2,727 2,431 5,855 5,481 Accessories and other2,066 1,132 
74,792 61,598 172,981 140,509 56,315 40,604 
Brand Portfolio segment:Brand Portfolio segment:Brand Portfolio segment:
WholesaleWholesale90,558 73,744 181,916 156,611 Wholesale87,775 48,643 
Commission income5,635 3,885 11,343 14,026 
First Cost commission incomeFirst Cost commission income3,154 3,331 
Direct-to-consumerDirect-to-consumer7,726 6,276 18,616 25,839 Direct-to-consumer6,527 5,453 
103,919 83,905 211,875 196,476 97,456 57,427 
Other— 27,020 — 62,909 
Total segment net salesTotal segment net sales888,319 674,424 2,438,215 1,672,845 Total segment net sales856,516 718,689 
Elimination of intersegment salesElimination of intersegment sales(34,852)(21,554)(64,258)(47,478)Elimination of intersegment sales(25,973)(15,534)
Total net salesTotal net sales$853,467 $652,870 $2,373,957 $1,625,367 Total net sales$830,543 $703,155 

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DESIGNER BRANDS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)DEFERRED REVENUE LIABILITIES

Deferred Revenue Liabilities-We record deferred revenue liabilities, included in accrued expenses on the condensed consolidated balance sheets, for remaining obligations we have to our customers. The following table presents the changes and total balances for gift cards and our loyalty programs:
Three months endedNine months endedThree months ended
(in thousands)(in thousands)October 30, 2021October 31, 2020October 30, 2021October 31, 2020(in thousands)April 30, 2022May 1, 2021
Gift cards:Gift cards:Gift cards:
Beginning of periodBeginning of period$28,691 $29,919 $34,442 $35,461 Beginning of period$36,783 $34,442 
Gift cards redeemed and breakage recognized to net salesGift cards redeemed and breakage recognized to net sales(14,483)(12,615)(50,863)(37,483)Gift cards redeemed and breakage recognized to net sales(18,260)(17,170)
Gift cards issuedGift cards issued12,966 10,995 43,595 30,321 Gift cards issued14,321 13,537 
End of periodEnd of period$27,174 $28,299 $27,174 $28,299 End of period$32,844 $30,809 
Loyalty programs:Loyalty programs:Loyalty programs:
Beginning of periodBeginning of period$15,255 $14,797 $11,379 $16,138 Beginning of period$15,736 $11,379 
Loyalty certificates redeemed and expired and other adjustments recognized to net salesLoyalty certificates redeemed and expired and other adjustments recognized to net sales(9,025)(7,176)(19,929)(18,062)Loyalty certificates redeemed and expired and other adjustments recognized to net sales(7,881)(4,896)
Deferred revenue for loyalty points issuedDeferred revenue for loyalty points issued10,365 6,774 25,145 16,319 Deferred revenue for loyalty points issued8,388 6,472 
End of periodEnd of period$16,595 $14,395 $16,595 $14,395 End of period$16,243 $12,955 

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3. RELATED PARTY TRANSACTIONS

Schottenstein Affiliates

As of October 30, 2021, the Schottenstein Affiliates consist ofWe have transactions with entities owned or controlled by Jay L. Schottenstein, the executive chairman of our Board of Directors, and members of his family.family (the "Schottenstein Affiliates"). As of OctoberApril 30, 2021,2022, the Schottenstein Affiliates beneficially owned approximately 20% of the Company's outstanding common shares, representing approximately 54% of the combined voting power of the Company, consisting of, in the aggregate, 6.66.7 million Class A common shares and 7.7 million Class B common shares. The following summarizes the related party transactions with the Schottenstein Affiliates for the relevant periods:

Leases- We lease our fulfillment center and certain store locations owned by the Schottenstein Affiliates. During the three months ended OctoberApril 30, 20212022 and October 31, 2020,May 1, 2021, we recorded rent expense from leases with Schottenstein Affiliates of $2.7$2.5 million and $2.6 million, respectively. During the nine months ended October 30, 2021 and October 31, 2020, we recorded rent expense from leases with Schottenstein Affiliates of $8.1 million and $7.9$2.7 million, respectively. As of OctoberApril 30, 2021,2022, January 30,29, 2022, and May 1, 2021, and October 31, 2020, we had related party current operating lease liabilities of $7.1$5.7 million, $8.0$6.3 million, and $7.7$6.8 million, respectively, and non-current operating lease liabilities of $19.3$10.6 million, $24.6$18.3 million, and $25.8$22.9 million, respectively.

Other Purchases and Services- During the three months ended OctoberApril 30, 20212022 and October 31, 2020,May 1, 2021, we had other purchases and services we incurred from the Schottenstein Affiliates of $1.2$1.1 million and $1.7 million, respectively. During the nine months ended October 30, 2021 and October 31, 2020, we had other purchases and services we incurred from the Schottenstein Affiliates of $3.7 million and $4.2$1.4 million, respectively.

Due to Related Parties- Amounts due to Schottenstein Affiliates, other than operating lease liabilities, were immaterial for all periods presented.

ABG-Camuto

We have a 40% interest in our equity investment in ABG-Camuto. We have a licensing agreement with ABG-Camuto, pursuant to which we pay royalties on the net sales of the brands ownedmanaged by ABG-Camuto, subject to guaranteed minimums. DuringFor both the three months ended OctoberApril 30, 20212022 and October 31, 2020,May 1, 2021, we recorded royalty expense for amounts paid to ABG-Camuto of $4.4 million and $4.6 million, respectively. During both the nine months ended October 30, 2021 and October 31, 2020, we recorded royalty expense for amounts paid to ABG-Camuto of $13.64.6 million.Amounts due to ABG-Camuto were immaterial for all periods presented.

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DESIGNER BRANDS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

4. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is based on net income (loss) and the weighted average of Class A and Class B common shares outstanding. Diluted earnings per share reflects the potential dilution of common shares adjusted for outstanding stock options and restricted stock units ("RSUs") calculated using the treasury stock method.

The following is a reconciliation between basic and diluted weighted average shares outstanding, as used in the calculation of earnings (loss) per share:
Three months endedNine months endedThree months ended
(in thousands)(in thousands)October 30, 2021October 31, 2020October 30, 2021October 31, 2020(in thousands)April 30, 2022May 1, 2021
Weighted average basic shares outstandingWeighted average basic shares outstanding73,191 72,344 72,911 72,134 Weighted average basic shares outstanding72,923 72,613 
Dilutive effect of stock-based compensation awardsDilutive effect of stock-based compensation awards3,944 — 4,305 — Dilutive effect of stock-based compensation awards4,001 4,363 
Weighted average diluted shares outstandingWeighted average diluted shares outstanding77,135 72,344 77,216 72,134 Weighted average diluted shares outstanding76,924 76,976 

For the three months ended OctoberApril 30, 20212022 and October 31, 2020,May 1, 2021, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings (loss) per share due to their anti-dilutive effect was 3.6 million and 5.4 million, respectively. For the nine months ended October 30, 2021 and October 31, 2020, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings (loss) per share due to their anti-dilutive effect was 3.0 million and 5.93.6 million,, respectively.

5.    STOCK-BASED COMPENSATION

Stock-based compensation expense consisted of the following:
Three months endedNine months ended
(in thousands)October 30, 2021October 31, 2020October 30, 2021October 31, 2020
Stock options$130 $338 $515 $1,208 
Restricted and director stock units5,151 4,242 18,131 13,968 
$5,281 $4,580 $18,646 $15,176 

The following table summarizes the stock-based compensation award activity for RSUs for the nine months ended October 30, 2021:
Number of shares
(in thousands)Time-Based RSUsPerformance-Based RSUs
Outstanding - beginning of period6,445 540 
Granted1,055 595 
Vested(1,141)(366)
Forfeited(348)(25)
Outstanding - end of period6,011 744 

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DESIGNER BRANDS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

5. STOCK-BASED COMPENSATION

Stock-based compensation expense consisted of the following:
Three months ended
(in thousands)April 30, 2022May 1, 2021
Stock options$101 $253 
Restricted and director stock units8,493 7,204 
$8,594 $7,457 

The following table summarizes the stock-based compensation award share activity for RSUs for the three months ended April 30, 2022:
(in thousands)Shares of Time-Based RSUsShares of Performance-Based RSUs
Outstanding - beginning of period6,058 744 
Granted1,344 533 
Vested(575)(174)
Forfeited(74) 
Outstanding - end of period6,753 1,103 

6. SHAREHOLDERS' EQUITY

Shares- Our Class A common shares are listed for trading under the ticker symbol "DBI" on the New York Stock Exchange. There is currently no public market for the Company's Class B common shares, but the Class B common shares can be exchanged for the Company's Class A common shares at the election of the holder on a share for share basis. Holders of Class A common shares are entitled to 1 vote per share and holders of Class B common shares are entitled to 8 votes per share on matters submitted to shareholders for approval.

The following table provides additional information for our common shares:
October 30, 2021January 30, 2021October 31, 2020
(in thousands)(in thousands)Class AClass BClass AClass BClass AClass B(in thousands)April 30, 2022January 29, 2022May 1, 2021
Class AClass BClass AClass BClass AClass B
Authorized sharesAuthorized shares250,000 100,000 250,000 100,000 250,000 100,000 Authorized shares250,000 100,000 250,000 100,000 250,000 100,000 
Issued sharesIssued shares87,780 7,733 86,835 7,733 86,815 7,733 Issued shares88,275 7,733 87,793 7,733 87,303 7,733 
Outstanding sharesOutstanding shares65,611 7,733 64,666 7,733 64,646 7,733 Outstanding shares64,450 7,733 65,624 7,733 65,134 7,733 
Treasury sharesTreasury shares22,169 — 22,169 — 22,169 — Treasury shares23,825  22,169 — 22,169 — 

We have authorized 100 million shares of no par value preferred shares, with no shares issued for any of the periods presented.

Accumulated Other Comprehensive Loss-Dividends- ForOn April 4, 2022, the nine months ended October 31, 2020, changesBoard of Directors declared a quarterly cash dividend payment of $0.05 per share for both Class A and Class B common shares. The dividend was paid on May 6, 2022 to shareholders of record at the balancesclose of each componentbusiness on April 22, 2022. As of accumulated other comprehensive loss, net of tax, were as follows (for all other periods presented,April 30, 2022, the dividend was accrued and recorded against common shares paid in capital on the change was due to foreign currency translation adjustmentscondensed consolidated balance sheets and as shown inon the condensed consolidated statements of shareholders' equity):equity due to the Company being in a retained deficit position, as required under the Ohio General Corporation Law.
(in thousands)Foreign Currency TranslationAvailable-for-Sale SecuritiesTotal
Accumulated other comprehensive income (loss) - beginning of period$(2,668)$173 $(2,495)
Other comprehensive income (loss) before reclassifications(2,090)195 (1,895)
Amounts reclassified to non-operating income, net— (368)(368)
Other comprehensive loss(2,090)(173)(2,263)
Accumulated other comprehensive loss - end of period$(4,758)$— $(4,758)

On May 19, 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. The dividend will be paid on July 6, 2022 to shareholders of record at the close of business on June 22, 2022. The dividend is expected to be recorded against common shares paid in capital due to the Company being in a retained deficit position, as required under the Ohio General Corporation Law.

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Share Repurchases- On August 17, 2017, the Board of Directors authorized the repurchase of an additional $500 million of Class A common shares under our share repurchase program, which was added to the $33.5 million remaining from the previous authorization. During the three months ended April 30, 2022, we repurchased 1.7 million Class A common shares at an aggregate cost of $22.7 million, with $312.2 million of Class A common shares that remain authorized under the program as of April 30, 2022. During the three months ended May 1, 2021, we did not repurchase any Class A common shares. The share repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common shares under the program. Shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions.
7. RECEIVABLES

Receivables, net, consisted of the following:
(in thousands)(in thousands)October 30, 2021January 30, 2021October 31, 2020(in thousands)April 30, 2022January 29, 2022May 1, 2021
Customer accounts receivables:Customer accounts receivables:Customer accounts receivables:
Serviced by third-party provider with guaranteed paymentServiced by third-party provider with guaranteed payment$51,574 $29,615 $43,866 Serviced by third-party provider with guaranteed payment$50,591 $27,827 $38,572 
Serviced by third-party provider without guaranteed paymentServiced by third-party provider without guaranteed payment960 363 2,219 Serviced by third-party provider without guaranteed payment232 82 323 
Serviced in-houseServiced in-house3,113 4,576 5,820 Serviced in-house3,246 2,783 3,558 
Income tax receivableIncome tax receivable166,934 149,824 — Income tax receivable162,788 162,240 158,890 
Other receivablesOther receivables10,043 12,865 11,200 Other receivables6,573 8,026 13,305 
Total receivablesTotal receivables232,624 197,243 63,105 Total receivables223,430 200,958 214,648 
Allowance for doubtful accountsAllowance for doubtful accounts(1,233)(1,194)(1,265)Allowance for doubtful accounts(1,133)(1,132)(1,201)
$231,391 $196,049 $61,840 $222,297 $199,826 $213,447 

8. ACCRUED EXPENSES

Accrued expenses consisted of the following:
(in thousands)April 30, 2022January 29, 2022May 1, 2021
Gift cards$32,844 $36,783 $30,809 
Accrued compensation and related expenses26,693 41,603 29,945 
Accrued taxes32,526 28,327 32,093 
Loyalty programs deferred revenue16,243 15,736 12,955 
Sales returns, customer allowances and discounts23,030 20,671 25,698 
Other76,946 72,692 63,737 
$208,282 $215,812 $195,237 

9. DEBT

Debt consisted of the following:
(in thousands)April 30, 2022January 29, 2022May 1, 2021
2020 ABL Revolver$ $— $104,843 
2022 ABL Revolver306,861 — — 
Term Loan 231,250 240,625 
Total debt306,861 231,250 345,468 
Less unamortized Term Loan debt issuance costs (5,714)(8,081)
Less current maturities of long-term debt — (62,500)
Long-term debt$306,861 $225,536 $274,887 

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DESIGNER BRANDS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

8.    GOODWILL AND INTANGIBLE ASSETS

Goodwill- The following table presents the changes to goodwill by segment:
Nine months ended
October 30, 2021October 31, 2020
(in thousands)GoodwillAccumulated ImpairmentsNetGoodwillAccumulated ImpairmentsNet
Beginning of period by segment:
U.S. Retail$93,655 $— $93,655 $93,655 $— $93,655 
Canada Retail43,086 (43,086)— 41,610 (41,610)— 
Brand Portfolio19,989 (19,989)— 19,989 — 19,989 
156,730 (63,075)93,655 155,254 (41,610)113,644 
Activity by segment:
Canada Retail-
Currency translation adjustment1,377 (1,377)— (264)264 — 
Brand Portfolio-
Impairment charge— — — — (19,989)(19,989)
1,377 (1,377)— (264)(19,725)(19,989)
End of period by segment:
U.S. Retail93,655 — 93,655 93,655 — 93,655 
Canada Retail44,463 (44,463)— 41,346 (41,346)— 
Brand Portfolio19,989 (19,989)— 19,989 (19,989)— 
$158,107 $(64,452)$93,655 $154,990 $(61,335)$93,655 

Intangible Assets- Intangible assets consisted of the following:
(in thousands)CostAccumulated AmortizationNet
October 30, 2021
Definite-lived customer relationships$1,444 $(1,444)$— 
Indefinite-lived trademarks and tradenames16,005 — 16,005 
$17,449 $(1,444)$16,005 
January 30, 2021
Definite-lived customer relationships$2,909 $(2,791)$118 
Indefinite-lived trademarks and tradenames15,517 — 15,517 
$18,426 $(2,791)$15,635 
October 31, 2020
Definite-lived customer relationships$2,851 $(2,626)$225 
Indefinite-lived trademarks and tradenames15,427 — 15,427 
$18,278 $(2,626)$15,652 

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DESIGNER BRANDS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

9.    ACCRUED EXPENSES

Accrued expenses consisted of the following:
(in thousands)October 30, 2021January 30, 2021October 31, 2020
Gift cards$27,174 $34,442 $28,299 
Accrued compensation and related expenses29,874 49,864 28,498 
Accrued taxes43,677 24,206 24,123 
Loyalty programs deferred revenue16,595 11,379 14,395 
Sales returns20,068 17,333 14,439 
Customer allowances and discounts2,540 4,579 4,707 
Other71,089 58,523 56,800 
$211,017 $200,326 $171,261 

10.    DEBT

Debt consisted of the following:
(in thousands)October 30, 2021January 30, 2021October 31, 2020
ABL Revolver$— $100,000 $100,000 
Term Loan234,375 243,750 246,875 
Total debt234,375 343,750 346,875 
Less unamortized Term Loan debt issuance costs(6,453)(8,931)(9,740)
Less current maturities of long-term debt(62,500)(62,500)(62,500)
Long-term debt$165,422 $272,319 $274,635 

2022 ABL Revolver- On August 7, 2020,March 30, 2022, we replaced our previous senior unsecuredsecured asset-based revolving credit agreementfacility ("Credit Facility"2020 ABL Revolver") with theour current senior secured asset-based revolving credit facility ("2022 ABL Revolver,Revolver"), which provides a revolving line of credit of up to $400.0$550.0 million, including a Canadian sub-limit of up to $20.0$55.0 million, a $50.0$75.0 million sub-limit for the issuance of letters of credit, a $40.0$55.0 million sub-limit for swing loan advances for U.S. borrowings, and a $2.0$5.5 million sub-limit for swing loan advances for Canadian borrowings. Our 2022 ABL Revolver matures in August 2025March 2027 and is secured by a first priority lien on substantially all of our personal property assets, including a first priority lien on credit card receivables and inventoryinventory. The 2022 ABL Revolver may be used to provide funds for working capital, capital expenditures, share repurchases, other expenditures, and a second priority lien on personal property assets that constitute first priority collateral forpermitted acquisitions as defined by the Term Loan.credit facility agreement. The amount of credit available is limited to a borrowing base formulated on, among other things, a percentage of the book value of eligible inventory and credit card receivables, as reduced by certain reserves. As of OctoberApril 30, 2021,2022, the 2022 ABL Revolver had a borrowing base of $400.0$550.0 million, with no$306.9 million outstanding borrowings and $5.3$4.9 million in letters of credit issued, resulting in $394.7$238.2 million available for borrowings.

Borrowings and letters of credit issued under the 2022 ABL Revolver accrue interest, at our option, at a rate equal to: (A) a base rate per annum equal to the greatest of (i) the prime rate, (ii) the overnight bank funding rateFed Funds Rate (as defined and subject to a floor of 0%) plus 0.5%, and (iii) the adjusted one-month London Interbank Offered Rate ("LIBOR")Adjusted Term SOFR (as defined) plus 1.0%; or (B) an adjusted LIBORa one-month, three-month or six-month Adjusted Term SOFR per annum (subject to a floor of 0.75%0%), plus, in each instance, an applicable rate to be determined based on average availability, with an interest rate of 3.0%2.4% as of OctoberApril 30, 2021.2022. Commitment fees are based on the unused portion of the 2022 ABL Revolver. Interest expense related to the 2022 ABL Revolver includes interest on borrowings and letters of credit, commitment fees, and the amortization of debt issuance costs.

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DESIGNER BRANDS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Term Loan- On August 7, 2020, we also entered into a $250.0 million Term Loan. The Term Loan requires minimum quarterly principal payments with the remaining outstanding balance due in August 2025. The Term Loan has limited prepayment requirements under certain conditions. The Term Loan is collateralized by a first priority lien on substantially all of our personal and real property (subject to certain exceptions), including investment property and intellectual property, and by a second priority lien on certain other personal property, primarily credit card receivables and inventory, that constitute first priority collateral for the ABL Revolver.

Borrowings under the Term Loan accrue interest, at our option, at a rate equal to: (A) a base rate per annum equal to the greater of (i) 3.25%, (ii) the prime rate, (iii) the overnight bank funding rate plus 0.5%, and (iv) the adjusted one-month LIBOR plus 1.0%, plus, in each instance, 7.5%; or (B) an adjusted LIBOR per annum (subject to a floor of 1.25%), plus 8.5%, with an interest rate of 9.8% (effective interest rate of 11.8% when including the amortization of debt issuance costs) as of October 30, 2021.

Debt Covenants- The 2022 ABL Revolver containsrequires us to maintain a minimum availabilityfixed charge coverage ratio covenant where an event of default shall occur ifnot less than 1:1 when availability is less than the greater of $30.0$41.3 million orand 10.0% of the maximum creditborrowing amount. The Term Loan includes a springing covenant imposing a minimum earnings before interest, taxes, depreciation, and amortization ("EBITDA") covenant, which arises when liquidity is less than $150.0 million. In addition, the2022 ABL Revolver and the Term Loan each containalso contains customary covenants restricting our activities, including limitations on the ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes. There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions. As of October 30, 2021, we are limited in our ability to pay dividends, repurchase stock, and make certain restricted payments above a maximum of $10.0 million over the term of the Term Loan. Both theconditions based on availability. The 2022 ABL Revolver and the Term Loan containcontains customary events of default, including failure to comply with cross-default provisions.certain financial and other covenants. Upon an event of default that is not cured or waived within the cure periods, in addition to other remedies that may be available to the lenders, the obligations may be accelerated, outstanding letters of credit may be required to be cash collateralized, and remedies may be exercised against the collateral. As of OctoberApril 30, 2021,2022, we were in compliance with all financial covenants.

Termination of Term Loan- On February 8, 2022, we settled in full the $231.3 million principal amount outstanding on that date under our senior secured term loan agreement ("Term Loan"). In connection with this settlement, we incurred a $12.7 million loss on extinguishment of debt, composed of a $6.9 million prepayment premium and a $5.7 million write-off of unamortized debt issuance costs.
11.
10. COMMITMENTS AND CONTINGENCIES

Legal Proceedings- We are involved in various legal proceedings that are incidental to the conduct of our business. Although it is not possible to predict with certainty the eventual outcome of any litigation, we believe the amount of any potential liability with respect to current legal proceedings will not be material to the results of operations or financial condition. As additional information becomes available, we will assess any potential liability related to pending litigation and revise the estimates as needed.

Insurance Recoveries- During fiscal 2020, a third-party vendor experienced a shutdown of services to us that impacted our ability to fulfill orders from customers for a limited period of time. This incident was covered under an insurance policy that provides for reimbursement of lost profits and recognized losses as a result of the outage. During the fourth quarter of fiscal 2020, we recognized an insurance recovery receivable of $3.0 million, recorded as an offset to cost of sales, for recognized losses that we believe are probable of being reimbursed through the insurance policy. Reimbursement for lost profits and any additional recoveries in excess of recognized losses are treated as gain contingencies and will be recognized when realized or realizable. We continue to work with the insurance carrier to reach an agreement on the total amount to be recovered.

Guarantee- We provide guarantees for lease obligations that are scheduled to expire in fiscal 2023 for locations that have been leased to third parties. If a third party does not pay the rent or vacates the premise, we may be required to make full rent payments to the landlord. As of OctoberApril 30, 2021,2022, the total future minimum lease payment requirements under these guarantees were approximately approxim$14.6 million.ately $12.9 million.

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DESIGNER BRANDS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12.11. SEGMENT REPORTING
The following provides certain key financial data by segment reconciled to the condensed consolidated financial statements:
(in thousands)(in thousands)U.S. RetailCanada RetailBrand PortfolioOtherCorporate/EliminationsTotal(in thousands)U.S. RetailCanada RetailBrand PortfolioEliminationsConsolidated
Three months ended October 30, 2021
Three months ended April 30, 2022Three months ended April 30, 2022
Net sales:Net sales:Net sales:
External customer salesExternal customer sales$709,608 $74,792 $69,067 $— $— $853,467 External customer sales$702,745 $56,315 $71,483 $ $830,543 
Intersegment salesIntersegment sales— — 34,852 — (34,852)— Intersegment sales  25,973 (25,973) 
Total net salesTotal net sales$709,608 $74,792 $103,919 $— $(34,852)$853,467 Total net sales$702,745 $56,315 $97,456 $(25,973)$830,543 
Gross profitGross profit$258,059 $28,588 $32,329 $— $(5,359)$313,617 Gross profit$233,067 $18,873 $23,842 $(37)$275,745 
Income from equity investmentIncome from equity investment$— $— $2,600 $— $— $2,600 Income from equity investment$ $ $1,945 $ $1,945 
Three months ended October 31, 2020
Three months ended May 1, 2021Three months ended May 1, 2021
Net sales:Net sales:Net sales:
External customer salesExternal customer sales$501,901 $61,598 $62,351 $27,020 $— $652,870 External customer sales$620,658 $40,604 $41,893 $— $703,155 
Intersegment salesIntersegment sales— — 21,554 — (21,554)— Intersegment sales— — 15,534 (15,534)— 
Total net salesTotal net sales$501,901 $61,598 $83,905 $27,020 $(21,554)$652,870 Total net sales$620,658 $40,604 $57,427 $(15,534)$703,155 
Gross profitGross profit$117,679 $18,905 $22,128 $6,272 $672 $165,656 Gross profit$193,113 $10,835 $11,926 $237 $216,111 
Income from equity investmentIncome from equity investment$— $— $1,902 $— $— $1,902 Income from equity investment$— $— $1,708 $— $1,708 
Nine months ended October 30, 2021
Net sales:
External customer sales$2,053,359 $172,981 $147,617 $— $— $2,373,957 
Intersegment sales— — 64,258 — (64,258)— 
Total net sales$2,053,359 $172,981 $211,875 $— $(64,258)$2,373,957 
Gross profit$708,065 $58,191 $52,788 $— $(4,635)$814,409 
Income from equity investment$— $— $6,598 $— $— $6,598 
Nine months ended October 31, 2020
Net sales:
External customer sales$1,272,951 $140,509 $148,998 $62,909 $— $1,625,367 
Intersegment sales— — 47,478 — (47,478)— 
Total net sales$1,272,951 $140,509 $196,476 $62,909 $(47,478)$1,625,367 
Gross profit$124,806 $22,244 $24,592 $962 $3,634 $176,238 
Income from equity investment$— $— $6,325 $— $— $6,325 

1615


Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview and Trends in our BusinessEXECUTIVE OVERVIEW AND TRENDS IN OUR BUSINESS

Operating profit inFor the thirdfirst quarter of fiscal 2021 surpassed pre-COVID-19 levels2022, consolidated net sales increased 18.1% and comparable sales increased 15.3% over the same period last year with an 86% growth wheneach of our three segments contributing to these increases. Net sales during the first quarter of 2022 from our Owned Brands increased 68.3% over the same period last year and Owned Brands representing 25.4% of consolidated net sales as compared to 17.8% for the third quarter of fiscal 2019.same period last year. This growth came despite the lingering effects of the COVID-19 pandemic. The volatile macro environmentmarket conditions, including increased freight costs and supply chain disruptions have required usdisruptions. We continue to be nimble and quickly adaptmake progress on our business model.

As we look ahead toinitiatives centered on our strategic growth, we have organized our efforts around three pillars - Customer, Brand, and Speed:
Customer- More than ever,Speed - as we work towards our customers have a great desire for products and experiences, and we are adding resources to our digital, IT and analytics teams to understand precisely what they want and what can be improved to provide the best possible experience. Undertaking these actions will enable us to better understand our customers, provide improved service, and target new demographics in ways that we have never deployed before. We are also developing new ideas for how we can provide more value to our VIP rewards members, who we believe continue to be the lifeblood of our business and our largest competitive differentiator.
Brand- Controlling our own brand destiny is critical for our growth. As we continue to design some of the best brands in the industry, Vince Camuto, Jessica Simpson, Lucky Brand and JLO Jennifer Lopez, we are combining that with our strong direct-to-consumer distribution through our physical footprint in North America and digital infrastructure. We are also partnering with some of the top brands in the industry to offer one of the largest and most broad assortments. We remain focused on investing in some of the top 50 brands in footwear and will continue to prioritize growing our own brands.
Speed- Moving quickly is of the utmost importance to consumers. We are developing processes to deliver products more quickly. Fulfillment of digital customer orders currently takes five to seven business days and we are working to improve that to two to three calendar days while simultaneously finding efficiencies to contain costs. We are optimizing our current infrastructure and expanding our delivery partnerships. We are also working to improve collaboration through technology and processes across our organization and to gain additional efficiencies in our overall development cycle.long-term strategic plans.

Despite some of the challenges we face, including the ongoingIMPACT OF THE COVID-19 PANDEMIC ON OUR RESULTS OF OPERATIONS

The COVID-19 pandemic continues to impact the global economy and the potential for more severe or contagious variants andhas created supply chain disruptions, inflationary pressures, higher freight and labor costs, and labor shortages. While we have experienced strong performancecontinued improvement in our key assortments, including athleisure, kids, and men's, all powered byperformance during the top 50 brands in footwear, and our women's fashion business has also improved significantly.

Impactfirst quarter of COVID-19

As we continue to closely monitor the COVID-19 pandemic, our top priority remains protecting the health and safety of our customers and associates. As this continues to be an unprecedented period of uncertainty, we have made and may continue to make adjustments to our operational plans, inventory controls, and liquidity management, as well as changes to our expense and capital expenditure plans. While trends have improved during fiscal 2021,2022, we cannot reasonably estimate the extent to which our business will continue to be affected by the COVID-19 pandemic and to what extent the recent improved trends in our business will continue. For instance, we have continued to experience reduced customer traffic and consolidated net sales remain lower when compared to pre-COVID-19 periods. It also remains unclear whether customer behavior may continue to be slow to return to pre-COVID-19 patterns, if at all. We have also experienced supply chain challenges and significantly increased shipping costs, as well as labor shortages and higher labor costs. The ongoing and prolonged nature of the outbreak may lead to further adjustments to our operations. As such, the ultimate impacts of the COVID-19 pandemic on our businesses will depend on future developments, including the availability of labor, global supply chain disruptions, the variants of COVID-19, and the global availability and use of vaccines, which are highly uncertain and cannot be predicted. As a result, we may have future write-downs or adjustments to inventories, receivables, long-lived assets, intangibles, goodwill, and the valuation allowance on deferred tax assets.

Financial Summary and Other Key Metrics for the Third Quarter of Fiscal 2021FINANCIAL SUMMARY AND OTHER KEY METRICS

For
the three months ended April 30, 2022:
Net sales increased to $853.5$830.5 million from $703.2 million for the three months ended October 30, 2021 from $652.9 million for the three months ended October 31, 2020. The 30.7% increase in net sales was primarily driven by a 40.8% increase in comparable sales during the three months ended October 30, 2021, partially offset by store closures, including those serviced in the Other segment. The increase in comparable sales during the three months ended October 30, 2021 was due to the fact that during the three months ended October 31, 2020, the prolonged COVID-19 outbreak resulted in significantly reduced customer traffic and net sales. In addition, the Brand Portfolio segment's net sales were higher in the third quarter of fiscal 2021 as compared to the same period last year due to increased orders as our retailer customers recover, but net sales were still below pre-COVID-19 levels.
17



May 1, 2021.
During the three months ended October 30, 2021, grossGross profit as a percentage of net sales was 36.7%33.2% compared to 25.4%30.7% for the same period last year. The
improvement in gross profitNet income was $26.2 million, or $0.34 per diluted share, which included net after-tax charge of $10.5 million, or $0.14 per diluted share, primarily driven by increased sales comparedrelated to the third quarterloss on extinguishment of fiscal 2020. In the third quarterdebt and write-off of fiscal 2020, the impact of the COVID-19 outbreak resulted in increased shipping costs associated with higher digital penetration and deleveraging distribution and fulfillment and store occupancy expenses on lower sales volume. During the third quarter of fiscal 2021, tight inventory positions resulted in fewer promotions. Accordingly, gross profit as a percentage of net sales for the third quarter of fiscal 2021 was higher than the pre-COVID-19 rate, which was 29.3% for the third quarter of fiscal 2019.

debt issuance costs. Net income for the three months ended October 30,May 1, 2021 was $80.2$17.0 million, or $1.04 earnings$0.22 per diluted share, which included net after-tax benefits of $13.6$7.6 million, or $0.18$0.10 per diluted share, primarily related to the change in the valuation allowance on deferred tax assets. Net loss for the three months ended October 31, 2020 was $40.6 million, or a loss of $0.56 per diluted share, which included net after-tax charges of $22.1 million, or $0.30 per diluted share, primarily related to impairment charges.

Comparable Sales Performance Metric
Metric-
The following table presents the increase (decrease)change in comparable sales for each segment and in total:
Three months endedThree months ended
October 30, 2021October 31, 2020April 30, 2022May 1, 2021
Change in comparable sales:Change in comparable sales:Change in comparable sales:
U.S. Retail segmentU.S. Retail segment43.9 %(31.9)%U.S. Retail segment13.6 %56.3 %
Canada Retail segmentCanada Retail segment15.2 %(18.7)%Canada Retail segment41.4 %10.0 %
Brand Portfolio segment - direct-to-consumer channelBrand Portfolio segment - direct-to-consumer channel50.4 %13.4 %Brand Portfolio segment - direct-to-consumer channel19.7 %6.8 %
Total comparable sales40.8 %(30.4)%
TotalTotal15.3 %52.2 %

We consider the change in comparable sales from the same previous year period, a primary metric commonly used throughout the retail industry, to be an important indicator of the performance of our retail and direct-to-consumer businesses. We include in our comparable sales metric stores in operation for at least 14 months at the beginning of the fiscal year. Stores are added to the comparable base at the beginning of the year and are dropped for comparative purposes in the quarter in which they are closed. Comparable sales include stores temporarily closed as a result of the COVID-19 pandemic as management continues to believe that this metric is meaningful to monitor our performance. Comparable sales also include e-commerce sales. Comparable sales for the Canada Retail segment exclude the impact of foreign currency translation and are calculated by translating current period results at the foreign currency exchange rate used in the comparable period of the prior year. Comparable sales for the Brand Portfolio segment include the direct-to-consumer e-commerce site www.vincecamuto.com. Beginning with the third quarter of fiscal 2020, comparable sales do not include the Other segment due to no longer having activity in the Other segment. The calculation of comparable sales varies across the retail industry and, as a result, the calculations of other retail companies may not be consistent with our calculation.

Number of Stores
16


Number of Stores- As of OctoberApril 30, 20212022 and October 31, 2020,May 1, 2021, we had the following number of stores:
October 30, 2021October 31, 2020April 30, 2022May 1, 2021
U.S. Retail segment - DSW storesU.S. Retail segment - DSW stores515 524 U.S. Retail segment - DSW stores510 516 
Canada Retail segment:Canada Retail segment:Canada Retail segment:
The Shoe Company / Shoe Warehouse stores117 118 
The Shoe Company storesThe Shoe Company stores115 118 
DSW storesDSW stores27 27 DSW stores25 27 
144 145 140 145 
Total number of storesTotal number of stores659 669 Total number of stores650 661 

18


Results of OperationsRESULTS OF OPERATIONS

Comparison of the Three Months Ended October 30,
FIRST QUARTER OF 2022 COMPARED WITH FIRST QUARTER OF 2021 with the Three Months Ended October 31, 2020

Three months ended
October 30, 2021October 31, 2020ChangeThree months ended
(dollars in thousands, except per share amounts)(dollars in thousands, except per share amounts)Amount% of Net SalesAmount% of Net SalesAmount%(dollars in thousands, except per share amounts)April 30, 2022May 1, 2021Change
Amount% of Net SalesAmount% of Net SalesAmount%
Net salesNet sales$853,467 100.0 %$652,870 100.0 %$200,597 30.7 %Net sales$830,543 100.0 %$703,155 100.0 %$127,388 18.1 %
Cost of salesCost of sales(539,850)(63.3)(487,214)(74.6)(52,636)10.8 %Cost of sales(554,798)(66.8)(487,044)(69.3)(67,754)13.9 %
Gross profitGross profit313,617 36.7 165,656 25.4 147,961 89.3 %Gross profit275,745 33.2 216,111 30.7 59,634 27.6 %
Operating expensesOperating expenses(211,909)(24.8)(196,067)(30.1)(15,842)8.1 %Operating expenses(223,426)(26.9)(200,814)(28.5)(22,612)11.3 %
Income from equity investmentIncome from equity investment2,600 0.3 1,902 0.3 698 36.7 %Income from equity investment1,945 0.2 1,708 0.2 237 13.9 %
Impairment chargesImpairment charges— — (30,081)(4.6)30,081 NMImpairment charges(1,072)(0.1)— — (1,072)NM
Operating profit (loss)104,308 12.2 (58,590)(9.0)162,898 NM
Operating profitOperating profit53,192 6.4 17,005 2.4 36,187 212.8%
Interest expense, netInterest expense, net(7,706)(0.9)(9,009)(1.3)1,303 (14.5)%Interest expense, net(2,952)(0.4)(8,814)(1.2)5,862 (66.5)%
Loss on extinguishment of debt and write-off of debt issuance costsLoss on extinguishment of debt and write-off of debt issuance costs(12,862)(1.5)— — (12,862)NM
Non-operating income, netNon-operating income, net172 0.0 24 0.0 148 616.7 %Non-operating income, net6 0.0 806 0.1 (800)(99.3)%
Income (loss) before income taxes96,774 11.3 (67,575)(10.3)164,349 NM
Income before income taxesIncome before income taxes37,384 4.5 8,997 1.3 28,387 315.5%
Income tax benefit (provision)Income tax benefit (provision)(16,590)(1.9)26,932 4.1 (43,522)NMIncome tax benefit (provision)(11,202)(1.3)8,029 1.1 (19,231)NM
Net income (loss)$80,184 9.4 %$(40,643)(6.2)%$120,827 NM
Basic and diluted earnings (loss) per share:
Basic earnings (loss) per share$1.10 $(0.56)$1.66 NM
Diluted earnings (loss) per share$1.04 $(0.56)$1.60 NM
Net incomeNet income$26,182 3.2 %$17,026 2.4 %$9,156 53.8%
Basic and diluted earnings per share:Basic and diluted earnings per share:
Basic earnings per shareBasic earnings per share$0.36 $0.23 $0.13 56.5%
Diluted earnings per shareDiluted earnings per share$0.34 $0.22 $0.12 54.5%
Weighted average shares used in per share calculations:Weighted average shares used in per share calculations:Weighted average shares used in per share calculations:
Basic sharesBasic shares73,191 72,344 847 1.2 %Basic shares72,923 72,613 310 0.4 %
Diluted sharesDiluted shares77,135 72,344 4,791 6.6 %Diluted shares76,924 76,976 (52)(0.1)%
NM - Not meaningful

17


Net Sales- The following summarizes net sales by segment:
Three months endedChange
(dollars in thousands)October 30, 2021October 31, 2020Amount%Comparable Sales %
Segment net sales:
U.S. Retail$709,608 $501,901 $207,707 41.4 %43.9%
Canada Retail74,792 61,598 13,194 21.4 %15.2%
Brand Portfolio103,919 83,905 20,014 23.9 %50.4%
Other— 27,020 (27,020)NMNA
Total segment net sales888,319 674,424 213,895 31.7 %40.8%
Elimination of intersegment net sales(34,852)(21,554)(13,298)61.7 %
Consolidated net sales$853,467 $652,870 $200,597 30.7 %
NA - Not applicable
NM - Not meaningful
Three months ended
(dollars in thousands)April 30, 2022May 1, 2021Change
Amount% of Segment Net SaleAmount% of Segment Net SaleAmount%
Segment net sales:
U.S. Retail$702,745 82.0 %$620,658 86.4 %$82,087 13.2 %
Canada Retail56,315 6.6 %40,604 5.6 %15,711 38.7 %
Brand Portfolio97,456 11.4 %57,427 8.0 %40,029 69.7 %
Total segment net sales856,516 100.0 %718,689 100.0 %137,827 19.2 %
Elimination of intersegment net sales(25,973)(15,534)(10,439)67.2 %
Consolidated net sales$830,543 $703,155 $127,388 18.1 %

The improvement in sales including increases in comparable sales and total consolidated net sales, during the three months ended OctoberApril 30, 20212022 over the same period last year was primarily due to the increase in comparable sales across all segments, primarily driven by the fact that during the three months ended October 31, 2020,May 1, 2021, the prolonged COVID-19 outbreakpandemic resulted in significantly reduced customer traffic. Additionally during the three months ended October 31, 2020, there was an incident at a third-party vendor that experienced a ransomware attack that resulted in a shutdown of some of its U.S. operations, which temporarily impacted fulfillment services to us and led us to temporarily reduce
19


product availability on our U.S. e-commerce sites. The improvements to net sales were partially offset by store closures, including those servicedtraffic in the Other segment.U.S. Retail and Canada Retail segments, with the Canada Retail segment also impacted by continued mandated closures and restrictions in certain key markets. In addition, wholesale sales in the Brand Portfolio segment net sales were higher in the thirdfirst quarter of fiscal 20212022 as compared to the same period last year due to increased orders as our retailer customers recover, but net sales were still below pre-COVID-19 levels.continue to recover.

Gross Profit- The following summarizes gross profit by segment:
Three months ended
October 30, 2021October 31, 2020
(dollars in thousands)Amount% of Segment Net SalesAmount% of Segment Net SalesChange
Segment gross profit:
U.S. Retail$258,059 36.4 %$117,679 23.4 %$140,380 
Canada Retail28,588 38.2 %18,905 30.7 %$9,683 
Brand Portfolio32,329 31.1 %22,128 26.4 %$10,201 
Other— — %6,272 23.2 %$(6,272)
318,976 164,984 
Net recognition (elimination) of intersegment gross profit(5,359)672 
Gross profit$313,617 36.7 %$165,656 25.4 %$147,961 

The improvement in gross profit was primarily driven by increased sales compared to the third quarter of fiscal 2020. In the third quarter of fiscal 2020, the impact of the COVID-19 outbreak resulted in increased shipping costs associated with higher digital penetration and the deleverage of distribution and fulfillment and store occupancy expenses on lower sales volume. During the third quarter of fiscal 2021, tight inventory positions resulted in fewer promotions. Accordingly, gross profit as a percentage of net sales for the third quarter of fiscal 2021 was higher than the pre-COVID-19 rate, which was 29.3% for the third quarter of fiscal 2019.

Elimination of intersegment activity consisted of the following:
Three months ended
(in thousands)October 30, 2021October 31, 2020
Elimination of intersegment activity:
Net sales recognized by Brand Portfolio segment$(34,852)$(21,554)
Cost of sales:
Cost of sales recognized by Brand Portfolio segment22,950 17,155 
Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period6,543 5,071 
Net recognition (elimination) of intersegment gross profit$(5,359)$672 

Operating Expenses- For the three months ended October 30, 2021, operating expenses increased by $15.8 million over the same period last year, primarily driven by an increase in store payroll costs in line with the increase in net sales and higher incentive compensation expense. Operating expenses as a percentage of sales improved to 24.8% compared to 30.1% in the same period last year but were still elevated compared to the pre-COVID-19 rate for the third quarter of fiscal 2019, which was 23.1% as a percentage of sales, primarily due to higher direct marketing and incentive compensation expense.

Impairment Charges- During the three months ended October 31, 2020, we updated our impairment analysis at the store-level and, as a result, we recorded store impairment charges of $30.1 million, primarily related to certain U.S. Retail stores located in urban areas that experienced significantly lower traffic than the rest of the store fleet as a result of the continuing COVID-19 outbreak.

Income Taxes- Our effective tax rate changed from 39.9% for the three months ended October 31, 2020 to 17.1% for the three months ended October 30, 2021. The rate for the three months ended October 30, 2021 is the result of maintaining a full valuation allowance on deferred tax assets. The rate for the three months ended October 31, 2020 is the result of the carry back of losses to a tax year where the U.S. federal statutory tax rate was 35%.
20


Comparison of the Nine Months Ended October 30, 2021 with the Nine Months Ended October 31, 2020

Nine months ended
October 30, 2021October 31, 2020Change
(dollars in thousands, except per share amounts)Amount% of Net SalesAmount% of Net SalesAmount%
Net sales$2,373,957 100.0 %$1,625,367 100.0 %$748,590 46.1 %
Cost of sales(1,559,548)(65.7)(1,449,129)(89.2)(110,419)7.6 %
Gross profit814,409 34.3 176,238 10.8 638,171 362.1 %
Operating expenses(637,108)(26.9)(551,712)(33.9)(85,396)15.5 %
Income from equity investment6,598 0.3 6,325 0.4 273 4.3 %
Impairment charges(1,174)(0.0)(149,363)(9.2)148,189 (99.2)%
Operating profit (loss)182,725 7.7 (518,512)(31.9)701,237 NM
Interest expense, net(24,592)(1.0)(14,955)(0.9)(9,637)64.4 %
Non-operating income, net734 0.0 680 0.0 54 7.9 %
Income (loss) before income taxes158,867 6.7 (532,787)(32.8)691,654 NM
Income tax benefit (provision)(18,797)(0.8)178,072 11.0 (196,869)NM
Net income (loss)$140,070 5.9 %$(354,715)(21.8)%$494,785 NM
Basic and diluted earnings (loss) per share:
Basic earnings (loss) per share$1.92 $(4.92)$6.84 NM
Diluted earnings (loss) per share$1.81 $(4.92)$6.73 NM
Weighted average shares used in per share calculations:
Basic shares72,911 72,134 777 1.1 %
Diluted shares77,216 72,134 5,082 7.0 %
NM - Not meaningful

Net Sales- The following summarizes net sales by segment:
Nine months endedChange
(dollars in thousands)October 30, 2021October 31, 2020Amount%Comparable Sales %
Segment net sales:
U.S. Retail$2,053,359 $1,272,951 $780,408 61.3 %62.6%
Canada Retail172,981 140,509 32,472 23.1 %13.7%
Brand Portfolio211,875 196,476 15,399 7.8 %22.8%
Other— 62,909 (62,909)NMNA
Total segment net sales2,438,215 1,672,845 765,370 45.8 %57.4%
Elimination of intersegment net sales(64,258)(47,478)(16,780)35.3 %
Consolidated net sales$2,373,957 $1,625,367 $748,590 46.1 %
NA - Not applicable
NM - Not meaningful

The increases in comparable sales for all segments and in total consolidated net sales was a result of the temporary closure of stores in fiscal 2020 during our peak spring selling season in response to the COVID-19 pandemic and significantly reduced customer traffic since re-opening. During a portion of fiscal 2021, the Canada Retail segment was impacted by further temporary closures and restrictions in certain key markets. In addition, net sales were impacted by store closures, including those serviced in the Other segment.

21


Gross Profit- The following summarizes gross profit by segment:
Nine months ended
October 30, 2021October 31, 2020Three months ended
(dollars in thousands)(dollars in thousands)Amount% of Segment Net SalesAmount% of Segment Net SalesChange(dollars in thousands)April 30, 2022May 1, 2021Change
Amount% of Segment Net SalesAmount% of Segment Net SalesAmount%Basis Points
Segment gross profit:Segment gross profit:Segment gross profit:
U.S. RetailU.S. Retail$708,065 34.5 %$124,806 9.8 %$583,259 U.S. Retail$233,067 33.2 %$193,113 31.1 %$39,954 20.7 %210 
Canada RetailCanada Retail58,191 33.6 %22,244 15.8 %$35,947 Canada Retail18,873 33.5 %10,835 26.7 %8,038 74.2 %680 
Brand PortfolioBrand Portfolio52,788 24.9 %24,592 12.5 %$28,196 Brand Portfolio23,842 24.5 %11,926 20.8 %11,916 99.9 %370 
Other— — %962 1.5 %$(962)
819,044 172,604 
Total segment gross profitTotal segment gross profit275,782 32.2 %215,874 30.0 %59,908 27.8 %220 
Net recognition (elimination) of intersegment gross profitNet recognition (elimination) of intersegment gross profit(4,635)3,634 Net recognition (elimination) of intersegment gross profit(37)237 (274)
Gross profitGross profit$814,409 34.3 %$176,238 10.8 %$638,171 Gross profit$275,745 33.2 %$216,111 30.7 %$59,634 27.6 %250 

The improvement in gross profit was primarily driven by increased sales during the nine months ended October 30, 2021 compared tofirst quarter of 2022 over the same period last year. In responseyear and being less promotional, partially offset by higher freight costs. Gross profit as a percentage of net sales for the U.S. Retail and Canada Retail segments increased due to the impacts of the COVID-19 pandemicbeing less promotional and improved leverage on our operationsoccupancy costs, partially offset by higher freight costs. The improvement in fiscal 2020, we addressed the temporary closure of stores and the subsequent reduction in customer traffic upon store re-openings with aggressive promotional activity. These actions resulted in higher inventory reserves, increased shipping costs associated with higher digital penetration, and deleveraging distribution and fulfillment and store occupancy expenses on lower sales volume during fiscal 2020. During fiscal 2021, tight inventory positions resulted in fewer promotions. Accordingly, gross profit as a percentage of net sales for the nine months ended October 30, 2021 was higher than the pre-COVID-19 rate, which was 29.8% for the same period in fiscal 2019. The Canada Retail and Brand Portfolio segments have significantly improved gross profit as a percentagesegment was primarily driven by the leverage of netroyalty expenses on higher sales during the nine months ended October 30, 2021 compared to the same period last year, but gross profit as a percentage of net sales remained below pre-COVID-19 levels when compared to the same period in fiscal 2019 due to the deleverage impacts of lower net sales.volume.

EliminationThe net recognition (elimination) of intersegment activitygross profit consisted of the following:
Nine months endedThree months ended
(in thousands)(in thousands)October 30, 2021October 31, 2020(in thousands)April 30, 2022May 1, 2021
Elimination of intersegment activity:
Recognition (elimination) of intersegment activity:Recognition (elimination) of intersegment activity:
Net sales recognized by Brand Portfolio segmentNet sales recognized by Brand Portfolio segment$(64,258)$(47,478)Net sales recognized by Brand Portfolio segment$(25,973)$(15,534)
Cost of sales:Cost of sales:Cost of sales:
Cost of sales recognized by Brand Portfolio segmentCost of sales recognized by Brand Portfolio segment43,592 34,116 Cost of sales recognized by Brand Portfolio segment18,169 10,935 
Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current periodRecognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period16,031 16,996 Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period7,767 4,836 
Net recognition (elimination) of intersegment gross profit$(4,635)$3,634 
$(37)$237 
18



Operating Expenses- For the ninethree months ended OctoberApril 30, 2021,2022, operating expenses increased by $85.4$22.6 million over the same period last year, primarily driven by an increase in store payroll and marketing expenses in line with the implementation of temporary leaves of absence without pay for a significant number of our employees and reducing pay for nearly all employees not placed on temporary leaveincrease in response to the COVID-19 pandemic for most of the first half of fiscal 2020. net sales. Operating expenses asas a percentage of sales improved to 26.9% compared to 33.9%28.5% in the same period last year but were still elevated compareddue to the pre-COVID-19 rate, which was 24.6%improvement in net sales year over year as a percentage of sales for the same period in fiscal 2019, primarily due to higher direct marketing expense and incentive compensation on lower sales.we leveraged our fixed costs.

22


Impairment Charges-Loss on extinguishment of debt and write-off of deferred debt issuance costs- DuringIn connection with the ninesettlement of our Term Loan on February 8, 2022, during the three months ended OctoberApril 30, 2021,2022 we recorded an impairment chargeincurred a $12.7 million loss on extinguishment of $1.2debt, composed of a $6.9 million for abandoned equipment we are replacing.prepayment premium and a $5.7 million write-off of unamortized debt issuance costs. As a result of the material reduction in net sales and cash flows due toreplacement of the temporary closure of all of our stores2020 ABL Revolver during the ninethree months ended October 31, 2020,April 30, 2022, we performed an impairment analysis at the store level. In addition, we evaluated other long-lived assets based on our intent to use such assets going forward. During the nine months ended October 31, 2020, we recorded impairment chargesalso wrote-off $0.2 million of $122.9 million for under-performing stores. Also during the nine months ended October 31, 2020, we recorded an impairment charge of $6.5 million for the Brand Portfolio segment customer relationship intangible resulting in a full impairment due to the lack of projected cash flows over the remaining useful life. Further, as a result of the material reduction in net sales and cash flows and the decrease in the Company's market capitalization due to the impact of the COVID-19 pandemic on macroeconomic conditions, we performed an impairment analysis for goodwill and other indefinite-lived intangible assets. Our analysis concluded that the fair value of the First Cost reporting unit within the Brand Portfolio segment did not exceed its carrying value. Accordingly, during the nine months ended October 31, 2020, we recorded an impairment charge of $20.0 million for the First Cost reporting unit in the Brand Portfolio segment, resulting in a full impairment.debt issuance costs.

Income Taxes-Our For the three months ended April 30, 2022 and May 1, 2021, our effective tax rate changed from 33.4% for the nine months ended October 31, 2020 to 11.8% for the nine months ended October 30, 2021.was 30.0% and negative 89.2%, respectively. The rate for the ninethree months ended OctoberApril 30, 2022 was impacted by permanent tax adjustments, primarily non-deductible compensation. The negative rate for the three months ended May 1, 2021 iswas the result of maintaining a full valuation allowance on deferred tax assets while also recordingalong with net discrete tax benefits, primarily as a result of adjustments to our estimated fiscal 2020 return reflecting implemented tax strategies. The rate for the nine months ended October 31, 2020 is the result of the carry back of losses to a tax year where the U.S. federal statutory tax rate was 35%.

Seasonality
SEASONALITY

Our business is generally subject tobusiness consists of two principal selling seasons; the spring season, which includes the first and second fiscal quarters, and the fall season, which includes the third and fourth fiscal quarters. Generally, net sales in the fall season have been slightly higher than the spring season. Our seasonal trends driven byresults of operations may fluctuate based on the change in weather conditions and our customers' interest in new seasonal styles. New spring styles are primarily introduced in the first quarter and new fall styles are primarily introduced in the third quarter. SinceDue to the COVID-19 outbreak,pandemic, we havedid not experiencedexperience the typical seasonal trends during 2021 given the changes in customer behavior.

Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES

OverviewOVERVIEW

Our primary ongoing operating cash flow requirements are for inventory purchases, payments on lease obligations and licensing royalty commitments, other working capital needs, and capital expenditures, and debt service.expenditures. Our working capital and inventory levels fluctuate seasonally.

During the three months ended April 30, 2022, we repurchased 1.7 million Class A common shares at an aggregate cost of $22.7 million, with $312.2 million of Class A common shares that remain authorized under the program as of April 30, 2022. During the three months ended May 1, 2021, we did not repurchase any Class A common shares.

We are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business and withstand unanticipated business volatility, including theany ongoing impacts of the COVID-19 pandemic. We believe that cash generated from our operations, together with our current levels of cash, as well as the use of our 2022 ABL Revolver, are sufficient to maintain our ongoing operations, support seasonal working capital requirements, fund capital expenditures, and meetrepurchase common shares under our debt service obligationsshare repurchase program over the next 12 months and beyond.

Operating Cash FlowsThe following table presents the key categories of our condensed consolidated statements of cash flows:
Three months ended
(in thousands)April 30, 2022May 1, 2021Change
Net cash used in operating activities$(40,672)$(1,356)$(39,316)
Net cash used in investing activities(17,101)(5,641)(11,460)
Net cash provided by (used in) financing activities39,768 (3,589)43,357 
Effect of exchange rate changes on cash balances115 306 (191)
Net decrease in cash, cash equivalents, and restricted cash$(17,890)$(10,280)$(7,610)

For the nine months ended October 30, 2021, net cash provided by operations was $164.3 million compared to
19


OPERATING CASH FLOWS

The increase in net cash used in operations of $106.3 million for the nine months ended October 31, 2020. The change was driven by the net income recognized in the nine months ended October 30, 2021 versus a net loss incurred during that same period last year as a result of the impacts of the COVID-19 pandemic, after adjusting for non-cash activity including impairment charges and the changes in deferred income taxes. This was partially offset by higher spend on working capital as our business recoverscontinues to recover from the impacts of the COVID-19 pandemic with increases in consolidated inventories, increases in receivables on wholesale sales, and timing of payments to vendors. This was partially offset by the increase in net income recognized in the three months ended April 30, 2022 over the same period last year, after adjusting for non-cash activity including the loss from extinguishment of debt and write-off of debt issuance costs and the measures we implemented last fiscal year to manage our working capital to preserve liquidity, including delaying vendor and landlord payments while we renegotiate terms, reducing inventory orders, and significantly cutting costs.changes in deferred income taxes.

Investing Cash FlowsINVESTING CASH FLOWS

For the ninethree months ended OctoberApril 30, 2021, our2022, net cash used in investing activities was $22.1 million, which wasprimarily due to capital expenditures relating to infrastructure and ITinformation technology ("IT") projects and store improvements. During the ninethree months ended October 31, 2020, our net cash provided by investing activities was $6.8 million, which was due toMay 1, 2021, the liquidation of our available-for-sale securities and the proceeds from a settlement from a vendor partially offset by capital expenditures of $26.9 million.

23


Financing Cash Flows

For the nine months ended October 30, 2021, our net cash used in financinginvesting activities was $117.9 million compareddue to capital expenditures relating to IT projects and store improvements.

FINANCING CASH FLOWS

For the three months ended April 30, 2022, net cash provided by financing activities was due to net receipts of $127.2$306.9 million forfrom our revolving lines of credit offset by the ninepayments of $238.2 million due to the settlement of the Term Loan and the repurchase of 1.7 million Class A common shares at an aggregate cost of $22.7 million. During the three months ended October 31, 2020. During the nine months ended October 30,May 1, 2021, we madehad net paymentsborrowings of $100.0$4.8 million on the ABL Revolver andfrom our revolving lines of credit with payments of $9.4 million on the Term Loan. During the nine months ended October 31, 2020, we had net proceeds from borrowings from our ABL Revolver and Term Loan of $346.9 million offset by the settlement of borrowings under the Credit Facility of $190.0 million and the payment of debt issuance costs of $21.1 million associated with the changes we made to our debt structure. $3.1 million.

DebtDEBT

2022 ABL Revolver- On August 7, 2020,March 30, 2022, we replaced the Credit Facilityour 2020 ABL Revolver with theour current 2022 ABL Revolver, which provides a revolving line of credit of up to $400.0$550.0 million, including a Canadian sub-limit of up to $20.0$55.0 million, a $50.0$75.0 million sub-limit for the issuance of letters of credit, a $40.0$55.0 million sub-limit for swing loan advances for U.S. borrowings, and a $2.0$5.5 million sub-limit for swing loan advances for Canadian borrowings. Our 2022 ABL Revolver matures in August 2025March 2027 and is secured by a first priority lien on substantially all of our personal property assets, including a first priority lien on credit card receivables and inventoryinventory. The 2022 ABL Revolver may be used to provide funds for working capital, capital expenditures, share repurchases, other expenditures, and a second priority lien on personal property assets that constitute first priority collateral forpermitted acquisitions as defined by the Term Loan.credit facility agreement. The amount of credit available is limited to a borrowing base formulated on, among other things, a percentage of the book value of eligible inventory and credit card receivables, as reduced by certain reserves.reserves. As of OctoberApril 30, 2021,2022, the 2022 ABL Revolver had a borrowing base of $400.0$550.0 million, with no$306.9 million outstanding borrowings and $5.3$4.9 million in letters of credit issued, resulting in $394.7$238.2 million available for borrowings.

Borrowings and letters of credit issued under the ABL Revolver accrue interest, at our option, at a rate equal to: (A) a base rate per annum equal to the greatest of (i) the prime rate, (ii) the overnight bank funding rate plus 0.5%, and (iii) the adjusted one-month LIBOR (as defined) plus 1.0%; or (B) an adjusted LIBOR per annum (subject to a floor of 0.75%), plus, in each instance, an applicable rate to be determined based on average availability, with an interest rate of 3.0% as of October 30, 2021. Commitment fees are based on the unused portion of the ABL Revolver. Interest expense related to the ABL Revolver includes interest on borrowings and letters of credit, commitment fees, and the amortization of debt issuance costs.

Term Loan- On August 7, 2020, we also entered into a $250.0 million Term Loan. The Term Loan requires minimum quarterly principal payments with the remaining outstanding balance due in August 2025. The Term Loan has limited prepayment requirements under certain conditions. The Term Loan is collateralized by a first priority lien on substantially all of our personal and real property (subject to certain exceptions), including investment property and intellectual property, and by a second priority lien on certain other personal property, primarily credit card receivables and inventory, that constitute first priority collateral for the ABL Revolver.

Borrowings under the Term Loan accrue interest, at our option, at a rate equal to: (A) a base rate per annum equal to the greater of (i) 3.25%, (ii) the prime rate, (iii) the overnight bank funding rate plus 0.5%, and (iv) the adjusted one-month LIBOR plus 1.0%, plus, in each instance, 7.5%; or (B) an adjusted LIBOR per annum (subject to a floor of 1.25%), plus 8.5%, with an interest rate of 9.8% (effective interest rate of 11.8% when including the amortization of debt issuance costs) as of October 30, 2021.

Debt Covenants- The 2022 ABL Revolver containsrequires us to maintain a minimum availabilityfixed charge coverage ratio covenant where an event of default shall occur ifnot less than 1:1 when availability is less than the greater of $30.0$41.3 million orand 10.0% of the maximum creditborrowing amount. The Term Loan includes a springing covenant imposing a minimum EBITDA covenant, which arises when liquidity is less than $150.0 million. In addition, the2022 ABL Revolver and the Term Loan each containalso contains customary covenants restricting our activities, including limitations on the ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes. There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions.conditions based on availability. As of OctoberApril 30, 2021, we are limited in our ability to pay dividends, repurchase stock, and make certain restricted payments above a maximum of $10.0 million over the term of the Term Loan. Both the ABL Revolver and the Term Loan contain customary covenants of default with cross-default provisions. Upon an event of default that is not cured or waived within the cure periods, in addition to other remedies that may be available to the lenders, the obligations may be accelerated, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral. As of October 30, 2021,2022, we were in compliance with all financial covenants.

24Termination of Term Loan - On February 8, 2022, we settled in full the $231.3 million principal amount outstanding on that date under our Term Loan. In connection with this settlement, we incurred a $12.7 million loss on extinguishment of debt, composed of a $6.9 million prepayment premium and a $5.7 million write-off of unamortized debt issuance costs.


Refer to Note 9, Debt, of the Condensed Consolidated Financial Statements of this Form 10-Q for further information about our debt arrangements.
Capital Expenditure Plans
CAPITAL EXPENDITURE PLANS

We expect to spend approximately $35.0$70.0 million to $45.0$80.0 million for capital expenditures in fiscal 2021,2022, of which we invested $22.112.2 million during the ninethree months ended OctoberApril 30, 2021.2022. Our capital expenditures for the remainder of the yearfuture investments will depend primarily on the number of store projects, as well asstores we open and remodel, infrastructure and IT projects that we undertake, and the timing of these expenditures.

Critical Accounting Policies and Estimates
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RECENT ACCOUNTING PRONOUNCEMENTS

There are no recent accounting pronouncements that are expected to have a material impact to our consolidated financial statements when adopted.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of commitments and contingencies at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting period. We base these estimates and judgments on factors we believe to be relevant, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The process of determining significant estimates is fact-specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial and valuation techniques. We constantly re-evaluate these significant factors and make adjustments where facts and circumstances dictate. While we believe that the factors considered provide a meaningful basis for the accounting policies applied in the preparation of the condensed consolidated financial statements, we cannot guarantee that our estimates and assumptions will be accurate. As the determination of these estimates requires the exercise of judgment, actual results may differ from those estimates, and such differences may be material to our condensed consolidated financial statements. There have been no material changes to the application of critical accounting policies and estimates disclosed in our 20202021 Form 10-K.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have market risk exposure related to interest rates and foreign currency exchange rates. There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our 20202021 Form 10-K.

Item 4.     Controls and Procedures
ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and ProceduresEVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this Form 10-Q, that such disclosure controls and procedures were effective.

Changes in Internal Control Over Financial ReportingCHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No change was made in our internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d -15(e), during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II.    OTHER INFORMATIONII

Item 1.    Legal Proceedings
ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 11,10, Commitments and Contingencies - Legal Proceedings, of the Condensed Consolidated Financial Statements in this Form 10-Q is incorporated herein by reference.

Item 1A.     Risk Factors
ITEM 1A. RISK FACTORS

As of the date of this filing, there have been no material changes to the risk factors as set forth in Part I, Item 1A., Risk Factors, in our 20202021 Form 10-K, except as described below:10-K.

Vaccine mandates and other governmental regulations relating to the ongoing COVID-19 pandemic could have a material adverse impact on our business, operations, and results of operations.
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On September 9, 2021, President Biden announced a proposed rule requiring that all employers with at least 100 employees require that their employees be fully vaccinated or tested weekly (the “vaccine mandate”). The U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) issued an emergency temporary standard regulation to carry out this mandate. On November 6, 2021, the Unites States Court of Appeals for the Fifth Circuit granted a stay of the emergency temporary standard, and on November 12, 2021 the Court upheld its stay and barred OSHA from enforcing the mandate pending adequate judicial review of a motion for permanent injunction. As a result, OSHA has suspended activities related to the implementation and enforcement of the regulation pending future developments. At this time, it remains unclear whether the vaccine mandate will go into effect, and if it does, whether it will apply to all employees or only to employees who work in the office, as well as how compliance will be documented.

It is anticipated that, should the vaccine mandate go into effect, we would be subject to the OSHA regulation concerning the vaccine mandate. As a result, we may be required to implement a requirement that all of our associates or certain of our associates get vaccinated or regularly tested for COVID-19. At this time, it is not possible to predict the impact that a vaccine mandate and any other related measures, or a vaccine requirement should we adopt one, will have on us. Any vaccine requirement put in place may result in employee attrition and impact our ability to recruit new talent, all of which could have a material adverse effect on our business, operations, and results of operations.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

SHARE REPURCHASE PROGRAM

On August 17, 2017, the Board of Directors authorized the repurchase of an additional $500 million of Class A common shares under our share repurchase program, which was added to the $33.5 million remaining from the previous authorization. The
share repurchase program is subject to the ABL Revolver's and Term Loan's restrictions and may be suspended, modified or discontinued at any time, and we have no obligation to repurchase
any amount of our common shares under the program. Any share repurchasesShares will be completedrepurchased in the open market at times and in amounts
considered appropriate based on price and market conditions.

The following table sets forth the Class A common shares repurchased during the three months ended April 30, 2022:
(in thousands, except per share amounts)
(a) Total Number of Shares Purchased(1)
(b) Average Price Paid Per Share(2)
(c) Total Number of Shares Purchased as Part of Publicly Announced Programs(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
January 30, 2022 to February 26, 2022$ $334,935 
February 27, 2022 to April 2, 20221,275$13.71 1,004$321,137 
April 3, 2022 to April 30, 2022652$13.65 652$312,229 
Total1,927$13.69 1,656

(1)     The total number of shares repurchased includes the shares repurchased as part of publicly announced programs and 271,236 shares withheld in connection with tax payments due upon vesting of employee restricted stock awards.
(2)    The average price paid per share includes broker commissions paid.

DIVIDENDS

The payment of any future dividends is at the discretion of our Board of Directors and is based on our future earnings, cash flow, financial condition, capital requirements, changes in taxation laws, general economic condition and any other relevant factors. It is anticipated that dividends will be declared on a quarterly basis.

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. The dividend was paid on May 6, 2022 to shareholders of record at the close of business on April 22, 2022. The dividend was recorded against common shares paid in capital on the condensed consolidated balance sheets and as shown on the condensed consolidated statements of shareholders' equity due to the Company being in a retained deficit position, as required under the Ohio General Corporation Law.

On May 19, 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. The dividend will be paid on July 6, 2022 to shareholders of record at the close of business on June 22, 2022. The dividend is expected to be recorded against common shares paid in capital due to the Company being in a retained deficit position, as required under the Ohio General Corporation Law.

RESTRICTIONS

The 2022 ABL Revolver and the Term Loan each containcontains customary covenants restricting our activities, including limitations on the ability to pay dividends or repurchase stock. As of October 30, 2021, weThere are limitedspecific exceptions to these covenants including, in our ability to pay dividends, repurchase stock, and make certain restricted payments above a maximum of $10.0 million over the term of the Term Loan. We currently do not anticipate paying dividends or repurchasing additional shares under our share repurchase program during fiscal 2021.some cases, upon satisfying specified payment conditions based on availability.

Item 3.    Defaults Upon Senior Securities
ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.    Mine Safety Disclosures
ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

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Item 5.    Other Information
ITEM 5. OTHER INFORMATION

None.

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Item 6.    Exhibits
Exhibit No.Description
31.1*
31.2*
32.1**
32.2**
101*The following materials from the Designer Brands Inc. Quarterly Report on Form 10-Q for the quarter ended October 30, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss); (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Shareholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements.
104*Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.ITEM 6. EXHIBITS

Incorporated by Reference
Exhibit NumberExhibit DescriptionFormFile No.Date of FilingExhibit Number
    
8-K001-325454/5/202210.1
Rule 13a-14(a)/15d-14(a) Certification - Principal Executive Officer.----
Rule 13a-14(a)/15d-14(a) Certification - Principal Financial Officer.----
Section 1350 Certification - Principal Executive Officer.----
Section 1350 Certification - Principal Financial Officer.----
101*The following materials from the Designer Brands Inc. Quarterly Report on Form 10-Q for the quarter ended April 30, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss); (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Shareholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements.----
104*Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.----

*    Filed herewith
**    Furnished herewith     

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DESIGNER BRANDS INC.

Date:December 7, 2021June 2, 2022By: /s/ Jared Poff
Jared Poff
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and duly authorized officer)

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