What changed in this filing

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Item 1. Financial Statements

2021-05-28 compared with 2020-12-09 · 140 added, 278 removed, 377 unchanged (53% of the section changed)

3 unchanged sentences

(unaudited and in thousands, except per share amounts)

Three months ended Nine months ended

October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Three months ended

May 1, 2021 May 2, 2020

Net sales $ 703,155 $ 482,783

Cost of sales ( 487,044 ) ( 509,243 )

Gross profit (loss) 216,111 ( 26,460 )

Operating expenses ( 200,814 ) ( 187,221 )

5 unchanged sentences

Income (loss) before income taxes 8,997 ( 326,203 )

Income tax benefit (provision) 26,932 ( 10,489 ) 178,072 ( 33,220 )

Income tax benefit 8,029 110,345

Net income (loss) $ 17,026 $ ( 215,858 )

9 unchanged sentences

(unaudited and in thousands)

Three months ended Nine months ended

October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Three months ended

May 1, 2021 May 2, 2020

Net income (loss) $ 17,026 $ ( 215,858 )

2 unchanged sentences

Unrealized net gain on debt securities — 195

Reclassification adjustment for net gains realized in net income (loss) — ( 24 ) ( 368 ) ( 89 )

Reclassification adjustment for net gains realized in net loss — ( 368 )

Total other comprehensive income (loss), net of income taxes 543 ( 3,714 )

4 unchanged sentences

(unaudited and in thousands)

October 31, 2020 February 1, 2020 November 2, 2019

May 1, 2021 January 30, 2021 May 2, 2020

Cash and cash equivalents

$ 49,301 $ 59,581 $ 250,874

— 24,974 25,939

Accounts receivable, net

Receivables, net

213,447 196,049 81,953

12 unchanged sentences

Deferred tax assets

208,976 31,863 39,452

Equity investment

40 unchanged sentences

Class A common shares Class B common shares Treasury shares Common shares paid in capital Treasury shares Retained earnings (deficit) Accumulated other comprehensive loss Total

Three months ended October 31, 2020

Balance, August 1, 2020 64,578 7,733 22,169 $ 980,749 $ ( 515,065 ) $ ( 54,138 ) $ ( 4,919 ) $ 406,627

— — — — — ( 40,643 ) — ( 40,643 )

Stock-based compensation activity 68 — — 4,376 — — — 4,376

Other comprehensive income — — — — — — 161 161

Balance, October 31, 2020 64,646 7,733 22,169 $ 985,125 $ ( 515,065 ) $ ( 94,781 ) $ ( 4,758 ) $ 370,521

Three months ended November 2, 2019

Balance, August 3, 2019 64,911 7,733 21,169 $ 963,312 $ ( 498,436 ) $ 266,957 $ ( 2,586 ) $ 729,247

Three months ended May 1, 2021

Balance, January 30, 2021 64,666 7,733 22,169 $ 990,153 $ ( 515,065 ) $ ( 228,785 ) $ ( 3,286 ) $ 243,017

Net income — — — — — 17,026 — 17,026

Stock-based compensation activity 468 — — 2,226 — — — 2,226

Repurchase of Class A common shares ( 1,000 ) — 1,000 — ( 16,629 ) — — ( 16,629 )

Dividends ($ 0.25 per share)

— — — — — ( 17,927 ) — ( 17,927 )

Other comprehensive income — — — — — — 543 543

Balance, November 2, 2019 64,016 7,733 22,169 $ 968,093 $ ( 515,065 ) $ 292,490 $ ( 2,337 ) $ 743,181

Nine months ended October 31, 2020

Balance, May 1, 2021 65,134 7,733 22,169 $ 992,379 $ ( 515,065 ) $ ( 211,759 ) $ ( 2,743 ) $ 262,812

Three months ended May 2, 2020

Balance, February 1, 2020 64,033 7,733 22,169 $ 971,380 $ ( 515,065 ) $ 267,094 $ ( 2,495 ) $ 720,914

— — — — — ( 354,715 ) — ( 354,715 )

Net loss — — — — — ( 215,858 ) — ( 215,858 )

Stock-based compensation activity 269 — — 3,924 — — — 3,924

2 unchanged sentences

Other comprehensive loss — — — — — — ( 3,714 ) ( 3,714 )

Balance, October 31, 2020 64,646 7,733 22,169 $ 985,125 $ ( 515,065 ) $ ( 94,781 ) $ ( 4,758 ) $ 370,521

Nine months ended November 2, 2019

Balance, February 2, 2019 70,672 7,733 15,091 $ 953,801 $ ( 373,436 ) $ 254,718 $ ( 2,706 ) $ 832,377

Cumulative effect of accounting change — — — — — ( 9,556 ) — ( 9,556 )

Net income — — — — — 102,061 — 102,061

Stock-based compensation activity 422 — — 14,292 — — — 14,292

Repurchase of Class A common shares ( 7,078 ) — 7,078 — ( 141,629 ) — — ( 141,629 )

Dividends ($ 0.75 per share)

— — — — — ( 54,733 ) — ( 54,733 )

Other comprehensive income — — — — — — 369 369

Balance, November 2, 2019 64,016 7,733 22,169 $ 968,093 $ ( 515,065 ) $ 292,490 $ ( 2,337 ) $ 743,181

Balance, May 2, 2020 64,302 7,733 22,169 $ 975,304 $ ( 515,065 ) $ 44,076 $ ( 6,209 ) $ 498,106

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

2 unchanged sentences

(unaudited and in thousands)

Nine months ended

October 31, 2020 November 2, 2019

Three months ended

May 1, 2021 May 2, 2020

Cash flows from operating activities:

Net income (loss) $ 17,026 $ ( 215,858 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization 20,575 23,133

4 unchanged sentences

Impairment charges — 112,547

Gain on settlement ( 8,990 ) —

Other ( 341 ) 340

Change in operating assets and liabilities, net of acquired amounts:

Change in operating assets and liabilities:

Accounts receivable ( 8,160 ) 6,999

Income tax receivable ( 9,066 ) —

Inventories ( 65,215 ) 96,588

3 unchanged sentences

Operating lease assets and liabilities, net ( 46,044 ) 30,359

Net cash provided by (used in) operating activities ( 106,333 ) 118,073

Net cash used in operating activities ( 1,356 ) ( 39,469 )

Cash flows from investing activities:

Cash paid for property and equipment ( 5,641 ) ( 14,625 )

Purchases of available-for-sale investments — ( 19,889 )

Sales of available-for-sale investments — 24,612

Proceeds from settlement 8,990 4,965

Net cash provided by (used in) investing activities ( 5,641 ) 9,987

4 unchanged sentences

Payments on borrowings under ABL Revolver ( 245,670 ) —

Proceeds from issuance of Term Loan 250,000 —

Payments on borrowings under Term Loan ( 3,125 ) —

Payments of debt issuance costs ( 21,063 ) —

Cash paid for treasury shares — ( 141,629 )

Dividends paid — ( 7,160 )

2 unchanged sentences

Effect of exchange rate changes on cash balances 306 ( 108 )

Net increase (decrease) in cash, cash equivalents, and restricted cash 27,967 ( 12,730 )

Cash, cash equivalents, and restricted cash, beginning of period 86,564 100,568

Net increase (decrease) in cash and cash equivalents ( 10,280 ) 164,310

Cash and cash equivalents, beginning of period 59,581 86,564

Cash and cash equivalents, end of period $ 49,301 $ 250,874

Supplemental disclosures of cash flow information:

Cash paid (received) for income taxes $ ( 12,979 ) $ 31,523

Cash received for income taxes $ 3,926 $ 31

Cash paid for interest on debt $ 7,042 $ 2,105

3 unchanged sentences

Operating lease liabilities arising from lease asset additions $ 7,588 $ 9,408

Increase to operating lease assets and lease liabilities for modifications $ 18,660 $ 60,736

Net increase (decrease) to operating lease assets and lease liabilities for modifications $ 16,760 $ ( 15,849 )

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

4 unchanged sentences

Business Operations- Designer Brands Inc.

is a leading North American footwear and accessories designer, producer and retailer.

We operate a portfolio of retail concepts in the U.S.

and Canada under the DSW Designer Shoe Warehouse ("DSW"), The Shoe Company and Shoe Warehouse banners.

Through Camuto LLC, a wholly-owned subsidiary doing business as "Camuto Group," we design and produce footwear and accessories.

We also own licensing rights for the Jessica Simpson footwear business and footwear and handbag licenses for Lucky Brand and Max Studio.

In partnership with Authentic Brands Group LLC, a global brand management and marketing company, we have a 40 % stake in ABG-Camuto, LLC ("ABG-Camuto"), a joint venture that acquired several intellectual property rights, including Vince Camuto, Louise et Cie, and others, and focuses on licensing and developing new category extensions to support the global growth of these brands.

We have a licensing agreement with ABG-Camuto whereby we pay royalties on our net sales from the brands owned by ABG-Camuto, subject to guaranteed minimums.

We present three reportable segments:

is one of North America's largest designers, producers and retailers of footwear and accessories.

We operate in three reportable segments:

Retail segment, the Canada Retail segment, and the Brand Portfolio segment.

Retail segment includes stores operated in the U.S.

under the DSW banner and its related e-commerce site.

The Canada Retail segment includes stores operated in Canada under The Shoe Company, Shoe Warehouse, and DSW banners and related e-commerce sites.

The Brand Portfolio segment includes the sale of wholesale products to retailers, commissions for serving retailers as the design and buying agent for products under private labels ("First Cost"), and the sale of branded products on a direct-to-consumer e-commerce site.

Other operating segments are below the quantitative and qualitative thresholds for reportable segments and are aggregated into Other for segment reporting purposes.

Retail segment operates the DSW Designer Shoe Warehouse ("DSW") banner through its U.S.

stores and e-commerce site.

The Canada Retail segment operates The Shoe Company, Shoe Warehouse, and DSW banners through its 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 owns several intellectual property rights, including Vince Camuto, 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 owned by ABG-Camuto, subject to guaranteed minimums.

Camuto Group also owns footwear and in some cases handbags, licensing rights of Jessica Simpson, Lucky Brand, and through a joint venture, 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.

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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 February 1, 2020 has been derived from the audited financial statements at that date.

The balance sheet at January 30, 2021 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 2020 Form 10-K.

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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 reductions to our expense and capital expenditure plans.

Following the earlier easing of stay-at-home orders and other state-imposed restrictions on non-essential businesses 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.

In July 2020, we initiated an internal reorganization and reduction of our workforce, resulting in the elimination of approximately 1,000 associate positions, including over 200 vacant positions that will not be filled.

The charges recorded as a result of this reorganization are included in our integration and restructuring costs discussed below.

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 restructuring costs discussed below.

DESIGNER BRANDS INC.

1 unchanged sentence

( unaudited )

Although all of our stores were open at the end of the third quarter of fiscal 2020, we experienced during the quarter, and have continued to experience, significantly reduced customer traffic and net sales.

Our retail customers in the Brand Portfolio Segment are having similar experiences.

Given the continuation of overall depressed consumer sentiment, customer behavior has been and may continue to be slow to return to pre-COVID-19 patterns and levels, if at all.

We have continued to serve our customers through our e-commerce businesses during the period that our stores were closed and beyond, but store closures primarily during the first half of fiscal 2020 and continuing reduced customer traffic, resulted in a sharp decline in our net sales and cash flows.

As a result of the material reduction in net sales and cash flows during fiscal 2020, we updated our impairment analysis for our U.S.

Following the re-opening of stores, we experienced and have continued to experience significantly reduced customer traffic and net sales from historic periods prior to COVID-19, which included subsequent store closures and reduced hours in certain areas, primarily in Canada, where government-imposed restrictions were mandated.

Our retail customers in the Brand Portfolio segment have had and are having similar experiences.

Customer behavior has been and may continue to be slow to return to pre-COVID-19 patterns and levels, if at all.

We have continued to serve our customers through our e-commerce businesses during the period that our stores were closed and beyond, but store closures and reduced customer traffic resulted in a sharp decline in our net sales and cash flows.

During the first quarter of fiscal 2020, as a result of the material reduction in net sales and cash flows, we performed 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 (categorized as Level 3 under the fair value hierarchy).

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 and Canada Retail segments, 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).

We evaluate goodwill and other indefinite lived intangible assets for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would indicate that impairment may exist.

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 outbreak on macroeconomic conditions, we updated our impairment analysis for goodwill and other indefinite-lived intangible assets during the first quarter of fiscal 2020.

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.

During the three months ended May 2, 2020, we recorded impairment charges of $ 84.9 million ($ 65.2 million and $ 19.7 million for the U.S.

Retail segment and Canada Retail segment, respectively).

Also during the three months ended May 2, 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 outbreak 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.

For goodwill within the U.S.

Retail segment, which is also the reporting unit, the fair value was in excess of the carrying value.

Accordingly, during the three months ended May 2, 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.

Retail segment inventory is accounted for using the retail inventory method and is stated at the lower of cost or market.

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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 the weighted 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 peak spring selling season and reduced traffic experienced since re-opening stores.

A s of October 31, 2020, we had approximately $ 18.0 million of additional inventory reserves over the same period last year.

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.

During the first quarter of fiscal 2020, we also monitored excess and obsolete inventories in light of the temporary closure of stores during our peak spring selling season.

During the three months ended May 2, 2020, we recorded $ 84.0 million of additional inventory reserves over the same period of the previous year.

On March 27, 2020, the U.S.

government enacted the CARES Act, which, among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 outbreak and options to defer payroll tax payments.

Based on our evaluation of the CARES Act, we qualify for certain employer payroll tax credits, which are 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 and deferrals were also available in Canada.

During the three and nine months ended October 31, 2020, the qualified payroll tax credits reduced our operating expenses by $ 1.4 million and $ 9.3 million, respectively, on our condensed consolidated statement of operations.

A s of October 31, 2020, we had $ 7.8 million of deferred qualified payroll and other tax obligations included in other non-current liabilities on the condensed consolidated balance sheets, 50% of which we expect to pay at the end of fiscal 2021 and the remaining to be paid at the end of fiscal 2022.

We recorded our income tax expense, deferred tax assets and related liabilities based on management’s best estimates.

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 and continue to be provided.

During the three months ended May 1, 2021 and May 2, 2020, the qualified government credits reduced our operating expenses by $ 2.7 million and $ 4.5 million, respectively, on our condensed consolidated statements of operations.

A s of May 1, 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 incl uded 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%.

As of October 31, 2020, we did not significantly adjust the valuation allowance on deferred tax assets based on available evidence.

However, we will continue to monitor the realizability of our deferred tax assets, particularly as we continue to recognize net operating losses.

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 COVID-19, we are in a three-year cumulative loss position as

DESIGNER BRANDS INC.

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( unaudited )

ability to recover these deferred tax assets depends on several factors, including the amount of net operating losses we can carry back and our ability to project future taxable income.

Total deferred tax assets as of October 31, 2020 were $ 209.0 million, which are all related to jurisdictions where we expect to incur significant net operating losses in the near term, although the risks of failing to realize these benefits vary across the jurisdictions.

Our effective tax rate changed from 24.6 % for the nine months ended November 2, 2019 to 33.4 % for the nine months ended October 31, 2020.

The increase in the effective tax rate was primarily driven by the ability to carry back current year losses to a tax year where the U.S.

of May 1, 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 33.8 % for the three months ended May 2, 2020 to negative 89.2 % for the three months ended May 1, 2021.

The negative rate for the three months ended May 1, 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 three months ended May 2, 2020 is the result of carry back of losses to a tax year where the U.S.

federal statutory tax rate was 35%.

In addition, during the nine months ended October 31, 2020, we incurred $ 8.5 million of incremental costs directly related to COVID-19, including termination fees, pre-open cleaning services, signs used to encourage customers in social distancing, plexiglass shields used at store registers, and supplies of thermometers, masks, gloves, cleaning agents, and other items.

The COVID-19 pandemic remains challenging, and with the resurgence of the COVID-19 outbreak and related restrictions imposed by state and local government authorities designed to slow the virus's spread, we may be required to close stores in certain locations that we only recently re-opened.

The ongoing and prolonged nature of the outbreak has continued to adversely impact our business and may lead to further adjustments to store operations, as well as continue to drive changes in customer behaviors and preferences during our peak fall season, including reductions in consumer spending, which may necessitate further shifts in our business model.

As such, the ultimate impacts of the COVID-19 outbreak to our businesses remain highly uncertain and we may have additional write-downs of inventories, accounts receivables, long-lived assets, intangibles, and goodwill and an inability to realize deferred tax assets.

Integration and Restructuring Costs- During the nine months ended October 31, 2020 and November 2, 2019, we incurred integration and restructuring costs, which consisted primarily of severance of $ 10.0 million and $ 3.8 million, respectively, and professional fees, termination fees and other integration costs of $ 1.0 million and $ 9.8 million, respectively.

The COVID-19 pandemic remains challenging and unpredictable.

The ongoing and prolonged nature of the outbreak has continued to adversely impact our business and may lead to further adjustments to store operations, as well as continue to drive changes in customer behaviors and preferences, including reductions in consumer spending, which may necessitate further shifts in our business model.

As such, the ultimate impacts of the COVID-19 outbreak to our businesses remain highly uncertain and will depend on future developments, including the widespread availability, use and effectiveness 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.

Restructuring Costs- During the three months ended May 1, 2021 and May 2, 2020, we incurred restructuring costs, which consisted primarily of severance of $ 1.4 million and $ 1.7 million, respectively.

These costs are included in operating expenses in the condensed consolidated statements of operations.

As of October 31, 2020 and November 2, 2019, we had accrued severance of $ 3.8 million and $ 3.0 million, respectively, included in accrued expenses on the condensed consolidated balance sheets.

Lease Modifications- In response to the COVID-19 outbreak, we negotiated deferrals of lease payments to be repaid over various time periods, with no substantive changes to the total consideration.

For these deferrals, we have elected to treat the changes as modifications to our leases, which resulted in remeasuring the related lease assets and liabilities and including non-lease components per our policy.

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 related to costs incurred on an internal-use software project that was capitalized and then impaired in a previous fiscal year.

As of May 1, 2021 and May 2, 2020, we had accrued severance of $ 5.1 million and $ 2.6 million, respectively, included in accrued expenses on the condensed consolidated balance sheets.

Principles of Consolidation- The condensed consolidated financial statements include the accounts of Designer Brands Inc.

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All amounts are in U.S.

dollars ("USD"), unless otherwise noted.

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 date of the financial statements and reported amounts of net sales and expenses during the reporting period.

Certain estimates and assumptions use forecasted financial information using information reasonably available to us, along with the estimated, but uncertain, future impacts of the COVID-19 outbreak.

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, legal reserves, foreign tax contingent liabilities, 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 it may undertake in the future, and changes in facts and circumstances may result in revised estimates and assumptions, and actual results could differ from these estimates.

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

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 COVID-19.

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.

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.

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• Level 3 - Unobservable inputs in which little or no market activity exists.

We measure available-for-sale investments at fair value on a recurring basis.

These investments were measured using a market-based approach using inputs such as prices of similar assets in active markets (categorized as Level 2).

The carrying value of cash and cash equivalents, accounts receivables and accounts payables approximated their fair values due to their short-term nature.

The fair value of borrowings under our senior secured asset-based revolving credit facility ("ABL Revolver") and our previous senior revolving credit agreement ("Credit Facility") approximated the carrying value.

As of October 31, 2020, the fair value of borrowings under our senior secured term loan ("Term Loan") was $ 250.3 million compared to the carrying value of $ 246.9 million.

The carrying value of cash and cash equivalents, receivables, and accounts payables approximated their fair values due to their short-term nature.

The carrying value of borrowing under our ABL Revolver and our previous senior unsecured revolving credit agreement ("Credit Facility") approximated the carrying value.

As of May 1, 2021, the fair value of borrowings under our Term Loan was $ 250.6 million compared to the carrying value of $ 240.6 million.

The fair value of debt borrowings was estimated based on current interest rates offered for similar instruments (categorized as Level 2).

Prior Period Reclassifications- Certain prior period reclassifications were made to conform to the current period presentation, consistent with the changes made during the fourth quarter of fiscal 2019.

Commission income previously presented in commission, franchise and other revenue was reclassified to net sales.

Other revenue, which primarily included operating sublease income, also previously presented in commission, franchise and other revenue, was reclassified to operating expenses.

In addition, we reclassified a previously presented basis difference related to acquisition of commonly controlled entity to common shares paid in-capital within shareholders' equity for all periods presented.

The basis difference related to the acquisition of a commonly controlled entity related to a legal entity acquisition in fiscal 2012 from certain Schottenstein Affiliates (as defined below), which legal entity owned property that was previously leased by us.

As this was a transaction between entities under common control, the difference between the historical cost carrying amounts and the consideration transferred is reflected as an equity transaction within common shares paid in-capital.

Adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments - During the first quarter of fiscal 2020, we adopted Accounting Standards Update ("ASU") 2016-13, which replaces the previous incurred loss method used for determining credit losses on financial assets, including trade receivables, with an expected credit loss method.

The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements.

DESIGNER BRANDS INC.

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Disaggregation of Net Sales- The following table presents net sales disaggregated by product and service category for each segment:

Three months ended Nine months ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Three months ended

(in thousands) May 1, 2021 May 2, 2020

Retail segment:

21 unchanged sentences

The following table presents the changes and total balances for gift cards and our loyalty programs:

Three months ended Nine months ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Three months ended

(in thousands) May 1, 2021 May 2, 2020

Beginning of period $ 34,442 $ 35,461

12 unchanged sentences

Schottenstein Affiliates

As of October 31, 2020, the Schottenstein Affiliates consisted of entities owned or controlled by Jay L.

As of May 1, 2021, the Schottenstein Affiliates consist of entities owned or controlled by Jay L.

Schottenstein, the executive chairman of our Board of Directors, and members of his family.

As of October 31, 2020, the Schottenstein Affiliates beneficially owned approximately 16 % of the Company's outstanding common shares, representing approximately 52 % of the combined voting power, consisting of, in the aggregate, 3.7 million Class A common shares and 7.7 million Class B common shares.

As of May 1, 2021, the Schottenstein Affiliates beneficially owned approximately 17 % of the Company's outstanding common shares, representing approximately 52 % of the combined voting power, consisting of, in the aggregate, 4.7 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.

See Note 13, Leases , for rent expense and future minimum lease payment requirements associated with the Schottenstein Affiliates.

Other Purchases and Services- During the three months ended October 31, 2020 and November 2, 2019, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 1.7 million and $ 1.2 million, respectively.

During the nine months ended October 31, 2020 and November 2, 2019, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 4.2 million and $ 4.6 million, respectively.

Due to Related Parties- As of October 31, 2020, February 1, 2020 and November 2, 2019, we had amounts due to the Schottenstein Affiliates of $ 1.1 million, $ 0.9 million and $ 0.6 million, respectively, included in accounts payable on the condensed consolidated balance sheets.

During the three months ended May 1, 2021 and May 2, 2020, we recorded rent expense from leases with Schottenstein Affiliates of $ 2.7 million and $ 2.8 million, respectively.

As of May 1, 2021 and May 2, 2020, we had related party current operating lease liabilities of $ 6.8 million and $ 7.1 million, respectively, and non-current operating lease liabilities of $ 22.9 million and $ 30.5 million, respectively.

Other Purchases and Services- During the three months ended May 1, 2021 and May 2, 2020, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 1.4 million and $ 1.3 million, respectively.

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

We have a 40 % interest in our equity investment in ABG-Camuto.

We entered into a licensing agreement with ABG-Camuto, pursuant to which we pay royalties on the net sales of the brands owned by ABG-Camuto.

During the three months ended October 31, 2020 and November 2, 2019, we recorded $ 4.6 million and $ 4.4 million of royalty expense payable to ABG-Camuto, respectively.

During the nine months ended October 31, 2020 and November 2, 2019, we recorded $ 13.6 million and $ 13.7 million of royalty expense payable to ABG-Camuto, respectively.

Amounts payable to ABG-Camuto for all periods presented were immaterial.

We have a licensing agreement with ABG-Camuto, pursuant to which we pay royalties on the net sales of the brands owned by ABG-Camuto, subject to guaranteed minimums.

During the three months ended May 1, 2021 and May 2, 2020, we recorded royalty expense payable to ABG-Camuto of $ 4.6 million and $ 4.4 million, respectively.

Amounts due to ABG-Camuto were immaterial for all periods presented.

EARNINGS (LOSS) PER SHARE

2 unchanged sentences

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 ended Nine months ended

Three months ended

(in thousands)

October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

May 1, 2021 May 2, 2020

Weighted average basic shares outstanding

3 unchanged sentences

76,976 71,914

For the three months ended October 31, 2020 and November 2, 2019, 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 5.4 million and 4.9 million, respectively.

For the nine months ended October 31, 2020 and November 2, 2019, 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 5.9 million and 3.2 million, respectively.

For the three months ended May 1, 2021 and May 2, 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 3.6 million and 5.6 million, respectively.

DESIGNER BRANDS INC.

3 unchanged sentences

Stock-based compensation expense consisted of the following:

Three months ended Nine months ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Three months ended

(in thousands) May 1, 2021 May 2, 2020

Stock options $ 253 $ 463

1 unchanged sentence

$ 7,457 $ 4,917

The following table summarizes the stock-based compensation award activity for the nine months ended October 31, 2020:

The following table summarizes the stock-based compensation award activity for RSUs for the three months ended May 1, 2021:

Number of shares

(in thousands) Stock Options Time-Based RSUs Performance-Based RSUs

(in thousands) Time-Based RSUs Performance-Based RSUs

Outstanding - beginning of period 6,445 540

8 unchanged sentences

The following table provides additional information for our common shares:

October 31, 2020 February 1, 2020 November 2, 2019

May 1, 2021 January 30, 2021 May 2, 2020

(in thousands) Class A Class B Class A Class B Class A Class B

4 unchanged sentences

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

Share Repurchases- During the nine months ended October 31, 2020, we did not repurchase any Class A common shares.

During the nine months ended November 2, 2019, we repurchased 7.1 million Class A common shares at a cost of $ 141.6 million.

DESIGNER BRANDS INC.

3 unchanged sentences

Three months ended

October 31, 2020 November 2, 2019

(in thousands) Foreign Currency Translation Available-for-Sale Securities Total Foreign Currency Translation Available-for-Sale Securities Total

Accumulated other comprehensive loss - beginning of period $ ( 4,919 ) $ — $ ( 4,919 ) $ ( 2,581 ) $ ( 5 ) $ ( 2,586 )

Other comprehensive income before reclassifications 161 — 161 236 37 273

Amounts reclassified to non-operating expense, net — — — — ( 24 ) ( 24 )

Other comprehensive income 161 — 161 236 13 249

Accumulated other comprehensive income (loss) - end of period $ ( 4,758 ) $ — $ ( 4,758 ) $ ( 2,345 ) $ 8 $ ( 2,337 )

Nine months ended

October 31, 2020 November 2, 2019

May 1, 2021 May 2, 2020

(in thousands) Foreign Currency Translation Available-for-Sale Securities Total Foreign Currency Translation Available-for-Sale Securities Total

1 unchanged sentence

Other comprehensive income (loss) before reclassifications 543 — 543 ( 3,541 ) 195 ( 3,346 )

Amounts reclassified to non-operating expense, net — ( 368 ) ( 368 ) — ( 89 ) ( 89 )

Amounts reclassified to non-operating income (expenses), net — — — — ( 368 ) ( 368 )

Other comprehensive income (loss) 543 — 543 ( 3,541 ) ( 173 ) ( 3,714 )

Accumulated other comprehensive income (loss) - end of period $ ( 4,758 ) $ — $ ( 4,758 ) $ ( 2,345 ) $ 8 $ ( 2,337 )

ACCOUNTS RECEIVABLE

Accounts receivable, net, consisted of the following:

(in thousands) October 31, 2020 February 1, 2020 November 2, 2019

Accumulated other comprehensive loss - end of period $ ( 2,743 ) $ — $ ( 2,743 ) $ ( 6,209 ) $ — $ ( 6,209 )

Receivables, net, consisted of the following:

(in thousands) May 1, 2021 January 30, 2021 May 2, 2020

Customer accounts receivables:

2 unchanged sentences

Serviced in-house 3,558 4,576 5,702

Income tax receivable 158,890 149,824 —

Other receivables 13,305 12,865 31,467

Accounts receivable 63,105 90,370 89,948

Total receivables 214,648 197,243 84,500

Allowance for doubtful accounts ( 1,201 ) ( 1,194 ) ( 2,547 )

3 unchanged sentences

( unaudited )

Investments in available-for-sale securities consisted of the following:

(in thousands)

October 31, 2020 February 1, 2020 November 2, 2019

Carrying value of investments

$ — $ 24,831 $ 25,903

Unrealized gains included in accumulated other comprehensive loss

Unrealized losses included in accumulated other comprehensive loss

$ — $ 24,974 $ 25,939

PROPERTY AND EQUIPMENT

Property and equipment, net, consisted of the following:

(in thousands) October 31, 2020 February 1, 2020 November 2, 2019

Land $ 1,110 $ 1,110 $ 1,110

Buildings 12,485 12,485 13,445

Building and leasehold improvements 447,515 449,958 442,609

Furniture, fixtures and equipment 471,670 482,573 478,463

Software 192,337 189,291 174,324

Construction in progress 9,353 32,645 36,489

Total property and equipment 1,134,470 1,168,062 1,146,440

Accumulated depreciation and amortization ( 821,368 ) ( 773,053 ) ( 751,745 )

$ 313,102 $ 395,009 $ 394,695

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

GOODWILL AND INTANGIBLE ASSETS

Goodwill- Activity related to our goodwill was as follows:

Nine months ended

October 31, 2020 November 2, 2019

Three months ended

May 1, 2021 May 2, 2020

(in thousands) Goodwill Accumulated Impairments Net Goodwill Accumulated Impairments Net

5 unchanged sentences

Activity by segment:

Allocation of goodwill from Brand Portfolio — — — 67,756 — 67,756

Canada Retail-

2 unchanged sentences

Impairment charges — — — — ( 19,989 ) ( 19,989 )

Purchase price and allocation adjustments — — — 24,131 — 24,131

Allocation of goodwill to U.S.

Retail — — — ( 67,756 ) — ( 67,756 )

1,735 ( 1,735 ) — ( 2,467 ) ( 17,522 ) ( 19,989 )

6 unchanged sentences

(in thousands) Cost Accumulated Amortization Net

October 31, 2020

Definite-lived customer relationships $ 1,465 $ ( 1,465 ) $ —

1 unchanged sentence

$ 17,596 $ ( 1,465 ) $ 16,131

February 1, 2020

January 30, 2021

Definite-lived customer relationships $ 2,909 $ ( 2,791 ) $ 118

1 unchanged sentence

$ 18,426 $ ( 2,791 ) $ 15,635

November 2, 2019

Definite-lived customer relationships $ 2,780 $ ( 2,353 ) $ 427

6 unchanged sentences

Accrued expenses consisted of the following:

(in thousands) October 31, 2020 February 1, 2020 November 2, 2019

Gift cards and merchandise credits $ 28,299 $ 35,461 $ 26,098

(in thousands) May 1, 2021 January 30, 2021 May 2, 2020

Gift cards $ 30,809 $ 34,442 $ 30,908

Accrued compensation and related expenses 29,945 49,864 13,700

6 unchanged sentences

Debt consisted of the following:

(in thousands) October 31, 2020 February 1, 2020 November 2, 2019

(in thousands) May 1, 2021 January 30, 2021 May 2, 2020

ABL Revolver $ 104,843 $ 100,000 $ —

5 unchanged sentences

Long-term debt $ 274,887 $ 272,319 $ 393,000

As of October 31, 2020, future maturities of debt are as follows:

(in thousands)

Remainder of fiscal 2020 $ 3,125

Fiscal 2021 62,500

Fiscal 2022 12,500

Fiscal 2023 12,500

Fiscal 2024 12,500

Future fiscal years thereafter 243,750

Total $ 346,875

ABL Revolver- On August 7, 2020, we replaced our Credit Facility with the ABL Revolver, which provides a revolving line of credit of up to $ 400.0 million, including a Canadian sub-limit of up to $ 20.0 million, a $ 50.0 million sub-limit for the issuance of letters of credit, a $ 40.0 million sub-limit for swing loan advances for U.S.

2 unchanged sentences

The amount of credit available is limited to a borrowing base based on, among other things, a percentage of the book value of eligible inventory and credit card receivables, as reduced by certain reserves.

As of October 31, 2020, the ABL Revolver had a borrowing base of $ 400.0 million, with $ 100.0 million outstanding and $ 5.0 million in letters of credit issued, resulting in $ 295.0 million available for borrowings.

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

As of May 1, 2021, the ABL Revolver had a borrowing base of $ 400.0 million, with $ 104.8 million outstanding and $ 5.3 million in letters of credit issued, resulting in $ 289.9 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 London Interbank Offered Rate ("LIBOR") 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 3.25 % as of October 31, 2020.

Commitment fees are based on the unused portion of the ABL Revolver.

5 unchanged sentences

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 9.75 % as of October 31, 2020.

(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

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

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 May 1, 2021.

Debt Covenants- The ABL Revolver contains a minimum availability covenant where an event of default shall occur if availability is less than the greater of $ 30.0 million or 10.0 % of the maximum credit amount.

5 unchanged sentences

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.

We lease our stores, fulfillment center and other facilities under operating lease arrangements with unrelated parties and related parties owned by the Schottenstein Affiliates.

The majority of our real estate leases provide for renewal options, which are typically not included in the lease term used for measuring the lease assets and lease liabilities as it is not reasonably certain we will exercise renewal options.

We pay variable amounts for certain lease and non-lease components as well as for contingent rent based on sales for certain leases where the sales are in excess of specified levels and for leases that have certain contingent triggering events that are in effect.

We also lease equipment under operating leases.

We receive operating sublease income from unrelated third parties for leasing portions or all of certain properties.

Operating sublease income and operating expenses for these properties are included in operating expenses in our condensed consolidated statements of operations.

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

Lease income and lease expense consisted of the following for the three and nine months ended October 31, 2020 and November 2, 2019:

Three months ended Nine months ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Operating sublease income $ 2,930 $ 2,462 $ 9,127 $ 6,910

Operating lease expense:

Lease expense to unrelated parties $ 47,775 $ 53,674 $ 152,165 $ 159,735

Lease expense to related parties 2,266 2,387 6,923 7,100

Variable lease expense to unrelated parties 15,653 13,539 47,306 39,542

Variable lease expense to related parties 348 325 1,017 975

Total operating lease expense $ 66,042 $ 69,925 $ 207,411 $ 207,352

As of October 31, 2020, our future fixed minimum lease payments are as follows:

(in thousands) Unrelated Parties Related Parties Total

Remainder of fiscal 2020 $ 49,514 $ 1,461 $ 50,975

Fiscal 2021 262,149 8,697 270,846

Fiscal 2022 197,309 7,418 204,727

Fiscal 2023 156,161 4,573 160,734

Fiscal 2024 115,492 4,139 119,631

Future fiscal years thereafter 238,602 11,353 249,955

1,019,227 37,641 1,056,868

Less discounting impact on operating leases ( 104,590 ) ( 4,084 ) ( 108,674 )

Total operating lease liabilities 914,637 33,557 948,194

Less current operating lease liabilities ( 218,704 ) ( 7,719 ) ( 226,423 )

Non-current operating lease liabilities $ 695,933 $ 25,838 $ 721,771

As of May 1, 2021, we were in compliance with all financial covenants.

COMMITMENTS AND CONTINGENCIES

2 unchanged sentences

As additional information becomes available, we will assess any potential liability related to pending litigation and revise the estimates as needed.

Foreign Tax Contingencies- During the due diligence procedures performed related to the acquisition of Camuto Group, we identified probable contingent liabilities associated with unpaid foreign payroll and other taxes that could also result in assessed penalties and interest.

We had previously developed an estimate of the range of outcomes related to these obligations and recorded the low-end of the range.

During the nine months ended October 31, 2020, we reduced our contingent liability by $ 11.2 million for payments made to taxing authorities and by $ 12.3 million for changes in estimates due to additional information as a result of negotiations with taxing authorities and we reduced the indemnification asset by $ 21.0 million.

As of October 31, 2020, we had a contingent liability of $ 4.9 million for the remaining estimated obligations included in other non-current liabilities on the condensed consolidated balance sheets, and an indemnification asset of $ 3.8 million included in other assets on the condensed consolidated balance sheets, which we expect to collect under the terms of the securities purchase agreement with the sellers of Camuto Group (the "Sellers").

We are continuing to assess the exposure, which may result in material changes to these estimates, and we may identify additional contingent liabilities.

We believe that the Sellers are obligated to indemnify us for any payments to foreign taxing authorities for the periods up to the acquisition date.

Although a portion of the purchase price is held in escrow and another portion is held in a restricted bank account, there can be no assurance that we will successfully collect all amounts that we may be obligated to settle with the foreign taxing authorities.

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 on 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 May 1, 2021, the total future minimum lease payment requirements for these guarantees were approximately $ 14.4 million.

DESIGNER BRANDS INC.

1 unchanged sentence

( unaudited )

Guarantee- As a result of a previous merger, we provided a guarantee for a lease commitment that is scheduled to expire in fiscal 2023 for a location that has been leased to a third party.

If the 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 October 31, 2020, the total future minimum lease payment requirements for this guarantee were approximately $ 10.9 million.

SEGMENT REPORTING

2 unchanged sentences

Retail Canada Retail Brand Portfolio Other Corporate/Eliminations Total

Three months ended October 31, 2020

External customer sales $ 501,901 $ 61,598 $ 62,351 $ 27,020 $ — $ 652,870

Intersegment sales — — 21,554 — ( 21,554 ) —

Total net sales $ 501,901 $ 61,598 $ 83,905 $ 27,020 $ ( 21,554 ) $ 652,870

Gross profit $ 117,679 $ 18,905 $ 22,128 $ 6,272 $ 672 $ 165,656

Income from equity investment $ — $ — $ 1,902 $ — $ — $ 1,902

Three months ended November 2, 2019

External customer sales $ 716,775 $ 76,299 $ 111,904 $ 28,848 $ — $ 933,826

Intersegment sales — — 25,592 — ( 25,592 ) —

Total net sales $ 716,775 $ 76,299 $ 137,496 $ 28,848 $ ( 25,592 ) $ 933,826

Gross profit $ 201,409 $ 27,485 $ 40,849 $ 6,291 $ ( 2,726 ) $ 273,308

Income from equity investment $ — $ — $ 2,662 $ — $ — $ 2,662

Nine months ended October 31, 2020

Three months ended May 1, 2021

External customer sales $ 620,658 $ 40,604 $ 41,893 $ — $ — $ 703,155

3 unchanged sentences

Income from equity investment $ — $ — $ 1,708 $ — $ — $ 1,708

Nine months ended November 2, 2019

Three months ended May 2, 2020

External customer sales $ 377,073 $ 29,329 $ 62,758 $ 13,623 $ — $ 482,783

1 unchanged sentence

Total net sales $ 377,073 $ 29,329 $ 82,113 $ 13,623 $ ( 19,355 ) $ 482,783

Gross profit $ 619,356 $ 65,171 $ 93,308 $ 21,643 $ ( 5,664 ) $ 793,814

Gross profit (loss) $ ( 32,970 ) $ ( 2,311 ) $ 13,904 $ ( 5,428 ) $ 345 $ ( 26,460 )

Income from equity investment $ — $ — $ 2,270 $ — $ — $ 2,270

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements