What changed in this filing

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Item 1. Financial Statements

2021-08-31 compared with 2021-05-28 · 158 added, 111 removed, 406 unchanged (40% of the section changed)

3 unchanged sentences

(unaudited and in thousands, except per share amounts)

Three months ended

May 1, 2021 May 2, 2020

Three months ended Six months ended

July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020

Net sales $ 817,335 $ 489,714 $ 1,520,490 $ 972,497

Cost of sales ( 532,654 ) ( 452,672 ) ( 1,019,698 ) ( 961,915 )

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

Gross profit 284,681 37,042 500,792 10,582

Operating expenses ( 224,385 ) ( 168,424 ) ( 425,199 ) ( 355,645 )

5 unchanged sentences

Income (loss) before income taxes 53,096 ( 139,009 ) 62,093 ( 465,212 )

Income tax benefit 8,029 110,345

Income tax benefit (provision) ( 10,236 ) 40,795 ( 2,207 ) 151,140

Net income (loss) $ 42,860 $ ( 98,214 ) $ 59,886 $ ( 314,072 )

9 unchanged sentences

(unaudited and in thousands)

Three months ended

May 1, 2021 May 2, 2020

Three months ended Six months ended

July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020

Net income (loss) $ 42,860 $ ( 98,214 ) $ 59,886 $ ( 314,072 )

9 unchanged sentences

(unaudited and in thousands)

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

July 31, 2021 January 30, 2021 August 1, 2020

Cash and cash equivalents

43 unchanged sentences

( 515,065 ) ( 515,065 ) ( 515,065 )

Retained earnings (deficit)

Retained deficit

( 168,899 ) ( 228,785 ) ( 54,138 )

11 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 May 1, 2021

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

Three months ended July 31, 2021

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

Net income — — — — — 42,860 — 42,860

Stock-based compensation activity 102 — — 5,738 — — — 5,738

Other comprehensive income — — — — — — 543 543

Foreign currency translation adjustment — — — — — — ( 298 ) ( 298 )

Balance, July 31, 2021 65,236 7,733 22,169 $ 998,117 $ ( 515,065 ) $ ( 168,899 ) $ ( 3,041 ) $ 311,112

Three months ended August 1, 2020

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

Three months ended May 2, 2020

Net loss — — — — — ( 98,214 ) — ( 98,214 )

Stock-based compensation activity 276 — — 5,445 — — — 5,445

Foreign currency translation adjustment — — — — — — 1,290 1,290

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

Six months ended July 31, 2021

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

Net income — — — — — 59,886 — 59,886

Stock-based compensation activity 570 — — 7,964 — — — 7,964

Foreign currency translation adjustment — — — — — — 245 245

Balance, July 31, 2021 65,236 7,733 22,169 $ 998,117 $ ( 515,065 ) $ ( 168,899 ) $ ( 3,041 ) $ 311,112

Six months ended August 1, 2020

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

4 unchanged sentences

Other comprehensive loss — — — — — — ( 2,424 ) ( 2,424 )

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

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

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

2 unchanged sentences

(unaudited and in thousands)

Three months ended

May 1, 2021 May 2, 2020

Six months ended

July 31, 2021 August 1, 2020

Cash flows from operating activities:

Net income (loss) $ 59,886 $ ( 314,072 )

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

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

Depreciation and amortization 40,257 44,075

4 unchanged sentences

Impairment charges 1,174 119,282

Gain on settlement — ( 8,990 )

Other 800 403

7 unchanged sentences

Operating lease assets and liabilities, net ( 63,424 ) 44,777

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

Net cash provided by (used in) operating activities 96,229 ( 79,619 )

Cash flows from investing activities:

1 unchanged sentence

Sales of available-for-sale investments — 24,755

Proceeds from settlement — 4,166

Net cash provided by (used in) investing activities ( 13,189 ) 6,780

9 unchanged sentences

Effect of exchange rate changes on cash balances 338 ( 199 )

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

Net increase (decrease) in cash, cash equivalents and restricted cash ( 11,577 ) 120,156

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

Cash, cash equivalents and restricted cash, end of period $ 48,004 $ 206,720

Supplemental disclosures of cash flow information:

Cash received for income taxes $ 3,926 $ 31

Cash paid (received) for income taxes $ ( 3,372 ) $ 165

Cash paid for interest on debt $ 13,437 $ 5,606

3 unchanged sentences

Operating lease liabilities arising from lease asset additions $ 11,109 $ 9,408

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

Net increase to operating lease assets and lease liabilities for modifications $ 45,723 $ 23,195

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

14 unchanged sentences

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.

Camuto Group also owns footwear and certain handbag 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.

13 unchanged sentences

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.

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.

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.

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.

The severance charges recorded as a result of this reorganization are included in our severance discussion below.

Although operating results have improved throughout the first half of fiscal 2021, we continue to experience adverse impacts due to COVID-19, including temporary store closures, reduced hours and other requirements in certain areas where government-imposed restrictions were mandated, and global supply chain challenges.

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

DESIGNER BRANDS INC.

1 unchanged sentence

( unaudited )

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.

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.

2 unchanged sentences

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.

In addition, we evaluated other long-lived assets based on our intent to use such assets going forward.

During the three months ended August 1, 2020, we recorded an impairment charge of $ 6.7 million for the U.S.

Retail segment.

During the six months ended August 1, 2020, we recorded impairment charges of $ 92.8 million ($ 73.1 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.

Also during the six months ended August 1, 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 COVID-19 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 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.

Accordingly, during the six months ended August 1, 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.

2 unchanged sentences

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.

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 six months ended August 1, 2020, we recorded $ 64.0 million of additional inventory reserves over the same period of the previous year.

On March 27, 2020, the U.S.

2 unchanged sentences

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.

During the three months ended July 31, 2021 and August 1, 2020, the qualified government credits reduced our operating expenses by $ 1.0 million and $ 3.5 million , respectively, on our condensed consolidated statements of operations.

During the six months ended July 31, 2021 and August 1, 2020, the qualified government credits reduced our operating expenses by $ 3.7 million and $ 7.9 million, respectively, on our condensed consolidated statements of operations.

A s of July 31, 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.

4 unchanged sentences

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

As a result of the losses incurred in fiscal 2020 due to COVID-19, we are in a three-year cumulative loss position as of July 31, 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 32.5 % for the six months ended

DESIGNER BRANDS INC.

1 unchanged sentence

( unaudited )

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.

August 1, 2020 t o 3.6 % for the six months ended July 31, 2021.

The rate for the six months ended July 31, 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 six months ended August 1, 2020 is the result of carry back of losses to a tax year where the U.S.

federal statutory tax rate was 35%.

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.

The impacts from the COVID-19 pandemic remain challenging and unpredictable.

While trends improved during the first half of fiscal 2021, we cannot reasonably estimate the extent to which our business will continue to be affected by COVID-19 and to what extent the recent improved trends will continue.

For instance, restrictions have recently been reinstated in certain locations within the U.S., and it is unclear whether these restrictions will continue and expand or if COVID-19 will result in long-term changes in consumer behavior.

The ongoing and prolonged nature of the outbreak may lead to further adjustments to our operations.

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

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 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.

Severance- During the three months ended July 31, 2021 and August 1, 2020, we incurred severance cost s of $ 1.2 million and $ 7.3 million, respectively.

During the six months ended July 31, 2021 and August 1, 2020, we incurred severance costs of $ 2.6 million and $ 9.0 million, respectively.

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

As of July 31, 2021, January 30, 2021 and August 1, 2020, we had accrued severance of $ 4.9 million, $ 6.5 million and $ 8.4 million, respectively, included in accrued expenses on the condensed consolidated balance sheets.

Gain on Settlement- During the three months ended August 1, 2020, we recognized a gain of $ 9.0 million, recorded to operating expenses in the condensed consolidated statements of operations, due to a settlement with a vendor for costs incurred on internal-use software that was capitalized and impaired in a previous fiscal year.

During the three months ended August 1, 2020, we collected $ 4.2 million, net of legal costs incurred, and recorded a $ 4.8 million receivable included in receivables, net, on the condensed consolidated balance sheets, which has been subsequently received.

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

7 unchanged sentences

Changes in facts and circumstances may result in revised estimates and assumptions, and actual results could differ from these estimates.

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 represented cash that is restricted as to withdrawal or usage and consists of a mandatory cash deposit maintained for certain insurance policies.

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) July 31, 2021 January 30, 2021 August 1, 2020

Cash and cash equivalents $ 46,458 $ 59,581 $ 206,720

Restricted cash, included in prepaid expenses and other current assets 1,546 — —

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows $ 48,004 $ 59,581 $ 206,720

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

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.

3 unchanged sentences

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

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 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 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).

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

As of July 31, 2021, the fair value of borrowings under our Term Loan was $ 250.2 million compared to the carrying value of $ 237.5 million.

T he fair value of debt borrowings was estimated based on current interest rates offered for similar instruments (categorized as Level 2 under the fair value hierarchy).

Impairment of Long-Lived Assets- Refer to section above, Impact of COVID-1 9, regarding impairment charges of long-lived assets during fiscal 2020.

During the three months ended July 31, 2021, we recorded an impairment charge of $ 1.2 million in the U.S.

Retail segment for abandoned equipment we are replacing.

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

Three months ended

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

Three months ended Six months ended

(in thousands) July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020

Retail segment:

19 unchanged sentences

Total net sales $ 817,335 $ 489,714 $ 1,520,490 $ 972,497

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

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 ended

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

Three months ended Six months ended

(in thousands) July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020

Beginning of period $ 30,809 $ 30,908 $ 34,442 $ 35,461

7 unchanged sentences

End of period $ 15,255 $ 14,797 $ 15,255 $ 14,797

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

RELATED PARTY TRANSACTIONS

Schottenstein Affiliates

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

As of July 31, 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 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.

As of July 31, 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, 4.8 million Class A common shares and 7.7 million Class B co mmon 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 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.

During the three months ended July 31, 2021 and August 1, 2020, we recorded rent expense from leases with Schottenstein Affiliates of $ 2.7 million and $ 2.6 million , r espectively.

During the six months ended July 31, 2021 and August 1, 2020, we recorded rent expense from leases with Schottenstein Affiliates of $ 5.4 million and $ 5.3 million, respectively.

As of July 31, 2021, January 30, 2021 and August 1, 2020, we had related party current operating lease liabilities of $ 6.4 million, $ 8.0 million and $ 7.9 million, respectively, and non-current operating lease liabilities of $ 21.3 million, $ 24.6 million and $ 28.5 million, respectively.

Other Purchases and Services- During the three months ended July 31, 2021 and August 1, 2020, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 1.1 million and $ 1.2 million, respectively.

During both the six months ended July 31, 2021 and August 1, 2020, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 2.5 million.

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

1 unchanged sentence

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.

During both the three months ended July 31, 2021 and August 1, 2020, we recorded royalty expense for amounts paid to ABG-Camuto of $ 4.6 million.

During the six months ended July 31, 2021 and August 1, 2020, we recorded royalty expense for amounts paid t o ABG-Camuto of $ 9.2 million and $ 9.0 million, respectively.

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

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

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

Three months ended Six months ended

(in thousands)

May 1, 2021 May 2, 2020

July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020

Weighted average basic shares outstanding

1 unchanged sentence

Dilutive effect of stock-based compensation awards

4,687 — 4,498 —

Weighted average diluted shares outstanding

77,619 72,142 77,271 72,028

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.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

For the three months ended July 31, 2021 and August 1, 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 2.9 million and 5.9 million, respectively.

For the six months ended July 31, 2021 and August 1, 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 5.5 million, respectively.

STOCK-BASED COMPENSATION

Stock-based compensation expense consisted of the following:

Three months ended

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

Three months ended Six months ended

(in thousands) July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020

Stock options $ 132 $ 407 $ 385 $ 870

1 unchanged sentence

$ 5,908 $ 5,679 $ 13,365 $ 10,596

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

The following table summarizes the stock-based compensation award activity for RSUs for the six months ended July 31, 2021:

Number of shares

2 unchanged sentences

Granted 1,033 —

Exercised / vested ( 461 ) ( 359 )

Forfeited / expired ( 24 ) —

Vested ( 512 ) ( 359 )

Forfeited ( 225 ) ( 17 )

Outstanding - end of period 6,741 164

3 unchanged sentences

Holders of Class A common shares are entitled to one vote per share and holders of Class B common shares are entitled to eight votes per share on matters submitted to shareholders for approval.

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

The following table provides additional information for our common shares:

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

July 31, 2021 January 30, 2021 August 1, 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.

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

Accumulated Other Comprehensive Loss- Changes for the balances of each component of accumulated other comprehensive loss were as follows (all amounts are net of tax):

Three months ended

May 1, 2021 May 2, 2020

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

Accumulated Other Comprehensive Loss- For the six months ended August 1, 2020, changes for the balances of each component of accumulated other comprehensive loss, net of tax, were as follows (for all other periods presented, the change was due to foreign currency translation adjustments as shown in the condensed consolidated statements of shareholders' equity):

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

Accumulated other comprehensive income (loss) - beginning of period $ ( 2,668 ) $ 173 $ ( 2,495 )

Other comprehensive income (loss) before reclassifications ( 2,251 ) 195 ( 2,056 )

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

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

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

Other comprehensive loss ( 2,251 ) ( 173 ) ( 2,424 )

Accumulated other comprehensive loss - end of period $ ( 4,919 ) $ — $ ( 4,919 )

Receivables, net, consisted of the following:

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

(in thousands) July 31, 2021 January 30, 2021 August 1, 2020

Customer accounts receivables:

11 unchanged sentences

GOODWILL AND INTANGIBLE ASSETS

Goodwill- Activity related to our goodwill was as follows:

Three months ended

May 1, 2021 May 2, 2020

Goodwill- The following table presents the changes to goodwill by segment:

Six months ended

July 31, 2021 August 1, 2020

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

8 unchanged sentences

Brand Portfolio-

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

Impairment charge — — — — ( 19,989 ) ( 19,989 )

1,098 ( 1,098 ) — ( 534 ) ( 19,455 ) ( 19,989 )

6 unchanged sentences

(in thousands) Cost Accumulated Amortization Net

July 31, 2021

Definite-lived customer relationships $ 1,444 $ ( 1,444 ) $ —

5 unchanged sentences

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

August 1, 2020

Definite-lived customer relationships $ 2,843 $ ( 2,507 ) $ 336

6 unchanged sentences

Accrued expenses consisted of the following:

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

(in thousands) July 31, 2021 January 30, 2021 August 1, 2020

Gift cards $ 28,691 $ 34,442 $ 29,919

7 unchanged sentences

Debt consisted of the following:

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

(in thousands) July 31, 2021 January 30, 2021 August 1, 2020

ABL Revolver $ 16,810 $ 100,000 $ —

8 unchanged sentences

Our ABL Revolver matures in August 2025 and is secured by substantially all of our personal property assets, including a first priority lien on credit card receivables and inventory and a second priority lien on personal property assets that constitute first priority collateral for the Term Loan.

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 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.

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 July 31, 2021, the ABL Revolver had a borrowing base of $ 386.1 million, with $ 16.8 million outstanding and $ 5.3 million in letters of credit issued, resulting in $ 364.0 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") (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 May 1, 2021.

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

4 unchanged sentences

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

DESIGNER BRANDS INC.

1 unchanged sentence

( 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.

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 %;

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.

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

As of July 31, 2021, we were in compliance with all financial covenants.

COMMITMENTS AND CONTINGENCIES

4 unchanged sentences

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.

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.

2 unchanged sentences

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.

As of July 31, 2021, the total future minimum lease payment requirements for these guarantees were approximately $ 13.3 million.

DESIGNER BRANDS INC.

2 unchanged sentences

SEGMENT REPORTING

The following provides certain financial data by segment reconciled to the condensed consolidated financial statements:

The following provides certain key financial data by segment reconciled to the condensed consolidated financial statements:

(in thousands) U.S.

Retail Canada Retail Brand Portfolio Other Corporate/Eliminations Total

Three months ended May 1, 2021

Three months ended July 31, 2021

External customer sales $ 723,093 $ 57,585 $ 36,657 $ — $ — $ 817,335

3 unchanged sentences

Income from equity investment $ — $ — $ 2,290 $ — $ — $ 2,290

Three months ended May 2, 2020

Three months ended August 1, 2020

External customer sales $ 393,977 $ 49,582 $ 23,889 $ 22,266 $ — $ 489,714

3 unchanged sentences

Income from equity investment $ — $ — $ 2,153 $ — $ — $ 2,153

Six months ended July 31, 2021

External customer sales $ 1,343,751 $ 98,189 $ 78,550 $ — $ — $ 1,520,490

Intersegment sales — — 29,406 — ( 29,406 ) —

Total net sales $ 1,343,751 $ 98,189 $ 107,956 $ — $ ( 29,406 ) $ 1,520,490

Gross profit $ 450,006 $ 29,603 $ 20,459 $ — $ 724 $ 500,792

Income from equity investment $ — $ — $ 3,998 $ — $ — $ 3,998

Six months ended August 1, 2020

External customer sales $ 771,050 $ 78,911 $ 86,647 $ 35,889 $ — $ 972,497

Intersegment sales — — 25,924 — ( 25,924 ) —

Total net sales $ 771,050 $ 78,911 $ 112,571 $ 35,889 $ ( 25,924 ) $ 972,497

Gross profit (loss) $ 7,127 $ 3,339 $ 2,464 $ ( 5,310 ) $ 2,962 $ 10,582

Income from equity investment $ — $ — $ 4,423 $ — $ — $ 4,423

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