What changed in this filing

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Item 1. Financial Statements

2021-12-07 compared with 2021-08-31 · 97 added, 102 removed, 462 unchanged (30% of the section changed)

3 unchanged sentences

(unaudited and in thousands, except per share amounts)

Three months ended Six months ended

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

Three months ended Nine months ended

October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Net sales $ 853,467 $ 652,870 $ 2,373,957 $ 1,625,367

6 unchanged sentences

Interest expense, net ( 7,706 ) ( 9,009 ) ( 24,592 ) ( 14,955 )

Non-operating income (expenses), net ( 244 ) 743 562 656

Non-operating income, net 172 24 734 680

Income (loss) before income taxes 96,774 ( 67,575 ) 158,867 ( 532,787 )

11 unchanged sentences

(unaudited and in thousands)

Three months ended Six months ended

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

Three months ended Nine months ended

October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Net income (loss) $ 80,184 $ ( 40,643 ) $ 140,070 $ ( 354,715 )

9 unchanged sentences

(unaudited and in thousands)

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

October 30, 2021 January 30, 2021 October 31, 2020

Cash and cash equivalents

57 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 July 31, 2021

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

Three months ended October 30, 2021

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

Net income — — — — — 80,184 — 80,184

1 unchanged sentence

Foreign currency translation adjustment — — — — — — 302 302

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

Balance, October 30, 2021 65,611 7,733 22,169 $ 1,000,180 $ ( 515,065 ) $ ( 88,715 ) $ ( 2,739 ) $ 393,661

Three months ended October 31, 2020

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

Net loss — — — — — ( 40,643 ) — ( 40,643 )

1 unchanged sentence

Foreign currency translation adjustment — — — — — — 161 161

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

Nine months ended October 30, 2021

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

2 unchanged sentences

Foreign currency translation adjustment — — — — — — 547 547

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, October 30, 2021 65,611 7,733 22,169 $ 1,000,180 $ ( 515,065 ) $ ( 88,715 ) $ ( 2,739 ) $ 393,661

Nine months ended October 31, 2020

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

4 unchanged sentences

Other comprehensive loss — — — — — — ( 2,263 ) ( 2,263 )

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

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

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

2 unchanged sentences

(unaudited and in thousands)

Six months ended

July 31, 2021 August 1, 2020

Nine months ended

October 30, 2021 October 31, 2020

Cash flows from operating activities:

28 unchanged sentences

Payments on borrowings under ABL Revolver ( 449,653 ) ( 50,000 )

Proceeds from issuance of Term Loan — 250,000

Payments on borrowings under Term Loan ( 9,376 ) ( 3,125 )

Payments of debt issuance costs — ( 21,063 )

Dividends paid — ( 7,160 )

2 unchanged sentences

Effect of exchange rate changes on cash balances 664 330

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

Net increase in cash, cash equivalents and restricted cash 25,034 27,967

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

40 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 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.

1 unchanged sentence

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.

7 unchanged sentences

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.

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 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.

During the nine months ended October 31, 2020, we recorded impairment charges of $ 122.9 million ($ 103.2 million and $ 19.7 million for the U.S.

Retail segment and Canada Retail segment, respectively).

Also during the 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.

Also during the nine months ended October 31, 2020, we recorded an impairment charge of $ 6.5 million for the Brand Portfolio segment customer relationship intangible resulting in a full impairment due to the lack of projected cash flows over the remaining useful life (categorized as Level 3 under the fair value hierarchy).

As a result of the material reduction in net sales and cash flows due to the temporary closure of all of our stores, the decrease in net sales from our retailer customers and the decrease in the Company's market capitalization due to the impact of the COVID-19 pandemic on macroeconomic conditions, we performed an impairment analysis for goodwill and other indefinite-lived intangible assets during the first quarter of fiscal 2020.

We calculated the fair value of the reporting units with goodwill primarily based on a discounted cash flow analysis (categorized as Level 3 under the fair value hierarchy).

Our analysis concluded that the fair value of the First Cost reporting unit within the Brand Portfolio segment did not exceed its carrying value.

Accordingly, during the 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.

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.

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

3 unchanged sentences

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.

During the nine months ended October 31, 2020, we recorded $ 18.0 million of additional inventory reserves over the same period of the previous year.

On March 27, 2020, the U.S.

1 unchanged sentence

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 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.

Similar credits were also available in Canada.

During the three months ended October 30, 2021 and October 31, 2020, the qualified government credits reduced our operating expenses b y $ 0.3 million and $ 1.4 million, respectively, on our condensed consolidated statements of operations.

During the nine months ended October 30, 2021 and October 31, 2020, the qualified government credits reduced our operating expenses by $ 4.0 million and $ 9.3 million , respectively, on our condensed consolidated statements of operations.

A s of October 30, 2021, we had $ 10.0 million of deferred qualified payroll and other tax obligations, half of which is included in accrued expenses on the condensed consolidated balance sheets that we expect to pay at the end of fiscal 2021, with the remaining 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 of July 31, 2021, which is significant objective negative evidence in considering whether deferred tax assets are realizable.

As a result of the losses incurred in fiscal 2020 due to the impacts of the COVID-19 pandemic, we are in a three-year cumulative loss position as of October 30, 2021, which is significant objective negative evidence in considering whether deferred tax assets are realizable.

Such objective evidence limits the ability to consider other subjective evidence, such as the projection of future taxable income.

A valuation allowance has been recognized as a reserve on the total deferred tax asset balance due to the uncertainty of realization of our loss carry forwards and other deferred tax assets.

Our effective tax rate changed from 32.5 % for the six months ended

Our effective tax rate changed from 33.4 % for the nine months ended October 31, 2020 t o 11.8 % for the nine months ended October 30, 2021.

DESIGNER BRANDS INC.

1 unchanged sentence

( unaudited )

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.

rate for the nine months ended October 30, 2021 is the result of maintaining a full valuation allowance on deferred tax assets while also recording net discrete tax benefits, primarily as a result of adjustments to our estimated fiscal 2020 return reflecting implemented tax strategies.

T he rate for the nine months ended October 31, 2020 is the result of the carry back of losses to a tax year where the U.S.

federal statutory tax rate was 35%.

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.

While trends improved during fiscal 2021 compared to fiscal 2020, we cannot reasonably estimate the extent to which our business will continue to be affected by the COVID-19 pandemic and to what extent the recent improved trends will continue.

For instance, we have continued to experience reduced customer traffic and net sales when compared to pre-COVID-19 periods, and it is unclear whether customer behavior may continue to be slow to return to pre-COVID-19 patterns, if at all.

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

As such, the ultimate impacts of 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 such, the ultimate impacts of the COVID-19 pandemic on our businesses will depend on future developments, including the availability of labor, global supply chain disruptions, the variants of COVID-19, and the global availability and use of vaccines, which are highly uncertain and cannot be predicted.

As a result, we may have future write-downs or adjustments to inventories, receivables, long-lived assets, intangibles, goodwill, and the valuation allowance on deferred tax assets.

Severance- During the 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.

Severance- During the nine months ended October 30, 2021 and October 31, 2020, we incurred severance costs of $ 2.6 million and $ 10.0 million, respectively.

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

As of October 30, 2021, January 30, 2021, and October 31, 2020, we had accrued severance of $ 2.5 million, $ 6.5 million, and $ 3.8 million, respectively, included in accrued expenses on the condensed consolidated balance sheets.

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

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

3 unchanged sentences

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.

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

Significant estimates and assumptions are required as a part of accounting for sales returns allowances, customer allowances and discounts, gift card breakage income, deferred revenue associated with loyalty programs, valuation of inventories, depreciation and amortization, impairments of long-lived assets, intangibles and goodwill, lease accounting, income taxes, and self-insurance reserves.

2 unchanged sentences

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.

Restricted cash represents 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

(in thousands) October 30, 2021 January 30, 2021 October 31, 2020

Cash and cash equivalents $ 83,069 $ 59,581 $ 114,531

10 unchanged sentences

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 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.

The carrying value of borrowing under our ABL Revolver approximated the fair value.

As of October 30, 2021, the fair value of borrowings under our Term Loan was $ 244.1 million compared to the carrying value of $ 234.4 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.

During the nine months ended October 30, 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 Six months ended

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

Three months ended Nine months ended

(in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Retail segment:

24 unchanged sentences

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

Three months ended Six months ended

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

Three months ended Nine months ended

(in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Beginning of period $ 28,691 $ 29,919 $ 34,442 $ 35,461

9 unchanged sentences

Schottenstein Affiliates

As of July 31, 2021, the Schottenstein Affiliates consist of entities owned or controlled by Jay L.

As of October 30, 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 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.

As of October 30, 2021, the Schottenstein Affiliates beneficially owned approximately 20 % of the Company's outstanding common shares, representing approximately 54 % of the combined voting power, consisting of, in the aggregate, 6.6 million Class A common shares and 7.7 million Class B common shares.

The following summarizes the related party transactions with the Schottenstein Affiliates for the relevant periods:

Leases- We lease our fulfillment center and certain store locations owned by the Schottenstein Affiliates.

During the three months ended 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.

During the three months ended October 30, 2021 and October 31, 2020, we recorded rent expense from leases with Schottenstein Affiliates of $ 2.7 million and $ 2.6 million, respectively.

During the nine months ended October 30, 2021 and October 31, 2020, we recorded rent expense from leases with Schottenstein Affiliates of $ 8.1 million and $ 7.9 million, respectively.

As of October 30, 2021, January 30, 2021, and October 31, 2020, we had related party current operating lease liabilities of $ 7.1 million, $ 8.0 million, and $ 7.7 million, respectively, and non-current operating lease liabilities of $ 19.3 million, $ 24.6 million, and $ 25.8 million , respectively.

Other Purchases and Services- During the three months ended October 30, 2021 and October 31, 2020, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 1.2 million and $ 1.7 million, respectively.

During the nine months ended October 30, 2021 and October 31, 2020, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 3.7 million and $ 4.2 million, respectively.

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 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.

During the three months ended October 30, 2021 and October 31, 2020, we recorded royalty expense for amounts paid to ABG-Camuto of $ 4.4 million and $ 4.6 million, respectively.

During both the nine months ended October 30, 2021 and October 31, 2020, we recorded royalty expense for amounts paid to ABG-Camuto of $ 13.6 million.

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

6 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 Six months ended

Three months ended Nine months ended

(in thousands)

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

October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Weighted average basic shares outstanding

4 unchanged sentences

77,135 72,344 77,216 72,134

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.

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

For the nine months ended October 30, 2021 and October 31, 2020, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings (loss) per share due to their anti-dilutive effect was 3.0 million and 5.9 million , respectively.

STOCK-BASED COMPENSATION

Stock-based compensation expense consisted of the following:

Three months ended Six months ended

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

Three months ended Nine months ended

(in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Stock options $ 130 $ 338 $ 515 $ 1,208

1 unchanged sentence

$ 5,281 $ 4,580 $ 18,646 $ 15,176

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

The following table summarizes the stock-based compensation award activity for RSUs for the nine months ended October 30, 2021:

Number of shares

5 unchanged sentences

Outstanding - end of period 6,011 744

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

SHAREHOLDERS' EQUITY

2 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:

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

October 30, 2021 January 30, 2021 October 31, 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.

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):

Accumulated Other Comprehensive Loss- For the nine months ended October 31, 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

5 unchanged sentences

Receivables, net, consisted of the following:

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

(in thousands) October 30, 2021 January 30, 2021 October 31, 2020

Customer accounts receivables:

12 unchanged sentences

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

Six months ended

July 31, 2021 August 1, 2020

Nine months ended

October 30, 2021 October 31, 2020

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

17 unchanged sentences

(in thousands) Cost Accumulated Amortization Net

July 31, 2021

October 30, 2021

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

5 unchanged sentences

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

August 1, 2020

October 31, 2020

Definite-lived customer relationships $ 2,851 $ ( 2,626 ) $ 225

6 unchanged sentences

Accrued expenses consisted of the following:

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

(in thousands) October 30, 2021 January 30, 2021 October 31, 2020

Gift cards $ 27,174 $ 34,442 $ 28,299

7 unchanged sentences

Debt consisted of the following:

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

(in thousands) October 30, 2021 January 30, 2021 October 31, 2020

ABL Revolver $ — $ 100,000 $ 100,000

Term Loan 234,375 243,750 246,875

Credit Facility — — 393,000

Total debt 234,375 343,750 346,875

2 unchanged sentences

Long-term debt $ 165,422 $ 272,319 $ 274,635

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.

ABL Revolver- On August 7, 2020, we replaced our previous senior unsecured revolving credit agreement ("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.

borrowings, and a $ 2.0 million sub-limit for swing loan advances for Canadian borrowings.

1 unchanged sentence

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.

As of October 30, 2021, the ABL Revolver had a borrowing base of $ 400.0 million, with no outstanding borrowings and $ 5.3 million in letters of credit issued, resulting in $ 394.7 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 July 31, 2021.

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

Interest expense related to the ABL Revolver includes interest on borrowings and letters of credit, commitment fees and the amortization of debt issuance costs.

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

Term Loan- On August 7, 2020, we also entered into a $ 250.0 million Term Loan.

2 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.

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

Borrowings under the Term Loan accrue interest, at our option, at a rate equal to:

(A) a base rate per annum equal to the greater of (i) 3.25 %, (ii) the prime rate, (iii) the overnight bank funding rate plus 0.5 %, and (iv) the adjusted one-month LIBOR plus 1.0 %, plus, in each instance, 7.5 %;

or (B) an adjusted LIBOR per annum (subject to a floor of 1.25 %), plus 8.5 %, with an interest rate of 9.8 % (effective interest rate of 11.8 % when including the amortization of debt issuance costs) as of July 31, 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.

2 unchanged sentences

There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions.

We are restricted from paying dividends or repurchasing stock until the third quarter of fiscal 2021 at the earliest, after which certain limitations apply.

As of October 30, 2021, we are limited in our ability to pay dividends, repurchase stock, and make certain restricted payments above a maximum of $ 10.0 million over the term of the Term Loan.

Both the ABL Revolver and the Term Loan contain customary events of default with cross-default provisions.

Upon an event of default that is not cured or waived within the cure periods, in addition to other remedies that may be available to the lenders, the obligations may be accelerated, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral.

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

As of October 30, 2021, we were in compliance with all financial covenants.

COMMITMENTS AND CONTINGENCIES

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

As of October 30, 2021, the total future minimum lease payment requirements under these guarantees were approximately $ 14.6 million .

DESIGNER BRANDS INC.

5 unchanged sentences

Retail Canada Retail Brand Portfolio Other Corporate/Eliminations Total

Three months ended July 31, 2021

Three months ended October 30, 2021

External customer sales $ 709,608 $ 74,792 $ 69,067 $ — $ — $ 853,467

3 unchanged sentences

Income from equity investment $ — $ — $ 2,600 $ — $ — $ 2,600

Three months ended August 1, 2020

Three months ended October 31, 2020

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

1 unchanged sentence

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

Gross profit (loss) $ 40,097 $ 5,650 $ ( 11,440 ) $ 118 $ 2,617 $ 37,042

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

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

Six months ended July 31, 2021

Nine months ended October 30, 2021

External customer sales $ 2,053,359 $ 172,981 $ 147,617 $ — $ — $ 2,373,957

3 unchanged sentences

Income from equity investment $ — $ — $ 6,598 $ — $ — $ 6,598

Six months ended August 1, 2020

Nine months ended October 31, 2020

External customer sales $ 1,272,951 $ 140,509 $ 148,998 $ 62,909 $ — $ 1,625,367

1 unchanged sentence

Total net sales $ 1,272,951 $ 140,509 $ 196,476 $ 62,909 $ ( 47,478 ) $ 1,625,367

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

Gross profit $ 124,806 $ 22,244 $ 24,592 $ 962 $ 3,634 $ 176,238

Income from equity investment $ — $ — $ 6,325 $ — $ — $ 6,325

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