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Item 7. Management’s Discussion and Analysis

2022-03-21 compared with 2021-03-22 · 168 added, 164 removed, 108 unchanged (75% of the section changed)

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This management's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve various risks and uncertainties.

See Cautionary Statement on page iii for a discussion of the uncertainties, risks and assumptions associated with these statements.

See Cautionary Statement Regarding Forward-Looking Information for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 on page ii for a discussion of the uncertainties, risks, and assumptions associated with these statements.

This discussion is best read in conjunction with our Consolidated Financial Statements, including the notes thereto, set forth in Item 8.

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Risk Factors of this Form 10-K and included elsewhere in this Form 10-K.

The following discussion includes a comparison of our results of operations and liquidity and capital resources for fiscal 2020 and 2019.

We have omitted discussion of fiscal 2018 results, which may be found in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, filed with the SEC on May 1, 2020 and amended on May 7, 2020.

The following discussion includes a comparison of our results of operations and liquidity and capital resources for 2021 and 2020.

Except where it may be useful in understanding 2021 results, we have omitted discussion of results for 2019, which may be found in Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended January 30, 2021, filed with the SEC on March 22, 2021.

EXECUTIVE OVERVIEW AND TRENDS IN OUR BUSINESS

During fiscal 2020 and into fiscal 2021, the volatile macro environment and business conditions have required us to be nimble and quickly adapt our business model.

The following are examples of trends in our business and changes we have made in response to the impacts of COVID-19 and the current macroeconomic environment:

• Inventory Management- COVID-1 9 has negatively impacted the U.S.

and global economics, resulting in a drop in demand for our products, specifically in the seasonal and dress categories.

We have implemented inventory management actions that enabled us to decrease total inventory by 25.2% at the end of fiscal 2020 compared to the end of fiscal 2019.

Throughout the fiscal year, we have been more aggressive with our promotional activity to clear through seasonal inventory and drive sales, and this markdown activity has materially impacted margins.

• Changing Consumer Preferences- With our customers staying home, there has been a clear shift in consumer behavior and preferences to athleisure, which includes athletic and casual products, and away from dress and seasonal categories.

We have modified receipts to match these expectations and continue to see opportunity ahead of us given our historic under-penetration in the athletic space.

• Strength in Digital- With the decrease in store traffic during fiscal 2020, our digital fulfillment options, such as Buy Online Pick Up in Store, Buy Online Ship to Store, and Curbside Pickup, coupled with our ability to use our stores for fulfillment, have served us well in mitigating decreased revenues.

We were able to generate strong digital demand during fiscal 2020, well above the digital demand for last year across all segments.

We anticipate that adapting to operating as a digital-focused retailer will have a lasting influence on how we operate moving forward.

In addition, we believe that our increased penetration in the athletic market, coupled with our historical success in dress and seasonal and a fully integrated supply chain supported by our acquisition of Camuto Group, position us well to be a premier footwear retailer for all of the family's needs over the long term.

Impact of COVID-19 on our Results of Operations

In March 2020, the World Health Organization declared the coronavirus disease ("COVID-19") outbreak a pandemic.

On March 18, 2020, to help control the spread of the virus and protect the health and safety of our customers, associates, and the communities we serve, we temporarily closed all of our stores in the U.S.

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.

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, resulting in the elimination of approximately 1,000 associate positions, including over 200 vacant positions that will not be filled.

Following the re-opening of stores, we experienced and have continued to experience significantly reduced customer traffic and net sales, 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.

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.

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.

We may have additional write-downs or adjustments to inventories, receivables, long-lived assets, intangibles, goodwill, and the valuation allowance on deferred tax assets.

Despite the continuing challenges of the volatile market conditions and supply chain disruptions, our strong results for 2021 demonstrated our ability to be nimble and quickly adapt our business model.

Our operating profit in 2021 surpassed pre-COVID-19 levels with a 61% growth when compared to 2019 and we continued to make progress by:

• Growing our market share in historically underpenetrated categories, including athletic, men’s and kids’;

• Maintaining our leading position in the seasonal and dress categories;

• Leaning further into our in-house design and sourcing capabilities as we move towards our goal of becoming a builder of brands.

As we look ahead to our strategic growth, we have organized our efforts around three pillars - Customer, Brand, and Speed:

• Customer- More than ever, our customers have a great desire for products and experiences, and we are adding resources to our digital, information technology ("IT") and analytics teams to understand precisely what they want and what can be improved to provide the best possible experience.

Undertaking these actions will enable us to better understand our customers, provide improved service, and target new demographics in ways that we have never deployed before.

We are also developing new ideas for how we can provide more value to our VIP rewards members, who we believe continue to be the lifeblood of our business and our largest competitive differentiator.

• Brand- Controlling our own brand destiny is critical for our growth.

As we continue to design some of the best brands in the industry, Vince Camuto, Jessica Simpson, Lucky Brand and JLO Jennifer Lopez, we are combining that with our strong direct-to-consumer distribution through our physical footprint in North America and digital infrastructure.

We are also partnering with some of the top national brands in the industry to offer one of the largest and broadest assortments.

We remain focused on investing in our top 50 brands and will continue to prioritize growing our own brands.

• Speed- Moving quickly is of the utmost importance to consumers.

We are developing processes to deliver products more quickly.

Fulfillment of digital customer orders currently takes five to seven business days and we are working to improve that to two to three calendar days while simultaneously finding efficiencies to contain costs.

We are optimizing our current infrastructure and expanding our delivery partnerships.

We are also working to improve collaboration through technology and processes across our organization and to gain additional efficiencies in our overall development cycle.

IMPACT OF THE COVID-19 PANDEMIC ON OUR RESULTS OF OPERATIONS

As we continue to closely monitor the ongoing COVID-19 pandemic, our top priority remains protecting the health and safety of our customers and associates.

As this continues to be an unprecedented period of uncertainty, we have made adjustments and may continue to adjust our operational plans, inventory controls, and liquidity management, as well as make changes to our expense and capital expenditure plans.

While trends improved during 2021 as compared to 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 in-store traffic and net sales when compared to pre-COVID-19 periods, and it is unclear when customer behavior will return to pre-COVID-19 patterns, if at all.

The ongoing and prolonged nature of the COVID-19 pandemic may lead to further adjustments to our operations.

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

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

FINANCIAL SUMMARY AND OTHER KEY METRICS

Net sales decreased to $2.2 billion for fiscal 2020 from $3.5 billion for fiscal 2019.

The 36.0% decrease in net sales was primarily driven by the ongoing and prolonged impacts of COVID-19, which contributed to the 34.2% decrease in comparable sales.

During fiscal 2020, we experienced significantly reduced customer traffic and net sales relative to fiscal 2019.

In addition, we had lower Brand Portfolio segment sales in fiscal 2020 due to our retailer customers also experiencing significantly reduced customer traffic and lower demand for our products.

In fiscal 2020, gross profit as a percentage of net sales was 13.9%, as compared to 28.6% last year.

The decrease in the gross profit rate was primarily driven by the impact of the COVID-19 outbreak on our operations, which we addressed with aggressive promotional activity.

The impact of COVID-19 and the actions we took also resulted in increased shipping costs associated with higher digital penetration and the deleveraging of distribution and fulfillment, store occupancy, and royalty expenses on lower sales volume.

Net loss for fiscal 2020 was $488.7 million, or a loss of $6.77 per diluted share, which included net after-tax charges of $207.1 million, or $2.87 per diluted share, primarily related to impairment and restructuring charges, a settlement gain with a vendor, and the valuation allowance established against deferred tax assets.

Net income for fiscal 2019 was $94.5 million, or $1.27 earnings per diluted share, which included net after-tax charges of $15.1 million, or $0.20 per diluted share, primarily related to integration and restructuring expenses associated with the businesses acquired in fiscal 2018 and impairment charges, partially offset by a valuation allowance release related to the net operating loss utilization for our legal entity in Canada.

Comparable Sales Performance Metric

The following table presents comparable sales for each segment and in total for the last two fiscal years:

Comparable sales:

• Net sales increased to $3.2 billion for 2021 from $2.2 billion for 2020 .

• G ross profit as a percentage of net sales was 33.4% for 2021, as compared to 13.9% for 2020 and higher than the pre-COVID-19 rate, which was 28.6% for 2019.

• Net income for 2021 was $154.5 million, or $2.00 per diluted share, which included net after-tax benefits of $23.2 million , or $0.30 per diluted share, primarily related to the change in valuation allowance on deferred tax assets, restructuring charges, and target acquisition costs.

Net loss f or 2020 was $488.7 million , or a loss of $6.77 per diluted share, which included net after-tax charges of $207.1 million , or $2.87 per diluted share, primarily related to impairment and restructuring charges, a settlement gain with a vendor, and the valuation allowance established against deferred tax assets.

Comparable Sales Performance Metric- The following table presents the percent change in comparable sales for each segment and in total:

Change in comparable sales:

Retail segment 55.0 % (34.9) %

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Brand Portfolio segment - direct-to-consumer channel 30.9 % 38.2 %

Other (50.4) % 0.3 %

Total comparable sales (34.2) % 0.8 %

We consider comparable sales, a primary metric commonly used throughout the retail industry, to be an important indicator of the performance of our retail and direct-to-consumer businesses.

We include stores in our comparable sales metric for those stores in operation for at least 14 months at the beginning of the fiscal year.

Other NA (50.4) %

Total 51.6 % (34.2) %

NA - Not applicable

We consider the percent change in comparable sales from the same previous year period, a primary metric commonly used throughout the retail industry, to be an important measurement for management and investors of the performance of our direct-to-consumer businesses.

We include in our comparable sales metric sales from stores in operation for at least 14 months at the beginning of the applicable year.

Stores are added to the comparable base at the beginning of the year and are dropped for comparative purposes in the quarter in which they are closed.

Comparable sales include stores temporarily closed during fiscal 2020 as a result of the COVID-19 outbreak as management continues to believe that this metric is meaningful to monitor our performance.

Comparable sales include e-commerce sales.

Comparable sales include stores temporarily closed as a result of the COVID-19 pandemic as management believes that this metric is meaningful to monitor our performance.

Comparable sales also include e-commerce sales.

Comparable sales for the Canada Retail segment exclude the impact of foreign currency translation and are calculated by translating current period results at the foreign currency exchange rate used in the comparable period of the prior year.

Comparable sales for the Brand Portfolio segment include the direct-to-consumer e-commerce site at www.vincecamuto.com.

Beginning with the third quarter of fiscal 2020, comparable sales no longer include the Other segment due to no longer having activity in the Other segment.

Comparable sales for the Brand Portfolio segment include the direct-to-consumer e-commerce site www.vincecamuto.com.

Beginning with the third quarter of 2020, comparable sales do not include the Other segment due to no longer having activity in the Other segment.

The calculation of comparable sales varies across the retail industry and, as a result, the calculations of other retail companies may not be consistent with our calculation.

Number of Stores

At the end of the last two fiscal years, we had the following number of stores:

January 30, 2021 February 1, 2020

Number of Stores- As of the end of 2021 and 2020, we had the following number of stores:

January 29, 2022 January 30, 2021

Retail segment - DSW stores 508 519

Canada Retail segment:

The Shoe Company / Shoe Warehouse stores 117 118

The Shoe Company stores 115 117

DSW stores 25 27

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RESULTS OF OPERATIONS

The following represents selected components of our consolidated results of operations, with associated percentages of net sales:

2020 2019 Change

(dollars in thousands, except per share amounts) Amount % of Net Sales Amount % of Net Sales Amount %

The following table presents our consolidated results of operations with associated percentages of net sales:

(amounts in thousands, except per share amounts) 2021 2020 Change

Amount % of Net Sales Amount % of Net Sales Amount %

Net sales $ 3,196,583 100.0 % $ 2,234,719 100.0 % $ 961,864 43.0 %

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NM - Not meaningful

Net Sales- The following summarizes net sales by segment:

Fiscal Change

(dollars in thousands) 2020 2019 Amount % Comparable Sales %

The following table summarizes net sales by segment:

(dollars in thousands) 2021 2020 Change

Amount % of Total Segment Net Sales Amount % of Total Segment Net Sales Amount % Comparable Sales %

Segment net sales:

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Brand Portfolio 286,024 8.7 % 248,646 10.8 % 37,378 15.0 % 30.9%

Other 62,909 122,090 (59,181) (48.5) % (50.4)%

Other — — % 62,909 2.7 % (62,909) NM NA

Total segment net sales 3,290,539 100.0 % 2,294,537 100.0 % 996,002 43.4 % 51.6%

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Consolidated net sales $ 3,196,583 $ 2,234,719 $ 961,864 43.0 %

The decreases in comparable sales for all segments, except Brand Portfolio, and in total consolidated net sales, were primarily driven by the temporary closure of stores during our peak selling season in response to the COVID-19 outbreak, significantly reduced customer traffic since re-opening, and further temporary closures for certain stores in Canada during the fourth quarter of fiscal 2020.

This decrease was partially offset by strong performance in our e-commerce channels, including www.vincecamuto.com, which is included in comparable sales for the Brand Portfolio segment, as a certain amount of customer demand shifted online.

Brand Portfolio segment net sales were also negatively impacted by the COVID-19 outbreak as our retailer customers temporarily closed stores and canceled orders.

Gross Profit- The following summarizes gross profit by segment:

2020 2019 Change

NA - Not applicable

NM - Not meaningful

The improvement in sales, including increases in comparable sales and total consolidated net sales, during 2021 over 2020 was a result of the temporary closure of stores in 2020 during our peak spring selling season in response to the COVID-19 pandemic and significantly reduced customer in-store traffic since re-opening.

During 2021, sales significantly recovered from 2020 levels, although we have continued to experience reduced customer in-store traffic and consolidated net sales remain lower when compared to pre-COVID-19 periods.

During a portion of 2021, the Canada Retail segment was impacted by further temporary closures and restrictions in certain key markets.

In addition, net sales were impacted by permanent store closures, including those serviced in the Other segment.

The Brand Portfolio segment net sales were higher in 2021 than 2020 due to increased orders as our retailer customers also recover, but net sales were still below pre-COVID-19 levels.

The following table summarizes gross profit by segment:

(dollars in thousands)

2021 2020 Change

Amount % of Segment Net Sales Amount % of Segment Net Sales Amount % Basis Points

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Brand Portfolio 66,774 23.3 % 36,393 14.6 % 30,381 83.5 % 870

Other 962 1.5 % 26,065 21.3 % $ (25,103) (96.3) % (1,980)

308,792 1,007,061

Other — — % 962 1.5 % (962) NM NM

Total segment gross profit 1,077,057 32.7 % 308,792 13.5 % 768,265 248.8 % 1,920

Elimination of intersegment gross loss (profit) (8,420) 2,449 (10,869)

Gross profit $ 311,241 13.9 % $ 999,670 28.6 % $ (688,429) (68.9) % (1,470)

The decrease in gross profit was primarily driven by the impacts of the COVID-19 outbreak on our operations, including the temporary closure of stores and significantly reduced customer traffic since re-opening, which we addressed with aggressive promotional activity.

The impact of COVID-19 and the actions that we took also resulted in increased shipping costs associated with higher digital penetration and the deleveraging of distribution and fulfillment, store occupancy, and royalty expenses on lower sales volume.

Consolidated gross profit $ 1,068,637 33.4 % $ 311,241 13.9 % $ 757,396 243.3 % 1,950

NM - Not meaningful

The improvement in gross profit was primarily driven by increased sales during 2021 as compared to 2020.

We addressed the temporary closure of stores in 2020, and the subsequent reduction in customer in-store traffic upon store re-openings, with aggressive promotional activity.

These actions resulted in higher inventory reserves, increased shipping costs associated with higher digital penetration, and deleveraged distribution and fulfillment, store occupancy, and royalty expenses on lower sales volume during 2020.

During 2021, tight inventory positions resulted in fewer promotions.

Accordingly, gross profit as a percentage of net sales for 2021 was higher by 480 basis points than the pre-COVID-19 rate, which was 28.6% for 2019.

The Brand Portfolio segment's gross profit as a percentage of net sales significantly improved during 2021 compared to 2020 but remained below pre-COVID-19 levels when compared to 2019 due to the deleverage impacts of lower net sales.

Elimination of intersegment gross loss (profit) consisted of the following:

Fiscal Change

(dollars in thousands) 2020 2019 Amount %

(dollars in thousands) 2021 2020

Elimination of intersegment activity:

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Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period 23,497 20,239

Gross loss (profit) $ 2,449 $ (7,391) $ 9,840 NM

NM - Not meaningful

Operating Expenses- Operating expenses decreased by $121.5 million over last year, primarily driven by the implementation of temporary leaves of absence without pay for a significant number of our employees, the reduction of pay for nearly all remaining employees in response to the COVID-19 outbreak for most of the first half of fiscal 2020 and the reduction of our workforce, and reductions in store labor initiated at the end of the second quarter of fiscal 2020, which was partially offset by higher incentive compensation and marketing expense, and incremental costs directly related to COVID-19.

O perating expenses during fiscal 2020 were offset by government subsidies in the form of qualified payroll tax credits of $11.4 million and a gain of $9.0 million f rom a settlement with a vendor.

Income From Equity Investment- We account for our equity investment in ABG-Camuto using the equity method of accounting, with the net earnings attributable to our 40% investment being classified within operating profit.

ABG-Camuto is an integral part of the Brand Portfolio segment given the licensing agreement between us and ABG-Camuto that allows us to sell licensed, branded products to wholesale customers.

Impairment Charges- As a result of the material reduction in net sales and cash flows, we performed our impairment analysis for our U.S.

Retail and Canada Retail segments at the store-level.

$ (8,420) $ 2,449

OPERATING EXPENSES

Operating expenses increased by $117.4 million during 2021 as compared to 2020, primarily driven by the implementation of temporary leaves of absence without pay for a significant number of our employees and reducing pay for nearly all employees not placed on temporary leave in response to the COVID-19 pandemic for most of the first half of 2020.

During the second half of 2020, we re-opened our stores, discontinued the furlough program, and restored pay for our associates that had taken pay reductions, but made reductions to our workforce.

During 2021, we had an increase in store payroll costs in line with the increase in net sales and higher incentive compensation expense.

Operating expenses as a percentage of sales improved to 27.2% in 2021 compared to 33.7% in 2020, but was still higher than the pre-COVID-19 rate, which was 25.1% as a percentage of sales in 2019, primarily due to higher direct marketing expense and incentive compensation on lower sales.

IMPAIRMENT CHARGES

During 2021, we recorded impairment charges of $1.7 million for abandoned equipment we are replacing and for the sublease of an abandoned leased space.

As a result of the material reduction in net sales and cash flows due to the temporary closure of all of our stores during 2020, we performed an impairment analysis at the store level.

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

During fiscal 2020, we recorded impairment charges of $127.1 million ($104.2 million and $22.9 million for the U.S.

Retail and Canada Retail segments, respectively).

Also during fiscal 2020, we recorded an impairment charge of $6.5 million for the Brand Portfolio segment customer relationship intangible asset resulting in a full impairment due to the lack of projected cash flows over the remaining useful life.

Also as a result of the material reduction in net sales and cash flows and the decrease in the Company's market capitalization due to the impact of the COVID-19 outbreak on macroeconomic conditions, we updated our impairment analysis for goodwill and other indefinite-lived intangible assets.

During 2020, we recorded impairment charges of $127.1 million for under-performing stores.

Also during 2020, we recorded an impairment charge of $6.5 million for the Brand Portfolio segment customer relationship intangible asset resulting in a full impairment due to the lack of projected cash flows over the remaining useful life.

Further, as a result of the material reduction in net sales and cash flows and the decrease in the Company's market capitalization due to the impact of the COVID-19 pandemic on macroeconomic conditions, we performed an impairment analysis for goodwill and other indefinite-lived intangible assets.

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

Accordingly, during fiscal 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.

During fiscal 2019, we recorded impairment charges of $7.8 million, including $4.8 million for operating lease assets and other property and equipment in the Brand Portfolio segment related to the planned consolidation of certain locations as part of our integration efforts, and $3.0 million primarily for operating lease assets related to under-performing stores ($2.3 million and $0.7 million for the U.S.

Retail and Canada Retail segments, respectively).

Interest Expense, net - During fiscal 2020, interest expense increased over last year due to additional debt under our new ABL Revolver and Term Loan, which have higher interest rates.

Income Taxes- The effective tax rate for fiscal 2020 was 19.7% co mpared to 21.1% for fiscal 2019.

The effective tax rates reflect the impact of federal, state and local, and foreign taxes and the decrease in the effective tax rate was primarily driven by the recording of an additional valuation allowance of $87.6 million partially offset by the ability to carry back current year losses to a tax year where the U.S.

Accordingly, during 2020, we recorded an impairment charge of $20.0 million for the First Cost reporting unit in the Brand Portfolio segment, resulting in a full impairment.

The effective tax rate changed to 10.7% for 2021 from 19.7% for 2020.

The rate for 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 2020 return reflecting implemented tax strategies.

The rate for 2020 is the result of recording an additional valuation allowance of $87.6 million partially offset by the ability to carry back current year losses to a tax year where the U.S.

federal statutory tax rate was 35%.

During fiscal 2019, we had $3.9 million valuation allowance release primarily related to the net operating loss utilization for our legal entity in Canada.

LIQUIDITY AND CAPITAL RESOURCES

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

Our primary ongoing operating cash flow requirements are for inventory purchases, payments on lease obligations and licensing royalty commitments, other working capital needs, and c apital expenditures.

Our working capital and inventory levels fluctuate seasonally.

For additional information on our material cash requirements, refer to Note 13, Debt , Note 14, Leases , and Note 15, Commitments and Contingencies - Contractual Obligations , of the Consolidated Financial Statements of this Form 10-K.

We are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business and withstand unanticipated business volatility, including the impact of COVID-19.

We believe that cash generated from our operations, together with our current levels of cash, as well as the use of our ABL Revolver, are sufficient to maintain our ongoing operations, fund capital expenditures, and meet our debt service obligations over the next 12 months.

The following table summarizes our material undiscounted cash requirements for 2022 and future fiscal years thereafter, and provides reference for each item to the relevant note of the Consolidated Financial Statements of this Form 10-K:

(in thousands) Note Reference 2022 Future Fiscal Years Thereafter Total

Debt maturities Note 11 $ — 231,250 $ 231,250

Fixed minimum lease payments

Note 12 $ 229,051 654,618 $ 883,669

Noncancelable purchase obligations

Note 13 $ 9,101 12,285 $ 21,386

Guaranteed minimum royalty payments

Note 13 $ 34,659 222,029 $ 256,688

On February 8, 2022, we settled in full the $231.3 million principal amount outstanding under our senior secured term loan ("Term Loan").

In connection with this settlement, we incurred a $12.7 million loss on extinguishment of debt, comprised of a $6.9 million prepayment premium and a $5.7 million write-off of unamortized debt issuance costs, which will be recorded in the first quarter of 2022.

The settlement of the Term Loan was made using proceeds from borrowings under the ABL Revolver.

We believe that cash generated from our operations, together with our current levels of cash and availability under our ABL Revolver, are sufficient to maintain our ongoing operations and fund capital expenditures over the next 12 months and beyond.

The following table presents the key categories of our consolidated statements of cash flows:

(in thousands) 2021 2020 Change

Net cash provided by (used in) operating activities $ 171,429 $ (153,793) $ 325,222

Net cash provided by (used in) investing activities (35,028) 2,631 (37,659)

Net cash provided by (used in) financing activities (121,490) 122,954 (244,444)

Effect of exchange rate changes on cash balances (33) 1,225 (1,258)

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 14,878 $ (26,983) $ 41,861

OPERATING CASH FLOWS

For fiscal 2020, net cash used in operations was $153.8 million compared to net cash provided by operations of $196.7 million for fiscal 2019.

The change was driven by the net loss incurred during fiscal 2020 as a result of the COVID-19 outbreak after adjusting for non-cash activity, including impairment charges and the change in deferred taxes, which was partially offset by measures that we implemented to manage our working capital to preserve liquidity, including renegotiating vendor and landlord terms, reducing inventory orders, and significantly cutting costs.

The change in net cash provided by (used in) operations was driven by the net income recognized during 2021 versus a net loss incurred during 2020 as a result of the impacts of the COVID-19 pandemic, after adjusting for non-cash activity including impairment charges and the change in deferred taxes.

This was partially offset by higher spend on working capital as our business recovered from the impacts of the COVID-19 pandemic and the measures we implemented in 2020 to manage our working capital to preserve liquidity, including delaying vendor and landlord payments while we renegotiated terms, reducing inventory orders, and significantly cutting costs.

INVESTING CASH FLOWS

For fiscal 2020, net cash provided by investing activities was $2.6 million, due to the liquidation of our available-for sale-securities and the proceeds from a settlement with a vendor, partially offset by capital expenditures of $31.1 million that were reduced in order to preserve liquidity.

For fiscal 2019, net cash used in investing activities was $27.4 million, primarily due to capital expenditures of $77.8 million exceeding the net liquidation of our available-for-sale securities and the proceeds from a working capital settlement related to the Camuto Group acquisition.

For 2021, the net cash used in investing activities was primarily due to capital expenditures relating to infrastructure and IT projects, new stores, and store improvements.

For 2020, the net cash provided by investing activities was due to the liquidation of our available-for-sale securities and the proceeds from a settlement with a vendor, partially offset by capital expenditures.

FINANCING CASH FLOWS

For fiscal 2020, net cash provided by financing activities was $123.0 million compared to net cash used in financing activities of $183.4 million for fiscal 2019.

During fiscal 2020, we had net proceeds from borrowings from our ABL Revolver and Term Loan offset by the settlement of borrowings under our senior unsecured revolving credit agreement (the "Credit Facility") and the payment of debt issuance costs associated with the changes we made to our debt structure.

We also significantly reduced the amount of dividends paid during the first quarter of fiscal 2020 and did not pay any dividends subsequently.

During fiscal 2019, net cash used in financing activities was primarily due to the payment of dividends and the repurchase of Class A common shares partially financed using our Credit Facility.

ABL Revolver- On August 7, 2020, we replaced the 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.

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 inv entory and a second priority lien on personal property assets that constitute first priority collateral for the Term Loan.

During 2021, the net cash used in financing activities was due to net payments of $100.0 million on the ABL Revolver and payments of $12.5 million on the Term Loan.

During 2020, the net cash provided by financing activities was due to net proceeds from borrowings from our ABL Revolver and Term Loan of $343.7 million offset by the settlement of borrowings under our senior unsecured revolving credit agreement (the "Credit Facility") of $190.0 million and the payment of debt issuance costs of $21.4 million associated with the changes we made to our debt structure.

ABL Revolver- On August 7, 2020, we replaced the Credit Facility with the ABL Revolver, which provides a revolving line of credit of up to $400.0 million.

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 inv entory.

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 January 30, 2021, the ABL Revolver had a borrowing base of $400.0 million, with $100.0 million outstanding and $5.3 million in letters of credit issued, resulting in $294.7 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 3.25% as of January 30, 2021.

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

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

As of January 29, 2022, the ABL Revolver had a borrowing base of $400.0 million, with no outstanding borrowings and $4.9 million in letters of credit issued, resulting in $395.1 million available for borrowings.

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

The Term Loan requires minimum quarterly principal payments with the remaining outstanding balance due i n August 2025.

The Term Loan has limited prepayment requirements under certain conditions.

The Term Loan is collateralized by a first priority lien on substantially all of our personal and real property (subject to certain exceptions), including investment property and intellectual property, and by a second priority lien on certain other personal property, primarily credit card receivables and inventory, that constitute first priority collateral for the ABL Revolver.

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

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

or (B) an adjusted LIBOR per annum (subject to a floor of 1.25%), plus 8.5%, with an interest rate of 9.75% (effective interest rate of 11.81% when including the amortization of debt issuance costs) as of January 30, 2021.

Debt Covenants- The ABL Revolver contains a minimum availability covenant in which 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.

The Term Loan includes a springing covenant imposing a minimum EBITDA covenant, which arises when liquidity is less than $150.0 million.

In addition, the ABL Revolver and the Term Loan each contain customary covenants restricting our activities, including limitations on the ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes.

The Term Loan was 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.

Termination of Term Loan- As discussed above, on February 8, 2022, we voluntarily terminated our Term Loan and settled in full the $231.3 million principal amount then outstanding.

The settlement of the Term Loan was made using proceeds from borrowings under the ABL Revolver.

As of January 29, 2022, the total borrowings under the Term Loan were classified as long-term debt since we had the ability and intent to refinance the Term Loan using borrowings from our ABL Revolver, which we classify as long-term debt.

Following the termination of the Term Loan, we had $235.0 million of outstanding borrowings, resulting in $160.1 million remaining available for borrowings, under the ABL Revolver.

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.

In addition, the ABL Revolver contains customary covenants restricting our activities, including limitations on the ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes.

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

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

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 January 29, 2022, we were in compliance with all financial covenants.

Refer to Note 11, Debt , of the Consolidated Financial Statements of this Form 10-K for further information about our debt arrangements.

CAPITAL EXPENDITURE PLANS

We expect to spend approximately $35.0 million to $45.0 million for capital expenditures in fiscal 2021.

Our future investments will depend primarily on the number of stores we open and remodel, infrastructure and information technology projects that we undertake and the timing of these expenditures.

During fiscal 2021, we plan to open approximately 7 to 12 new stores.

During fiscal 2020, the average investment required to open a new store was approximately $1.4 million prior to any tenant allowances that we might have received, and included fixtures and leasehold improvements, inventory, new store advertising, and other expenses.

We expect to spend approximately $70.0 million to $80.0 million for capital expenditures in 2022.

Our future investments will depend primarily on the number of stores we open and remodel, infrastructure and IT projects that we undertake and the timing of these expenditures.

RECENT ACCOUNTING PRONOUNCEMENTS

The information related to recent accounting pronouncements as set forth in Note 1, Significant Accounting Policies , of the Consolidated Financial Statements included in this Form 10-K is incorporated herein by reference.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

As discussed in Note 1, Significant Accounting Policies , of the Consolidated Financial Statements included in this Form 10-K, the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S.

As discussed in Note 1, Description of Business and Significant Accounting Policies , of the Consolidated Financial Statements included in this Form 10-K, the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S.

requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of commitments and contingencies at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period.

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We constantly re-evaluate these significant factors and make adjustments where facts and circumstances dictate.

While we believe

that the factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated financial statements, we cannot guarantee that our estimates and assumptions will be accurate.

While we believe that the factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated financial statements, we cannot guarantee that our estimates and assumptions will be accurate.

As the determination of these estimates requires the exercise of judgment, actual results may differ from those estimates, and such differences may be material to our consolidated financial statements.

We believe the following represent the most significant accounting policies, critical estimates and assumptions, among others, used in the preparation of our consolidated financial statements:

Policy Judgments and Estimates Effect if Actual Results Differ from Assumptions

Impairment of Goodwill and Other Indefinite Lived Intangible Assets.

We evaluate goodwill and other indefinite lived intangible assets for impairment annually during our fourth quarter, or more frequently if an event occurs or circumstances change, such as material deterioration in performance or a significant and sustained decline in our stock price, that would indicate that impairment may exist.

Policy Judgments and Estimates Effect if Actual Results

Differ from Assumptions

Inventories- The U.S.

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

Under the retail inventory method, the valuation of inventories at cost and the resulting gross profits are determined by applying a calculated cost-to-retail ratio to the retail value of inventories.

The cost basis of inventories reflected on the balance sheet is decreased by charges to cost of sales at the time that the retail value of the inventory is lowered by markdowns.

The Canada Retail and Brand Portfolio segments account for inventory using the moving average cost method and is stated at the lower of cost or net realizable value.

For all inventories, we also monitor excess and obsolete inventories that may need to be liquidated at amounts below cost.

We perform physical inventory counts or cycle counts on all inventory on hand throughout the year and adjust the recorded balance to reflect the results.

We record estimated shrink between physical inventory counts, based on historical experience and recent results, less amounts realized.

Inherent in the calculation of inventories are certain significant judgments and estimates, including setting the original merchandise retail value, markdowns, shrink, and liquidation values.

The shrink reserve is calculated as a percentage of sales from the last physical inventory date, based on both historical experience and recent physical inventory results, less amounts realized.

Aged inventory may be written down using estimated liquidation values and cost of disposal based on historical experience.

If the reduction to inventories for markdowns, shrink, and aged inventories were to increase by 10%, cost of sales would increase by approximately $3.9 million.

Asset Impairment of Long-Lived Assets- We periodically evaluate the carrying amount of our long-lived assets, primarily property and equipment and operating lease assets, when events and circumstances warrant such a review to ascertain if any assets have been impaired.

The carrying amount of a long-lived asset or asset group is considered impaired when the carrying value of the asset or asset group exceeds the expected future cash flows from the asset or asset group.

The impairment loss recognized is the excess of the carrying value of the asset or asset group over its fair value.

Our reviews are conducted at the lowest identifiable level, which typically is at the store level for the majority of our long-lived assets.

Fair value at the store level is typically based on projected discounted cash flows over the remaining lease term.

We also review construction in progress projects, including internal-use software under development, for recoverability when we have a strategic shift in our plans.

A 10% change in our projected cash flows for our store fleet would not result in a material amount of additional impairment charges.

To the extent that these future projections or our strategies change, the conclusion regarding impairment may differ from our current estimates.

Policy Judgments and Estimates Effect if Actual Results

Differ from Assumptions

Impairment of Goodwill and Other Indefinite Lived Intangible Assets- We evaluate goodwill and other indefinite lived intangible assets for impairment annually during our fourth quarter, or more frequently if an event occurs or circumstances change, such as material deterioration in performance or a significant and sustained decline in our stock price, that would indicate that impairment may exist.

When evaluating for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that there is an impairment.

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Retail segment, which is also the reporting unit, and $15.5 million in indefinite-lived trademarks and tradenames within the Canada Retail segment.

We determined the fair values of the reporting unit and of the indefinite-lived intangibles were in excess of their carrying values and a 10% decrease in fair values would not result in a material impairment charge.

We performed a qualitative impairment assessment for goodwill.

In addition, we determined the fair values of the indefinite-lived intangibles were in excess of their carrying values and a 10% decrease in fair values would not result in a material impairment charge.

As we periodically reassess estimated future cash flows and asset fair values, changes in our estimates and assumptions may cause us to realize material impairment charges in the future.

Asset Impairment of Long-Lived Assets.

We periodically evaluate the carrying amount of our long-lived assets, primarily property and equipment and operating lease assets, when events and circumstances warrant such a review to ascertain if any assets have been impaired.