What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-25 compared with 2023-03-16 · 318 added, 360 removed, 637 unchanged (52% of the section changed)

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We have audited the accompanying consolidated balance sheets of Designer Brands Inc.

and subsidiaries (the "Company") as of January 28, 2023 and January 29, 2022, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, for each of the three years in the period ended January 28, 2023, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company's internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 28, 2023 and January 29, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2023, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

and subsidiaries (the "Company") as of February 3, 2024 and January 28, 2023, the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended February 3, 2024, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company's internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 3, 2024 and January 28, 2023, and the results of its operations and its cash flows for each of the three years in the period ended February 3, 2024, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinions

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Inventories – Refer to Note 1 to the financial statements

Valuation of U.S.

Retail Segment Inventories – Refer to Note 1 to the financial statements

Critical Audit Matter Description

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

Inherent in the valuation of inventory are certain significant judgments and estimates, including estimating inventory markdowns, which can significantly impact the ending inventory valuation and the resulting gross profit.

Earnings are negatively impacted as the merchandise is marked down prior to sale.

Inherent in the valuation of inventories are certain significant judgments and estimates, including estimating inventory markdowns, which can significantly impact the ending inventory valuation and the resulting gross profit.

Given the significant estimates and assumptions management utilizes to measure inventory markdowns at period end, a high degree of auditor judgment and an increased extent of effort is required when performing audit procedures to evaluate the reasonableness of estimates and assumptions.

Such estimates are based on the timing and completeness of recorded markdowns.

Such estimates rely on the completeness of recorded markdowns.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the completeness of estimated inventory markdowns included the following, among others:

• We tested the design and effectiveness of controls over the timing and completeness of estimated inventory markdowns, including management's controls over the valuation of the estimated inventory markdown reserves, and the approval of lowering the retail value of inventory through markdowns.

• We evaluated management's ability to accurately estimate inventory markdowns by comparing estimated inventory markdowns as of January 28, 2023 to subsequent sales of clearance inventory.

• We tested the design and effectiveness of controls over the completeness of estimated inventory markdowns, including management’s controls over the valuation of the estimated inventory markdown reserves, and the monitoring of aged inventory.

• We evaluated management's ability to accurately estimate inventory markdowns by comparing estimated inventory markdowns as of February 3, 2024 to subsequent sales of clearance inventory.

• We observed physical inventory counts throughout the fiscal year, including merchandise designated for clearance.

We assessed inventory aging and sell through as of March 2023.

• We assessed inventory aging as of February 3, 2024, and subsequent sell through of inventory.

• We tested the amount of estimated inventory markdowns by evaluating management's calculation.

• We developed an independent expectation for inventory markdowns based on historical inventory balances and compared our expectation to the amount recorded by management.

• We developed an independent expectation for estimated inventory markdowns based on historical inventory balances and compared our expectation to the amount recorded by management.

/s/ DELOITTE & TOUCHE LLP

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Impairment charges ( 4,834 ) ( 4,317 ) ( 1,720 )

Operating profit (loss) 187,390 205,221 ( 586,314 )

Operating profit 72,401 187,390 205,221

Interest expense, net ( 32,171 ) ( 14,874 ) ( 32,129 )

Loss on extinguishment of debt and write-off of debt issuance costs — ( 12,862 ) —

Non-operating income (expenses), net ( 130 ) ( 67 ) 1,361

Income (loss) before income taxes 159,524 173,025 ( 608,647 )

Non-operating expenses, net ( 33 ) ( 130 ) ( 67 )

Income before income taxes 40,197 159,524 173,025

Income tax benefit (provision) ( 10,981 ) 3,142 ( 18,544 )

Net income (loss) 162,666 154,481 ( 488,719 )

Net loss attributable to redeemable noncontrolling interest 10 — —

Net income (loss) attributable to Designer Brands Inc.

Net income 29,216 162,666 154,481

Net loss (income) attributable to redeemable noncontrolling interest ( 154 ) 10 —

Net income attributable to Designer Brands Inc.

$ 29,062 $ 162,676 $ 154,481

Earnings (loss) per share attributable to Designer Brands Inc.:

Basic earnings (loss) per share $ 2.41 $ 2.12 $ ( 6.77 )

Diluted earnings (loss) per share $ 2.26 $ 2.00 $ ( 6.77 )

Earnings per share attributable to Designer Brands Inc.:

Basic earnings per share $ 0.47 $ 2.41 $ 2.12

Diluted earnings per share $ 0.46 $ 2.26 $ 2.00

Weighted average shares used in per share calculations:

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The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands) 2023 2022 2021

Net income (loss) $ 162,666 $ 154,481 $ ( 488,719 )

Other comprehensive income (loss), net of income taxes:

Net income $ 29,216 $ 162,666 $ 154,481

Other comprehensive income loss-

Foreign currency translation loss ( 289 ) ( 1,733 ) ( 331 )

Unrealized net gain on debt securities — — 195

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

Total other comprehensive loss, net of income taxes ( 1,733 ) ( 331 ) ( 791 )

Comprehensive income (loss) 160,933 154,150 ( 489,510 )

Comprehensive loss attributable to redeemable noncontrolling interest 10 — —

Comprehensive income (loss) attributable to Designer Brands Inc.

Comprehensive income 28,927 160,933 154,150

Comprehensive loss (income) attributable to redeemable noncontrolling interest ( 154 ) 10 —

Comprehensive income attributable to Designer Brands Inc.

$ 28,773 $ 160,943 $ 154,150

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CONSOLIDATED BALANCE SHEETS

(in thousands) January 28, 2023 January 29, 2022

(in thousands) February 3, 2024 January 28, 2023

Current assets:

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Accrued expenses 159,622 190,676

Current maturities of long-term debt 6,750 —

Current operating lease liabilities 166,531 190,086

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Treasury shares, at cost ( 764,802 ) ( 662,614 )

Retained earnings (deficit) 81,993 ( 74,304 )

Retained earnings 98,896 81,993

Accumulated other comprehensive loss ( 5,639 ) ( 5,350 )

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Shares Treasury Shares Common Shares Paid in Capital Treasury Shares Retained Earnings (Deficit) Accumulated Other Comprehensive Loss

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

Net loss attributable to Designer Brands Inc.

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

Net income attributable to Designer Brands Inc.

— — — — — 154,481 — 154,481

Stock-based compensation activity 958 — — 15,229 — — — 15,229

Dividends paid ($ 0.10 per share)

— — — — — ( 7,160 ) — ( 7,160 )

Other comprehensive loss — — — — — — ( 791 ) ( 791 )

Foreign currency translation adjustment — — — — — — ( 331 ) ( 331 )

Balance, January 29, 2022 65,624 7,733 22,169 1,005,382 ( 515,065 ) ( 74,304 ) ( 3,617 ) 412,396

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Stock-based compensation activity 1,010 — — 20,587 — — — 20,587

Repurchase of Class A common shares ( 10,713 ) — 10,713 — ( 147,549 ) — — ( 147,549 )

Dividends paid ($ 0.20 per share)

— — — ( 7,097 ) — ( 6,379 ) — ( 13,476 )

Foreign currency translation adjustment — — — — — — ( 1,733 ) ( 1,733 )

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Foreign currency translation adjustment — — — — — — ( 289 ) ( 289 )

Balance, January 28, 2023 55,921 7,733 32,882 $ 1,018,872 $ ( 662,614 ) $ 81,993 $ ( 5,350 ) $ 432,901

Balance, February 3, 2024 49,491 7,733 42,560 $ 1,030,765 $ ( 764,802 ) $ 98,896 $ ( 5,639 ) $ 359,220

The accompanying notes are an integral part of the consolidated financial statements.

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Cash flows from operating activities:

Net income (loss) $ 162,666 $ 154,481 $ ( 488,719 )

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

Net income $ 29,216 $ 162,666 $ 154,481

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 66,140 81,315 77,923

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Loss on extinguishment of debt and write-off of debt issuance costs — 12,862 —

Gain on settlement — — ( 8,990 )

Other 333 2,017 2,775

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Operating lease assets and liabilities, net ( 33,724 ) ( 30,310 ) ( 74,222 )

Net cash provided by (used in) operating activities 201,426 171,429 ( 153,793 )

Net cash provided by operating activities 162,399 201,426 171,429

Cash flows from investing activities:

Cash paid for property and equipment ( 54,997 ) ( 54,974 ) ( 33,030 )

Equity investment in Le Tigre ( 8,228 ) — —

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

Proceeds from settlement — — 8,990

Cash paid for business acquisition ( 127,496 ) ( 19,062 ) —

Equity investment in Le Tigre — ( 8,228 ) —

Other — ( 5,853 ) ( 1,998 )

Net cash provided by (used in) investing activities ( 88,117 ) ( 35,028 ) 2,631

Net cash used in investing activities ( 182,493 ) ( 88,117 ) ( 35,028 )

Cash flows from financing activities:

Borrowing on revolving lines of credit 1,705,235 349,653 426,000

Payments on revolving lines of credit ( 1,424,200 ) ( 449,653 ) ( 516,000 )

Proceeds from issuance of Term Loan — — 250,000

Payments for borrowings and prepayment premium under Term Loan ( 238,196 ) ( 12,500 ) ( 6,263 )

Borrowing on revolving credit facility 1,232,013 1,705,235 349,653

Payments on revolving credit facility ( 1,211,978 ) ( 1,424,200 ) ( 449,653 )

Proceeds from the issuance of the Term Loan 135,000 — —

Payments for borrowings under the Term Loan ( 1,875 ) — —

Payments for borrowings and prepayment premium under Previous Term Loan — ( 238,196 ) ( 12,500 )

Payments of debt issuance costs ( 10,701 ) ( 2,316 ) —

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Dividends paid ( 12,159 ) ( 13,476 ) —

Cash paid for income taxes for stock-based compensation shares withheld ( 7,915 ) ( 8,694 ) ( 1,463 )

Cash paid for taxes for stock-based compensation shares withheld ( 17,481 ) ( 7,915 ) ( 8,694 )

Other ( 152 ) ( 62 ) ( 296 )

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Supplemental disclosures of cash flow information:

Cash paid (received) for income taxes $ ( 76,132 ) $ 28,419 $ ( 11,822 )

Cash paid for interest on debt $ 29,564 $ 14,820 $ 23,341

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Related Party Transactions

Earnings (Loss) Per Share

Earnings Per Share

Stock-Based Compensation

Shareholders' Equity

Property & Equipment

Property and Equipment

Goodwill and Intangible Assets

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Segment Reporting

Subsequent Events

DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

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The Canada Retail segment operates The Shoe Company and DSW banners through its direct-to-consumer Canada stores and e-commerce sites.

The Brand Portfolio segment earns revenue from the wholesale of products to retailers and international distributors, commissions for serving retailers as the design and buying agent for products under private labels (referred to as "First Cost"), and the sale of our branded products through direct-to-consumer e-commerce sites at www.vincecamuto.com and www.topoathletic.com.

The Brand Portfolio segment earns revenue from the wholesale of products to retailers and international distributors, commissions for serving retailers as the design and buying agent for products under private labels, and the sale of our branded products through direct-to-consumer e-commerce for the Vince Camuto, Keds, Hush Puppies, and Topo brands.

Our equity investments in ABG-Camuto, LLC ("ABG-Camuto") and Le Tigre 360 Global LLC ("Le Tigre") are an integral part of the Brand Portfolio segment.

In partnership with Authentic Brands Group LLC, a global brand management and marketing company, we have a 40 % ownership interest in ABG-Camuto, a joint venture that owns the intellectual property rights of Vince Camuto and others.

ABG-Camuto is responsible for the growth and marketing of the brands held by the joint venture.

We have entered into a licensing agreement with ABG-Camuto, whereby we pay royalties to ABG-Camuto based on the sales of licensed products, subject to guaranteed minimums.

ABG-Camuto also earns royalties on sales from third parties that license the brand names to produce non-footwear product categories.

We have a 40 % ownership interest in ABG-Camuto, a joint venture that owns the intellectual property rights of Vince Camuto and other brands.

We are party to a licensing agreement with ABG-Camuto, which provides for the exclusive right to design, source, and sell footwear and handbags under the brands that ABG-Camuto owns.

In July 2022, we acquired a 33.3 % ownership interest in Le Tigre, which manages the Le Tigre brand.

We entered into a license agreement with Le Tigre, whereby we pay royalties to Le Tigre based on the sales of the Le Tigre brand, subject to guaranteed minimums.

The license agreement provides us the exclusive right to design, source, and sell Le Tigre branded footwear .

W e recognize equity investments and earnings under the equity method within the Brand Portfolio segment.

In addition, we own the licensing rights for footwear of the Jessica Simpson brand and for footwear and handbags of the Lucky Brand.

Our other operating segment, which we exited during 2020, is below the quantitative and qualitative thresholds for a reportable segment and is aggregated into Other for segment reporting purposes.

On December 13, 2022, we acquired a 79.4 % ownership interest in Topo Athletic LLC ("Topo"), a designer of specialty athletic footwear that sells its Topo branded products at wholesale to retailers and international distributors and through its direct-to-consumer e-commerce site at www.topoathletic.com.

We are also party to a license agreement with Le Tigre, which provides for the exclusive right to design, source, and sell Le Tigre-branded footwear.

In addition, we own the licensing rights for footwear and handbags of the Lucky Brand and the licensing rights for footwear of the Jessica Simpson brand and, beginning in 2023, the Hush Puppies brand.

The Topo acquisition provides us with expanded capabilities within the athletic footwear market.

Topo is included within our Brand Portfolio segment.

On February 4, 2023, we completed the acquisition of the Keds business ("Keds") from Wolverine World Wide, Inc.

This expanded the reach of our Owned Brands offerings, which refers to those brands that we have rights to sell through ownership or license arrangements, into casual and athleisure footwear in the wholesale and direct-to-consumer e-commerce channels.

Topo and Keds are included within our Brand Portfolio segment.

Fiscal Year- Our fiscal year ends on the Saturday nearest to January 31.

References to a fiscal year (e.g., "2023") refer to the calendar year in which the fiscal year begins.

This reporting schedule is followed by many national retail companies and typically results in a 52-week fiscal year, but occasionally will contain an additional week resulting in a 53-week fiscal year (including 2023).

The periods presented in these consolidated financial statements each consisted of 52 weeks.

This reporting schedule is followed by many national retail companies and typically results in a 52-week fiscal year (including 2021 and 2022), but occasionally will contain an additional week resulting in a 53-week fiscal year (including 2023).

SIGNIFICANT ACCOUNTING POLICIES

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

and its subsidiaries, including any variable interest entities.

and its subsidiaries, including variable interest entities.

All intercompany accounts and transactions have been eliminated in consolidation.

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Use of Estimates- The preparation of 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 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 repor ting periods.

Certain estimates and assumptions use forecasted financial information based on information reasonably available to us.

Significant estimates and assumptions are required as a part of accounting for sales returns allowances, customer allowances and discounts reserve, 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, redeemable noncontrolling interest, income taxes and valuation allowances on deferred tax assets, self-insurance reserves, and valuations used to account for an acquisition.

Although we believe these estimates and assumptions are reasonable, they are based on management's knowledge of current events and actions we may undertake in the future.

Significant estimates and assumptions are required as part of accounting for customer returns and allowances, 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, redeemable noncontrolling interest, income taxes and valuation allowances on deferred tax assets, self-insurance reserves, and acquisitions.

Although we believe that these estimates and assumptions are reasonable, they are based on management's knowledge of current events and actions we may undertake in the future.

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

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Retail and Canada Retail segments are recognized upon customer receipt of merchandise, net of estimated returns and exclude sales tax.

Customers can purchase products from one of our stores, online, or from our mobile application.

For products shipped directly to our customers, we recognize the sale upon the estimated customer receipt date based on historical delivery transit times.

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Generally, our wholesale customers arrange their own transportation of merchandise and control is transferred at the time of shipment.

Sales are recorded at the transaction price, excluding sales tax, net of estimated reserves for customer returns, allowances and discounts.

Sales are recorded at the transaction price, excluding sales tax, net of estimated returns and allowances.

Direct-to-consumer online sales are recognized upon the estimated customer receipt date based on historical delivery transit times and are net of estimated returns and exclude sales tax.

First Cost commission income is recognized at the point in time when the customer's freight forwarder takes control of the related merchandise.

Commission income is recognized at the point in time when a customer's freight forwarder takes control of the related merchandise.

Gift Cards- Amounts received from the sale of gift cards are recorded as a liability and are recognized as sales when the cards are redeemed for merchandise.

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Breakage income is recognized over the estimated average redemption period of redeemed gift cards.

Loyalty Programs- We offer loyalty programs to our customers in the U.S.

Members under the programs earn points based on their level of spending, as well as for various other activities.

Loyalty Programs- We offer loyalty programs to our direct-to-consumer customers.

Members earn points based on their level of spending, as well as for various other activities.

Upon reaching a specified point threshold, members receive reward certificates that may be redeemed for purchases made within the stated expiration date.

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In addition to the cost of merchandise sold, which includes freight and the impact of inventory valuation adjustments, we include royalty expense for licensed brands in cost of sales.

Operating Expenses- Operating expenses include expenses related to store management and store payroll costs, advertising, store depreciation, new store costs, design, sourcing and distribution costs associated with the Brand Portfolio segment, and corporate expenses.

Corporate expenses include expenses related to buying, information technology, rent (net of sublease income), depreciation and amortization expense for corporate assets, marketing, legal, finance, outside professional services, customer service center expenses, and payroll-related costs for associates.

In March 2020, the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which, among other things, provided employer payroll tax credits for wages paid to associates who were unable to work over a defined period and options to defer payroll tax payments.

We qualified for certain employer payroll tax credits, which were treated as government subsidies to offset related operating expenses.

Similar credits were also available in Canada.

During 2021 and 2020, the qualified government credits reduced our operating expenses by $ 4.0 million and $ 11.4 million, respectively, on the consolidated statements of operations.

Operating Expenses- Operating expenses include expenses related to store management and payroll costs, marketing, store depreciation, new store costs, design, sourcing and distribution costs associated with the Brand Portfolio segment, and corporate expenses.

Corporate expenses include expenses related to buying, information technology, rent (net of sublease income), depreciation and amortization expense for corporate assets, legal, finance, outside professional services, customer service center expenses, and payroll-related costs for associates.

Interest Expense, net- Interest expense, net, is summarized in the following table:

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$ ( 32,171 ) $ ( 14,874 ) $ ( 32,129 )

Stock-Based Compensation- We recognize compensation expense for awards of stock options, restricted stock units ("RSUs"), and director stock units, based on the fair value on the grant date and on a straight-line basis over the requisite service period for the awards that are expected to vest, with forfeitures estimated based on our historical experience and future expectations.

Stock-Based Compensation- We recognize compensation expense for awards of restricted stock units ("RSUs") and director stock units based on the fair value on the grant date and on a straight-line basis over the requisite service period for the awards that are expected to vest, with forfeitures estimated based on our historical experience and future expectations.

Stock-based compensation is included in operating expenses on the consolidated statements of operations.

Chief Executive Officer Transition- In January 2023, we announced our planned succession process relating to the Company's Chief Executive Officer ("CEO") role, whereby our current CEO, Roger Rawlins, will step down from his role as CEO and as a member of the Board of Directors effective April 1, 2023, or such earlier date as determined by the Board of Directors, at which time Doug Howe, who currently serves as Executive Vice President of the Company and President of DSW, will assume the CEO role and join the Board of Directors as a Class II director.

To assist in facilitating a smooth transition, Mr.

Rawlins will remain employed under the terms of a transition and consulting agreement through April 1, 2023, and for the 12-month period thereafter will serve as a strategic advisor to the Company and the Board of Directors.

Rawlins remains employed through April 1, 2023, we will provide Mr.

Rawlins benefits that are consistent with those that Mr.

Rawlins would be entitled to in the event of a termination by the Company without cause under his Amended and Restated Standard Executive Severance Agreement.

In conjunction with the CEO transition, we estimate CEO transition costs will total $ 9.4 million consisting of $ 3.5 million in severance costs, $ 2.8 million in accelerated stock-based compensation (net of stock awards forfeited), and $ 3.1 million in retention stock awards to certain members of our leadership team and other related professional fees.

During the fourth quarter of 2022, we recognized $ 3.7 million in operating expenses on the consolidated statements of operations, with the remaining estimated $ 5.7 million to be recorded in 2023.

Chief Executive Officer Transition- In January 2023, we announced our succession process relating to the Company's Chief Executive Officer ("CEO") role, whereby our former CEO, Roger Rawlins, stepped down from his role as CEO and as a member of the Board of Directors (the "Board") effective April 1, 2023, at which time, Doug Howe, who previously served as Executive Vice President of the Company and President of DSW, assumed the CEO role and joined the Board.

Rawlins commenced service as a strategic advisor to the Company and the Board effective April 1, 2023 through April 1, 2024 under the terms of a transition and consulting agreement.

In conjunction with the CEO transition, we recorded $ 8.1 million of CEO transition costs consisting of $ 2.2 million in severance costs, $ 2.8 million in accelerated stock-based compensation (net of stock awards forfeited), and $ 3.1 million in retention stock awards to certain members of our leadership team and other related professional fees.

During 2023 and 2022, we recognized CEO transition costs of $ 4.4 million and $ 3.7 million, respectively, in operating expenses on the consolidated statements of operations.

Severance- During 2023, we incurred severance costs, excluding the severance related to the CEO transition, of $ 5.1 million ($ 3.4 million, $ 0.2 million and $ 1.5 million for the U.S.

Retail, Canada Retail, and Brand Portfolio segments, respe ctively).

Retail, Canada Retail and Brand Portfolio segments, respectively).

During 2022, we incurred severance costs, excluding the severance related to the CEO transition, of $ 2.8 million ($ 1.8 million, $ 0.2 million and $ 0.8 million for the U.S.

Retail, Canada Retail and Brand Portfolio segments, respectively).

During 2021, we incurred severance costs of $ 3.3 million ($ 1.5 million and $ 1.8 million for the U.S.

Retail and Brand Portfolio segments, respectively).

On March 18, 2020, to help control the spread of the coronavirus ("COVID-19") 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.

During the second quarter and into the third quarter of 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 2020 and into the first quarter of 2021, resulting in the elimination of approximately 1,000 associate positions.

During 2020, we incurred restructuring costs, which consisted primarily of severance costs of $ 15.2 million ($ 5.5 million, $ 0.8 million and $ 8.9 million for the U.S.

Retail, Canada Retail, and Brand Portfolio segments, respectively).

As of January 28, 2023 and January 29, 2022, we had $ 5.7 million and $ 1.9 million, respectively, of severance liability included in accrued expenses on the consolidated balance sheets.

Gain on Settlement- During 2020, we collected $ 9.0 million, net of legal costs incurred, and recorded a gain to operating expenses on the consolidated statements of operations that was due to a settlement with a vendor related to costs incurred on an internal-use software project that was capitalized and then impaired in a previous year.

As of February 3, 2024 and January 28, 2023, we had $ 3.9 million and $ 5.7 million, respectively, of severance liability, including the severance related to the CEO transition, included in accrued expenses on the consolidated balance sheets.

Marketing Expense- The cost of advertising is generally expensed when the advertising first takes place or when mailed.

During 2023, 2022 and 2021, marketing costs were $ 176.4 million, $ 167.1 million and $ 163.0 million, respectively.

Non-Operating Income (Expenses), net- Non-operating income (expenses), net, includes gains and losses from foreign currency revaluation and realized gains and losses related to investments.

Income Taxes- We account for income taxes under the asset and liability method.

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The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable.

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

Additionally, we assessed the likelihood of realizing the benefits of our deferred tax assets by evaluating historical and projected future operating results, the reversal of existing temporary differences, taxable income in permitted carry back years, and the availability of tax planning strategies.

One of the provisions of the CARES Act allows net operating losses generated within tax years 2018 through 2020 to be carried back up to five years, including years in which the U.S.

federal statutory tax rate was 35%, as opposed to the current rate of 21%.

In evaluating future taxable income, significant weight is given to positive and negative evidence that is objectively verifiable.

During 2020, a valuation allowance was recognized as a reserve on the total deferred tax asset balance and was maintained until the fourth quarter of 2022.

This valuation allowance was the result of losses incurred in 2020 due to the impacts of the COVID-19 pandemic that resulted in a three-year cumulative loss position, which was significant objective negative evidence in considering whether deferred tax assets were realizable.

During the fourth quarter of 2022, we released the valuation allowance on the majority of the U.S.

and Canada deferred tax assets given the continued realization of income since 2020, being in a three-year cumulative adjusted earnings position, and having projected future income.

These factors provided sufficient evidence to conclude that it is more likely than not that the majority of the U.S.

and Canada deferred tax assets are realizable.

Our effective tax rate for 2022 was negative 2.0 %, whereas for 2021 and 2020 it was positive 10.7 % and 19.7 %, respectively.

The rate for 2022 was the result of releasing $ 55.7 million of the valuation allowance, partially offset by the permanent tax adjustments, primarily non-deductible compensation.

The rate for 2021 was 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 was the result of recording a 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%.

We review and update our tax positions as necessary to add any new uncertain tax positions taken, or to remove previously

identified uncertain positions that have been adequately resolved.

Additionally, uncertain positions may be remeasured as

warranted by changes in facts or law.

Accounting for uncertain tax positions requires estimating the amount, timing and

likelihood of ultimate settlement.

Although we believe that these estimates are reasonable, actual results could differ from

these estimates.

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations and a 1% excise tax on net stock repurchases.

Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.

We review and update our tax positions as necessary to add any new uncertain tax positions taken, or to remove previously identified uncertain positions that have been adequately resolved.

Additionally, uncertain positions may be remeasured as warranted by changes in facts or law.

Accounting for uncertain tax positions requires estimating the amount, timing and likelihood of ultimate settlement.

Although we believe that these estimates are reasonable, 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 was restricted as to withdrawal or usage and consists of a mandatory cash deposit maintained for certain insurance policies and letters of credit.

Restricted cash represented cash that was restricted as to withdrawal or usage and consisted of a mandatory cash deposit maintained for certain insurance policies and letters of credit.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown on the consolidated statements of cash flows:

(in thousands) January 28, 2023 January 29, 2022 January 30, 2021

(in thousands) February 3, 2024 January 28, 2023 January 29, 2022

Cash and cash equivalents $ 49,173 $ 58,766 $ 72,691

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Balance at end of period $ 62,857 $ 63,820 $ 55,578

On July 1, 2022, we acquired a 33.3 % ownership interest in Le Tigre for $ 8.2 million.

We account for our investment in Le Tigre, where we exercise significant influence but do not have control, using the equity method.

The difference between the purchase price of Le Tigre and our interest in Le Tigre's underlying net equity is comprised of a definite lived tradename intangible asset and equity method goodwill.

Our share of net loss o f Le Tigre and amortization of the intangible asset is included in the share of net earnings, net, shown in the table above and income from equity investments on the consolidated statements of operations.

Receivables, net - Receivables are classified as current assets because the average collection period is generally shorter than one year.

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Retail and Canada Retail segments.

During 2022, three key third-party vendors together supplied approximately 22 % of our retail merchandise, with no individual vendor providing more than 10% of our retail merchandise.

During 2023, three key national brand vendors together supplied approximately 21 % of our retail merchandise, with no individual vendor providing more than 10% of our retail merchandise.

Financial instruments, which principally subject us to concentration of credit risk, consist of cash and cash equivalents.

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

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

The carrying value of borrowings under our revolving lines of credit approximated fair value based on its term and variable interest rate.

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 borrowings under our senior secured asset-based revolving credit facility ("ABL Revolver") and our senior secured term loan credit agreement, as amended, ("Term Loan") approximated fair value based on the terms and variable interest rates.

Property and Equipment, net- Property and equipment, net, are stated at cost less accumulated depreciation determined by the straight-line method over the expected useful life of assets.

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Capitalized software costs and the related accumulated amortization are included in property and equipment, net, on the consolidated balance sheets.

Capitalized implementation costs for cloud computing arrangements accounted for as service contracts are included in other assets on the consolidated balance sheets and amortized over the life of the service contract to operating expenses on the consolidated statements of operations.

Cloud Computing Arrangements- Capitalized implementation costs, net of accumulated amortization, for cloud computing arrangements accounted for as service contracts are included in other assets on the consolidated balance sheets.

Capitalized implementation costs are amortized, once the implementation is complete, over the term of the service contract to operating expenses on the consolidated statements of operations.

As of February 3, 2024 and January 28, 2023, we had $ 16.4 million and $ 9.5 million, respectively, of unamortized capitalized costs, and $ 4.5 million and $ 2.5 million, respectively, of accumulated amortization related to the capitalized costs.

During 2023, 2022 and 2021, we had amortization expense related to capitalized costs of $ 2.4 million, $ 0.9 million and $ 0.2 million, respectively.

Leases- A lease liability for new and modified leases is recorded based on the present value of future fixed lease commitments with a corresponding lease asset.

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We have elected to not separate non-lease payment components from the associated lease component for all new and modified real estate leases.

We determine the discount rate for each lease by estimating the rate that we would be required to pay on a secured borrowing for an amount equal to the lease payments over the lease term.

We determine the discount rate for each lease by estimating the rate that we would be required to pay on a secured borrowing for an amount equal to the lease payments over the lease term when the rate implicit in the lease cannot be readily determined.

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

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The impairment loss recognized is the excess of the carrying value of the asset or asset group over its fair value (categorized as Level 3 under the fair value hierarchy).

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

During 2022, we recorded impairment charges of $ 4.3 million, primarily in the Brand Portfolio segment resulting from subleases of abandoned leased spaces.

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

During 2023, we recorded impairment charges of $ 4.8 million, primarily in the Brand Portfolio segment resulting from an abandoned leased space.

During 2022, we recorded impairment charges of $ 4.3 million , primarily in the Brand Portfolio segment resulting from subleases of vacated leased spaces.

During 2021, we recorded impairment charges of $ 1.7 million, including $ 1.2 million in the U.S.

Retail segment for abandoned equipment we replaced and $ 0.5 million in the Brand Portfolio segment for the sublease of an abandoned leased space.

As a result of the material reduction in net sales and cash flows during 2020 due to the COVID-19 pandemic, we updated our impairment analyses for our U.S.

Retail and Canada Retail segments at the store-level, which represents the lowest level for which identifiable cash flows are independent of the cash flows of other assets.

The carrying amount of the store asset group, primarily made up of operating lease assets, leasehold improvements and fixtures, is considered impaired when the carrying value of the asset group exceeds the expected future cash flows from the asset group.

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

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

During 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 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 (categorized as Level 3 under the fair value hierarchy).

Retail segment for abandoned equipment we replaced and $ 0.5 million in the Brand Portfolio segment for the sublease of a vacated leased space.

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 that would indicate that impairment may exist.

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Impairment charges are calculated as the amount by which the carrying amount exceeds its fair value, but not to exceed the carrying value for goodwill.

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 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 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.

Self-Insurance Reserves- We record estimates for certain health and welfare, workers' compensation and casualty insurance costs that are self-insured programs.

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We have purchased stop loss insurance to limit our exposure on a per person basis for health and welfare and on a per claim basis for workers' compensation and general liability, as well as on an aggregate annual basis.

Redeemable noncontrolling interest- As discussed in more detail in Note 2, Acquisition , we have an exclusive call option to purchase and the noncontrolling interest holders have a put option with respect to the remaining 20.6 % ownership interest in Topo upon the occurrence of certain events or after a defined period of time following the transaction close.

Redeemable noncontrolling interest- As discussed in more detail in Note 2, Acquisitions , we have an exclusive call option and the noncontrolling interest holders have a put option with respect to our purchase of the remaining 20.6 % ownership interest in Topo upon the occurrence of certain events or after a period of three years following the transaction close.

The redemption price is based on the future performance of Topo.

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Acquisition fair value of redeemable noncontrolling interest — 3,165

Net loss attributable to redeemable noncontrolling interest ( 10 )

Net income (loss) attributable to redeemable noncontrolling interest 154 ( 10 )

Distributions attributable to redeemable noncontrolling interest ( 21 ) —

Balance at end of period $ 3,288 $ 3,155

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The cumulative translation adjustments resulting from changes in exchange rates are included as a component of accumulated other comprehensive loss on the consolidated balance sheets.

Transaction gains and losses are included in non-operating income (expenses), net, on the consolidated statements of operations.

Deferred Compensation Plans - We provide deferred compensation plans, including defined contribution plans to eligible associates and a non-qualified deferred compensation plan for certain executives and members of the Board of Directors.

Transaction gains and losses are included in non-operating expenses, net, on the consolidated statements of operations.

Participants may elect to defer and contribute a portion of their eligible compensation to the plans up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws.

During 2023, 2022 and 2021, we recognized costs associated with matching contributions of $ 6.9 million, $ 6.2 million and $ 5.9 million, respectively.

Variable Interest Entity- W e had a joint ventur e with an entity affiliated with performing artist and celebrity Jennifer Lopez, which was formed in order to design, source and sell the JLO Jennifer Lopez collection, a line of footwear and handbags.

Our Brand Portfolio segment was responsible for design and sourcing, and DSW was the primary retailer of the brand.

Jennifer Lopez earned fixed licensing fees, which we guaranteed for the term of license.

Based on certain terms within the joint venture operating agreement, we determined that we had overall control of the joint venture.

As a result, we were considered the primary beneficiary, and we consolidated the joint venture within our financial statements.

Assets and liabilities of the joint venture are immaterial.

During 2022, we agreed to dissolve the joint venture along with related licensing and design and sourcing arrangements, which resulted in recording a termination fee of $ 5.2 million to operating expenses on the consolidated statements of operations.

Variable Interest Entity- During 2022, we dissolved a consolidated variable interest entity joint venture along with related licensing and design and sourcing arrangements, which resulted in recording a termination fee of $ 5.2 million to operating expenses on the consolidated statements of operations.

Assets and liabilities of the joint venture were immaterial.

Recently Issued Accounting Pronouncements- In November 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2023-07, Improvements to Reportable Segment Disclosures , which updates reportable segment disclosure requirements including, among other things, enhanced disclosures about significant segment expenses and information used to assess segment performance.

ASU 2023-07 is effective on a retrospective basis to all prior periods presented beginning with our 2024 Annual Report on Form 10-K and subsequent interim periods.

We are currently evaluating the impact of adopting ASU 2023-07 to the notes of the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures , which requires a tabular effective tax rate reconciliation, using both percentages and amounts, with specific categories provided as well as information regarding income taxes paid, net of refunds received, disaggregated by federal, state, and foreign.

We early adopted ASU 2023-09 on a retrospective basis for this 2023 Annual Report on Form 10-K, as presented in Note 15, Income Taxes .

ACQUISITION OF TOPO

On December 13, 2022, we acquired a 79.4 % ownership interest in Topo for $ 19.3 million in cash.

We have an exclusive call option to purchase the remaining 20.6 % ownership interest in Topo upon the occurrence of certain events or after a period of two years following the close of the transaction.

The noncontrolling interest holders also have a put option with respect to the remaining 20.6 % ownership interest in Topo upon the occurrence of certain events or after a period of three years following the close of the transaction.

We have an exclusive call option and the noncontrolling interest holders have a put option with respect to our purchase of the remaining 20.6 % ownership interest upon the occurrence of certain events or after a period of three years following the close of the transaction.

The redemption price is defined in the operating agreement and is based primarily on a fixed multiple of Topo's trailing 12 months of adjusted earnings before interest, taxes, depreciation, amortization, and other agreed upon adjustments.

The preliminary purchase price and the allocation of the total consideration to the fair values of the assets, liabilities, and redeemable noncontrolling interest consisted of the following:

(in thousands) Preliminary Purchase Price and Allocation as of December 13, 2022

The final purchase price and the allocation of the total consideration to the fair values of the assets, liabilities, and redeemable noncontrolling interest consisted of the following:

(in thousands) Preliminary Purchase Price and Allocation as of December 13, 2022 Measurement Period Adjustments Final Purchase Price and Allocation as of April 29, 2023

Purchase price cash consideration $ 19,062 $ 193 $ 19,255

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Redeemable noncontrolling interest ( 3,165 ) — ( 3,165 )

We recorded an allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed and the redeemable noncontrolling interest based on their fair value at the acquisition date.

The purchase price is subject to adjustments primarily based upon a working capital provision as provided by the purchase agreement.

The allocation of the purchase price is based on certain preliminary valuations and analysis that have not been completed as of the date of this filing.

Any subsequent changes in the estimated fair values assumed upon the finalization of more detailed analysis within the

measurement period will change the allocation of the purchase price and will be adjusted during the period in which the amounts are determined.

We expect to finalize the valuations as soon as practicable, but not later than one year from the acquisition date.

The fair value of the intangible assets relates to customer relationships and a tradename, which are amortized over a useful life of eight and 15 years, respectively, and are based on the excess earnings method under the income approach.

The fair value measurements are based on significant unobservable inputs, including discounted future cash flows and customer attrition rates.

$ 19,062 $ 193 $ 19,255

The fair value of the intangible assets relates to customer relationships and a tradename, which are amortized over a useful life of 10 and 15 years, respectively, and are based on the excess earnings method under the income approach with the relief from royalty method for the tradename.

The fair value measurements are based on significant unobservable inputs, including discounted future cash flows, market-based assumed royalty rates, and customer attrition rates.

The fair value measurement of the redeemable noncontrolling interest was calculated by considering the implied fair value of Topo using the purchase price and an estimated amount to redeem the noncontrolling interest.

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Goodwill is expected to be deductible for income tax purposes.

The results of operations for Topo from the date of acquisition through the end of 2022, were not material and are included in the consolidated statements of operations within the Brand Portfolio segment.

Pro forma results of operations reflecting the acquisition of Topo are not presented as the impact of Topo on our consolidated financial results would not have been material.

We incurred $ 1.3 million of acquisition-related costs in connection with the acquisition of Topo, which were included in operating expenses on the consolidated statements of operations.

During 2022, we incurred $ 1.3 million of acquisition-related costs in connection with the acquisition of Topo, which were included in operating expenses on the consolidated statements of operations.

ACQUISITION OF KEDS

On February 4, 2023, we acquired Keds, including the Keds brand, inventory, and inventory-related accounts payable, from Wolverine World Wide, Inc.

The cash consideration was funded with available cash and borrowings on the ABL Revolver.

The final purchase price and the allocation of the total consideration to the fair values of the assets and liabilities consisted of the following:

(in thousands) Preliminary Purchase Price and Allocation as of February 4, 2023 Measurement Period Adjustments Final Purchase Price and Allocation as of February 3, 2024

Purchase price:

Cash Consideration $ 128,400 $ ( 1,096 ) $ 127,304

Due from Seller for estimated contingent consideration ( 3,500 ) ( 5,399 ) ( 8,899 )

$ 124,900 $ ( 6,495 ) $ 118,405

Fair value of assets and liabilities acquired:

Inventories $ 46,700 $ ( 4,184 ) $ 42,516

Goodwill 36,787 ( 11,011 ) 25,776

Intangible assets 44,800 8,700 53,500

Accounts payable ( 3,387 ) — ( 3,387 )

$ 124,900 $ ( 6,495 ) $ 118,405

The purchase price was subject to adjustments primarily based upon estimated contingent considerations as provided by the purchase agreement, which are based on recognized sales and incurred marketing costs for certain identified aged inventories and may result in the Seller paying us up to $ 15.0 million by March 2024.

We recorded an estimated amount due from Seller at fair value based on our estimated probability of the conditions being met requiring payment.

Changes to the estimated amount due from Seller after we have finalized the purchase price and the allocation of the total consideration are recorded to earnings and have been immaterial.

The fair value of inventories, which is made up of finished goods, was determined based on market assumptions for realizing a reasonable profit after selling costs.

The fair value of the intangible assets relates to $ 46.9 million of an indefinite-lived tradename and $ 6.6 million of customer relationships, which is amortized over a useful life of 10 years, and are based on the excess earnings method under the income approach with the relief from royalty method for the tradename.

The fair value measurements are based on significant unobservable inputs, including discounted future cash flows, market-based assumed royalty rates, and customer attrition rates.

The goodwill represents the excess of the purchase price over the fair value of the net assets acquired and was primarily attributable to acquiring an established design and sourcing process for casual footwear, including kids' footwear, with international distribution.

Goodwill is expected to be deductible for income tax purposes.

We incurred $ 2.9 million of acquisition-related costs in connection with the acquisition of Keds, which was included in operating expenses on the consolidated statements of operations.

COMBINED RESULTS OF ACQUIRED ENTITIES

As of February 3, 2024, the results of operations for Topo and Keds were not material and are included in the consolidated statements of operations within the Brand Portfolio segment.

Supplemental pro forma results of operations reflecting the acquisitions are not presented as the impact on our consolidated financial results would not have been material.

DISAGGREGATION OF NET SALES

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(in thousands) U.S.

Retail Canada Retail Brand Portfolio Eliminations / Other Consolidated

Retail Canada Retail (2)

Brand Portfolio Eliminations Consolidated

Owned Brands:

Direct-to-consumer $ 471,197 $ 45,025 $ 65,724 $ — $ 581,946

External customer wholesale and commission income — — 202,834 — 202,834

External customer wholesale, commission income and other — — 211,174 — 211,174

Intersegment wholesale and commission income — — 72,078 ( 72,078 ) —

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National brands 2,062,652 219,204 — — 2,281,856

Canada Retail (2)

— 283,241 — — 283,241

Total net sales $ 2,533,849 $ 264,229 $ 348,976 $ ( 72,078 ) $ 3,074,976

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Direct-to-consumer $ 569,741 $ 34,734 $ 37,840 $ — $ 642,315

External customer wholesale and commission income — — 164,192 — 164,192

External customer wholesale, commission income and other — — 202,834 — 202,834

Intersegment wholesale and commission income — — 87,041 ( 87,041 ) —

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National brands 2,221,772 248,507 — — 2,470,279

Canada Retail (2)

— 234,809 — — 234,809

Total net sales $ 2,791,513 $ 283,241 $ 327,715 $ ( 87,041 ) $ 3,315,428

(in thousands) U.S.

Retail Canada Retail Brand Portfolio Eliminations / Other Consolidated

Owned Brands:

Direct-to-consumer $ 421,398 $ 14,612 $ 27,876 $ — $ 463,886

External customer wholesale and commission income — — 156,631 — 156,631

External customer wholesale, commission income and other — — 164,192 — 164,192

Intersegment wholesale and commission income — — 93,956 ( 93,956 ) —

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National brands 2,348,308 220,197 — — 2,568,505

Canada Retail (2)

— 182,659 — — 182,659

— — 10,898 62,909 73,807

Total net sales $ 2,769,706 $ 234,809 $ 286,024 $ ( 93,956 ) $ 3,196,583

(1) "Owned Brands" refers to those brands we have rights to sell through ownership or license arrangements.

(2) We currently do not report the Canada Retail segment net sales and Other by brand categories.

Other represents discontinued revenue channels.

Beginning in the first quarter of 2023, sales of the Keds brand are included in Owned Brands as a result of our acquisition of Keds.

Sales of the Keds brand in periods prior to the first quarter of 2023 are not recast as this brand was considered a national brand during those periods.

(2) Beginning with this Form 10-K, we are providing a breakout of Canada Retail segment net sales by brand categories and we have recast 2022 and 2021 on a consistent basis.

Net Sales by Product and Service Categories - The following table presents net sales disaggregated by product and service

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Wholesale 271,655 276,887 240,491

Commission income 12,988 17,657 18,509

Commission income and other 11,597 12,988 17,657

Direct-to-consumer 65,724 37,840 27,876

348,976 327,715 286,024

Other — — 62,909

Total segment net sales 3,147,054 3,402,469 3,290,539

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End of period $ 15,971 $ 16,900 $ 15,736

CUSTOMER ALLOWANCES

We reduce sales by the amount of actual and remaining expected sales returns and customer allowances and discounts, and cost of sales by the amount of merchandise we expect to recover.

S ales returns allowances and customer allowances and discounts are included in accrued expenses on the consolidated balance sheets.

Customer allowances and discounts are provided to our wholesale customers for margin assistance, advertising support, and various other deductions.

We estimate the allowances needed for margin assistance by reviewing inventory levels held by retailers, expected markdowns, gross margins realized, and other performance indicators.

Sales returns and other customer deductions are estimated based on anticipated future returns using historical experience and trends.

Advertising allowances are estimated based on arrangements with customers.

The following table presents the changes and total balances for customer allowances:

CUSTOMER RETURNS AND ALLOWANCES

We reduce sales by the amount of actual and remaining expected customer returns and allowances, and cost of sales by the amount of merchandise we expect to recover.

Customer allowances may be provided to our wholesale customers for margin assistance, advertising support, and various other deductions.

Customer returns and allowances are estimated based on anticipated future activity using historical experience and trends and existing arrangements with customers.

The following table presents the changes and total balances for customer returns and allowances:

(in thousands) 2023 2022 2021

Sales returns allowances:

Beginning of period $ 19,337 $ 20,671 $ 21,912

Net sales reduced for estimated returns 473,471 424,402 279,923

Actual returns during the period ( 473,938 ) ( 423,161 ) ( 283,998 )

End of period $ 18,107 $ 18,574 $ 17,333

Customer allowances and discounts:

Beginning of period $ 2,097 $ 4,579 $ 11,528

Net sales reduced for estimated allowances and discounts 9,947 8,709 14,363

Actual allowances and discounts during the period ( 10,814 ) ( 11,191 ) ( 21,312 )

Net sales reduced for estimated returns and allowances 489,375 483,418 433,111

Actual returns and allowances during the period ( 489,143 ) ( 484,752 ) ( 434,352 )

End of period $ 19,569 $ 19,337 $ 20,671

As of January 28, 2023 and January 29, 2022, the asset for recovery of merchandise returns was $ 8.8 million and $ 9.4 million, respectively, and is included in prepaid expenses and other current assets on the consolidated balance sheets.

As of February 3, 2024 and January 28, 2023, the asset for recovery of merchandise returns was $ 10.0 million and $ 8.8 million, respectively, and is included in prepaid expenses and other current assets on the consolidated balance sheets.

RELATED PARTY TRANSACTIONS

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We have transactions with entities owned or controlled by Jay L.

Schottenstein, the executive chairman of our Board of Directors, and members of his family (the "Schottenstein Affiliates").

As of January 28, 2023, the Schottenstein Affiliates beneficially owned approximately 23 % of the Company's outstanding common shares, representing approximately 58 % of the combined voting power, consisting of, in the aggregate, 7.0 million Class A common shares and 7.7 million Class B common shares.

Schottenstein, the executive chairman of our Board, and members of his family (the "Schottenstein Affiliates").

As of February 3, 2024, the Schottenstein Affiliates beneficially owned approximately 26 % of the Company's outstanding common shares, representing approximately 62 % of the combined voting power, consisting of, in the aggregate, 7.1 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:

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For 2023, 2022 and 2021, we recorded royalty expense for amounts paid to ABG-Camuto of $ 18.1 million, $ 18.3 million and $ 18.2 million, respectively.

See Note 14, Commitments and Contingencies - Contractual Obligations , for future guaranteed minimum royalty payment requirements to ABG-Camuto.

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

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The license agreement provides for the exclusive right to design and source Le Tigre branded footwear.

Activity with Le Tigre during 2022 was immaterial.

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is based on net income (loss) attributable to Designer Brands Inc.

Activity with Le Tigre was immaterial for all periods presented.

EARNINGS PER SHARE

Basic earnings per share is based on net income attributable to Designer Brands Inc.

and the weighted average of Class A and Class B common shares outstanding.

Diluted earnings per share reflects the potential dilution of common shares adjusted for outstanding stock options and RSUs calculated using the treasury stock method.

The following is a reconciliation between basic and diluted weighted average shares outstanding, as used in the calculation of earnings (loss) per share attributable to Designer Brands Inc.:

The following is a reconciliation between basic and diluted weighted average shares outstanding, as used in the calculation of earnings per share attributable to Designer Brands Inc.:

(in thousands) 2023 2022 2021

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63,375 72,101 77,268

For 2022, 2021 and 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, 3.1 million and 5.9 million, respectively.

For 2023, 2022 and 2021, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings per share due to their anti-dilutive effect was 2.6 million, 2.9 million and 3.1 million, respectively.

STOCK-BASED COMPENSATION

2014 Long-Term Incentive Plan (the "Plan") provides for the issuance of stock-based compensation awards to eligible recipients.

The Plan replaced the DSW Inc.

2005 Equity Incentive Plan but did not affect outstanding awards granted under that plan.

Eligible recipients include associates, including executive officers, and non-employee directors.

The maximum number of shares of Class A common shares underlying awards that may be issued over the term of the Plan cannot exceed 11.0 million shares.

As of January 28, 2023, 6.5 million Class A common shares remain available for future stock-based compensation grants under the Plan.

Stock-based compensation expense consisted of the following:

(in thousands) 2022 2021 2020

As of February 3, 2024 , 6.1 million Class A common shares remain available for future stock-based compensation grants under the Plan.

During 2023, 2022 and 2021, we recorded stock-based compensation expense of $ 29.4 million, $ 28.5 million and $ 23.9 million, respectively.

STOCK OPTIONS

Restricted and director stock units 28,401 23,280 18,769

$ 28,502 $ 23,923 $ 20,236

Stock Options- Stock options were granted with an exercise price per share equal to the fair market value of our Class A common shares on the grant date.

Stock options were granted with an exercise price per share equal to the fair market value of our Class A common shares on the grant date.

Stock options generally vest 20 % per year on a cumulative basis and remain exercisable for a period of 10 years from the date of grant.

As of January 28, 2023, there were no unvested stock options, and stock option activity for the periods presented was immaterial.

Restricted Stock Units- Grants of time-based RSUs generally cliff vest after three years , and performance-based RSUs generally cliff vest after three years based upon the achievement of pre-established goals as of the end of the first year of the term.

As of February 3, 2024, there were no unvested stock options and stock option activity for the periods presented was immaterial.

RESTRICTED STOCK UNITS

Grants of time-based RSUs generally cliff vest after three years , and performance-based RSUs generally cliff vest after three years based upon the achievement of pre-established goals as of the end of the first year of the term.

RSUs receive dividend equivalents in the form of additional RSUs, which are subject to the same restrictions and forfeiture provisions as the original award.

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The total fair value of time-based RSUs that vested during 2023, 2022 and 2021, was $ 35.5 million, $ 17.0 million and $ 15.1 million, respectively.

As of January 28, 2023, the total compensation cost related to unvested time-based RSUs not yet recognized was $ 26.9 million, with a weighted average expense recognition period remaining of 1.7 years.

As of February 3, 2024, the total compensation cost related to unvested time-based RSUs not yet recognized was $ 21.2 million, with a weighted average expense recognition period remaining of 1.9 years.

The total fair value of performance-based RSUs that vested during 2023, 2022 and 2021 was $ 4.6 million, $ 3.7 million and $ 7.4 million, respectively.

As of January 28, 2023, the total compensation cost related to unvested performance-based RSUs not yet recognized was approximately $ 5.3 million, with a weighted average expense recognition period remaining of 1.7 years.

Director Stock Units- We issue stock units to non-employee directors.

As of February 3, 2024, the total compensation cost related to unvested performance-based RSUs not yet recognized was approximately $ 1.3 million, with a weighted average expense recognition period remaining of 1.0 year.

DIRECTOR STOCK UNITS

We issue stock units to non-employee directors.

Stock units are granted to each director on the date of each annual meeting of shareholders based on the closing market price of the Class A common shares.

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Director stock units vest immediately, and directors are given the option to settle their units 30 days after the grant date, at a specified date more than 30 days following the grant date, or defer receipt until completion of board service.

Director stock units not yet settled, which are not subject to forfeiture, are considered to be outstanding for the purposes of computing basic earnings (loss) per share.

As of January 28, 2023, we had 0.5 million director stock units not yet settled.

Director stock units not yet settled, which are not subject to forfeiture, are considered to be outstanding for the purposes of computing basic earnings per share.

As of February 3, 2024, we had 0.5 million director stock units not yet settled.

SHAREHOLDERS' EQUITY

S hares- Our Class A common shares are listed for trading under the ticker symbol "DBI" on the New York Stock Exchange.

Our Class A common shares are listed for trading under the ticker symbol "DBI" on the New York Stock Exchange.

There is currently no public market for the Company's Class B common shares, but the Class B common shares can be converted into the Company's Class A common shares at the election of the holder on a share for share basis.

1 unchanged sentence

The following table provides additional information for our common shares:

(in thousands) January 28, 2023 January 29, 2022

(in thousands) February 3, 2024 January 28, 2023

Class A Class B Class A Class B

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

Share Repurchases- On August 17, 2017, the Board of Directors authorized the repurchase of an additional $ 500 million of Class A common shares under our share repurchase program, which was added to the $ 33.5 million remaining from the previous authorization.

A s of January 28, 2023, $ 187.4 million of Class A common shares remained available for repurchase under the program.

On March 14, 2024, the Board declared a quarterly cash dividend payment of $ 0.05 per share for both Class A and Class B common shares.

The dividend will be paid on April 12, 2024 to shareholders of record as of the close of business on March 29, 2024.

SHARE REPURCHASES

On August 17, 2017, the Board authorized the repurchase of an additional $ 500.0 million of Class A common shares under our share repurchase program, which was added to the $ 33.5 million remaining from the previous authorization.

On June 8, 2023, we commenced a modified "Dutch Auction" tender offer (the "Tender Offer"), to purchase up to $ 100.0 million of the Company's Class A common shares.

The Tender Offer expired on July 7, 2023 and on July 12, 2023, we repurchased 1.5 million Class A common shares under the Tender Offer at a purchase price of $ 10.00 per share and at an aggregate cost of $ 15.1 million, including transaction costs.

During 2023 , we repurchased an aggregate of 9.7 million Class A common shares, including open market purchases and th e 1.5 million Class A common shares purchased under the Tender Offer, at an aggregate cost of $ 102.2 million, including transaction costs and excise tax.

Share repurchases were funded from the proceeds from our Term Loan.

As of February 3, 2024, $ 87.7 million of Class A common shares remained available for repurchase under the share repurchase program.

The share repurchase program may be suspended, modified, or discontinued at any time, and we have no obligation to repurchase any amount of our Class A common shares under the program.

Shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions.

ACCUMULATED OTHER COMPREHENSIVE LOSS

For 2022 and 2021, the change in accumulated other comprehensive loss was due to foreign currency translation adjustments as shown in the consolidated statements of shareholders' equity.

For 2020, changes for the balances of each component of accumulated other comprehensive loss, net of tax, were as follows:

(in thousands)

Foreign Currency Translation Available-for-Sale Securities Total

Balance, February 1, 2020 $ ( 2,668 ) $ 173 $ ( 2,495 )

Other comprehensive income (loss) before reclassifications ( 618 ) 195 ( 423 )

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

Other comprehensive loss ( 618 ) ( 173 ) ( 791 )

Balance, January 30, 2021 $ ( 3,286 ) $ — $ ( 3,286 )

Under the share repurchase program, shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions.

Receivables, net, consisted of the following:

(in thousands) January 28, 2023 January 29, 2022

(in thousands) February 3, 2024 January 28, 2023

Customer accounts receivables:

Serviced by third-party provider with guaranteed payment $ 19,539 $ 27,827

Serviced by third-party provider without guaranteed payment 103 82

Serviced in-house 5,138 2,783

Receivables with payment guarantee by third-party provider $ 18,615 $ 19,539

Receivables without payment guarantee 7,890 5,241

Income tax receivable 44,476 44,021

3 unchanged sentences

$ 83,590 $ 77,763

The following table presents the activity for the allowance for doubtful accounts:

(in thousands) 2022 2021 2020

Allowance for doubtful accounts - beginning of period $ ( 1,132 ) $ ( 1,194 ) $ ( 1,219 )

Provision for bad debts — ( 40 ) ( 1,041 )

Recoveries, write-offs, and other adjustments 820 102 1,066

Allowance for doubtful accounts - end of period $ ( 312 ) $ ( 1,132 ) $ ( 1,194 )

Activity for the allowance for doubtful accounts was immaterial for all periods presented.

PROPERTY AND EQUIPMENT

Property and equipment, net, consisted of the following:

(dollars in thousands) Useful Life (years) January 28, 2023 January 29, 2022

(dollars in thousands) Useful Life (years) February 3, 2024 January 28, 2023

Land Indefinite $ 1,110 $ 1,110

9 unchanged sentences

Accumulated depreciation and amortization ( 939,931 ) ( 889,582 )

Property and equipment, net $ 235,430 $ 256,786

$ 219,939 $ 235,430

GOODWILL AND INTANGIBLE ASSETS

The following table presents the changes to goodwill by segment:

(in thousands) January 28, 2023 January 29, 2022

(in thousands) February 3, 2024 January 28, 2023

Goodwill Accumulated Impairments Net Goodwill Accumulated Impairments Net

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Brand Portfolio:

Acquired Topo goodwill 3,460 — 3,460 — — —

Purchase price and allocation adjustments for acquisition of Topo 868 — 868 3,460 — 3,460

Acquired Keds goodwill 25,776 — 25,776 — — —

26,215 429 26,644 1,703 1,757 3,460

5 unchanged sentences

INTANGIBLE ASSETS

Intangible assets consisted of the following:

(in thousands) January 28, 2023 January 29, 2022

Intangible assets, net, consisted of the following:

(in thousands) February 3, 2024 January 28, 2023

Cost Accumulated Amortization Net Cost Accumulated Amortization Net

3 unchanged sentences

$ 87,975 $ ( 5,148 ) $ 82,827 $ 33,612 $ ( 1,746 ) $ 31,866

During 2022, we acquired the rights to the shoes.com tradename for $ 4.9 million, which was recorded as a definite lived tradename intangible asset with a useful life of 15 years.

In addition, we recognized preliminary estimates of the fair value of the definite-lived customer relationships and tradename intangible assets from the Topo acquisition, which are amortized over a useful life of eight and 15 years, respectively.

Definite-lived customer relationships and tradenames have a useful life of 10 and 15 years, respectively.

During 2023, 2022 and 2021, amortization expense for intangible assets was $ 1.9 million, $ 0.4 million and $ 0.1 million, respectively, included within operating expenses on the consolidated statements of operations.

As of February 3, 2024, the estimated future annual amortization expense for the intangible assets is $ 1.9 million over the next 5 years.

ACCRUED EXPENSES

Accrued expenses consisted of the following:

(in thousands) January 28, 2023 January 29, 2022

(in thousands) February 3, 2024 January 28, 2023

Gift cards $ 31,662 $ 35,121

2 unchanged sentences

Loyalty programs deferred revenue 15,971 16,900

Sales returns allowances 18,107 18,574

Customer allowances and discounts 1,230 2,097

Customer returns and allowances 19,569 19,337

Other 49,944 54,880

1 unchanged sentence

Debt consisted of the following:

(in thousands) January 28, 2023 January 29, 2022

(in thousands) February 3, 2024 January 28, 2023

ABL Revolver $ 301,070 $ 281,035

2 unchanged sentences

Less unamortized Term Loan debt issuance costs ( 7,101 ) —

Less current maturities of long-term debt ( 6,750 ) —

Long-term debt $ 420,344 $ 281,035

ABL Revolver- On March 30, 2022, we replaced our previous senior secured asset-based revolving credit facility with our current senior secured asset-based revolving credit facility ("ABL Revolver"), which provides a revolving line of credit of up to $ 550.0 million, including a Canadian sub-limit of up to $ 55.0 million, a $ 75.0 million sub-limit for the issuance of letters of credit, a $ 55.0 million sub-limit for swing-loan advances for U.S.

As of February 3, 2024, future maturities of debt are as follows:

(in thousands)

Total $ 434,195

On March 30, 2022, we replaced our previous senior secured asset-based revolving credit facility with our current ABL Revolver, which was subsequently amended on February 28, 2023 and June 23, 2023.

The amended ABL Revolver provides a revolving line of credit of up to $ 600.0 million, including a Canadian sub-limit of up to $ 60.0 million, a $ 75.0 million sub-limit for the issuance of letters of credit, a $ 60.0 million sub-limit for swing-loan advances for U.S.

borrowings, and a $ 6.0 million sub-limit for swing-loan advances for Canadian borrowings.

In addition, the ABL Revolver includes a first-in last-out term loan ("FILO Term Loan") of up to $ 30.0 million, which was drawn in full on February 28, 2023.

The FILO Term Loan may be repaid in full, but not in part, so long as certain payment conditions are satisfied.

Once repaid, no portion of the FILO Term Loan may be reborrowed.

Our ABL Revolver matures in March 2027 and is secured by a first-priority lien on substantially all of our personal property assets, including credit card receivables and inventory.

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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 January 28, 2023, the ABL Revolver had a borrowing base of $ 529.9 million, with $ 281.0 million in outstanding borrowings a nd $ 5.0 million in letters of credit issued, resulting in $ 243.9 million av ailable 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 Fed Funds Rate (as defined in the credit facility agreement and subject to a floor of 0%) plus 0.5 %, and (iii) the one-month Adjusted Term SOFR (as defined in the credit facility agreement) plus 1.0 %;

or (B) a one-month, three-month or six-month Adjusted Term SOFR per annum (subject to a floor of 0 %), plus, in each instance, an applicable rate to be determined based on average availability, with an interest rate of 6.6 % as of January 28, 2023.

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.

Debt Covenants- As of January 28, 2023, the ABL Revolver required us to maintain a fixed charge coverage ratio covenant of not less than 1 :1 when availability is less than the greater of $ 41.3 million or 10.0 % of the maximum borrowing amount.

The ABL Revolver also contains customary covenants restricting certain activities, including limitations on our 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.

As of February 3, 2024, the revolving line of credit (excluding the FILO Term Loan) had a borrowing base of $ 437.0 million, with $ 271.1 million in outstanding borrowings and $ 5.0 million in letters of credit issued, resulting in $ 160.9 million available for borrowings.

Borrowings under the revolving line of credit 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 Fed Funds Rate (as defined in the credit facility agreement and subject to a floor of 0 %) plus 0.5 %, and (iii) Adjusted Term SOFR (as defined in the credit facility agreement) plus 1.0 %;

or (B) a one-month, three-month or six-month Adjusted Term SOFR per annum (subject to a floor of 0 %), plus, in each instance, an applicable rate to be determined based on average availability.

The FILO Term Loan accrues interest, at our option, at a rate equal to:

(A) a fluctuating interest rate per annum equal to the greatest of (i) the prime rate, (ii) the Fed Funds Rate plus 0.5 %, or (iii) Adjusted Term SOFR plus 1.0 %, plus 2.5 %;

or (B) Adjusted Term SOFR for the interest period in effect for such borrowing plus 3.5 %.

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

Interest expense related to the ABL Revolver includes interest on borrowings and letters of credit, with an interest rate of 7.6 % as of February 3, 2024, commitment fees, and the amortization of debt issuance costs.

On June 23, 2023, we entered into the Term Loan and have since borrowed the maximum aggregate amount of $ 135.0 million during 2023, consisting of $ 121.5 million in U.S.

loans and $ 13.5 million in Canadian loans (denominated in USD).

The Term Loan matures at the earliest of the date the ABL Revolver matures (currently March 2027) or five years from closing of the Term Loan (June 2028).

The Term Loan is collateralized by a first priority lien on substantially all of our personal, real, and intellectual property and by a second priority lien on the assets used as collateral for the ABL revolver, primarily credit card receivables, accounts receivable, and inventory.

Borrowings under the Term Loan bear interest at a per annum rate equal to:

(A) an adjusted three-month SOFR per annum (subject to a floor of 2.0 %), plus 7.0 %;

or if (A) is not available, then (B) a base rate per annum equal to the greater of (i) 2.0 %, (ii) the prime rate, (iii) the Fed Funds Rate plus 0.5 %, and (iv) the Adjusted Term SOFR plus 1.0 %;

plus, in each instance, 6.0 %, with an interest rate of 12.4 % (effective interest rate of 13.8 % when including the amortization of debt issuance costs) as of February 3, 2024.

DEBT COVENANTS

The ABL Revolver requires us to maintain a fixed charge coverage ratio covenant of not less than 1 :1 when availability is less than the greater of $ 47.3 million or 10.0 % of the maximum borrowing amount.

At any time that liquidity is less than $ 100.0 million, the Term Loan requires a maximum consolidated net leverage ratio as of the last day of each fiscal month, calculated on a trailing twelve-month basis, of (1) 2.25 to 1.00 for any trailing twelve-month period through February 3, 2024, and (2) 2.50 to 1.00 thereafter.

Testing of the consolidated net leverage ratio ends after liquidity has been greater than or equal to $ 100.0 million for a period of 45 consecutive days.

The ABL Revolver and the Term Loan also contain customary covenants restricting certain activities, including limitations on our 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 based on availability.

The ABL Revolver contains customary events of default, including failure to comply with certain financial and other covenants.

Upon an event of default that is not cured or waived within the cure periods, in addition to other remedies that may be available to the lenders, our obligations under the ABL Revolver 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 28, 2023, we were in compliance with all financial covenants contained in the ABL Revolver.

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

In connection with this settlement, we incurred a $ 12.7 million loss on extinguishment of debt, composed of a $ 6.9 million prepayment premium and a $ 5.7 million write-off of unamortized debt issuance costs.

The ABL Revolver and the Term Loan contain customary events of default, including failure to comply with certain financial and other covenants.

Upon an event of default that is not cured or waived within the cure periods, in addition to other remedies that may be available to the lenders, our 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 February 3, 2024, we were in compliance with all financial covenants contained in the ABL Revolver and the Term Loan.

TERMINATION OF PREVIOUS TERM LOAN

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

In connection with this settlement, during 2022 we incurred a $ 12.7 million loss on extinguishment of debt, composed of a $ 6.9 million prepayment premium and a $ 5.7 million write-off of unamortized debt issuance costs.

We lease our stores, our distribution center located in New Jersey, and other facilities under operating lease arrangements with unrelated parties and related parties owned by the Schottenstein Affiliates.

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Lease term and discount rate for our operating leases were as follows:

January 28, 2023 January 29, 2022

February 3, 2024 January 28, 2023

Other operating lease information:

Weighted-average remaining lease term (years) 5.7 5.1

Weighted-average remaining lease term 5.9 years 5.7 years

Weighted-average discount rate 4.9 % 4.2 %

As of January 28, 2023, our future f ixed minimum lease payments are as follows:

As of February 3, 2024, our future f ixed minimum lease payments are as follows:

(in thousands) Unrelated Parties Related Parties Total

10 unchanged sentences

Non-current operating lease liabilities $ 627,640 $ 18,521 $ 646,161

As of January 28, 2023, we had entered into lease commitments for one new store location and three store relocations where the leases have not yet commenced, and therefore the lease liabilities have not yet been recorded.

We expect the lease commencement to begin over the next three fiscal quarters for these locations, and we will record additional operating lease liabilities of approximately $ 5.4 million.

As of February 3, 2024, we had entered into lease commitments for four new store locations, four store relocations, and one new distribution center where the leases have not yet commenced, and therefore the lease liabilities have not yet been recorded.

We expect the lease commencements to begin over the next five fiscal quarters for these locations, and we will record additional operating lease liabilities of approximately $ 31.8 million.

As it relates to the new distribution center, we have also entered into lease commitments for the equipment that will be used to operate the distribution center, which are expected to commence over the next five fiscal quarters and we will record additional finance lease liabilities of approximately $ 33.4 million.

COMMITMENTS AND CONTINGENCIES

Legal Proceedings- We are involved in various legal proceedings that are incidental to the conduct of our business.

LEGAL PROCEEDINGS

We are involved in various legal proceedings that are incidental to the conduct of our business.

Although it is not possible to predict with certainty the eventual outcome of any litigation, we believe the amount of any potential liability with respect to current legal proceedings will not be material to the results of operations or financial condition.

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

Guarantees- We provide guarantees for lease obligations that are scheduled to expire in 2025 for locations that have been leased to third parties.

If a third party does not pay the rent or vacates the premise, we may be required to make full rent payments to the landlord.

As of January 28, 2023, the total future payment requirements for these guarantees were approximately $ 8.7 million.

Contractual Obligations- As of January 28, 2023, we had entered into various noncancelable purchase and service agreements, including agreements with remaining terms in excess of one year and construction commitments for capital items to be purchased for projects that were under construction or for which a lease has been signed.

We provide guarantees for lease obligations that are scheduled to expire in 2025 for locations that have been leased to third parties.

If a third party does not pay the rent or vacates the premises, we may be required to make full rent payments to the landlord.

As of February 3, 2024, the total future payment requirements for these guarantees were approximately $ 4.1 million.

CONTRACTUAL OBLIGATIONS

As of February 3, 2024, we had entered into various noncancelable purchase and service agreements, including agreements with remaining terms in excess of one year and construction commitments for capital items to be purchased for projects that were under construction or for which a lease has been signed.

In addition, we have license agreements that allow us to use brands owned by third parties, including a license agreement with our equity investments (related parties), that have guaranteed minimum royalty payments.

As of January 28, 2023, our noncancelable purchase obligations and future guaranteed minimum royalty payments were as follows:

As of February 3, 2024, our noncancelable purchase obligations and future guaranteed minimum royalty payments were as follows:

(in thousands) Noncancelable Purchase Obligations Guaranteed Minimum Royalties

5 unchanged sentences

2028 518 14,184 19,650 33,834

Future fiscal years thereafter 575 38,684 19,650 58,334

$ 29,989 $ 79,170 $ 100,576 $ 179,746

Income (loss) before income taxes consisted of the following:

Income before income taxes consisted of the following:

(in thousands)

2023 2022 2021

Domestic income (loss) $ 131,131 $ 161,409 $ ( 559,120 )

Foreign income (loss) 28,393 11,616 ( 49,527 )

Domestic income $ 19,499 $ 131,131 $ 161,409

Foreign income 20,698 28,393 11,616

$ 40,197 $ 159,524 $ 173,025

3 unchanged sentences

Federal $ ( 594 ) $ 36,018 $ 16,696

Foreign 449 1,774 1,451

State and local 547 12,120 1,061

Total current tax expense (benefit) 48,587 19,531 ( 154,320 )

Federal ( 29,025 ) ( 555 ) 23,601

Foreign 1,904 449 1,774

Total current tax expense 1,857 48,587 19,531

Federal 3,766 ( 29,025 ) ( 555 )

State and local 5,362 ( 10,591 ) 124

Foreign ( 4 ) ( 12,113 ) ( 556 )

Total deferred tax expense (benefit) 9,124 ( 51,729 ) ( 987 )

Income tax provision (benefit) $ 10,981 $ ( 3,142 ) $ 18,544

The following presents a reconciliation of the income tax provision (benefit) based on the U.S.

federal statutory tax rate to the total tax provision (benefit):

(in thousands) 2022 2021 2020

Income tax provision (benefit) at federal statutory rate $ 33,502 $ 36,335 $ ( 127,816 )

State and local taxes, net of federal benefit (provision) 7,955 7,870 ( 23,678 )

Change in valuation allowance ( 55,654 ) ( 29,950 ) 87,579

Non-deductible compensation 4,683 5,531 840

CARES Act rate differential — ( 1,697 ) ( 57,894 )

Federal interest income

The following presents a reconciliation of the income tax provision based on the U.S.

federal statutory tax rate to the total effective tax rate:

(dollars in thousands) 2023 2022 2021

Amount % Amount % Amount %

federal tax at statutory rate $ 8,441 21.0 % $ 33,502 21.0 % $ 36,335 21.0 %

State and local income taxes, net of federal income tax effect (1)

( 92 ) ( 0.2 ) 242 0.2 ( 3,041 ) ( 1.8 )

Uncertain tax positions 5,940 1,275 ( 290 )

Other 3,461 ( 318 ) 1,331

Foreign tax effects:

Statutory tax rate difference between Canada and U.S.

882 2.2 1,162 0.6 607 0.4

See Note 1 , Description of Business and Significant Accounting Policies - Income Taxes , for discussion of the CARES Act rate differential and the change in valuation allowance.

Changes in valuation allowances — — ( 19,408 ) ( 12.2 ) ( 584 ) ( 0.3 )

Other 190 0.5 419 0.4 ( 795 ) ( 0.5 )

Effects of changes in tax laws or rates enacted in the current period — — — — ( 1,697 ) ( 1.0 )

Changes in valuation allowances ( 588 ) ( 1.5 ) ( 28,870 ) ( 18.1 ) ( 16,832 ) ( 9.7 )

Nontaxable or nondeductible items:

Share-based payment awards ( 2,205 ) ( 5.5 ) 1,470 0.9 1,268 0.7

Limitation on executive compensation 5,783 14.4 4,683 2.9 5,531 3.2

Federal interest income ( 2,474 ) ( 6.2 ) ( 3,029 ) ( 1.9 ) ( 502 ) ( 0.3 )

Other ( 258 ) ( 0.6 ) 772 0.5 ( 1,383 ) ( 0.8 )

Changes in unrecognized tax benefits 1,540 3.8 6,045 3.8 1,361 0.8

Other adjustments ( 238 ) ( 0.6 ) ( 130 ) ( 0.1 ) ( 1,724 ) ( 1.0 )

Effective tax rate $ 10,981 27.3 % $ ( 3,142 ) ( 2.0 ) % $ 18,544 10.7 %

(1) State taxes in New York and California made up the majority (greater than 50%) of the tax effect in this category.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:

(in thousands) January 28, 2023 January 29, 2022

(in thousands) February 3, 2024 January 28, 2023

Deferred tax assets:

3 unchanged sentences

Inventories 7,485 9,252

Interest 4,409 —

Accrued expenses 3,930 7,038

1 unchanged sentence

State bonus depreciation 3,243 3,655

Intangible assets 1,601 2,994

Gift cards 2,517 2,756

8 unchanged sentences

Total deferred tax liabilities ( 210,784 ) ( 206,850 )

Net deferred tax assets (liabilities) $ 48,285 $ ( 3,606 )

Net deferred income taxes are reported on the consolidated balance sheets as follows:

(in thousands) January 28, 2023 January 29, 2022

Deferred tax assets $ 48,285 $ 356

Deferred tax liabilities included in other non-current liabilities — ( 3,962 )

$ 48,285 $ ( 3,606 )

As of January 28, 2023, the remaining valuation allowance was primarily related to state deferred tax assets.

Net deferred tax assets $ 39,067 $ 48,285

As of February 3, 2024, the remaining valuation allowance was primarily related to state deferred tax assets.

Additionally, there were $ 12.8 million state, $ 4.4 million foreign, and $ 0.7 million federal net operating losses, which, if not utilized, a portion of the carryovers will begin to expire in 2025, 2038, and 2036, respectively.

During 2020, a valuation allowance was recognized as a reserve on the total deferred tax asset balance and was maintained until the end of 2022.

This valuation allowance was the result of losses incurred in 2020 due to the impacts of the coronavirus pandemic that resulted in a three-year cumulative loss position, which was significant objective negative evidence in considering whether deferred tax assets were realizable.

During 2022, we released the valuation allowance on the majority of the U.S.

and Canada deferred tax assets given the continued realization of income since 2020, being in a three-year cumulative adjusted earnings position, and having projected future income.

These factors provided sufficient evidence to conclude that it is more likely than not that the majority of the U.S.

and Canada deferred tax assets are realizable.

The following table presents the changes in valuation allowance:

1 unchanged sentence

Valuation allowance - beginning of period $ 14,027 $ 70,762 $ 101,185

Additions charged to income tax benefit — — 87,579

Allowances taken or written off ( 666 ) ( 55,654 ) ( 29,950 )

1 unchanged sentence

Valuation allowance - end of period $ 12,131 $ 14,027 $ 70,762

We intend to continue to invest all of the earnings of foreign subsidiaries, as well as our capital in these subsidiaries, indefinitely outside of the U.S.

We intend to continue to invest all of the earnings of foreign subsidiaries, as well as our capital in these subsidiaries outside of the U.S.

and we do not expect to incur any significant additional taxes related to such amounts.

Net cash paid (refunds received) for income taxes consisted of the following:

(in thousands) 2023 2022 2021

Federal $ 15,500 $ ( 83,316 ) $ 28,859

Aggregated state and local jurisdictions 1,853 6,629 ( 907 )

Disaggregated state and local jurisdictions:

California 941 — —

New York ( 2,534 ) — —

City of Columbus, Ohio 1,005 — —

Foreign 307 555 467

Net cash paid (refunds received) for income taxes

$ 17,072 $ ( 76,132 ) $ 28,419

The following table presents the changes in gross unrecognized tax benefits:

2 unchanged sentences

Additions for tax positions taken in the current year 3,042 5,342 1,021

Lapses of applicable statues of limitations ( 2,323 ) — —

Settlements of tax positions taken in prior years ( 71 ) ( 665 ) —

Unrecognized tax benefits - end of period $ 16,433 $ 15,785 $ 11,108

Of the total unrecognized tax benefits at January 28, 2023, January 29, 2022 and January 30, 2021, $ 14.0 million, $ 9.5 million and $ 8.7 million, respectively, represented the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate in future periods.

While it is expected that the amount of unrecognized tax benefits will change in the next 12 months, any changes are not expected to have a material impact on our financial position, results of operations, or cash flows.

We recognize interest and penalties related to unrecognized tax benefits as a component of the income tax provision (benefit).

As of January 28, 2023, January 29, 2022 and January 30, 2021, interest and penalties were $ 4.7 million, $ 3.1 million and $ 2.6 million, respectively.

As of February 3, 2024, January 28, 2023 and January 29, 2022, interest and penalties we re $ 5.6 million, $ 4.7 million and $ 3.1 million, respectively.

SEGMENT REPORTING

1 unchanged sentence

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

We have determined that the Chief Operating Decision Maker ("CODM") is our Chief Executive Officer and we have identified such segments based on internal management reporting and responsibilities.

We have determined that the Chief Operating Decision Maker ("CODM") is our CEO and we have identified such segments based on internal management reporting and responsibilities.

The performance of each segment is based primarily on net sales and gross profit.

As a result, we do not allocate operating expenses to the segments.

Total assets by segment are not presented in the table below as the CODM does not evaluate, manage, or measure performance of segments using total assets.

by segment are not presented in the table below as the CODM does not evaluate, manage, or measure performance of segments using total assets.

The following table provides certain financial da ta by segment reconciled to the consolidated financial statements:

(in thousands) U.S.

Retail Canada Retail Brand Portfolio Other Corporate / Eliminations Consolidated

Retail Canada Retail Brand Portfolio Corporate / Eliminations Consolidated

External customer sales $ 2,533,849 $ 264,229 $ 276,898 $ — $ 3,074,976

9 unchanged sentences

Gross profit $ 904,583 $ 99,121 $ 72,006 $ 3,515 $ 1,079,225

Income from equity investment $ — $ — $ 8,986 $ — $ — $ 8,986

Income from equity investments $ — $ — $ 8,864 $ — $ 8,864

Cash paid for property and equipment $ 27,567 $ 3,169 $ 1,501 $ 22,737 $ 54,974

Depreciation and amortization $ 45,101 $ 6,629 $ 5,480 $ 24,105 $ 81,315

(in thousands) U.S.

Retail Canada Retail Brand Portfolio Other Corporate / Eliminations Consolidated

External customer sales $ 2,769,706 $ 234,809 $ 192,068 $ — $ 3,196,583

5 unchanged sentences

Depreciation and amortization $ 40,693 $ 7,378 $ 5,262 $ 24,590 $ 77,923

Retail and Brand Portfolio segments and Other net sales recognized were primarily based on sales to customers in the U.S., and the Canada Retail segment net sales recognized were based on sales to customers in Canada.

Retail and Brand Portfolio segments net sales recognized were primarily based on sales to customers in the U.S., and the Canada Retail segment net sales recognized were based on sales to customers in Canada.

Net sales realized from geographic markets outside of the U.S.

and Canada were collectively immaterial.

As of January 28, 2023 and January 29, 2022, long-lived assets, consisting of property and equipment and operating lease assets, included $ 875.7 million and $ 835.9 million, respectively, in the U.S.

As of February 3, 2024 and January 28, 2023, long-lived assets, consisting of property and equipment and operating lease assets, included $ 879.2 million and $ 875.7 million, respectively, in the U.S.

and $ 61.1 million and $ 58.6 million, respectively, in Canada, with only an immaterial amount in other countries.

No single customer accounted for 10% or more of consolidated total net sales.

However, the Brand Portfolio segment has four customers that make up approximately 53 % of its segment net sales, excluding intersegment net sales, and the loss of any or all of these customers could have a material adverse effect on the Brand Portfolio segment.

SUBSEQUENT EVENTS

Acquisition of Keds- On February 4, 2023, we acquired the Keds business, including the Keds brand, inventory, and inventory related accounts payable, from Wolverine World Wide, Inc.

for $ 123.3 million.

The Keds business designs, sources, and sells branded footwear and earns revenue from the wholesale of products to retailers in the U.S.

and Canada, the wholesale of products to international distributors, and the sale of branded products through direct-to-consumer e-commerce sites in the U.S.

The purchase price of the acquisition was funded with available cash and borrowings on the ABL Revolver.

We will account for the acquisition and include the results of the Keds business in our Brand Portfolio segment beginning with our first quarter of 2023.

Given the acquisition date, we are in the process of developing our fair value assumptions for the assets and liabilities acquired.

ABL Revolver Amendment- On February 28, 2023, the ABL Revolver was amended to increase the available capacity under the revolving line of credit from $ 550.0 million to $ 600.0 million and to add a first-in last-out term loan (the "FILO Term Loan") of up to $ 30.0 million, which was drawn in full on the date of the amendment, subject to a borrowing base.

The FILO Term Loan may be repaid in full, but not in part, so long as certain payment conditions are satisfied.

Once repaid, no portion of the FILO Term Loan may be reborrowed.

The maturity date of the ABL Revolver did not change and is applicable to the FILO Term Loan.

The interest rate on the revolving line of credit remains unchanged, and the FILO Term Loan will accrue interest, at our option, at a rate equal to (A) a fluctuating interest rate per annum equal to the greatest of (i) the prime rate, (ii) the Fed Funds Rate plus 0.5 %, or (iii) Adjusted Term SOFR plus 1.0 %, plus 2.25 %;

or (B) Adjusted Term SOFR for the interest period in effect for such borrowing plus 3.25 %.

The ABL Revolver was also amended to change the period during which we are required to maintain a fixed charge coverage ratio of not less than 1 :1 when availability is less than the greater of $ 47.3 million or 10 % of the maximum borrowing amount .

Dividends- On March 15, 2023, the Board of Directors declared a quarterly cash dividend payment of $ 0.05 per share for both Class A and Class B common shares.

The dividend will be paid on April 14, 2023 to shareholders of record as of the close of business on March 31, 2023.

However, the Brand Portfolio segment has five customers that make up 40 % of its segment net sales, excluding intersegment net sales, and the loss of any or all of these customers could have a material adverse effect on the Brand Portfolio segment.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data