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Item 8. Financial Statements and Supplementary Data

2025-03-24 compared with 2024-03-25 · 299 added, 240 removed, 715 unchanged (43% 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 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").

and subsidiaries (the "Company") as of February 1, 2025 and February 3, 2024, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, for each of the three years in the period ended February 1, 2025, 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 1, 2025, 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.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 1, 2025 and February 3, 2024, and the results of its operations and its cash flows for each of the three years in the period ended February 1, 2025, 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 1, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

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• 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 evaluated management's ability to accurately estimate inventory markdowns by comparing estimated inventory markdowns as of February 1, 2025 to subsequent sales of inventory that had been marked down.

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

• We assessed inventory aging as of February 1, 2025, and subsequent sell through of inventory.

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Non-operating expenses, net ( 372 ) ( 33 ) ( 130 )

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

Income (loss) before income taxes ( 10,730 ) 40,197 159,524

Income tax benefit (provision) 755 ( 10,981 ) 3,142

Net income 29,216 162,666 154,481

Net income (loss) ( 9,975 ) 29,216 162,666

Net loss (income) attributable to redeemable noncontrolling interest ( 574 ) ( 154 ) 10

Net income attributable to Designer Brands Inc.

Net income (loss) attributable to Designer Brands Inc.

$ ( 10,549 ) $ 29,062 $ 162,676

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

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

Basic earnings (loss) per share $ ( 0.20 ) $ 0.47 $ 2.41

Diluted earnings (loss) per share $ ( 0.20 ) $ 0.46 $ 2.26

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands) 2024 2023 2022

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

Other comprehensive income loss-

Net income (loss) $ ( 9,975 ) $ 29,216 $ 162,666

Other comprehensive loss-

Foreign currency translation loss ( 5,412 ) ( 289 ) ( 1,733 )

Comprehensive income 28,927 160,933 154,150

Comprehensive income (loss) ( 15,387 ) 28,927 160,933

Comprehensive loss (income) attributable to redeemable noncontrolling interest ( 574 ) ( 154 ) 10

Comprehensive income attributable to Designer Brands Inc.

Comprehensive income (loss) attributable to Designer Brands Inc.

$ ( 15,961 ) $ 28,773 $ 160,943

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CONSOLIDATED BALANCE SHEETS

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

(in thousands) February 1, 2025 February 3, 2024

Current assets:

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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

Net income attributable to Designer Brands Inc.

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

Net loss attributable to Designer Brands Inc.

— — — — — ( 10,549 ) — ( 10,549 )

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Cash flows from operating activities:

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

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

Net income (loss) $ ( 9,975 ) $ 29,216 $ 162,666

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

Depreciation and amortization 63,821 66,140 81,315

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Cash paid for property and equipment ( 50,891 ) ( 54,997 ) ( 54,974 )

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

Cash paid for business acquisitions ( 16,144 ) ( 127,496 ) ( 19,062 )

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

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Effect of exchange rate changes on cash balances ( 1,890 ) 22 ( 523 )

Net increase (decrease) in cash, cash equivalents, and restricted cash ( 9,593 ) ( 15,693 ) 14,878

Cash, cash equivalents, and restricted cash, beginning of period 58,766 74,459 59,581

Cash, cash equivalents, and restricted cash, end of period $ 49,173 $ 58,766 $ 74,459

Net decrease in cash and cash equivalents ( 4,421 ) ( 9,593 ) ( 15,693 )

Cash and cash equivalents, beginning of period 49,173 58,766 74,459

Cash and cash equivalents, end of period $ 44,752 $ 49,173 $ 58,766

Supplemental disclosures of cash flow information:

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Related Party Transactions

Earnings Per Share

Earnings (Loss) Per Share

Stock-Based Compensation

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Segment Reporting

Quarterly Financial Data (Unaudited)

DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

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

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

stores and e-commerce site.

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, 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.

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 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.

Retail segment operates the DSW Designer Shoe Warehouse ("DSW") banner through its direct-to-consumer stores and e-commerce site in the United States ("U.S.").

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

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

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.

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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.

This acquisition 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.

On April 8, 2024, we completed the acquisition of Rubino Shoes Inc.

("Rubino"), a retailer of branded footwear, handbags, and accessories that operates Rubino banner stores and an e-commerce site in Quebec, Canada.

The acquisition of Rubino has allowed our Canada Retail segment to expand into the province of Quebec.

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

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

and its subsidiaries, including variable interest entities.

and its subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

All amounts are in United States ("U.S.") dollars.

All amounts are in U.S.

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 reporting periods.

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

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.

Significant estimates and assumptions are required as a part of accounting for customer returns and allowances, gift card breakage income, deferred revenue associated with reward programs, valuation of inventories, depreciation and amortization, impairments of long-lived assets, intangibles, goodwill and equity investments, 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.

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Revenue from shipping and handling is recorded in net sales while the related costs are included in cost of sales on the consolidated statements of operations.

For products shipped directly to our customers from our vendors (referred to as "drop ship"), we record gross sales upon customer receipt based on the price paid by the customers as we have determined that we are the principal party responsible for the sale transaction.

For products shipped directly to our customers from our suppliers (referred to as "drop ship"), we record gross sales upon customer receipt based on the price paid by the customers as we have determined that we are the principal party responsible for the sale transaction.

Sales from the Brand Portfolio segment are recognized upon transfer of control.

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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 direct-to-consumer customers.

Reward Programs- We offer reward programs to our U.S.

Retail and Canada Retail segment customers.

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

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The deferred liability is reduced and sales are recognized when certificates are redeemed or when points and certificates expire.

Cost of Sales- Cost of sales from the U.S.

Retail and Canada Retail segments is recognized net of estimated returns.

In addition to the cost of merchandise sold, which includes freight and the impact of markdowns, shrink and other inventory valuation adjustments, we include expenses associated with distribution and fulfillment and store occupancy in cost of sales.

Distribution and fulfillment expenses comprise of labor costs, third-party fees, rent, depreciation, insurance, utilities, maintenance, and other operating costs.

Store occupancy expenses include rent, utilities, repairs, maintenance, insurance, janitorial costs, and occupancy-related taxes, but exclude depreciation.

Cost of sales from the Brand Portfolio segment is recognized net of estimated returns.

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 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.

Prior Period Reclassifications - Beginning with this 2024 Annual Report on Form 10-K, we changed our financial statement presentation related to expenses associated with distribution and fulfillment and store occupancy for the U.S.

Retail and Canada Retail segments.

These expenses were previously included within cost of sales and are now included within operating expenses in order to present all of our operating segments on a consistent basis.

Prior period reclassifications were made to conform to the current period presentation in the consolidated statements of operations.

For 2023 and 2022, the reclassification resulted in a $ 349.1 million and $ 375.5 million, respectively, decrease to cost of sales and increase to operating expenses.

These reclassifications did not change operating profit, net income attributable to Designer Brands Inc., earnings per share attributable to Designer Brands Inc., or any other consolidated financial statements.

Refer to Note 17, Quarterly Financial Data (Unaudited) , for the quarterly impact to 2024 and 2023.

Cost of Sales- Cost of sales consists primarily of the cost of merchandise sold, including freight and the impact of inventory valuation adjustments, net of estimated returns, and royalty expenses for licensed brands.

Cost of sales excludes depreciation and amortization expenses, which are included in operating expenses.

Operating Expenses- Operating expenses include expenses related to distribution and fulfillment, rent (net of sublease income) and other occupancy costs, store selling operations, marketing, design, sourcing, buying, customer service center, depreciation and amortization, and corporate expenses.

Corporate expenses include expenses related to administration, information technology ("IT"), finance, human resources, legal, real estate, and other shared services performing corporate-level activities.

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

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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, 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).

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.

There were no CEO transition costs for 2024.

Severance- During 2024, 2023 and 2022, we incurred severance costs, excluding the severance related to the CEO transition, of $ 5.8 million, $ 5.1 million and $ 2.8 million, respectively.

These costs are included in operating expenses on the consolidated statements of operations and no amounts were material to any individual reportable segment.

As of February 1, 2025 and February 3, 2024, we had $ 1.3 million and $ 3.9 million, respectively, of severance liability 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.

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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 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) February 3, 2024 January 28, 2023 January 29, 2022

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

Restricted cash, included in prepaid expenses and other current assets — — 1,768

Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 49,173 $ 58,766 $ 74,459

Cash and Cash Equivalents- Cash and cash equivalents represent cash, money market funds, and credit card receivables that generally settle within three days.

Investments - We determine the balance sheet classification of investments at the time of purchase and evaluate the classification at each balance sheet date.

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We evaluate our investments for impairment and whether impairment is other-than-temporary at each balance sheet date.

We have a 40 % ownership interest in ABG-Camuto, LLC ("ABG-Camuto"), a joint venture that owns the intellectual property rights of Vince Camuto and other brands, and a 33.3 % ownership interest in Le Tigre 360 Global LLC ("Le Tigre"), which manages the Le Tigre brand.

The following table presents activity related to our equity investments:

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Investment in Le Tigre — — 8,228

Impairment of Le Tigre equity investment ( 6,987 ) — —

Share of net earnings 13,145 9,390 8,864

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Balance at end of period $ 56,761 $ 62,857 $ 63,820

During 2024, we recorded an impairment charge of our ownership interest in Le Tigre resulting in no remaining value due to the inability of Le Tigre to generate earnings with expected future losses.

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

We monitor our exposure for credit losses based upon specific receivable balances and we record related allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

We monitor our exposure for credit losses based upon specific receivable balances and we record related allowances for credit losses for estimated losses resulting from the inability of our customers to make required payments.

We utilize an unrelated third-party provider for credit and collection services for receivables from the sale of wholesale products to certain retailers.

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Concentration of Risks- We are subject to risks due to concentration of our merchandise coming from China.

All of the products manufactured through the Brand Portfolio segment come from third-party facilities outside of the U.S., with 76 % of units sourced from China.

All of the products manufactured through the Brand Portfolio segment come from third-party facilities outside of the U.S., with 77 % of units sourced from China during 2024.

In addition to the merchandise sourced through our Brand Portfolio segment, our U.S.

Retail segment and Canada Retail segment also sources merchandise from both domestic and foreign third-party vendors.

Many of our domestic vendors import a large portion of their merchandise from China.

We are also subject to risks due to the concentration of vendors within the U.S.

Retail and Canada Retail segments also source merchandise from domestic third-party suppliers with many of these suppliers importing a large portion of their merchandise from China.

We are also subject to risks due to the concentration of suppliers within the U.S.

Retail and Canada Retail segments.

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.

During 2024, three key national brand suppliers together supplied approximately 25 % of our retail merchandise, with no individual supplier 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, receivables, and accounts payables approximated their fair values due to their short-term nature.

The carrying value of cash and cash equivalents, receivables, and accounts payable 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.

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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.

As of February 1, 2025 and February 3, 2024, we had $ 21.3 million and $ 16.4 million, respectively, of unamortized capitalized costs, and $ 7.5 million and $ 4.5 million, respectively, of accumulated amortization related to the capitalized costs.

During 2024, 2023 and 2022, we had amortization expense related to capitalized costs of $ 5.2 million, $ 2.4 million and $ 0.9 million, respectively.

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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 a vacated leased space.

During 2024, we recorded impairment charges of $ 9.4 million due to a vacated leased corporate office and other corporate assets, $ 1.3 million due to two underperforming Canada Retail segment stores, and $ 0.6 million due to an underperforming U.S.

Retail segment store.

During 2023, we recorded impairment charges of $ 4.8 million, primarily due to a vacated leased space.

During 2022, we recorded impairment charges of $ 4.3 million, primarily resulting from subleases of vacated leased spaces.

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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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, 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.

Redeemable noncontrolling interest- 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 on December 13, 2022.

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

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During 2024, 2023 and 2022, we recognized costs associated with matching contributions of $ 7.0 million, $ 6.9 million and $ 6.2 million, respectively.

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.

In this 2024 Annual Report on Form 10-K, we adopted ASU 2023-07 on a retrospective basis.

Refer to Note 16, Segment Reporting .

In November 2024, the FASB issued ASU 2024-03, Income Statement Expense Disaggregation Disclosures, which requires disaggregated disclosures for specific cost and expense categories such as inventory purchases, employee compensation, depreciation, and amortization, as well as other disclosures.

ASU 2024-03 is effective either on a retrospective basis to all prior periods presented or on a prospective basis beginning with our 2026 Annual Report on Form 10-K and subsequent interim periods.

We are currently evaluating the impact of adopting ASU 2024-03 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 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 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

ACQUISITION OF KEDS

On February 4, 2023, we acquired Keds, including the Keds brand, inventory, and inventory-related accounts payable.

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 was finalized as of February 3, 2024, and consisted of the following:

(in thousands) Final Purchase Price and Allocation

Purchase price:

Cash consideration $ 127,304

Due from Seller for estimated contingent consideration ( 8,899 )

Fair value of assets and liabilities acquired:

Accounts receivables $ 3,195 $ ( 150 ) $ 3,045

Inventories $ 42,516

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Intangible assets 53,500

Other assets 1,898 — 1,898

Accounts payable and other liabilities ( 4,438 ) ( 5 ) ( 4,443 )

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

$ 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.

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 athletic footwear.

Goodwill is expected to be deductible for income tax purposes.

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.

Accounts payable ( 3,387 )

The purchase price was subject to adjustments primarily based upon estimated contingent considerations as provided by the purchase agreement, which were based on recognized sales and incurred marketing costs for certain identified aged inventories.

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 were recorded to earnings and were immaterial.

The fair value of inventories, which were 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 were based on significant unobservable inputs, including discounted future cash flows, market-based assumed royalty rates, and customer attrition rates.

The goodwill, included within the Brand Portfolio segment, 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 not expected to be deductible for income tax purposes.

ACQUISITION OF RUBINO

On April 8, 2024, we acquired Rubino for $ 16.1 million in cash, which was funded with available cash and borrowings on the ABL Revolver.

The purchase price also included a contingent consideration with a maximum potential payment of $ 1.5 million, subject to Rubino's achievement of a defined average annual financial performance target for the 24-month period following the acquisition.

Based on Rubino's projected performance, we have estimated at fair value no contingent consideration to be recorded.

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

(in thousands) Preliminary Purchase Price and Allocation as of April 8, 2024 Measurement Period Adjustments Final Purchase Price and Allocation as of November 2, 2024

Purchase Price:

Cash consideration $ 16,674 $ ( 530 ) $ 16,144

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

Contingent consideration 1,472 ( 1,472 ) —

$ 18,146 $ ( 2,002 ) $ 16,144

1 unchanged sentence

Inventories $ 6,967 $ 278 $ 7,245

Operating lease assets 9,334 — 9,334

Goodwill 9,972 ( 2,905 ) 7,067

Intangible assets 3,166 1,950 5,116

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

Other assets 2,273 170 2,443

Accounts payable and other current liabilities ( 4,232 ) ( 1,495 ) ( 5,727 )

Operating lease liabilities ( 9,334 ) — ( 9,334 )

$ 18,146 $ ( 2,002 ) $ 16,144

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.

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.

The fair value of the intangible asset relates to an indefinite-lived tradename and was estimated using the relief from royalty method of the income approach.

The fair value measurements are based on significant unobservable inputs, including discounted future cash flows and an assumed royalty rate.

The fair value of the operating lease assets was determined based on the market valuation approach.

The goodwill, included within the Canada Retail segment, represents the excess of the purchase price over the fair value of the net assets acquired and was primarily attributable to acquiring an established retail banner in a province in Canada we did not previously have a presence in.

Goodwill is not expected to be deductible for income tax purposes.

The results of operations for Rubino for 2024 were not material and are included in the consolidated statements of operations within the Canada Retail segment.

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

DISAGGREGATION OF NET SALES

Net Sales by Brand Categories- The following table presents net sales disaggregated by brand categories for each segment:

(in thousands) U.S.

Retail Canada Retail (2)

Brand Portfolio Eliminations Consolidated

Owned Brands:

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

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

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

Total Owned Brands 471,197 45,025 348,976 ( 72,078 ) 793,120

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

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

Owned Brands:

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

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

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

Total Owned Brands 569,741 34,734 327,715 ( 87,041 ) 845,149

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

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

Owned Brands:

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

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

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

Total Owned Brands 421,398 14,612 286,024 ( 93,956 ) 628,078

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

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.

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

categories for each segment:

Beginning with this 2024 Annual Report on Form 10-K, we changed the presentation of disaggregation of net sales for all periods presented to include net sales by product and service categories with an athletic footwear category and excluded the previously presented disaggregation of net sales by brand categories.

This change aligns with how management of the Company evaluates the net sales performance of our segments.

The following table presents net sales disaggregated by product and service categories for each segment:

(in thousands) 2024 2023 2022

Retail segment:

Women's footwear $ 1,628,769 $ 1,803,486 $ 1,772,729

Men's footwear 571,142 611,426 620,631

Kids' footwear 197,098 220,665 234,806

Non-athletic footwear:

Women's $ 1,179,957 $ 1,296,213 $ 1,456,271

Men's 333,830 383,930 401,969

Kids' 100,583 82,900 93,282

Athletic footwear 712,180 633,966 684,055

Accessories and other 139,551 136,840 155,936

1 unchanged sentence

Canada Retail segment:

Women's footwear 146,061 151,459 117,045

Men's footwear 69,261 75,401 60,972

Kids' footwear 38,831 44,931 48,503

Non-athletic footwear:

Women's 114,008 111,233 115,424

Men's 42,215 42,168 45,769

Kids' 19,619 17,256 20,279

Athletic footwear 96,839 83,496 90,319

Accessories and other 10,342 10,076 11,450

2 unchanged sentences

Wholesale 335,586 271,655 276,887

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

Direct-to-consumer 57,610 65,724 37,840

Commission income and other 5,685 11,597 12,988

398,881 348,976 327,715

4 unchanged sentences

We record deferred revenue liabilities, included in accrued expenses on the consolidated balance sheets, for remaining obligations we have to our customers.

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

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

(in thousands) 2024 2023 2022

3 unchanged sentences

End of period $ 28,963 $ 31,662 $ 35,121

Loyalty programs:

Reward programs:

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

Loyalty certificates redeemed and expired and other adjustments recognized to net sales ( 31,712 ) ( 32,923 ) ( 30,453 )

Deferred revenue for loyalty points issued 30,783 34,087 34,810

Reward certificates redeemed and expired and other adjustments recognized to net sales ( 30,326 ) ( 31,712 ) ( 32,923 )

Deferred revenue for reward points issued 28,481 30,783 34,087

End of period $ 14,126 $ 15,971 $ 16,900

9 unchanged sentences

End of period $ 18,053 $ 19,569 $ 19,337

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.

As of February 1, 2025 and February 3, 2024, the asset for recovery of merchandise returns was $ 8.9 million and $ 10.0 million, respectively, and is included in prepaid expenses and other current assets on the consolidated balance sheets.

RELATED PARTY TRANSACTIONS

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

EQUITY METHOD INVESTMENTS

ABG-Camuto- We have a 40.0 % ownership interest in ABG-Camuto.

We have a 40.0 % ownership interest in ABG-Camuto.

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

For 2024, 2023 and 2022, we recorded royalty expense for amounts paid to ABG-Camuto of $ 19.2 million, $ 18.1 million and $ 18.3 million, respectively.

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

Le Tigre - We have a 33.3 % ownership interest in Le Tigre.

During 2022, we entered into a license agreement with Le Tigre, whereby we pay royalties on our net sales of the Le Tigre brand, subject to guaranteed minimums.

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

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.

EARNINGS (LOSS) PER SHARE

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

Diluted earnings per share reflects the potential dilution of common shares adjusted for outstanding stock-based compensation awards 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.:

(in thousands) 2024 2023 2022

4 unchanged sentences

53,657 63,375 72,101

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.

For 2024, 2023 and 2022, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings (loss) per share due to their anti-dilutive effect was 5.3 million, 2.6 million and 2.9 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 Designer Brands Inc.

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

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

2 unchanged sentences

During 2024, 2023 and 2022, we recorded stock-based compensation expense of $ 18.7 million, $ 29.4 million and $ 28.5 million, respectively.

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 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 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.

Grants of time-based RSUs generally cliff vest after three years , and performance-based RSUs generally vest based upon the achievement of pre-established goals and over the defined period of service.

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

11 unchanged sentences

The total fair value of performance-based RSUs that vested during 2024, 2023 and 2022 was $ 4.4 million, $ 4.6 million and $ 3.7 million, respectively.

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.

As of February 1, 2025, the total compensation cost related to unvested performance-based RSUs not yet recognized was approximately $ 0.2 million, with a weighted average expense recognition period remaining of less than one year .

DIRECTOR STOCK UNITS

3 unchanged sentences

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 per share.

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 1, 2025, we had 0.7 million director stock units not yet settled.

4 unchanged sentences

The following table provides additional information for our common shares:

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

(in thousands) February 1, 2025 February 3, 2024

Class A Class B Class A Class B

7 unchanged sentences

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.

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

During 2024, we repurchased 10.3 million Class A common shares at an aggregate cost of $ 68.6 million.

As of February 1, 2025, $ 19.7 million of Class A common shares remained available for repurchase under the share repurchase program.

2 unchanged sentences

Receivables, net, consisted of the following:

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

(in thousands) February 1, 2025 February 3, 2024

Customer accounts receivables:

4 unchanged sentences

Total receivables 50,822 84,074

Allowance for doubtful accounts ( 484 ) ( 312 )

Allowance for credit losses ( 451 ) ( 484 )

$ 50,371 $ 83,590

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

Activity for the allowance for credit losses was immaterial for all periods presented.

PROPERTY AND EQUIPMENT

Property and equipment, net, consisted of the following:

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

(dollars in thousands) Useful Life (years) February 1, 2025 February 3, 2024

Land Indefinite $ 1,110 $ 1,110

12 unchanged sentences

The following table presents the changes to goodwill by segment:

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

(in thousands) February 1, 2025 February 3, 2024

Goodwill Accumulated Impairments Net Goodwill Accumulated Impairments Net

6 unchanged sentences

Canada Retail:

Acquired Rubino goodwill 7,067 — 7,067 — — —

Currency translation adjustment ( 3,353 ) 2,913 ( 440 ) ( 429 ) 429 —

Brand Portfolio:

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

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

Other adjustments — — — 868 — 868

3,714 2,913 6,627 26,215 429 26,644

6 unchanged sentences

Intangible assets, net, consisted of the following:

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

(in thousands) February 1, 2025 February 3, 2024

Cost Accumulated Amortization Net Cost Accumulated Amortization Net

5 unchanged sentences

During 2024, 2023 and 2022, amortization expense for intangible assets was $ 1.9 million, $ 1.9 million and $ 0.4 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.

As of February 1, 2025, the estimated future annual amortization expense for the intangible assets is $ 1.9 million over the next five years.

ACCRUED EXPENSES

Accrued expenses consisted of the following:

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

(in thousands) February 1, 2025 February 3, 2024

Gift cards $ 28,963 $ 31,662

1 unchanged sentence

Accrued taxes 22,843 23,134

Loyalty programs deferred revenue 15,971 16,900

Reward programs deferred revenue 14,126 15,971

Customer returns and allowances 18,053 19,569

2 unchanged sentences

Debt consisted of the following:

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

(in thousands) February 1, 2025 February 3, 2024

ABL Revolver $ 370,090 $ 301,070

35 unchanged sentences

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.

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 of 2.50 to 1.00, calculated on a trailing twelve-month basis.

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.

6 unchanged sentences

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.

In connection with this settlement, during 2022 we incurred a $ 12.7 million loss on extinguishment of debt, composed of $ 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.

12 unchanged sentences

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

February 3, 2024 January 28, 2023

February 1, 2025 February 3, 2024

Other operating lease information:

14 unchanged sentences

Non-current operating lease liabilities $ 621,632 $ 13,444 $ 635,076

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.

As of February 1, 2025, we had entered into lease commitments for six new store locations, one store relocation, 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 store lease commencements to begin over the next three fiscal quarters for these locations, and we will record additional operating lease liabilities of approximately $ 15.0 million.

As it relates to the new distribution center, the lease for the facility commenced in March 2025 and we recorded an additional operating lease liability of $ 22.4 million in the first quarter of 2025.

We have also entered into lease commitments for the equipment that will be used to operate the distribution center, which also commenced in March 2025, and we recorded additional finance lease liabilities of $ 31.8 million in the first quarter of 2025.

COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

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

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

1 unchanged sentence

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

As of February 1, 2025, our noncancelable purchase obligations and future guaranteed minimum royalty payments are as follows:

(in thousands) Noncancelable Purchase Obligations Guaranteed Minimum Royalties

5 unchanged sentences

$ 18,828 $ 63,236 $ 80,413 $ 143,649

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

Income before income taxes consisted of the following:

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

(in thousands)

2024 2023 2022

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

Domestic income (loss) $ ( 23,549 ) $ 19,499 $ 131,131

Foreign income 12,819 20,698 28,393

18 unchanged sentences

State and local income taxes, net of federal income tax effect ( 353 ) 3.3 ( 92 ) ( 0.2 ) 242 0.2

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

Foreign tax effects:

3 unchanged sentences

Other ( 333 ) 3.1 190 0.5 419 0.4

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

Changes in valuation allowances ( 420 ) 3.9 ( 588 ) ( 1.5 ) ( 28,870 ) ( 18.1 )

6 unchanged sentences

Other adjustments:

Return to provision 980 ( 9.1 ) — — — —

Other 656 ( 6.1 ) ( 238 ) ( 0.6 ) ( 130 ) ( 0.1 )

Effective tax rate $ ( 755 ) 7.0 % $ 10,981 27.3 % $ ( 3,142 ) ( 2.0 ) %

(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) February 3, 2024 January 28, 2023

(in thousands) February 1, 2025 February 3, 2024

Deferred tax assets:

1 unchanged sentence

Net operating losses 17,000 17,891

Stock-based compensation 8,153 9,503

Inventories 7,485 9,252

Interest 9,706 4,409

Inventories 8,502 7,485

Stock-based compensation 6,696 8,153

Accrued expenses 3,570 3,930

Loyalty programs deferred revenue 3,742 3,905

Reward programs deferred revenue 3,288 3,742

State bonus depreciation 2,869 3,243

7 unchanged sentences

Property and equipment ( 11,284 ) ( 15,902 )

Basis in subsidiary ( 4,123 ) ( 2,377 )

Other ( 4,229 ) ( 5,609 )

12 unchanged sentences

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

Additions charged to income tax benefit 768 — —

Allowances taken or written off — ( 666 ) ( 55,654 )

1 unchanged sentence

Valuation allowance - end of period $ 12,478 $ 12,131 $ 14,027

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.

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

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

14 unchanged sentences

Additions for tax positions taken in the current year 740 3,042 5,342

Reductions for tax positions taken in prior year ( 3,531 ) — —

Changes in estimates ( 1,388 ) — —

Lapses of applicable statues of limitations ( 1,158 ) ( 2,323 ) —

2 unchanged sentences

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

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.

As of February 1, 2025, February 3, 2024 and January 28, 2023, interest and penalties w ere $ 5.6 million, $ 5.6 million, and $ 4.7 million, respectively.

SEGMENT REPORTING

2 unchanged sentences

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.

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:

The CODM uses segment operating profit (loss) predominantly in the annual budget and projection process and for considering variances with actual results when assessing performance and making decisions about the allocation of resources to each segment.

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 data by segment reconciled to the consolidated financial statements:

(in thousands) U.S.

Retail Canada Retail Brand Portfolio Corporate / Eliminations Consolidated

Retail Canada Retail Brand Portfolio Total

External customer sales $ 2,466,101 $ 283,023 $ 260,138 $ 3,009,262

Intersegment sales — — 138,743 138,743

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

Gross profit $ 794,266 $ 84,794 $ 92,545 $ 3,281 $ 974,886

Income from equity investments $ — $ — $ 9,390 $ — $ 9,390

Cash paid for property and equipment $ 27,977 $ 5,719 $ 2,211 $ 19,090 $ 54,997

Segment net sales 2,466,101 283,023 398,881 3,148,005

Elimination of intersegment net sales ( 138,743 )

Consolidated net sales $ 3,009,262

Less segment expenses:

Cost of sales, exclusive of expenses shown below ( 1,405,903 ) ( 156,993 ) ( 289,067 )

Store selling expenses ( 305,700 ) ( 41,056 ) —

Occupancy costs ( 264,440 ) ( 34,205 ) ( 6,021 )

Marketing ( 143,351 ) ( 6,361 ) ( 23,251 )

Distribution and fulfillment costs ( 41,192 ) ( 4,593 ) ( 13,452 )

Personnel overhead costs ( 41,921 ) ( 10,157 ) ( 49,949 )

Depreciation and amortization ( 31,909 ) ( 4,559 ) ( 6,811 )

Other expense items (1)

( 6,174 ) ( 1,168 ) ( 20,250 )

Plus income from equity investments — — 13,145

Segment operating profit $ 225,511 $ 23,931 $ 3,225 252,667

Net elimination of intersegment activity ( 10,084 )

Corporate shared service costs (2)

Impairment charges (2)

Consolidated operating profit 34,933

Interest expense, net ( 45,291 )

Non-operating expenses, net ( 372 )

Loss before income taxes $ ( 10,730 )

Cash paid for segment property and equipment $ 25,169 $ 6,742 $ 2,414 $ 34,325

(in thousands) U.S.

Retail Canada Retail Brand Portfolio Total

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

Intersegment sales — — 72,078 72,078

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

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

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

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

Segment net sales 2,533,849 264,229 348,976 3,147,054

Elimination of intersegment net sales ( 72,078 )

Consolidated net sales $ 3,074,976

Less segment expenses:

Cost of sales, exclusive of expenses shown below ( 1,424,847 ) ( 145,062 ) ( 256,431 )

Store selling expenses ( 310,644 ) ( 36,639 ) —

Occupancy costs ( 266,006 ) ( 30,680 ) ( 7,714 )

Marketing ( 142,352 ) ( 6,024 ) ( 27,987 )

Distribution and fulfillment costs ( 43,791 ) ( 4,732 ) ( 15,308 )

Personnel overhead costs ( 49,037 ) ( 9,313 ) ( 47,669 )

Depreciation and amortization ( 27,250 ) ( 6,178 ) ( 7,811 )

Other expense items (1)

( 8,247 ) ( 969 ) ( 22,169 )

Plus income from equity investments — — 9,390

Segment operating profit (loss) $ 261,675 $ 24,632 $ ( 26,723 ) 259,584

Net recognition of intersegment activity 3,281

Corporate shared service costs (2)

Impairment charges (2)

Consolidated operating profit 72,401

Interest expense, net ( 32,171 )

Non-operating expenses, net ( 33 )

Income before income taxes $ 40,197

Cash paid for segment property and equipment $ 27,977 $ 5,719 $ 2,211 $ 35,907

(in thousands) U.S.

Retail Canada Retail Brand Portfolio Total

External customer sales $ 2,791,513 $ 283,241 $ 240,674 $ 3,315,428

Intersegment sales — — 87,041 87,041

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

Gross profit $ 933,555 $ 76,728 $ 66,774 $ ( 8,420 ) $ 1,068,637

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

Cash paid for property and equipment $ 15,296 $ 3,225 $ 630 $ 13,879 $ 33,030

Segment net sales 2,791,513 283,241 327,715 3,402,469

Elimination of intersegment net sales ( 87,041 )

Consolidated net sales $ 3,315,428

Less segment expenses:

Cost of sales, exclusive of expenses shown below ( 1,544,629 ) ( 150,949 ) ( 255,709 )

Store selling expenses ( 323,471 ) ( 36,019 ) —

Occupancy costs ( 266,536 ) ( 29,900 ) ( 9,315 )

Marketing ( 140,547 ) ( 6,798 ) ( 19,789 )

Distribution and fulfillment costs ( 52,199 ) ( 5,085 ) ( 18,370 )

Personnel overhead costs ( 59,867 ) ( 10,976 ) ( 41,348 )

Depreciation and amortization ( 45,101 ) ( 6,629 ) ( 5,480 )

Other expense items (1)

( 8,653 ) ( 1,176 ) ( 9,464 )

Plus income from equity investments — — 8,864

Segment operating profit (loss) $ 350,510 $ 35,709 $ ( 22,896 ) 363,323

Net recognition of intersegment activity 3,515

Corporate shared service costs (2)

Impairment charges (2)

Consolidated operating profit 187,390

Interest expense, net ( 14,874 )

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

Non-operating expenses, net ( 130 )

Income before income taxes $ 159,524

Cash paid for segment property and equipment $ 27,567 $ 3,169 $ 1,501 $ 32,237

(1) Other expense items include professional services fees, payment service fees, supplies, travel, and other administrative segment expenses.

(2) Corporate shared services costs and impairment charges are not attributed to any of our segments.

Corporate shared services costs primarily relate to corporate administration, IT, finance, human resources, legal, real estate, and other shared services performing corporate-level activities.

We also do not allocate amounts related to restructuring and integration charges (including severance), CEO transition costs, and acquisition-related costs.

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.

1 unchanged sentence

and Canada were collectively immaterial.

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.

Beginning in 2024, we changed how the Brand Portfolio segment sources certain Owned Brands for the U.S.

Retail segment by transacting using a wholesale model, where intersegment sales and cost of sales are recorded, whereas in 2023 and prior we transacted on a commission model, where intersegment sales were based on a percentage of product cost.

This change results in an increase in Brand Portfolio intersegment net sales, cost of sales, and gross profit and a corresponding increase in the amount of eliminated intersegment net sales, cost of sales, and gross profit with no impact to consolidated net sales, cost of sales, and gross profit.

As of February 1, 2025 and February 3, 2024, long-lived assets, consisting of property and equipment and operating lease assets, included $ 837.6 million and $ 879.2 million, respectively, in the U.S.

and $ 71.6 million and $ 61.1 million, respectively, in Canada, with only an immaterial amount in other countries.

1 unchanged sentence

However, the Brand Portfolio segment has five customers that make up 38 % 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.

QUARTERLY FINANCIAL DATA (UNAUDITED)

As discussed in Note 1, Description of Business and Significant Accounting Policies - Prior Period Reclassifications , we reclassified expenses associated with distribution and fulfillment and store occupancy from cost of sales to operating expenses within the consolidated statements of operations.

These reclassifications did not change operating profit, net income (loss) attributable to Designer Brands Inc., or earnings (loss) per share attributable to Designer Brands Inc.

The following tables present the summarized financial information for each of the quarters of 2024 and 2023 as recast for such reclassifications as well as the amounts reclassified:

Three months ended

(in thousands, except per share data) May 4, 2024 August 3, 2024 November 2, 2024 February 1, 2025

Net sales $ 746,596 $ 771,900 $ 777,194 $ 713,572

Cost of sales (1)

( 416,585 ) ( 432,351 ) ( 443,379 ) ( 430,989 )

Gross profit $ 330,011 $ 339,549 $ 333,815 $ 282,583

Operating expenses (1)

$ ( 323,493 ) $ ( 313,531 ) $ ( 296,827 ) $ ( 311,983 )

Operating profit (loss) $ 9,382 $ 28,589 $ 22,816 $ ( 25,854 )

Net income (loss) attributable to Designer Brands Inc.

$ 783 $ 13,824 $ 13,012 $ ( 38,168 )

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

Basic earnings (loss) per share $ 0.01 $ 0.24 $ 0.25 $ ( 0.80 )

Diluted earnings (loss) per share $ 0.01 $ 0.24 $ 0.24 $ ( 0.80 )

(1) Amount reclassified from cost of sales to operating expenses

$ 84,942 $ 86,635 $ 86,370 $ 86,494

Three months ended

(in thousands, except per share data) April 29, 2023 July 29, 2023 October 28, 2023 February 3, 2024

Net sales $ 742,082 $ 792,217 $ 786,329 $ 754,348

Cost of sales (1)

( 418,174 ) ( 430,454 ) ( 440,596 ) ( 461,757 )

Gross profit $ 323,908 $ 361,763 $ 345,733 $ 292,591

Operating expenses (1)

$ ( 306,288 ) $ ( 302,906 ) $ ( 320,115 ) $ ( 326,841 )

Operating profit (loss) $ 19,610 $ 60,687 $ 28,121 $ ( 36,017 )

Net income (loss) attributable to Designer Brands Inc.

$ 11,415 $ 37,204 $ 10,141 $ ( 29,698 )

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

Basic earnings (loss) per share $ 0.18 $ 0.57 $ 0.17 $ ( 0.52 )

Diluted earnings (loss) per share $ 0.17 $ 0.56 $ 0.17 $ ( 0.52 )

(1) Amount reclassified from cost of sales to operating expenses

$ 86,169 $ 88,376 $ 89,327 $ 85,237

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