Designer Brands Inc. Reports Fourth Quarter and Fiscal Year 2023 Financial Results
Delivered full year 2023 EPS at the high end of guidance range
Fourth quarter performance driven by sequential improvement in comparable sales
Issues fiscal 2024 guidance reflecting expectations for return to growth
COLUMBUS, Ohio, March 21, 2024 - Designer Brands Inc. (NYSE: DBI) (the "Company" and "Designer Brands"), one of the world's largest designers, producers, and retailers of footwear and accessories, announced financial results for the three months and year ended February 3, 2024.
"We ended the year strong, with a solid finish to the fourth quarter above the top end of our revised EPS guidance range, led by strength in our brand portfolio segment as a result of acquiring Keds, Topo, and launching Le Tigre," stated Doug Howe, Chief Executive Officer. "Despite the results, 2023 was a difficult year as we were impacted by a softening footwear market, highly promotional retail environment, and the impact of unseasonably warm weather on our seasonal footwear business."
Howe continued, "Looking ahead to 2024, we have an important transition year ahead as we plan to return to growth across our business. We are laser focused on assembling a fresher and more trend-right assortment for our customers, providing an increasingly convenient shopping experience across our channels and executing on operational improvements in our brands business bolstered by our new hires. We expect these initiatives will underpin improved financial performance throughout the year, and combined with disciplined cost savings, will lead to continued strong cash flow generation."
Fourth Quarter Operating Results (Unless otherwise stated, all comparisons are to the fourth quarter of 2022)
•Net sales decreased 0.8% to $754.3 million.
•Total comparable sales decreased by 7.3%.
•Gross profit decreased to $207.4 million versus $222.0 million last year, and gross margin was 27.5% compared to 29.2% for the same period last year.
•Reported net loss attributable to Designer Brands Inc. was $29.7 million, or loss per diluted share of $0.52. This includes net after-tax adjustments of $4.4 million, or $0.08 per diluted share, primarily related to impairment charges.
•Adjusted net loss was $25.3 million, or $0.44 loss per diluted share.
Full Year Operating Results (Unless otherwise stated, all comparisons are to full year 2022)
•Net sales decreased 7.3% to $3.1 billion.
•Total comparable sales decreased by 9.0%.
•Gross profit decreased to $1.0 billion versus $1.1 billion last year, and gross margin was 31.7% compared to 32.6% last year.
•Reported net income attributable to Designer Brands Inc. was $29.1 million, or diluted earnings per share ("EPS") of $0.46. This includes net after-tax adjustments of $14.1 million, or $0.22 per diluted share, primarily related to restructuring and integration costs, impairment charges, and CEO transition costs.
•Adjusted net income was $43.2 million, or adjusted diluted EPS of $0.68.
Liquidity
•Cash and cash equivalents totaled $49.2 million at the end of 2023, compared to $58.8 million at the end of 2022, with $160.9 million available for borrowings under our senior secured asset-based revolving credit facility, as amended. Debt totaled $427.1 million at the end of 2023 compared to $281.0 million at the end of 2022.
•Net cash provided by operating activities was $162.4 million for 2023 compared to $201.4 million last year.
•Inventories totaled $571.3 million at the end of 2023, compared to $605.7 million at the end of 2022.
Return to Shareholders
•During 2023, the Company repurchased an aggregate 9.7 million Class A common shares at an aggregate cost of $102.2 million, including transaction costs and excise tax. As of February 3, 2024, $87.7 million of Class A common shares remained available for future repurchase under the share repurchase program.
•A dividend of $0.05 per share of Class A and Class B common shares will be paid on April 12, 2024 to
shareholders of record at the close of business on March 29, 2024.
Store Openings and Closings
During the fourth quarter of 2023, we opened one store and closed one store in the U.S. and closed one store in Canada, resulting in a total of 499 stores in the U.S. and 143 stores in Canada as of February 3, 2024.
2024 Financial Outlook
The Company has announced the following guidance for the full year 2024:
| | | | | | | | | | |
| Metric | | | | 2024 Guidance |
| Designer Brands Net Sales Growth | | | | Low-single digits |
| Diluted EPS | | | | $0.70 - $0.80 |
Webcast and Conference Call
The Company is hosting a conference call today at 8:30 am Eastern Time. Investors and analysts interested in participating in the call are invited to dial 1-888-317-6003, or the international dial in, 1-412-317-6061, and reference conference ID number 9110312 approximately ten minutes prior to the start of the conference call. The conference call will also be broadcast live over the internet and can be accessed through the following link, as well as through the Company's investor website at investors.designerbrands.com:
https://app.webinar.net/jEep4LnmvQD
For those unable to listen to the live webcast, an archived version will be available at the same location until April 4, 2024. A replay of the teleconference will be available by dialing the following numbers:
U.S.: 1-877-344-7529
Canada: 1-855-669-9658
International: 1-412-317-0088
Passcode: 4043827
Important information may be disseminated initially or exclusively via the Company’s investor website; investors should consult the site to access this information.
About Designer Brands
Designer Brands is one of the world's largest designers, producers, and retailers of the most recognizable footwear brands and accessories, transforming and defining the footwear industry through a mission of inspiring self-expression. With a diversified, world-class portfolio of coveted brands, including Crown Vintage, Hush Puppies, Jessica Simpson, Keds, Kelly & Katie, Le TIGRE, Lucky Brand, Mix No. 6, Topo, Vince Camuto and others, Designer Brands designs and produces on-trend footwear and accessories for all of life's occasions delivered to the consumer through a robust direct-to-consumer omni-channel infrastructure and powerful national wholesale distribution. Powered by a billion-dollar digital commerce business across multiple domains and over 640 DSW Designer Shoe Warehouse and The Shoe Company stores in North America, Designer Brands delivers current, in-line footwear and accessories from the largest national brands in the industry and holds leading market share positions in key product categories across Women's, Men's, and Kids'. Designer Brands also distributes its brands internationally through select wholesale and distributor relationships while also leveraging design and sourcing expertise to build private label product for national retailers. Designer Brands is committed to being a difference maker in the world, taking steps forward to advance diversity, equity, and inclusion in the footwear industry and supporting a global community and the health of the planet by donating more than nine million pairs of shoes to the global non-profit Soles4Souls. To learn more, visit www.designerbrands.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements in this press release may constitute forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the use of forward-looking words such as "outlook," "could," "believes," "expects," "potential," "continues," "may," "will," "should," "would," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," or the negative version of those words or other comparable words. These statements are based on the Company's current views and expectations and involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. These factors include, but are not limited to: uncertain general economic conditions, including recession concerns, rising interest rates,
inflationary pressures, and the related impacts to consumer discretionary spending; our ability to anticipate and respond to rapidly changing consumer preferences, customer expectations, and fashion trends; our ability to maintain strong relationships with our vendors, manufacturers, licensors, and retailer customers; risks related to losses or disruptions associated with our distribution systems, including our distribution centers and stores, whether as a result of reliance on third-party providers, or otherwise; risks related to cyber security threats and privacy or data security breaches or the potential loss or disruption of our information technology ("IT") systems; risks related to the implementation of new or updated IT systems; our ability to protect our reputation and to maintain the brands we license; our reliance on our loyalty programs and marketing to drive traffic, sales, and customer loyalty; our ability to retain our existing management team, and to continue to attract qualified new personnel; risks related to restrictions imposed by our senior secured asset-based revolving credit facility, as amended, and our senior secured term loan credit agreement, as amended, that could limit our ability to fund our operations; our competitiveness with respect to style, price, brand availability, shopping platforms, and customer service; risks related to our international operations and our reliance on foreign sources for merchandise; our ability to comply with privacy laws and regulations, as well as other legal obligations; risks associated with climate change and other corporate responsibility issues; and uncertainties related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation. Risks and other factors that could cause our actual results to differ materially from our forward-looking statements are described in the Company's latest Annual Report on Form 10-K or other reports made or filed with the Securities and Exchange Commission. All forward-looking statements speak only as of the time when made. The Company undertakes no obligation to update or revise the forward-looking statements included in this press release to reflect any future events or circumstances.
DESIGNER BRANDS INC.
SEGMENT RESULTS
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Sales |
| Three months ended | | | | |
| (dollars in thousands) | February 3, 2024 | | January 28, 2023 | | Change |
| Amount | | % of Segment Net Sales | | Amount | | % of Segment Net Sales | | Amount | | % |
| Segment net sales: | | | | | | | | | | | |
| U.S. Retail | $ | 630,811 | | | 81.6 | % | | $ | 648,314 | | | 84.1 | % | | $ | (17,503) | | | (2.7) | % |
| Canada Retail | 64,398 | | | 8.3 | % | | 66,353 | | | 8.6 | % | | (1,955) | | | (2.9) | % |
| Brand Portfolio | 77,719 | | | 10.1 | % | | 56,450 | | | 7.3 | % | | 21,269 | | | 37.7 | % |
| Total segment net sales | 772,928 | | | 100.0 | % | | 771,117 | | | 100.0 | % | | 1,811 | | | 0.2 | % |
| Elimination of intersegment net sales | (18,580) | | | | | (10,571) | | | | | (8,009) | | | 75.8 | % |
| Consolidated net sales | $ | 754,348 | | | | | $ | 760,546 | | | | | $ | (6,198) | | | (0.8) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve months ended | | |
| (dollars in thousands) | February 3, 2024 | | January 28, 2023 | | Change |
| Amount | | % of Segment Net Sales | | Amount | | % of Segment Net Sales | | Amount | | % |
| Segment net sales: | | | | | | | | | | | |
| U.S. Retail | $ | 2,533,849 | | | 80.5 | % | | $ | 2,791,513 | | | 82.0 | % | | $ | (257,664) | | | (9.2) | % |
| Canada Retail | 264,229 | | | 8.4 | % | | 283,241 | | | 8.3 | % | | (19,012) | | | (6.7) | % |
| Brand Portfolio | 348,976 | | | 11.1 | % | | 327,715 | | | 9.7 | % | | 21,261 | | | 6.5 | % |
| Total segment net sales | 3,147,054 | | | 100.0 | % | | 3,402,469 | | | 100.0 | % | | (255,415) | | | (7.5) | % |
| Elimination of intersegment net sales | (72,078) | | | | | (87,041) | | | | | 14,963 | | | (17.2) | % |
| Consolidated net sales | $ | 3,074,976 | | | | | $ | 3,315,428 | | | | | $ | (240,452) | | | (7.3) | % |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Sales by Brand Categories |
| (in thousands) | U.S. Retail | | Canada Retail(2) | | Brand Portfolio | | Eliminations | | Consolidated |
| Three months ended February 3, 2024 | | | | | | | | | |
Owned Brands:(1) | | | | | | | | | |
| Direct-to-consumer | $ | 108,266 | | | $ | 14,081 | | | $ | 22,120 | | | $ | — | | | $ | 144,467 | |
| External customer wholesale, commission income and other | — | | | — | | | 37,019 | | | — | | | 37,019 | |
| Intersegment wholesale and commission income | — | | | — | | | 18,580 | | | (18,580) | | | — | |
| Total Owned Brands | 108,266 | | | 14,081 | | | 77,719 | | | (18,580) | | | 181,486 | |
| National brands | 522,545 | | | 50,317 | | | — | | | — | | | 572,862 | |
| Total net sales | $ | 630,811 | | | $ | 64,398 | | | $ | 77,719 | | | $ | (18,580) | | | $ | 754,348 | |
| Three months ended January 28, 2023 | | | | | | | | | |
Owned Brands:(1) | | | | | | | | | |
| Direct-to-consumer | $ | 129,398 | | | $ | 9,678 | | | $ | 13,710 | | | $ | — | | | $ | 152,786 | |
| External customer wholesale, commission income and other | — | | | — | | | 32,169 | | | — | | | 32,169 | |
| Intersegment wholesale and commission income | — | | | — | | | 10,571 | | | (10,571) | | | — | |
| Total Owned Brands | 129,398 | | | 9,678 | | | 56,450 | | | (10,571) | | | 184,955 | |
| National brands | 518,916 | | | 56,675 | | | — | | | — | | | 575,591 | |
| Total net sales | $ | 648,314 | | | $ | 66,353 | | | $ | 56,450 | | | $ | (10,571) | | | $ | 760,546 | |
| Twelve months ended February 3, 2024 | | | | | | | | | |
Owned Brands:(1) | | | | | | | | | |
| 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 | |
| Twelve months ended January 28, 2023 | | | | | | | | | |
Owned Brands:(1) | | | | | | | | | |
| 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 | |
(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 the fourth quarter of 2023, we are providing a breakout of Canada Retail segment net sales by brand categories and we have recast 2022 on a consistent basis.
| | | | | | | | | | | | | | | | | | | | | | | |
| Comparable Sales |
| Three months ended | | Twelve months ended |
| February 3, 2024 | | January 28, 2023 | | February 3, 2024 | | January 28, 2023 |
| Change in comparable sales: | | | | | | | |
| U.S. Retail segment | (7.4) | % | | (8.1) | % | | (9.5) | % | | 2.0 | % |
| Canada Retail segment | (9.2) | % | | 15.9 | % | | (5.9) | % | | 28.8 | % |
| Brand Portfolio segment - direct-to-consumer channel | 5.9 | % | | 44.4 | % | | 6.0 | % | | 34.5 | % |
| Total | (7.3) | % | | (5.5) | % | | (9.0) | % | | 4.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Store Count |
| (square footage in thousands) | February 3, 2024 | | January 28, 2023 |
| Number of Stores | | Square Footage | | Number of Stores | | Square Footage |
| U.S. Retail segment - DSW stores | 499 | | | 9,958 | | | 501 | | | 10,092 | |
| Canada Retail segment: | | | | | | | |
| The Shoe Company stores | 118 | | | 618 | | | 113 | | | 596 | |
| DSW stores | 25 | | | 496 | | | 25 | | | 496 | |
| 143 | | | 1,114 | | | 138 | | | 1,092 | |
| Total number of stores | 642 | | | 11,072 | | | 639 | | | 11,184 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit |
| Three months ended | | | | | | |
| (dollars in thousands) | February 3, 2024 | | January 28, 2023 | | Change |
| Amount | | % of Segment Net Sales | | Amount | | % of Segment Net Sales | | Amount | | % | | Basis Points |
| Segment gross profit: | | | | | | | | | | | | | |
| U.S. Retail | $ | 171,416 | | | 27.2 | % | | $ | 188,315 | | | 29.0 | % | | $ | (16,899) | | | (9.0) | % | | (180) |
| Canada Retail | 17,203 | | | 26.7 | % | | 17,976 | | | 27.1 | % | | (773) | | | (4.3) | % | | (40) |
| Brand Portfolio | 17,508 | | | 22.5 | % | | 12,031 | | | 21.3 | % | | 5,477 | | | 45.5 | % | | 120 |
| Total segment gross profit | 206,127 | | | 26.7 | % | | 218,322 | | | 28.3 | % | | (12,195) | | | (5.6) | % | | (160) |
| Net recognition of intersegment gross profit | 1,227 | | | | | 3,669 | | | | | (2,442) | | | | | |
| Consolidated gross profit | $ | 207,354 | | | 27.5 | % | | $ | 221,991 | | | 29.2 | % | | $ | (14,637) | | | (6.6) | % | | (170) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve months ended | | |
| (dollars in thousands) | February 3, 2024 | | January 28, 2023 | | Change |
| Amount | | % of Segment Net Sales | | Amount | | % of Segment Net Sales | | Amount | | % | | Basis Points |
| Segment gross profit: | | | | | | | | | | | | | |
| U.S. Retail | $ | 794,266 | | | 31.3 | % | | $ | 904,583 | | | 32.4 | % | | $ | (110,317) | | | (12.2) | % | | (110) |
| Canada Retail | 84,794 | | | 32.1 | % | | 99,121 | | | 35.0 | % | | (14,327) | | | (14.5) | % | | (290) |
| Brand Portfolio | 92,545 | | | 26.5 | % | | 72,006 | | | 22.0 | % | | 20,539 | | | 28.5 | % | | 450 |
| Total segment gross profit | 971,605 | | | 30.9 | % | | 1,075,710 | | | 31.6 | % | | (104,105) | | | (9.7) | % | | (70) |
| Net recognition of intersegment gross profit | 3,281 | | | | | 3,515 | | | | | (234) | | | | | |
| Consolidated gross profit | $ | 974,886 | | | 31.7 | % | | $ | 1,079,225 | | | 32.6 | % | | $ | (104,339) | | | (9.7) | % | | (90) |
| | | | | | | | | | | |
| Intersegment Eliminations |
| Three months ended |
| (in thousands) | February 3, 2024 | | January 28, 2023 |
| Intersegment recognition and elimination activity: | | | |
| Net sales recognized by Brand Portfolio segment | $ | (18,580) | | | $ | (10,571) | |
| Cost of sales: | | | |
| Cost of sales recognized by Brand Portfolio segment | 13,079 | | | 6,085 | |
| Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period | 6,728 | | | 8,155 | |
| $ | 1,227 | | | $ | 3,669 | |
| | | | | | | | | | | |
| Twelve months ended |
| (in thousands) | February 3, 2024 | | January 28, 2023 |
| Intersegment recognition and elimination activity: | | | |
| Net sales recognized by Brand Portfolio segment | $ | (72,078) | | | $ | (87,041) | |
| Cost of sales: | | | |
| Cost of sales recognized by Brand Portfolio segment | 51,213 | | | 58,234 | |
| Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period | 24,146 | | | 32,322 | |
| $ | 3,281 | | | $ | 3,515 | |
DESIGNER BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Twelve months ended |
| February 3, 2024 | | January 28, 2023 | | February 3, 2024 | | January 28, 2023 |
| Net sales | $ | 754,348 | | | $ | 760,546 | | | $ | 3,074,976 | | | $ | 3,315,428 | |
| Cost of sales | (546,994) | | | (538,555) | | | (2,100,090) | | | (2,236,203) | |
| Gross profit | 207,354 | | | 221,991 | | | 974,886 | | | 1,079,225 | |
| Operating expenses | (241,604) | | | (222,034) | | | (907,041) | | | (896,382) | |
| Income from equity investments | 2,418 | | | 2,194 | | | 9,390 | | | 8,864 | |
| Impairment charges | (4,185) | | | (80) | | | (4,834) | | | (4,317) | |
| Operating profit (loss) | (36,017) | | | 2,071 | | | 72,401 | | | 187,390 | |
| Interest expense, net | (9,875) | | | (4,344) | | | (32,171) | | | (14,874) | |
| Loss on extinguishment of debt and write-off of debt issuance costs | — | | | — | | | — | | | (12,862) | |
| Non-operating expenses, net | (116) | | | (21) | | | (33) | | | (130) | |
| Income (loss) before income taxes | (46,008) | | | (2,294) | | | 40,197 | | | 159,524 | |
| Income tax benefit (provision) | 16,391 | | | 47,394 | | | (10,981) | | | 3,142 | |
| Net income (loss) | (29,617) | | | 45,100 | | | 29,216 | | | 162,666 | |
| Net loss (income) attributable to redeemable noncontrolling interest | (81) | | | 10 | | | (154) | | | 10 | |
| Net income (loss) attributable to Designer Brands Inc. | $ | (29,698) | | | $ | 45,110 | | | $ | 29,062 | | | $ | 162,676 | |
| Diluted earnings (loss) per share attributable to Designer Brands Inc. | $ | (0.52) | | | $ | 0.66 | | | $ | 0.46 | | | $ | 2.26 | |
| Weighted average diluted shares | 56,939 | | | 67,922 | | | 63,375 | | | 72,101 | |
DESIGNER BRANDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands)
| | | | | | | | | | | |
| February 3, 2024 | | January 28, 2023 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 49,173 | | | $ | 58,766 | |
| Receivables, net | 83,590 | | | 77,763 | |
| Inventories | 571,331 | | | 605,652 | |
| Prepaid expenses and other current assets | 73,338 | | | 47,750 | |
| Total current assets | 777,432 | | | 789,931 | |
| Property and equipment, net | 219,939 | | | 235,430 | |
| Operating lease assets | 721,335 | | | 700,373 | |
| Goodwill | 123,759 | | | 97,115 | |
| Intangible assets, net | 82,827 | | | 31,866 | |
| Deferred tax assets | 39,067 | | | 48,285 | |
| Equity investments | 62,857 | | | 63,820 | |
| Other assets | 49,016 | | | 42,798 | |
| Total assets | $ | 2,076,232 | | | $ | 2,009,618 | |
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS' EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 289,368 | | | $ | 255,364 | |
| Accrued expenses | 159,622 | | | 190,676 | |
| Current maturities of long-term debt | 6,750 | | | — | |
| Current operating lease liabilities | 166,531 | | | 190,086 | |
| Total current liabilities | 622,271 | | | 636,126 | |
| Long-term debt | 420,344 | | | 281,035 | |
| Non-current operating lease liabilities | 646,161 | | | 631,412 | |
| Other non-current liabilities | 24,948 | | | 24,989 | |
| Total liabilities | 1,713,724 | | | 1,573,562 | |
| Redeemable noncontrolling interest | 3,288 | | | 3,155 | |
| Total shareholders' equity | 359,220 | | | 432,901 | |
| Total liabilities, redeemable noncontrolling interest, and shareholders' equity | $ | 2,076,232 | | | $ | 2,009,618 | |
DESIGNER BRANDS INC.
NON-GAAP RECONCILIATION
(unaudited and in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Twelve months ended |
| February 3, 2024 | | January 28, 2023 | | February 3, 2024 | | January 28, 2023 |
| Operating expenses | $ | (241,604) | | | $ | (222,034) | | | $ | (907,041) | | | $ | (896,382) | |
| Non-GAAP adjustments: | | | | | | | |
| CEO transition costs | 369 | | | 3,750 | | | 4,352 | | | 3,750 | |
| Restructuring and integration costs | 1,188 | | | 6,989 | | | 6,378 | | | 9,445 | |
| Acquisition-related costs | 36 | | | 2,247 | | | 1,633 | | | 2,647 | |
| | | | | | | |
| Total non-GAAP adjustments | 1,593 | | | 12,986 | | | 12,363 | | | 15,842 | |
| Adjusted operating expenses | $ | (240,011) | | | $ | (209,048) | | | $ | (894,678) | | | $ | (880,540) | |
| Operating profit (loss) | $ | (36,017) | | | $ | 2,071 | | | $ | 72,401 | | | $ | 187,390 | |
| Non-GAAP adjustments: | | | | | | | |
| CEO transition costs | 369 | | | 3,750 | | | 4,352 | | | 3,750 | |
| Restructuring and integration costs | 1,188 | | | 6,989 | | | 6,378 | | | 9,445 | |
| Acquisition-related costs | 36 | | | 2,247 | | | 1,633 | | | 2,647 | |
| | | | | | | |
| Impairment charges | 4,185 | | | 80 | | | 4,834 | | | 4,317 | |
| Total non-GAAP adjustments | 5,778 | | | 13,066 | | | 17,197 | | | 20,159 | |
| Adjusted operating profit (loss) | $ | (30,239) | | | $ | 15,137 | | | $ | 89,598 | | | $ | 207,549 | |
| Net income (loss) attributable to Designer Brands Inc. | $ | (29,698) | | | $ | 45,110 | | | $ | 29,062 | | | $ | 162,676 | |
| Non-GAAP adjustments: | | | | | | | |
| CEO transition costs | 369 | | | 3,750 | | | 4,352 | | | 3,750 | |
| Restructuring and integration costs | 1,188 | | | 6,989 | | | 6,378 | | | 9,445 | |
| Acquisition-related costs | 36 | | | 2,247 | | | 1,633 | | | 2,647 | |
| | | | | | | |
| Impairment charges | 4,185 | | | 80 | | | 4,834 | | | 4,317 | |
| Loss on extinguishment of debt and write-off of debt issuance costs | — | | | — | | | — | | | 12,862 | |
| Foreign currency transaction losses | 115 | | | 21 | | | 32 | | | 130 | |
| Total non-GAAP adjustments before tax effect | 5,893 | | | 13,087 | | | 17,229 | | | 33,151 | |
| Tax effect on above non-GAAP adjustments | (1,577) | | | (1,428) | | | (4,462) | | | (6,513) | |
| Discrete and permanent tax on non-deductible CEO transition costs | (936) | | | — | | | 1,868 | | | — | |
| Valuation allowance change on deferred tax assets | 949 | | | (52,089) | | | (666) | | | (55,654) | |
| Total non-GAAP adjustments, after tax | 4,329 | | | (40,430) | | | 13,969 | | | (29,016) | |
| Net loss (income) attributable to redeemable noncontrolling interest | 81 | | | (10) | | | 154 | | | (10) | |
| Adjusted net income (loss) | $ | (25,288) | | | $ | 4,670 | | | $ | 43,185 | | | $ | 133,650 | |
| Diluted earnings (loss) per share | $ | (0.52) | | | $ | 0.66 | | | $ | 0.46 | | | $ | 2.26 | |
| Adjusted diluted earnings (loss) per share | $ | (0.44) | | | $ | 0.07 | | | $ | 0.68 | | | $ | 1.85 | |
Non-GAAP Measures
To supplement amounts presented in our consolidated financial statements determined in accordance with accounting principles generally accepted in the United States ("GAAP"), the Company uses certain non-GAAP financial measures, including adjusted operating expenses, adjusted operating profit (loss), adjusted net income (loss), and adjusted diluted earnings (loss) per share as shown in the table above. These measures adjust for the effects of: (1) CEO transition costs; (2) restructuring and integration costs, including severance charges other than those included in CEO transition costs; (3) acquisition-related costs; (4) impairment charges; (5) loss on extinguishment of debt and write-off of debt issuance costs; (6) foreign currency transaction losses; (7) the net tax impact of such items, including discrete and permanent tax on non-deductible CEO transition costs; (8) the change in the valuation allowance on deferred tax assets; and (9) net loss (income) attributable to redeemable noncontrolling interest. The unaudited adjusted results should not be construed as an alternative to the reported results determined in accordance with GAAP. These financial measures are not based on any standardized methodology and are not necessarily comparable to similar measures presented by other companies. The Company believes these non-GAAP financial measures provide useful information to both management and investors to increase comparability to prior periods by adjusting for certain items that may not be indicative of core operating measures and to better identify trends in our business. The adjusted financial results are used by management to, and allow investors to, evaluate the operating performance of the Company compared to prior periods, when reviewed in conjunction with the Company’s GAAP statements. These amounts are not determined in accordance with GAAP and therefore should not be used exclusively in evaluating the Company’s business and operations.
Comparable Sales Performance Metric
We consider the percent change in comparable sales from the same previous year period, a primary metric commonly used throughout the retail industry, to be an important measurement for management and investors of the performance of our direct-to-consumer businesses. We include in our comparable sales metric sales from stores in operation for at least 14 months at the beginning of the applicable year. Stores are added to the comparable base at the beginning of the year and are dropped for comparative purposes in the quarter in which they are closed. Comparable sales include the e-commerce sales of the U.S. Retail and Canada Retail segments. Comparable sales exclude the 53rd week of sales in 2023 and, specifically for the Canada Retail segment, the impact of foreign
currency translation, which is calculated by translating current period results at the foreign currency exchange rate used in the comparable period of the prior year. Comparable sales include the e-commerce sales of the Brand Portfolio segment from the direct-to-consumer e-commerce site for the Vince Camuto brand. The e-commerce sales for Topo, Keds, and Hush Puppies will be added to the comparable base for the Brand Portfolio segment beginning with the first quarter of 2024, the second quarter of 2024, and the third quarter of 2024, respectively. The calculation of comparable sales varies across the retail industry and, as a result, the calculations of other retail companies may not be consistent with our calculation.
CONTACT: Stacy Turnof, DesignerBrandsIR@edelman.com
