dsw-20210501

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 1, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from						to

Commission file number 001-32545


DESIGNER BRANDS INC.
(Exact name of registrant as specified in its charter)

Ohio

31-0746639

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

810 DSW Drive,

Columbus,

Ohio

43219

(Address of principal executive offices)

(Zip Code)

Registrant's telephone number, including area code: (614) 237-7100


Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Shares, without par value	DBI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

Number of shares outstanding of each of the registrant's classes of common stock, as of May 21, 2021: 65,135,378 Class A common shares and 7,732,743 Class B common shares.

Cautionary Statement Regarding Forward-Looking Information for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995

Certain statements in this Quarterly Report on Form 10-Q (this "Form 10-Q") may constitute forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to, among other things, future events and financial performance. 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. Any forward-looking statements contained in this Form 10-Q are based upon current plans, estimates, expectations and assumptions relating to our operations, results of operations, financial condition, growth strategy and liquidity. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to numerous 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. In addition to those factors described under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021 (the "2020 Form 10-K"), filed with the Securities and Exchange Commission (the "SEC") on March 22, 2021, and otherwise in our reports and filings with the SEC, there are a number of important factors that could cause actual results, performance or achievements to differ materially from those discussed in forward-looking statements including, but not limited to, the following:

•risks and uncertainty related to the continued outbreak of the coronavirus ("COVID-19"), any future COVID-19 resurgence, and any other adverse public health developments;

•risks related to losses or disruptions associated with our distribution systems, including our distribution and fulfillment centers and our stores, whether as a result of COVID-19, reliance on third-party providers, cyber-related attacks, or otherwise;

•our ability to protect the health and safety of our associates and our customers, which may be affected by current or future government regulations related to stay-at-home orders and orders related to the operation of non-essential businesses;

•risks related to our international operations, including international trade, our reliance on foreign sources for merchandise, exposure to political, economic, operational, compliance and other risks, and fluctuations in foreign currency exchange rates;

•maintaining strong relationships with our vendors, manufacturers, licensors, and retailer customers;

•our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations;

•risks related to restrictions on our senior secured asset-based revolving credit facility ("ABL Revolver") and senior secured term loan ("Term Loan") that could limit our ability to fund operations;

•our reliance on our loyalty programs and marketing to drive traffic, sales and customer loyalty;

•failure to retain our key executives or attract qualified new personnel;

•risks related to the loss or disruption of our information systems and data and our ability to prevent or mitigate breaches of our information security and the compromise of sensitive and confidential data;

•our ability to comply with privacy laws and regulations, as well as other legal obligations;

•our ability to protect our reputation and to maintain the brands we license;

•uncertain general economic, political and social conditions and the related impacts to consumer discretionary spending;

•our competitiveness with respect to style, price, brand availability and customer service;

•our ability to provide customers cost-effective shopping platforms; and

•uncertainty related to future legislation, regulatory reform, policy changes, or interpretive guidance on existing legislation.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results, performance or achievements may vary materially from what we have projected. Furthermore, new factors emerge from time to time and it is not possible for management to predict all such factors, nor can management assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

DESIGNER BRANDS INC.

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations			1
Condensed Consolidated Statements of Comprehensive Income (Loss)			2
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Shareholders' Equity			4
Condensed Consolidated Statements of Cash Flows			5
Notes to the Condensed Consolidated Financial Statements			6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			23
Item 4. Controls and Procedures			23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			24
Item 1A. Risk Factors			24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			24
Item 3. Defaults Upon Senior Securities			24
Item 4. Mine Safety Disclosures			24
Item 5. Other Information			24
Item 6. Exhibits			24
Signature			25

All references to "we," "us," "our," "Designer Brands," "Designer Brands Inc.," or the "Company" in this Form 10-Q mean Designer Brands Inc. and its subsidiaries.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)


	Three months ended
		May 1, 2021		May 2, 2020
Net sales		$	703,155	$	482,783
Cost of sales		(487,044)		(509,243)
Gross profit (loss)		216,111		(26,460)
Operating expenses		(200,814)		(187,221)
Income from equity investment		1,708		2,270
Impairment charges		—		(112,547)
Operating profit (loss)		17,005		(323,958)
Interest expense, net		(8,814)		(2,158)
Non-operating income (expenses), net		806		(87)
Income (loss) before income taxes		8,997		(326,203)
Income tax benefit		8,029		110,345
Net income (loss)		$	17,026	$	(215,858)
Basic and diluted earnings (loss) per share:
Basic earnings (loss) per share		$	0.23	$	(3.00)
Diluted earnings (loss) per share		$	0.22	$	(3.00)
Weighted average shares used in per share calculations:
Basic shares		72,613		71,914
Diluted shares		76,976		71,914

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

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited and in thousands)


	Three months ended
		May 1, 2021		May 2, 2020
Net income (loss)		$	17,026	$	(215,858)
Other comprehensive income (loss), net of income taxes:
Foreign currency translation gain (loss)		543		(3,541)
Unrealized net gain on debt securities		—		195
Reclassification adjustment for net gains realized in net loss		—		(368)
Total other comprehensive income (loss), net of income taxes		543		(3,714)
Total comprehensive income (loss)		$	17,569	$	(219,572)

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

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)


	May 1, 2021		January 30, 2021		May 2, 2020
ASSETS
Cash and cash equivalents	$	49,301	$	59,581	$	250,874

Receivables, net	213,447		196,049		81,953
Inventories	540,088		473,183		533,638
Prepaid expenses and other current assets	60,461		51,772		82,742
Total current assets	863,297		780,585		949,207
Property and equipment, net	284,823		296,469		359,841
Operating lease assets	686,704		700,481		799,482
Goodwill	93,655		93,655		93,655
Intangible assets, net	16,131		15,635		13,908
Deferred tax assets	—		—		139,269
Equity investment	57,012		58,598		57,538
Other assets	30,843		31,172		24,941
Total assets	$	2,032,465	$	1,976,595	$	2,437,841
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	$	341,819	$	245,071	$	283,054
Accrued expenses	195,237		200,326		231,359
Current maturities of long-term debt	62,500		62,500		—
Current operating lease liabilities	200,666		244,786		218,313
Total current liabilities	800,222		752,683		732,726
Long-term debt	274,887		272,319		393,000
Non-current operating lease liabilities	663,018		677,735		788,704
Other non-current liabilities	31,526		30,841		25,305
Total liabilities	1,769,653		1,733,578		1,939,735
Commitments and contingencies
Shareholders' equity:
Common shares paid-in capital, no par value	992,379		990,153		975,304
Treasury shares, at cost	(515,065)		(515,065)		(515,065)
Retained earnings (deficit)	(211,759)		(228,785)		44,076
Accumulated other comprehensive loss	(2,743)		(3,286)		(6,209)
Total shareholders' equity	262,812		243,017		498,106
Total liabilities and shareholders' equity	$	2,032,465	$	1,976,595	$	2,437,841

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

DESIGNER BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited and in thousands, except per share data)

Number of shares

Amounts

SEC Form 10-Q filed by Designer Brands Inc.