Designer Brands Inc.
For the period ended Feb 1, 2025. Filed Mar 24, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2025 · Filed Mar 24, 2025
DBI$6.43-3.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2024-02-03; filed 2024-03-25.
0001319947-24-000011
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2025-02-01; filed 2025-03-24.
0001319947-25-000012
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 65 previous paragraphs and 86 current paragraphs.
37 unchanged; 18 reworded; 25 added; 8 removed; 2 previous and 6 current paragraphs rearranged.
Tables are not compared: 11 previous and 19 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (25)
Current report
For 2024, net sales decreased 2.1% with total comparable sales down 1.7% over last year. Gross profit as a percentage of net sales for 2024 was 40 basis points lower when compared to last year primarily due to a change in mix of products sold as we expanded our athletic and casual offerings, which have lower margins than the seasonal and dress categories.
Current report
During April 2024, we completed the acquisition of Rubino, which allowed our Canada Retail segment to expand into the province of Quebec. 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 resulted in an increase in Brand Portfolio intersegment net sales, cost of sales, gross profit, and gross profit as a percentage of net sales 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.
Current report
In February and March 2025, the U.S. administration announced new tariffs on all imports 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 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 closely monitoring this situation and evaluating the actions we plan to take, which may include cost-mitigation measures, sourcing strategies, and price adjustments. However, there can be no assurance that we will be able to fully mitigate the impact of such tariffs or new tariffs in China or elsewhere. Future impacts are unknown at this time and could have a material adverse effect on our business, operations, and results of operations.
Current report
•Gross profit as a percentage of net sales was 42.7% compared to 43.1% in 2023 and 43.9% in 2022.
Current report
2024 COMPARED WITH 2023
Current report
During 2024, net sales decreased in the U.S. Retail segment, primarily due to the decrease in comparable sales of $35.0 million and the additional week of sales during 2023. The decrease in comparable sales for the U.S. Retail segment was largely driven by a decrease in comparable transactions with lower traffic and a lower conversion rate. Net sales increased in the Canada Retail segment due to the addition of Rubino, with $24.6 million of net sales during the period, as well as $7.9 million from the net new stores opened since the end of 2023, partially offset by the decrease in comparable sales of $5.7 million due to lower average sales amounts per transaction, the unfavorable impact from foreign currency translation of $5.0 million, and the additional week of sales in 2023. The increase in net sales for the Brand Portfolio segment was primarily due to the change in how we source certain Owned Brands for the U.S. Retail segment from a commission model, where sales are based on a percentage of product cost, to a wholesale model, where sales and cost of sales are recorded, which added approximately $70.0 million in net sales and also resulted in the increase in intersegment net sales that are eliminated. This increase in the Brand Portfolio segment was partially offset by lower sales to external customers as retail customers pulled back on orders during 2024.
Current report
The decrease in gross profit for the U.S. Retail segment was primarily driven by the decrease in net sales during 2024 over last year and at lower margin rates. Gross profit as a percentage of net sales decreased for the U.S. Retail segment when compared to last year primarily due to a change in mix of products sold as we expanded our athletic and casual offerings, which have lower margins than the seasonal and dress categories. The increase in gross profit forthe Canada Retail segment was primarily driven by the increase in net sales during 2024 over last year. Gross profit as a percentage of net sales decreased for the Canada Retail segment also due to a change in mix of products sold and a lower margin rate for Rubino as we worked through elevated inventory from the acquisition. The increase in gross profit for the Brand Portfolio segment was primarily driven by the transition of certain Owned Brands sourced for the U.S. Retail segment under a wholesale model, as discussed above, which also resulted in the net elimination of intersegment gross profit during 2024 as compared to the net recognition of intersegment gross profit last year (refer to the table below). Gross profit as a percentage of net sales increased for the Brand Portfolio segment primarily due to the transition of certain Owned Brands sourced for the U.S. Retail segment under a wholesale model, partially offset byhigher freight costs as we rerouted supply chain lanes in order to avoid potential disruptions.
Current report
The following table summarizes operating expenses by segment:
Current report
During 2024, operating expenses decreased in the U.S. Retail segment primarily due to a $7.1 million decrease in personnel overhead costs with a lower headcount and lower store selling expenses of $4.9 million and distribution costs of $2.6 million in line with lower net sales. Operating expenses increased in the Canada Retail segment primarily driven by the addition of Rubino. Operating expenses decreased in the Brand Portfolio segment primarily due to a $4.7 million decrease in marketing expenses and lower distribution costs of $1.9 million with the decline in external customer wholesale activity. Operating expenses increased for corporate shared services primarily due to higher professional fees and costs for cloud computing arrangements, partially offset by approximately $5.0 million lower stock compensation expense as a result of the CEO transition costs incurred last year. The increase in consolidated operating expenses as a percentage of consolidated net sales over last year was due to the deleverage of our costs on lower net sales.
Current report
Impairment charges are not attributed to any of our segments for segment presentation purposes. During 2024, we recorded impairment charges of $9.4 million due to a vacated leased corporate office and other corporate assets, $7.0 million of our equity investment in Le Tigre due to the inability of Le Tigre to generate earnings with expected future losses, $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 related to a vacated leased space.
Current report
OPERATING PROFIT
Current report
The following table summarizes operating profit (loss) by segment:
Current report
During 2024, operating profit for the U.S. Retail segment decreased due to lower gross profit partially offset by lower operating expenses. For the Brand Portfolio segment, the improvement in operating results was the result of the increase in gross profit and lower operating expenses. Corporate/eliminations increased, which lowers consolidated operating profit, due to an increase in impairments in 2024 and higher eliminations of Brand Portfolio intercompany activity. These changes led to lower consolidated operating profit as a percent of consolidated net sales.
Current report
2023 COMPARED WITH 2022
Current report
NET SALES
Current report
GROSS PROFIT
Current report
OPERATING EXPENSES
Current report
The following table summarizes operating expenses by segment:
Current report
During 2023, operating expenses decreased in the U.S. Retail segment primarily due to a decrease of $17.9 million in depreciation and amortization expense and $8.4 million distribution costs as we realized the benefit of moving our digital fulfillment activities from our Ohio location to our New Jersey location and a decrease of $12.8 million in store selling expenses and the remaining decrease primarily in lower incentive compensation in line with lower net sales. Operating expenses increased in the Brand Portfolio segment primarily due to an increase of $8.2 million in marketing expenses as we invested more in brand awareness and the remaining increase primarily due to the additional expenses from the acquired Keds and Topo businesses. Operating expenses also increased for corporate shared services due to higher professional fees and costs for cloud computing arrangements. The increases in consolidated operating expenses as a percentage of consolidated net sales over 2022 was due to the deleverage of our costs on lower net sales.
Current report
IMPAIRMENT CHARGES
Current report
OPERATING PROFIT
Current report
The following table summarizes operating profit (loss) by segment:
Current report
During 2023, operating profit for the U.S. Retail and Canada Retail segments decreased due to lower gross profit partially offset by lower operating expenses. For the Brand Portfolio segment, the increase in operating loss was due to the increase in gross profit being more than offset by higher operating expenses. These factors led to lower operating profit (higher operating loss) as a percentage of net sales for all segments and in total.
Current report
INTEREST EXPENSE, NET
Removed paragraphs (8)
Previous report
For 2023, net sales decreased 7.3% and total comparable sales decreased 9.0% over last year. During 2023, net sales from our Owned Brands decreased 6.2% over last year, with Owned Brands representing 25.8% of consolidated net sales as compared to 25.5% for last year. At the beginning of 2023, we completed the acquisition of Keds, expanding our Owned Brands' reach into casual and athleisure footwear in the wholesale and direct-to-consumer e-commerce channels and complementing the additions of Le Tigre and Topo during 2022. We believe these acquisitions represent significant steps taken toward our long-term goal of net sales from our Owned Brands reaching one-third of total sales by 2026. Gross profit as a percentage of net sales for 2023 was 90 basis points lower when compared to last year, primarily due to promotional pricing and the deleveraging effect of lower sales on fixed store occupancy costs, which more than offset lower logistics costs, including freight, shipping, and distribution.
Previous report
•Gross profit as a percentage of net sales was 31.7% compared to 32.6% last year.
Previous report
NM - Not meaningful
Previous report
Operating expenses increased by $10.7 million during 2023 over last year, primarily driven by an increase in marketing expenses as we invested more in brand awareness, the additional operating expenses from the acquired Topo and Keds businesses, and the additional week during 2023, partially offset by a decrease in incentive compensation in line with lower net sales. Operating expenses, as a percentage of net sales, increased 240 basis points over the same period last year due to the lower net sales as we deleveraged our increased costs.
Previous report
During 2023, the following significant transactions impacted our liquidity:
Previous report
•On February 28, 2023, the ABL Revolver was amended to increase the available capacity under the revolving line of credit from $550.0 million to $600.0 million and to add a first-in last-out term loan ("FILO Term Loan") of up to $30.0 million, which was drawn in full, subject to a borrowing base.
Previous report
•On June 23, 2023, we entered into a Term Loan and borrowed $135.0 million during 2023.
Previous report
•We repurchased an aggregate of 9.7 million Class A common shares, including open market purchases and purchases under a modified "Dutch Auction" tender offer, 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 repurchase under the share repurchase program.
Reworded paragraphs (18)
Previous wording
The following discussion includes a comparison of our results of operations and liquidity and capital resources for 2023 and 2022. Except where it may be useful in understanding 2023 results, we have omitted discussion of results for 2021, which may be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended January 28, 2023, filed with the SEC on March 16, 2023.
Current wording
The following discussion includes a comparison of our results of operations and liquidity and capital resources for 2024 and 2023. Beginning in the fourth quarter of 2024, 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. Also beginning in the fourth quarter of 2024, we changed the presentation of segment performance by including an operating profit measurement for our reportable segments. Prior period reclassifications were made to conform to the current period presentation in the consolidated statements of operations. For 2023 and 2022, the reclassifications resulted in a decrease to cost of sales and an increase to operating expenses. These reclassifications did not change operating profit, net income, or earnings per share attributable to Designer Brands Inc. As a result of the prior period reclassifications, we have included a discussion of the results of operations of 2023 compared with 2022. A discussion of 2022 liquidity and capital resources may be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended February 3, 2024, filed with the SEC on March 25, 2024.
Previous wording
Throughout 2023, a downturn in global economic conditions, most notably the growing concerns of a potential recession, rising interest rates, inflationary pressures, changes in employment levels, and significant foreign currency volatility, has adversely impacted discretionary consumer income levels and spending for our customers. Consumer spending on discretionary items, including our products, generally declines during periods of economic uncertainty, when disposable income is reduced, or when there is a reduction in consumer confidence. We are unable to predict the severity of macroeconomic uncertainty, whether or when such circumstances may improve or worsen, or the full impact such circumstances could have on our business. As it relates to our business, during the second half of 2022 and continuing into 2023, our net sales declined as we experienced lower traffic and became more promotional under a more competitive landscape. Competitive pricing pressure has been exacerbated by a more promotional retail environment as macroeconomic conditions continue to impact discretionary consumer spending. These factors ultimately could require us to enact mitigating operating efficiency measures that could have a material adverse effect on business, operations, and results of operations.
Current wording
During 2024, our comparable sales declined as we experienced lower traffic, primarily in the U.S. Retail segment. Consumer spending on discretionary items, including our products, generally declines during periods of economic uncertainty, when disposable income is reduced, or when there is a reduction in consumer confidence. We believe the decrease in comparable sales is a result of ongoing consumer concern of negative and/or uncertain economic conditions, most notably the concern of economic volatility, including an economic downturn, fluctuations in interest rates, inflationary pressures, and changes in employment levels. We are unable to predict the severity of macroeconomic uncertainty, whether or when such circumstances may improve or worsen, or the full impact such circumstances could have on our business. These factors ultimately could require us to enact further mitigating operating efficiency measures that may not have the intended effect and could have a material adverse effect on our business, operations, and results of operations. Adverse global economic conditions and disruptions to our business, along with a sustained decline in our stock price, may lead to triggering events that may indicate that the carrying value of certain assets, including inventories, accounts receivables, equity investments, long-lived assets, intangibles, and goodwill, may not be recoverable.
Previous wording
•Net sales decreased to $3.1 billion from $3.3 billion last year.
Current wording
•Net sales decreased to $3.0 billion from $3.1 billion last year.
Previous wording
•Net income attributable to Designer Brands Inc. was $29.1 million, or $0.46 per diluted share, which included net after-tax charges of $14.0 million, or $0.22 per diluted share, primarily related to restructuring and integration costs, impairment charges, and CEO transition costs, compared to $162.7 million, or $2.26 per diluted share, last year, which included net after-tax benefits of $29.0 million, or $0.41 per diluted share, primarily related to the change in valuation allowance on deferred tax assets, partially offset by the loss on extinguishment of debt and write-off of debt issuance costs, restructuring and termination costs, impairment charges, and CEO transition costs.
Current wording
•Net loss attributable to Designer Brands Inc. was $10.5 million, or $0.20 loss per diluted share, compared to net income attributable to Designer Brands Inc. of $29.1 million, or $0.46 earnings per diluted share, last year.
Previous wording
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 53 rd 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.
Current wording
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. For calculating comparable sales in 2024, periods in 2023 are shifted by one week to compare similar calendar weeks. Comparable sales for the Canada Retail segment exclude the impact of foreign currency translation and are calculated by translating current period results at the foreign currency exchange rate used in the comparable period of the prior year. Stores added as a result of the Rubino acquisition that will have been in operation for at least 14 months at the beginning of 2025, along with its e-commerce sales, will be added to the comparable base for the Canada Retail segment beginning with the second quarter of 2025. Comparable sales include the e-commerce net sales of the Brand Portfolio segment from the direct-to-consumer e-commerce sites. 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.
Previous wording
During 2023, net sales decreased in the U.S. Retail segment, primarily due to the decrease in comparable sales of $260.3 million, with the additional week of sales during 2023 offset by the impact of net store closures since the end of 2022. The decrease in comparable sales for the U.S. Retail segment was largely driven by a decrease in comparable transactions of approximately 5%, driven by lower traffic, and a decrease in the comparable average sales amounts per transaction of approximately 5% as we were more promotional than we were during the same period last year. Net sales decreased in the Canada Retail segment due to the decrease in comparable sales of $16.6 million, with the majority of the remaining decrease due to the unfavorable impact from foreign currency translation partially offset by the additional week of sales in 2023. The decrease in comparable sales for the Canada Retail segment was impacted primarily by lower comparable average sales amount per transaction. Net sales for the Brand Portfolio segment increased due to the net sales added from the acquired Topo and Keds businesses partially offset by lower wholesale sales as retailer customers pulled back on orders.
Current wording
During 2023, net sales decreased in the U.S. Retail segment, primarily due to the decrease in comparable sales of $260.3 million, with the additional week of sales during 2023 offset by the impact of net store closures since the end of 2022. The decrease in comparable sales for the U.S. Retail segment was largely driven by a decrease in comparable transactions of approximately 5%, driven by lower traffic, and a decrease in the comparable average sales amounts per transaction of approximately 5% as we were more promotional than we were during 2022. Net sales decreased in the Canada Retail segment due to the decrease in comparable sales of $16.6 million, with the majority of the remaining decrease due to the unfavorable impact from foreign currency translation, partially offset by the additional week of sales in 2023. The decrease in comparable sales for the Canada Retail segment was impacted primarily by lower comparable average sales amount per transaction. Net sales for the Brand Portfolio segment increased due to the net sales added from the acquired Topo and Keds businesses partially offset by lower wholesale sales as retail customers pulled back on orders.
Previous wording
The decrease in consolidated gross profit was primarily driven by the decrease in consolidated net sales over the same period last year, partially offset by lower freight and shipping costs and lower distribution costs in the U.S. Retail segment as we realized the benefit of moving our digital fulfillment activities from our Ohio location to our New Jersey location. Gross profit as a percentage of net sales decreased 110 basis points for the U.S. Retail segment when compared to the same period last year, primarily due to the deleveraging effect of lower sales on fixed occupancy costs as well as being more promotional, partially offset by lower logistics costs including freight, shipping, and distribution. Gross profit as a percentage of net sales decreased 290 basis points for the Canada Retail segment when compared to the same period last year, primarily due to a mix shift in sales towards lower margin products and the deleveraging effect of lower sales on fixed occupancy costs. Gross profit as a percentage of net sales increased 450 basis points for the Brand Portfolio segment when compared to the same period last year, primarily due to the change in mix of products sold, improved inventory positions, lower freight costs, and the leverage of higher sales on royalty expense since the acquired businesses do not have any royalty obligations.
Current wording
The decrease in consolidated gross profit was primarily driven by the decrease in consolidated net sales during 2023 over 2022, partially offset by lower freight and shipping costs. Gross profit as a percentage of net sales decreased 90 basis points for the U.S. Retail segment when compared to 2022, primarily due to being more promotional, partially offset by lower logistics costs including freight and shipping. Gross profit as a percentage of net sales decreased 160 basis points for the Canada Retail segment in 2023 when compared to 2022, primarily due to a mix shift in sales towards lower margin products. Gross profit as a percentage of net sales increased 450 basis points for the Brand Portfolio segment in 2023 when compared to 2022, primarily due to the change in mix of products sold, improved inventory positions, lower freight costs, and the leverage of higher sales on royalty expense since the acquired businesses do not have any royalty obligations.
Previous wording
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 abandoned leased spaces.
Current wording
Impairment charges are not attributed to any of our segments for segment presentation purposes. 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 due to subleases of vacated leased spaces.
Previous wording
For 2023, interest expense, net, increased by $17.3 million over last year, primarily driven by overall higher interest rates on our debt, with higher rates on the ABL Revolver over last year and the addition of the Term Loan, and a higher average debt balance during 2023.
Current wording
For 2023, interest expense, net, increased by $17.3 million over 2022, primarily driven by overall higher interest rates on our debt, with higher rates on the ABL Revolver over 2022 and the addition of the Term Loan, and a higher average debt balance during 2023.
Previous wording
In connection with the settlement of our previous senior secured term loan agreement ("Previous Term Loan") on February 8, 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. As a result of the replacement of the ABL Revolver during 2022, we also wrote off $0.2 million of debt issuance costs.
Current wording
In connection with the settlement of our previous senior secured term loan agreement on February 8, 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. As a result of the replacement of the ABL Revolver during 2022, we also wrote off $0.2 million of debt issuance costs.
Previous wording
Our primary ongoing operating cash flow requirements are for inventory purchases, payments on lease obligations and licensing royalty commitments, other working capital needs, capital expenditures, and debt service. Our working capital and inventory levels fluctuate seasonally.
Current wording
Our primary ongoing operating cash flow requirements are for inventory purchases, payments on lease obligations and licensing royalty commitments, other working capital needs, capital expenditures, and debt service. Our working capital and inventory levels fluctuate seasonally. On April 8, 2024, we acquired Rubino for $16.1 million in cash, funded with available cash and borrowings on the ABL Revolver. 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.
Previous wording
We are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business, pursue our growth strategy, and withstand unanticipated business volatility, including the impacts of the global economic conditions on our results of operations. We believe that cash generated from our operations, together with our current levels of cash, as well as the availability under our ABL Revolver and Term Loan, are sufficient to maintain our ongoing operations, support seasonal working capital requirements, fund acquisitions and capital expenditures, repurchase common shares under our share repurchase program, and meet our debt service obligations over the next 12 months and beyond.
Current wording
We are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business, pursue our growth strategy, and withstand unanticipated business volatility, including the impacts of the global economic conditions on our results of operations. We believe that cash generated from our operations, together with our current levels of cash, as well as the availability under our ABL Revolver, are sufficient to maintain our ongoing operations, support seasonal working capital requirements, fund acquisitions and capital expenditures, repurchase common shares under our share repurchase program, and meet our debt service obligations over the next 12 months and beyond.
Previous wording
The decrease in net cash provided by operations was largely driven by the receipt of $120.3 million of our income tax receivable from the Internal Revenue Service during 2022 and the decrease in net income recognized in 2023 over last year, after adjusting for non-cash activity including depreciation and amortization and the loss on extinguishment of debt and write-off of debt issuance costs. These were partially offset by lower spend on working capital due to the decreased investment in inventory with the slowdown in net sales, as discussed above in the results of operations, and the timing of payments on current liabilities.
Current wording
The decrease in net cash provided by operations was largely driven by the decrease in net income recognized after adjusting for non-cash activity, including depreciation and amortization, stock-based compensation expense, changes in deferred income taxes and impairment charges, and higher spend on working capital. The increased spend on working capital was the result of an increased investment in inventories and the timing of payments on current liabilities, partially offset by the receipt of income tax refunds of $61.9 million compared to cash paid for income taxes of $17.1 million last year, timing of payments on lease obligations, and no incentive compensation for 2023 being paid in the first quarter of 2024 whereas we did pay incentive compensation for 2022 in the first quarter of 2023.
Previous wording
For 2023, net cash used in investing activities was primarily due to the acquisition of Keds for $127.3 million and capital expenditures of $55.0 million relating to infrastructure and IT projects, new stores, and store improvements. For 2022, the net cash used in investing activities was primarily due to capital expenditures of $55.0 million relating to infrastructure and IT projects, new stores, store improvements, the acquisition of Topo for $19.1 million, and our investment in Le Tigre for $8.2 million.
Current wording
For 2024, net cash used in investing activities was primarily due to capital expenditures of $50.9 million relating to infrastructure and IT projects and new stores, including relocations, and the acquisition of Rubino for $16.1 million. For 2023, net cash used in investing activities was primarily due to the acquisition of Keds for $127.3 million and capital expenditures of $55.0 million relating to infrastructure and IT projects, new stores, and store improvements.
Previous wording
For 2023, the net cash provided by financing activities was due to proceeds from the issuance of the Term Loan of $135.0 million and the net receipts of $20.0 million from our ABL Revolver, partially offset by the repurchase of 9.7 million Class A common shares atan aggregate cost of$102.2 million, including transaction costs and excise tax, payments of $17.5 million for taxes for stock-based compensation shares withheld, payments of dividends of $12.2 million, and payments of debt issuance costs of $10.7 million. For 2022, the net cash used in financing activities was due to the payment of $238.2 million for the settlement of the Previous Term Loan, the repurchase of 10.7 million Class A common shares at an aggregate cost of $147.5 million, and the payment of dividends of $13.5 million, partially offset by the net receipts of $281.0 million from our revolving lines of credit.
Current wording
For 2024, net cash used in financing activities was due to the repurchase of 10.3 million Class A common shares at an aggregate cost of $68.6 million, payments of dividends of $10.5 million, and payments on the Term Loan of $6.8 million, partially offset by the net receipts of $69.0 million from our ABL Revolver. For 2023, net cash provided by financing activities was due to proceeds from the issuance of the Term Loan of $135.0 million and the net receipts of $20.0 million from our ABL Revolver, partially offset by the repurchase of 9.7 million Class A common shares at an aggregate cost of $102.2 million, payments of $17.5 million for taxes for stock-based compensation shares withheld, payments of dividends of $12.2 million, and payments of debt issuance costs of $10.7 million.
Previous wording
ABL Revolver-On March 30, 2022, we replaced our previous senior secured asset-based revolving credit facility with our current ABL Revolver, which was subsequently amended on February 28, 2023 and June 23, 2023. The amended ABL Revolver provides a revolving line of credit of up to $600.0 million, including a Canadian sub-limit of up to $60.0 million, a $75.0 million sub-limit for the issuance of letters of credit, a $60.0 million sub-limit for swing-loan advances for U.S. borrowings, and a $6.0 million sub-limit for swing-loan advances for Canadian borrowings. In addition, the ABL Revolver includes a FILO Term Loan of up to $30.0 million, which was drawn in full on February 28, 2023. The FILO Term Loan may be repaid in full, but not in part, so long as certain payment conditions are satisfied. Once repaid, no portion of the FILO Term Loan may be reborrowed. The ABL Revolver, which matures in 2027, may be used to provide funds for working capital, capital expenditures, share repurchases, other expenditures, and permitted acquisitions as defined by the credit facility agreement. The amount of credit available is limited to a borrowing base formulated on, among other things, a percentage of the book value of eligible inventory and credit card receivables, as reduced by certain reserves. As of February 3, 2024, the revolving line of credit (excluding the FILO Term Loan) had a borrowing base of $437.0 million, with $271.1 million in outstanding borrowings and $5.0 million in letters of credit issued, resulting in $160.9 million available for borrowings.
Current wording
ABL Revolver-The ABL Revolver provides a revolving line of credit of up to $600.0 million, including a Canadian sub-limit of up to $60.0 million, a $75.0 million sub-limit for the issuance of letters of credit, a $60.0 million sub-limit for swing-loan advances for U.S. borrowings, and a $6.0 million sub-limit for swing-loan advances for Canadian borrowings. In addition, the ABL Revolver includes a first-in last-out term loan ("FILO Term Loan") of up to $30.0 million. The FILO Term Loan may be repaid in full, but not in part, so long as certain payment conditions are satisfied. Once repaid, no portion of the FILO Term Loan may be reborrowed. The ABL Revolver, which matures in 2027, may be used to provide funds for working capital, capital expenditures, share repurchases, other expenditures, and permitted acquisitions as defined by the credit facility agreement. The amount of credit available is limited to a borrowing base formulated on, among other things, a percentage of the book value of eligible inventory and credit card receivables, as reduced by certain reserves. As of February 1, 2025, the revolving line of credit (excluding the FILO Term Loan) had a borrowing base of $471.4 million, with $340.1 million in outstanding borrowings and $4.0 million in letters of credit issued, resulting in $127.3 million available for borrowings.
Previous wording
Debt Covenants-The ABL Revolver requires us to maintain a fixed charge coverage ratio covenant of not less than 1:1 when availability is less than the greater of $47.3 million or 10.0% of the maximum borrowing amount. At any time that liquidity is less than $100.0 million, the Term Loan requires a maximum consolidated net leverage ratio as of the last day of each fiscal month, calculated on a trailing twelve-month basis, of (1) 2.25 to 1.00 for any trailing twelve-month period through February 3, 2024, and (2) 2.50 to 1.00 thereafter. Testing of the consolidated net leverage ratio ends after liquidity has been greater than or equal to $100.0 million for a period of 45 consecutive days. The ABL Revolver and the Term Loan also contain customary covenants restricting certain activities, including limitations on our ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes. There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions based on availability. As of February 3, 2024, we were in compliance with all financial covenants contained in the ABL Revolver and the Term Loan.
Current wording
Debt Covenants-The ABL Revolver requires us to maintain a fixed charge coverage ratio covenant of not less than 1:1 when availability is less than the greater of $47.3 million or 10.0% of the maximum borrowing amount. At any time that liquidity is less than $100.0 million, the Term Loan requires a maximum consolidated net leverage ratio as of the last day of each fiscal month 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. The ABL Revolver and the Term Loan also contain customary covenants restricting certain activities, including limitations on our ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes. There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions based on availability. As of February 1, 2025, we were in compliance with all financial covenants contained in the ABL Revolver and the Term Loan.
Previous wording
During 2024, we expect to spend approximately $65.0 million to $75.0 million that will be capitalized for property and equipment and implementation costs for cloud computing arrangements accounted for as service contracts. Our future investments will depend primarily on the number of stores we open and remodel, infrastructure and IT projects that we undertake, and the timing of these expenditures.
Current wording
During 2025, we expect to spend approximately $45.0 million to $55.0 million that will be capitalized for property and equipment and implementation costs for cloud computing arrangements accounted for as service contracts. Our future investments will depend primarily on the number of stores we open and remodel, infrastructure and IT projects that we undertake, and the timing of these expenditures.
Rearranged current paragraphs (6)
Current report — wording carried from elsewhere
The net recognition (elimination) of intersegment gross profit consisted of the following:
Current report — wording carried from elsewhere
For 2024, interest expense, net, increased by $13.1 million over last year, primarily driven by a higher debt balance.
Current report — wording carried from elsewhere
The effective tax rate was 7.0% for 2024, as compared to 27.3% for 2023. The effective tax rate for 2024 differed from the statutory rate primarily due to non-deductible compensation and other adjustments partially offset by discrete tax benefits recognized, primarily related to the release of tax reserves no longer deemed necessary and state tax planning initiatives. The effective tax rate for 2023 differed from the statutory rate primarily due to non-deductible compensation offset by other permanent adjustments.
Current report — wording carried from elsewhere
The following table presents our consolidated results of operations with associated percentages of net sales:
Current report — wording carried from elsewhere
The following table summarizes net sales by segment:
Current report — wording carried from elsewhere
The following table summarizes gross profit by segment:
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
•On February 4, 2023, we completed the acquisition of Keds for $127.3 million in cash consideration, funded with available cash and borrowings on the ABL Revolver.
Previous report — wording carried elsewhere
Termination of Previous Term Loan- On February 8, 2022, we settled in full the $231.3 million principal amount outstanding on that date under our Previous 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.