Designer Brands Inc.

Previous wording

For the first quarter of 2025, net sales decreased 8.0% with a decrease in total comparable sales of 7.8% when compared to the same period last year. Gross profit as a percentage of net sales for the first quarter of 2025 was 43.0%, a decrease of 120 basis points when compared to the same period last year as margin rates were down for all segments.

Current wording

For the second quarter of 2025, net sales decreased 4.2% with a decrease in total comparable sales of 5.0% when compared to the same period last year. Gross profit as a percentage of net sales for the second quarter of 2025 was 43.7%, a decrease of 30 basis points when compared to the same period last year as margin rates were down for all segments.

Previous wording

Macroeconomic conditions influenced by growing concerns of a potential recession, uncertain tariff policies, volatility in stock market indices, elevated interest rates, inflationary pressures, changes in employment levels, and geopolitical unrest continue to create a complex and challenging retail environment. 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. These macroeconomic conditions have had a negative impact on our operating results and liquidity during the three months ended May 3, 2025 and we may continue to experience the impact of decreased consumer demand for our products. We have enacted certain mitigating actions, including alignment of inventory with current demand levels, expense and capital expenditure reductions, and accelerating sourcing diversification efforts. 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 could have a material adverse effect on our business, results of operations, and liquidity.

Current wording

Macroeconomic conditions influenced by uncertain tariff policies, volatility in stock market indices, elevated interest rates, persistent inflationary pressures, changes in employment levels, and geopolitical unrest continue to create a complex and challenging retail environment. 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. These macroeconomic conditions have had a negative impact on our operating results and liquidity during the first half of 2025 and we may continue to experience the impact of decreased consumer demand for our products and lower direct-to-consumer traffic. We have enacted certain mitigating actions, including alignment of inventory with current demand levels, expense and capital expenditure reductions, and accelerating sourcing diversification efforts. Although we have made progress in addressing certain macroeconomic conditions, our mitigating actions are not necessarily complete and they should be viewed as part of the process in which we will continue to better align our cost structure with our operating results. We are unable to predict the severity of macroeconomic uncertainty, whether or when such circumstances may improve or worsen, including from one of our quarterly reporting periods to the next, 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 could have a material adverse effect on our business, results of operations, and liquidity.

Previous wording

Following its January 2025 inauguration, the U.S. administration has taken action to increase tariffs assessed on most products imported into the U.S. along with additional reciprocal tariffs on imports from certain countries, including China, Vietnam, Indonesia, India, and Cambodia. Subsequent to these announcements, the U.S. administration announced a 90-day pause on the reciprocal tariffs for goods sourced from certain countries other than China and further increased tariffs on goods sourced from China, which were later paused for a separate 90-day period. The numerous announcements of new and then paused tariffs introduces more uncertainty regarding the future of global trade. All of the products manufactured through the Brand Portfolio segment come from third-party facilities outside of the U.S., with the majority of our units sourced from Asia. 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 Asia. We are closely monitoring this situation and evaluating the actions we plan to take, which may include cost mitigation measures and price adjustments. For our Brand Portfolio segment, we have accelerated our sourcing diversification efforts by rebalancing and optimizing where we source from to mitigate the risk, maximize flexibility, and decrease costs. 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.

Current wording

Following its January 2025 inauguration, the U.S. administration has taken action to increase tariffs assessed on most products imported into the U.S. The numerous announcements of changes to and delays of tariff policies has introduced heightened uncertainty regarding the future of global trade and the impact to our cost structure. All of the products manufactured through the Brand Portfolio segment come from third-party facilities outside of the U.S., with the majority of our units sourced from Asia. 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 Asia. We are closely monitoring this situation and evaluating the actions we have taken and additional actions we may take in the future, including cost mitigation measures and price adjustments. For our Brand Portfolio segment, we have accelerated our sourcing diversification efforts by rebalancing and optimizing where we source from to mitigate the risk, maximize flexibility, and decrease costs. However, sourcing diversification could result in product quality issues, higher product costs, and/or not being able to source the quantity desired on a timely basis and there can be no assurance that we will be able to fully mitigate the impact of such tariffs or new tariffs in Asia or elsewhere.

Previous wording

•Net sales decreased to $686.9 million from $746.6 million for the same period last year.

Current wording

•Net sales decreased to $739.8 million from $771.9 million for the same period last year.

Previous wording

•Net loss attributable to Designer Brands Inc. was $17.4 million, or $0.36 loss per diluted share, which included net after-tax charges of $4.9 million, or $0.10 per diluted share, primarily related to restructuring, integration, and impairment costs. For the three months ended May 4, 2024, net income attributable to Designer Brands Inc. was $0.8 million, or $0.01 per diluted share, which included net after-tax charges of $4.0 million, or $0.07 per diluted share, primarily related to restructuring and integration costs.

Current wording

•Net income attributable to Designer Brands Inc. was $10.8 million, or $0.22 per diluted share, which included net after-tax charges of $5.9 million, or $0.12 per diluted share, primarily related to restructuring costs and impairment charges. For the three months ended August 3, 2024, net income attributable to Designer Brands Inc. was $13.8 million, or $0.24 per diluted share, which included net after-tax charges of $3.2 million, or $0.05 per diluted share, primarily related to restructuring, integration, and acquisition costs.

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 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.

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. 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. 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

For the three months ended May 3, 2025, net sales decreased in the U.S. Retail segment primarily driven by the decrease in comparable sales of $44.9 million with the remaining decrease primarily from store closures since the end of the first quarter of 2024. The decrease in comparable sales for the U.S. Retail segment was largely driven by a decrease in comparable transactions of approximately 10% due to lower traffic, partially offset by an increase in comparable average sales amounts per transaction. Net sales decreased in the Canada Retail segment driven by the decline in comparable sales of $5.1 million, also due to lower traffic, and the unfavorable impact from foreign currency translation of $2.2 million, partially offset by an increase in net sales with the addition of Rubino. The decrease in net sales for the Brand Portfolio segment was primarily due to lower revenue from wholesale activity of $4.2 million as retail customers pulled back on orders with the remaining decrease from direct-to-consumer sales, primarily from our Vince Camuto e-commerce site.

Current wording

For the six months ended August 2, 2025, net sales decreased in the U.S. Retail segment primarily driven by the decline in comparable sales, largely driven by lower comparable transactions of approximately 9% due to reduced traffic, partially offset by an increase in comparable average sales amounts per transaction. Net sales also decreased by approximately $10.0 million in the U.S. Retail segment due to net store closures since the end of the second quarter of 2024, offset by a similar amount due to an increase in shipping revenue and other non-product sales activity. Net sales decreased in the Canada Retail segment driven by a decline in comparable sales of $5.5 million, also due to lower traffic, and the unfavorable impact from foreign currency translation of $2.4 million, partially offset by an increase in net sales with the addition of Rubino. The decrease in net sales for the Brand Portfolio segment was primarily due to lower revenue from wholesale activity of $32.5 million (excluding Topo wholesale) as retail customers and the U.S. Retail segment pulled back on orders, partially offset by a $10.0 million increase in net sales from strong Topo wholesale activity, with the remaining decrease from direct-to-consumer sales, primarily from our Vince Camuto e-commerce site.

Previous wording

The decrease in gross profit for the U.S. Retail segment was primarily driven by the decrease in net sales during the three months ended May 3, 2025 over the same period 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 the same period last year primarily due to a change in mix of products sold and an increase in promotional activity. The decrease in gross profit for the Canada Retail segment was primarily driven by the decline in net sales from our legacy banners more than offsetting the contribution from the addition of the Rubino banner. Gross profit as a percentage of net sales decreased for the Canada Retail segment for the three months ended May 3, 2025 over the same period last year primarily due to the Rubino banner, which has lower margins. The decrease in gross profit for the Brand Portfolio segment was primarily due to the lower net sales and higher freight costs as we rerouted supply chain lanes in order to avoid potential disruptions. Gross profit as a percentage of net sales decreased for the Brand Portfolio segment primarily due to unfavorable customer mix and the higher freight costs.

Current wording

The decrease in gross profit for the U.S. Retail segment was primarily driven by the decrease in net sales during the six months ended August 2, 2025 over the same period 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 the same period last year primarily due to an increase in promotional activity and a change in mix of products sold. The decrease in gross profit for the Canada Retail segment was primarily driven by the decrease in net sales during the six months ended August 2, 2025 over the same period last year and at lower margin rates. Gross profit as a percentage of net sales decreased for the Canada Retail segment for the six months ended August 2, 2025 over the same period last year primarily due to the Rubino banner, which has lower margin rates. The decrease in gross profit for the Brand Portfolio segment was primarily due to lower sales to customers as retail customers pulled back on orders. Gross profit as a percentage of net sales decreased for the Brand Portfolio segment primarily due to unfavorable customer mix and the deleverage of fixed royalty expenses on lower net sales.

Previous wording

For the three months ended May 3, 2025, operating expenses decreased in the U.S. Retail segment primarily due to lower store selling expenses of $3.4 million and marketing expenses of $1.6 million in line with lower net sales, with the remaining decrease primarily in personnel overhead costs driven by a decrease in incentive compensation. Operating expenses as a percentage of net sales increased in the U.S. Retail segment due to the deleverage impact of lower net sales. Operating expenses increased in the Canada Retail segment primarily due to the addition of Rubino. Operating expenses as a percentage of net sales in the Canada Retail segment increased due to lower net sales on higher operating expenses. Operating expenses decreased in the Brand Portfolio segment primarily due to a $4.6 million decrease in marketing expenses in line with lower net sales with the remaining decrease primarily due to lower personnel overhead costs with a decrease in incentive compensation. Operating expenses as a percentage of net sales in the Brand Portfolio segment decreased as the decline in operating expenses leveraged even with lower net sales. Operating expenses decreased for corporate shared services primarily due to lower professional fees as well as a decrease in incentive compensation. The increase in consolidated operating expenses as a percentage of consolidated net sales over the same period last year was due to the deleverage of our costs on lower net sales.

Current wording

For the six months ended August 2, 2025, operating expenses decreased in the U.S. Retail segment primarily due to lower store selling expenses and personnel overhead costs of $9.3 million in line with lower net sales, partially offset by an increase in distribution and fulfillment costs with the addition of our new distribution center. Operating expenses as a percentage of net sales increased in the U.S. Retail segment due to the deleverage impact of lower net sales. Operating expenses increased in the Canada Retail segment primarily due to the addition of Rubino. Operating expenses as a percentage of net sales in the Canada Retail segment increased due to lower net sales on higher operating expenses. Operating expenses decreased in the Brand Portfolio segment primarily due to a $7.7 million decrease in marketing expenses with the remaining decrease primarily due to lower personnel overhead and other costs, in line with lower sales. Operating expenses as a percentage of net sales decreased in the Brand Portfolio segment as the decline in operating expenses leveraged even with lower net sales. Operating expenses decreased for corporate shared services primarily due to lower professional fees as well as a decrease in incentive compensation.

Previous wording

During the three months ended May 3, 2025, we recorded impairment charges of $1.0 million of long-lived assets due to underperforming stores in Canada. Also during the three months ended May 3, 2025, we recorded a $2.0 million impairment charge for an interest in an equity security without a readily determinable fair value held at cost, which resulted in no remaining value due to the lack of liquidity and the deterioration in the business prospects of the investee. There were no impairment charges for the same period last year.

Current wording

During the six months ended August 2, 2025, we recorded impairment charges to long-lived assets of $1.5 million due to an underperforming store in the U.S. and $1.0 million due to underperforming stores in Canada. Also during the six months ended August 2, 2025, we recorded a $2.0 million impairment charge for an interest in an equity security without a readily determinable fair value held at cost, which resulted in no remaining value due to the lack of liquidity and the deterioration in the business prospects of the investee. There were no impairment charges for the same period last year.

Previous wording

For the three months ended May 3, 2025, operating profit for the U.S. Retail segment decreased due to lower gross profit partially offset by lower operating expenses whereas operating profit for the Canada Retail segment decreased due to lower gross profit and higher operating expenses. Operating profit for the Brand Portfolio segment increased due to the decrease in gross profit being more than offset by lower operating expenses. For the three months ended May 3, 2025, corporate/eliminations were favorable to consolidated operating profit (loss) due to lower corporate operating expenses and favorable intersegment activity, partially offset by higher impairment charges when compared to the same period last year. These factors led to a consolidated operating loss for the three months ended May 3, 2025 as compared to an operating profit for the same period last year.

Current wording

For the six months ended August 2, 2025, operating profit for the U.S. Retail segment decreased due to lower gross profit partially offset by lower operating expenses, whereas operating profit for the Canada Retail segment decreased due to lower gross profit and higher operating expenses. Corporate/eliminations were favorable to consolidated operating profit due to lower corporate operating expenses and favorable intersegment activity, partially offset by higher impairment charges when compared to the same period last year. These factors led to a decrease in consolidated operating profit for the six months ended August 2, 2025 as compared to the same period last year.

Previous wording

For the three months ended May 3, 2025 and May 4, 2024, our effective tax rate was 10.4% and 138.1%, respectively. The effective tax rate for the three months ended May 3, 2025 differed from the statutory rate primarily due to state minimum tax expense on quarterly pre-tax loss and permanent non-deductible compensation. The high effective tax rate for the three months ended May 4, 2024 was due to discrete tax benefits, primarily state tax planning initiatives and release of federal tax reserves no longer deemed necessary, that approximated the amount of loss before income taxes and the impact of permanent non-deductible compensation.

Current wording

For the six months ended August 2, 2025 and August 3, 2024, our effective tax rate was negative 36.7% and positive 1.0%, respectively. The effective tax rate for the six months ended August 2, 2025 differed from the statutory rate primarily due to the impact of permanent non-deductible compensation, which resulted in a negative effective tax rate. The effective tax rate for the six months ended August 3, 2024 differed from the statutory rate primarily due to discrete tax benefits recognized, primarily the release of tax reserves no longer deemed necessary and state tax planning initiatives, partially offset by the impact of permanent non-deductible compensation.

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. 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 current macroeconomic 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 capital expenditures, and meet our debt service obligations over the next 12 months. As discussed above in the "Executive Overview and Trends in Our Business" section under the heading "Effects of Macroeconomic Conditions and Tariffs," current macroeconomic conditions have had a negative impact on our operating results and liquidity during the three months ended May 3, 2025 and we may continue to experience the impact of decreased consumer demand for our products. Future impacts are unknown at this time and could have a material adverse effect on our business, operations, results of operations, and liquidity.

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. 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 current macroeconomic 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 capital expenditures, and meet our debt service obligations over the next 12 months and beyond. As discussed above in the "Executive Overview and Trends in Our Business" section under the heading "Effects of Macroeconomic Conditions and Tariffs," current macroeconomic conditions have had a negative impact on our operating results and liquidity during the first half of 2025 and we may continue to experience the impact of decreased consumer demand for our products. Future impacts are unknown at this time and could have a material adverse effect on our business, operations, results of operations, and liquidity.

Previous wording

The slight increase in net cash used in operating activities was due to the net loss recognized in the three months ended May 3, 2025 as compared to the net income recognized in the same period last year, partially offset by improved working capital management as we adjusted inventories in line with the decline in operating results and the impact of adjusting for noncash charges included in net income (loss) for both years.

Current wording

The decrease in net cash provided by operating activities was due to the net loss recognized during the six months ended August 2, 2025 as compared to the net income recognized during the same period last year and the receipt of income tax refunds of over $40.0 million during the six months ended August 3, 2024, partially offset by improved working capital management as we adjusted inventories in line with the decline in operating results.

Previous wording

The decrease in net cash used in investing activities for the three months ended May 3, 2025 as compared to the same period last year was primarily due to the reduction in capital expenditures of $8.7 million in line with the decline in operating results along with the impact of the acquisition of Rubino of over $16.0 million during the three months ended May 4, 2024.

Current wording

The decrease in net cash used in investing activities for the six months ended August 2, 2025 as compared to the same period last year was primarily due to the reduction in capital expenditures of $12.7 million in line with the decline in operating results along with the impact of the acquisition of Rubino of over $16.0 million during the six months ended August 3, 2024.

Previous 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 borrowings of $30.0 million under a FILO Term Loan, which 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 May 3, 2025, the revolving line of credit (excluding the FILO Term Loan) had a borrowing base of $502.8 million, with $373.3 million in outstanding borrowings and $4.0 million in letters of credit issued, resulting in $125.5 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 borrowings of $30.0 million under a FILO Term Loan, which 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 August 2, 2025, the revolving line of credit (excluding the FILO Term Loan) had a borrowing base of $476.2 million, with $367.9 million in outstanding borrowings and $4.0 million in letters of credit issued, resulting in $104.3 million available for borrowings.

Previous wording

Term Loan-On June 23, 2023, we entered into a Term Loan, which matures at the earliest of the date the ABL Revolver matures (currently March 2027) or five years from closing of the Term Loan (June 2028). As of May 3, 2025, the Term Loan had an outstanding balance of $124.7 million.

Current wording

Term Loan-On June 23, 2023, we entered into a Term Loan, which matures at the earliest of the date the ABL Revolver matures (currently March 2027) or five years from closing of the Term Loan (June 2028). As of August 2, 2025, the Term Loan had an outstanding balance of $123.0 million.

Previous wording

During 2025, we expect to spend approximately $35.0 million to $45.0 million that will be capitalized for property and equipment and implementation costs for cloud computing arrangements accounted for as service contracts, $9.6 million of which was spent during the three months ended May 3, 2025. 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 $35.0 million to $45.0 million that will be capitalized for property and equipment and implementation costs for cloud computing arrangements accounted for as service contracts, $21.5 million of which was spent during the six months ended August 2, 2025. 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.

Previous wording

The information related to recent accounting pronouncements as set forth in Note 1, Description of Business and Significant Accounting Policies - Recently Issued Accounting Pronouncements, of the condensed consolidated financial statements included in this Form 10-Q is incorporated herein by reference.

Current wording

The information related to a recent accounting pronouncement as set forth in Note 1, Description of Business and Significant Accounting Policies - Recently Issued Accounting Pronouncement, of the condensed consolidated financial statements included in this Form 10-Q is incorporated herein by reference.