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Designer Brands Inc. – ‘10-Q’ for 7/30/22

On:  Wednesday, 8/31/22, at 4:12pm ET   ·   For:  7/30/22   ·   Accession #:  1319947-22-36   ·   File #:  1-32545

Previous ‘10-Q’:  ‘10-Q’ on 6/2/22 for 4/30/22   ·   Next:  ‘10-Q’ on 12/1/22 for 10/29/22   ·   Latest:  ‘10-Q’ on 12/5/23 for 10/28/23

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  As Of               Filer                 Filing    For·On·As Docs:Size

 8/31/22  Designer Brands Inc.              10-Q        7/30/22   60:7M

Quarterly Report   —   Form 10-Q

Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML   1.83M 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     21K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     21K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     19K 
 5: EX-32.2     Certification -- §906 - SOA'02                      HTML     19K 
11: R1          Cover Page                                          HTML     73K 
12: R2          Condensed Consolidated Statements of Operations     HTML    100K 
13: R3          Condensed Consolidated Statements of Comprehensive  HTML     38K 
                Income (Loss)                                                    
14: R4          Condensed Consolidated Balance Sheets               HTML    127K 
15: R5          Condensed Consolidated Statements of Shareholders'  HTML     97K 
                Equity Statement                                                 
16: R6          Condensed Consolidated Statements of Shareholders'  HTML     19K 
                Equity (Parenthetical)                                           
17: R7          Condensed Consolidated Statements of Cash Flows     HTML    125K 
18: R8          Description of Business and Significant Accounting  HTML     45K 
                Policies                                                         
19: R9          Revenue                                             HTML    185K 
20: R10         Related Party Transactions                          HTML     26K 
21: R11         Earnings Per Share                                  HTML     31K 
22: R12         Stock-Based Compensation                            HTML     39K 
23: R13         Shareholders' Equity                                HTML     37K 
24: R14         Receivables                                         HTML     35K 
25: R15         Accrued Expenses                                    HTML     33K 
26: R16         Debt                                                HTML     42K 
27: R17         Commitments and Contingencies                       HTML     21K 
28: R18         Segment Reporting                                   HTML    102K 
29: R19         Description of Business and Significant Accounting  HTML     70K 
                Policies (Policies)                                              
30: R20         Description of Business and Significant Accounting  HTML     38K 
                Policies (Tables)                                                
31: R21         Revenue (Tables)                                    HTML    182K 
32: R22         Earnings Per Share (Tables)                         HTML     29K 
33: R23         Stock-Based Compensation (Tables)                   HTML     40K 
34: R24         Shareholders' Equity (Tables)                       HTML     38K 
35: R25         Receivables (Tables)                                HTML     35K 
36: R26         Accrued Expenses (Tables)                           HTML     32K 
37: R27         Debt (Tables)                                       HTML     33K 
38: R28         Segment Reporting (Tables)                          HTML     99K 
39: R29         Description of Business and Significant Accounting  HTML     43K 
                Policies - Narrative (Details)                                   
40: R30         Description of Business and Significant Accounting  HTML     27K 
                Policies - Cash, Cash Equivalents and Restricted                 
                Cash (Details)                                                   
41: R31         Revenue - by Brand Categories (Details)             HTML     73K 
42: R32         Revenue (Details)                                   HTML     86K 
43: R33         Related Party Transactions (Details)                HTML     55K 
44: R34         Earnings Per Share (Details)                        HTML     25K 
45: R35         Earnings Per Share - Anti-Dilutive Securities       HTML     19K 
                (Details)                                                        
46: R36         Stock-Based Compensation - Expense (Details)        HTML     24K 
47: R37         Stock-Based Compensation - Award Activity           HTML     32K 
                (Details)                                                        
48: R38         Shareholders' Equity - Class of Stock (Details)     HTML     40K 
49: R39         Shareholders' Equity - Dividends (Details)          HTML     21K 
50: R40         Shareholders' Equity - Share Repurchases (Details)  HTML     25K 
51: R41         Receivables (Details)                               HTML     35K 
52: R42         Accrued Expenses (Details)                          HTML     33K 
53: R43         Debt (Details)                                      HTML     82K 
54: R44         Commitments and Contingencies (Details)             HTML     19K 
55: R45         Segment Reporting (Details)                         HTML     63K 
58: XML         IDEA XML File -- Filing Summary                      XML    102K 
56: XML         XBRL Instance -- dsw-20220730_htm                    XML   2.15M 
57: EXCEL       IDEA Workbook of Financial Reports                  XLSX    102K 
 7: EX-101.CAL  XBRL Calculations -- dsw-20220730_cal                XML    138K 
 8: EX-101.DEF  XBRL Definitions -- dsw-20220730_def                 XML    383K 
 9: EX-101.LAB  XBRL Labels -- dsw-20220730_lab                      XML   1.06M 
10: EX-101.PRE  XBRL Presentations -- dsw-20220730_pre               XML    621K 
 6: EX-101.SCH  XBRL Schema -- dsw-20220730                          XSD    103K 
59: JSON        XBRL Instance as JSON Data -- MetaLinks              311±   443K 
60: ZIP         XBRL Zipped Folder -- 0001319947-22-000036-xbrl      Zip    318K 


‘10-Q’   —   Quarterly Report

Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Table of Contents
"Financial Statements
"Condensed Consolidated Statements of Operations
"Condensed Consolidated Statements of Comprehensive Income
"Condensed Consolidated Balance Sheets
"Condensed Consolidated Statements of Shareholders' Equity
"Condensed Consolidated Statements of Cash Flows
"Notes to the Condensed Consolidated Financial Statements
"Note 1
"Description of Business and Significant Accounting Policies
"Note 2
"Revenue
"Note 3
"Related Party Transactions
"Note 4
"Earnings Per Share
"Note 5
"Stock-Based Compensation
"Note 6
"Shareholders' Equity
"Note 7
"Receivables
"Note 8
"Accrued Expenses
"Note 9
"Debt
"Note 10
"Commitments and Contingencies
"Note 11
"Segment Reporting
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures About Market Risk
"Controls and Procedures
"Legal Proceedings
"Risk Factors
"Unregistered Sales of Equity Securities and Use of Proceeds
"Defaults Upon Senior Securities
"Mine Safety Disclosures
"Other Information
"Exhibits
"Signatures

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM  i 10-Q
(Mark One)
 i QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended  i July 30, 2022
or
 i TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission file number  i 1-32545
dsw-20220730_g1.jpg
 i DESIGNER BRANDS INC.
(Exact name of registrant as specified in its charter)
 i Ohio i 31-0746639
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
 i 810 DSW Drive, i Columbus, i Ohio i 43219
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: ( i 614)  i 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 classTrading SymbolName of each exchange on which registered
 i Class A Common Shares, without par value i DBI i 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.  i 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).  i 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.
 i Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company i 
Emerging growth company i 
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).  i  Yes No

Number of shares outstanding of each of the registrant's classes of common stock, as of August 25, 2022:  i 56,500,918 Class A common shares and  i 7,732,743 Class B common shares.



    
    
    

DESIGNER BRANDS INC.
TABLE OF CONTENTS

PART I
Item 1
Item 2
Item 3
Item 4
PART II
Item 1
Item 1A
Item 2
Item 3
Item 4
Item 5
Item 6

All references to "we," "us," "our," "Designer Brands," "Designer Brands Inc.," or the "Company" in this Quarterly Report on Form 10-Q for the six months ended July 30, 2022 (this "Form 10-Q") mean Designer Brands Inc. and its subsidiaries.

We have included website addresses throughout this report as inactive textual references only. The information contained on the websites referenced herein is not incorporated into this Form 10-Q.



Table of Contents     

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 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. Such statements 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 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, and liquidity. The inclusion of these forward-looking statements 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 other factors discussed elsewhere in this report, under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (the "2021 Form 10-K"), filed with the Securities and Exchange Commission (the "SEC") on March 21, 2022, 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 that include, but are not limited to, the following:
risks and uncertainties related to the ongoing coronavirus ("COVID-19") pandemic, any future COVID-19 resurgence, and any other adverse public health developments;
risks that recent inflationary pressures, including higher freight costs, could have on our results of operations and customer demand based on pricing actions and operating measures taken to mitigate the impact of inflation;
uncertain general economic conditions, including inflation and supply chain pressures, domestic and global political and social conditions and the potential impact of geopolitical turmoil or conflict, and the related impacts to consumer discretionary spending;
our ability to execute on our long-term strategic plans;
our ability to anticipate and respond to fashion trends, consumer preferences and changing customer expectations;
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 fulfillment center and stores, whether as a result of the COVID-19 pandemic, reliance on third-party providers, or otherwise;
our reliance on our loyalty programs and marketing to drive traffic, sales, and customer loyalty;
risks related to cyber security threats and privacy or data security breaches or the potential loss or disruption of our information systems;
our ability to protect our reputation and to maintain the brands we license;
our competitiveness with respect to style, price, brand availability, and customer service;
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;
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.

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.



Table of Contents     

PART I    

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)Three months endedSix months ended
July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Net sales$ i 859,319 $ i 817,335 $ i 1,689,862 $ i 1,520,490 
Cost of sales( i 563,649)( i 532,654)( i 1,118,447)( i 1,019,698)
Gross profit i 295,670  i 284,681  i 571,415  i 500,792 
Operating expenses( i 228,690)( i 224,385)( i 452,116)( i 425,199)
Income from equity investments i 2,435  i 2,290  i 4,380  i 3,998 
Impairment charges( i 1,816)( i 1,174)( i 2,888)( i 1,174)
Operating profit i 67,599  i 61,412  i 120,791  i 78,417 
Interest expense, net( i 2,752)( i 8,072)( i 5,704)( i 16,886)
Loss on extinguishment of debt and write-off of debt issuance costs i   i  ( i 12,862) i  
Non-operating income (expenses), net i 37 ( i 244) i 43  i 562 
Income before income taxes i 64,884  i 53,096  i 102,268  i 62,093 
Income tax provision( i 18,671)( i 10,236)( i 29,873)( i 2,207)
Net income$ i 46,213 $ i 42,860 $ i 72,395 $ i 59,886 
Basic and diluted earnings per share:
Basic earnings per share$ i 0.66 $ i 0.59 $ i 1.02 $ i 0.82 
Diluted earnings per share$ i 0.62 $ i 0.55 $ i 0.96 $ i 0.78 
Weighted average shares used in per share calculations:
Basic shares i 69,604  i 72,932  i 71,263  i 72,773 
Diluted shares i 73,942  i 77,619  i 75,369  i 77,271 

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

1

Table of Contents     

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months endedSix months ended
(unaudited and in thousands)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Net income$ i 46,213 $ i 42,860 $ i 72,395 $ i 59,886 
Other comprehensive income (loss), net-
Foreign currency translation gain (loss)( i 63)( i 298)( i 144) i 245 
Total comprehensive income$ i 46,150 $ i 42,562 $ i 72,251 $ i 60,131 

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

2

Table of Contents     

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)July 30, 2022January 29, 2022July 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents
$ i 50,799 $ i 72,691 $ i 46,458 
Receivables, net
 i 204,880  i 199,826  i 199,371 
Inventories
 i 694,010  i 586,429  i 504,316 
Prepaid expenses and other current assets
 i 51,558  i 55,270  i 53,616 
Total current assets
 i 1,001,247  i 914,216  i 803,761 
Property and equipment, net
 i 242,147  i 256,786  i 271,401 
Operating lease assets
 i 646,062  i 647,221  i 676,665 
Goodwill
 i 93,655  i 93,655  i 93,655 
Intangible assets, net
 i 20,237  i 15,527  i 15,905 
Equity investments
 i 61,957  i 55,578  i 55,149 
Other assets
 i 37,134  i 31,651  i 29,513 
Total assets
$ i 2,102,439 $ i 2,014,634 $ i 1,946,049 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$ i 337,543 $ i 340,877 $ i 299,322 
Accrued expenses
 i 210,469  i 215,812  i 222,055 
Current maturities of long-term debt i   i   i 62,500 
Current operating lease liabilities
 i 192,130  i 202,228  i 190,853 
Total current liabilities
 i 740,142  i 758,917  i 774,730 
Long-term debt
 i 387,441  i 225,536  i 184,569 
Non-current operating lease liabilities
 i 588,064  i 593,429  i 645,136 
Other non-current liabilities
 i 25,844  i 24,356  i 30,502 
Total liabilities
 i 1,741,491  i 1,602,238  i 1,634,937 
Commitments and contingencies
 i 


 i 
 i Shareholders' equity:
Common shares paid-in capital, no par value
 i 1,010,181  i 1,005,382  i 998,117 
Treasury shares, at cost
( i 643,563)( i 515,065)( i 515,065)
Retained deficit
( i 1,909)( i 74,304)( i 168,899)
Accumulated other comprehensive loss
( i 3,761)( i 3,617)( i 3,041)
Total shareholders' equity
 i 360,948  i 412,396  i 311,112 
Total liabilities and shareholders' equity
$ i 2,102,439 $ i 2,014,634 $ i 1,946,049 

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

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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Number of sharesAmounts
(unaudited and in thousands, except per share amounts)Class A
Common
Shares
Class B
Common
Shares
Treasury SharesCommon Shares Paid in CapitalTreasury SharesRetained DeficitAccumulated Other Comprehensive LossTotal
Three months ended July 30, 2022
Balance, April 30, 2022 i 64,450  i 7,733  i 23,825 $ i 1,006,384 $( i 537,771)$( i 48,122)$( i 3,698)$ i 416,793 
Net income      i 46,213   i 46,213 
Stock-based compensation activity i 122    i 7,302     i 7,302 
Repurchase of Class A common shares( i 7,769)  i 7,769  ( i 105,792)  ( i 105,792)
Dividends ($ i 0.05 per share)
  ( i 3,505)   ( i 3,505)
Foreign currency translation adjustment      ( i 63)( i 63)
Balance, July 30, 2022 i 56,803  i 7,733  i 31,594 $ i 1,010,181 $( i 643,563)$( i 1,909)$( i 3,761)$ i 360,948 
Three months ended July 31, 2021
Balance, May 1, 2021 i 65,134  i 7,733  i 22,169 $ i 992,379 $( i 515,065)$( i 211,759)$( i 2,743)$ i 262,812 
Net Income— — — — —  i 42,860 —  i 42,860 
Stock-based compensation activity i 102 — —  i 5,738 — — —  i 5,738 
Foreign currency translation adjustment— — — — — — ( i 298)( i 298)
Balance, July 31, 2021 i 65,236  i 7,733  i 22,169 $ i 998,117 $( i 515,065)$( i 168,899)$( i 3,041)$ i 311,112 
Six months ended July 30, 2022
Balance, January 29, 2022 i 65,624  i 7,733  i 22,169 $ i 1,005,382 $( i 515,065)$( i 74,304)$( i 3,617)$ i 412,396 
Net income      i 72,395   i 72,395 
Stock-based compensation activity i 604    i 11,896     i 11,896 
Repurchase of Class A common shares( i 9,425)  i 9,425  ( i 128,498)  ( i 128,498)
Dividends ($ i 0.05 per share)
   ( i 7,097)   ( i 7,097)
Foreign currency translation adjustment      ( i 144)( i 144)
Balance, July 30, 2022 i 56,803  i 7,733  i 31,594 $ i 1,010,181 $( i 643,563)$( i 1,909)$( i 3,761)$ i 360,948 
Six months ended July 31, 2021
Balance, January 30, 2021 i 64,666  i 7,733  i 22,169 $ i 990,153 $( i 515,065)$( i 228,785)$( i 3,286)$ i 243,017 
Net Income— — — — —  i 59,886 —  i 59,886 
Stock-based compensation activity i 570 — —  i 7,964 — — —  i 7,964 
Foreign currency translation adjustment— — — — — —  i 245  i 245 
Balance, July 31, 2021 i 65,236  i 7,733  i 22,169 $ i 998,117 $( i 515,065)$( i 168,899)$( i 3,041)$ i 311,112 

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended
(unaudited and in thousands)July 30, 2022July 31, 2021
Cash flows from operating activities:
Net income$ i 72,395 $ i 59,886 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization i 44,146  i 40,257 
Stock-based compensation expense i 15,963  i 13,365 
Deferred income taxes( i 157) i 100 
Income from equity investments( i 4,380)( i 3,998)
Distributions received from equity investments i 6,230  i 7,447 
Impairment charges i 2,888  i 1,174 
Loss on extinguishment of debt and write-off of debt issuance costs i 12,862  i  
Other i 3,523  i 800 
Change in operating assets and liabilities:
Accounts receivable( i 3,485) i 5,859 
Income tax receivable( i 1,585)( i 9,066)
Inventories( i 107,873)( i 30,114)
Prepaid expenses and other current assets( i 2,726)( i 612)
Accounts payable( i 4,848) i 53,009 
Accrued expenses( i 5,448) i 21,546 
Operating lease assets and liabilities, net( i 16,641)( i 63,424)
Net cash provided by operating activities i 10,864  i 96,229 
Cash flows from investing activities:
Cash paid for property and equipment( i 27,151)( i 13,189)
Equity investment in Le Tigre( i 8,230) i  
Other( i 4,853) i  
Net cash used in investing activities( i 40,234)( i 13,189)
Cash flows from financing activities:
Borrowing on revolving lines of credit i 1,112,794  i 342,053 
Payments on revolving lines of credit( i 725,353)( i 425,243)
Payments for borrowings and prepayment premium under Term Loan( i 238,196)( i 6,251)
Payments of debt issuance costs( i 2,316) i  
Cash paid for treasury shares( i 128,498) i  
Dividends paid( i 7,097) i  
Other( i 3,936)( i 5,514)
Net cash provided by (used in) financing activities i 7,398 ( i 94,955)
Effect of exchange rate changes on cash balances i 80  i 338 
Net decrease in cash, cash equivalents and restricted cash( i 21,892)( i 11,577)
Cash, cash equivalents and restricted cash, beginning of period i 74,459  i 59,581 
Cash, cash equivalents and restricted cash, end of period$ i 52,567 $ i 48,004 
Supplemental disclosures of cash flow information:
Cash paid (received) for income taxes$ i 27,971 $( i 3,372)
Cash paid for interest on debt$ i 6,020 $ i 13,437 
Cash paid for operating lease liabilities$ i 113,308 $ i 162,602 
Non-cash investing and financing activities:
Property and equipment purchases not yet paid$ i 6,158 $ i 2,320 
Operating lease liabilities arising from lease asset additions$ i 7,903 $ i 11,109 
Net increase to operating lease assets and lease liabilities for modifications$ i 77,820 $ i 45,723 

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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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1.  i DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Business Operations- Designer Brands Inc. ("we," "us," "our," and the "Company") is one of the world's largest designers, producers, and retailers of footwear and accessories. We operate in  i three reportable segments: the U.S. Retail segment, the Canada Retail segment, and the Brand Portfolio segment. The U.S. Retail segment operates the DSW Designer Shoe Warehouse ("DSW") banner through its direct-to-consumer U.S. stores and e-commerce site. The Canada Retail segment operates The Shoe Company and DSW banners through its direct-to-consumer Canada stores and e-commerce sites. The Brand Portfolio segment earns revenue from the sale of wholesale products to retailers, commissions for serving retailers as the design and buying agent for products under private labels (which we refer to as "First Cost"), and the sale of branded products through the direct-to-consumer e-commerce site at www.vincecamuto.com. An integral part of the Brand Portfolio segment is our equity investment in ABG-Camuto, LLC ("ABG-Camuto"), which is a partnership between Camuto LLC, a wholly-owned subsidiary doing business as "Camuto Group," and Authentic Brands Group LLC, a global brand management and marketing company. Camuto Group has a  i 40% stake in ABG-Camuto, a joint venture that holds several intellectual property rights, including, among others, Vince Camuto and Louise et Cie, and focuses on licensing and developing new category extensions to support the global growth of these brands. Camuto Group has a licensing agreement with ABG-Camuto whereby we pay royalties on our net sales from the brands managed by ABG-Camuto, subject to guaranteed minimums. Camuto Group also holds footwear and certain handbag licensing rights of Jessica Simpson, Lucky Brand and, through a joint venture, JLO Jennifer Lopez.

 i Basis of Presentation- The accompanying unaudited, condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal, recurring nature. The condensed consolidated financial position, results of operations and cash flows for these interim periods are not necessarily indicative of the results that may be expected in future periods. The balance sheet at January 29, 2022 has been derived from the audited financial statements at that date. The financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the 2021 Form 10-K.

 i Fiscal Year- Our fiscal year ends on the Saturday nearest to January 31. References to a fiscal year (e.g., "2022") refer to the calendar year in which the fiscal year begins. This reporting schedule is followed by many national retail companies and typically results in a 52-week fiscal year (including 2022 and 2021), but occasionally will contain an additional week resulting in a 53-week fiscal year (including 2023).

SIGNIFICANT ACCOUNTING POLICIES

Accounting Policies- The complete summary of significant accounting policies is included in the notes to the consolidated financial statements as presented in our 2021 Form 10-K.

 i Principles of Consolidation- The condensed consolidated financial statements include the accounts of Designer Brands Inc. and its subsidiaries, including variable interest entities. All intercompany accounts and transactions have been eliminated in consolidation. All amounts are in U.S. dollars.

 i Use of Estimates- The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and reported amounts of net sales and expenses during the reporting periods. Certain estimates and assumptions use forecasted financial information based on information reasonably available to us. Significant estimates and assumptions are required as a part of accounting for sales returns allowances, customer allowances and discounts, gift card breakage income, deferred revenue associated with loyalty programs, valuation of inventories, depreciation and amortization, impairments of long-lived assets, intangibles and goodwill, lease accounting, income taxes, and self-insurance reserves. Although we believe these estimates and assumptions are reasonable, they are based on management's knowledge of current events and actions we may undertake in the future. Changes in facts and circumstances may result in revised estimates and assumptions, and actual results could differ from these estimates.

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 i Severance- During the three months ended July 30, 2022 and July 31, 2021, we incurred severance costs of $ i 0.3 million and $ i 1.2 million, respectively. During the six months ended July 30, 2022 and July 31, 2021, we incurred severance costs of $ i 1.0 million and $ i 2.6 million, respectively. These costs are included in operating expenses in the condensed consolidated statements of operations. As of July 30, 2022, January 29, 2022, and July 31, 2021, we had accrued severance of $ i 0.9 million, $ i 1.9 million, and $ i 4.9 million, respectively, included in accrued expenses on the condensed consolidated balance sheets. / 

 i 
Income Taxes- We continue to assess the likelihood of realizing the benefits of our deferred tax assets by evaluating historical and projected future operating results, the reversal of existing temporary differences, taxable income in permitted carry back years, and the availability of tax planning strategies. In evaluating future taxable income, significant weight is given to positive and negative evidence that is objectively verifiable. As a result of the losses incurred in 2020 due to the impacts of the COVID-19 pandemic, we were in a three-year cumulative loss position as of July 30, 2022, which was significant objective negative evidence in considering whether deferred tax assets are realizable. Such objective evidence limits the ability to consider other subjective evidence, such as the projection of future taxable income. As of July 30, 2022, a valuation allowance has been maintained as a reserve on substantially all of our net deferred tax assets due to the uncertainty of realization of our loss carry forwards and other deferred tax assets. Given the continued realization of income since 2020 and projected future income, sufficient positive evidence may become available for the release of all or a portion of the valuation allowance within the next twelve months. Such a release would result in a material non-cash income tax benefit in our consolidated statement of operations in the period of release and the recording of additional deferred tax assets on our consolidated balance sheet. However, the exact timing and amount of the valuation allowance releases are subject to change based on the level of profitability achieved in future periods.

For the six months ended July 30, 2022 and July 31, 2021, our effective tax rate was  i 29.2% and  i 3.6%, respectively. The rate for the six months ended July 30, 2022 was impacted by permanent tax adjustments, primarily non-deductible compensation. The rate for the six months ended July 31, 2021 was the result of maintaining a full valuation allowance on deferred tax assets along with net discrete tax benefits, primarily as a result of adjustments to our estimated 2020 return reflecting implemented tax strategies.
 / 

 i Cash, Cash Equivalents, and Restricted Cash- Cash and cash equivalents represent cash, money market funds, and credit card receivables that generally settle within three days. Restricted cash represents cash that is restricted as to withdrawal or usage and consists of a mandatory cash deposit maintained for certain insurance policies and letters of credit.

 i  i 
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:
(in thousands)July 30, 2022January 29, 2022July 31, 2021
Cash and cash equivalents$ i 50,799 $ i 72,691 $ i 46,458 
Restricted cash, included in prepaid expenses and other current assets i 1,768  i 1,768  i 1,546 
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows$ i 52,567 $ i 74,459 $ i 48,004 
 / 
 / 

 i Equity Investment in Le Tigre- On July 1, 2022, we acquired a  i 33.3% interest in Le Tigre 360 Global LLC ("Le Tigre"), which manages the Le Tigre brand, for $ i 8.2 million. We account for our investment in Le Tigre, where we exercise significant influence but do not have control, using the equity method. The difference between the purchase price of Le Tigre and our interest in Le Tigre's underlying net equity is comprised of a definite lived tradename intangible asset and equity method goodwill. Our share of net income or loss of Le Tigre and amortization of the intangible asset is included in income from equity investments on the consolidated statements of operations. / 

 i Intangible Assets- During the first quarter of 2022, we acquired the rights to the shoes.com tradename for $ i 4.9 million, which was recorded as a definite lived tradename intangible asset with a useful life of  i 15 years.

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 i 
Fair Value- Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to the subjectivity associated with the inputs to fair value measurements as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Quoted prices for similar assets or liabilities in active markets or inputs that are observable.
Level 3 - Unobservable inputs in which little or no market activity exists.

The carrying value of cash and cash equivalents, restricted cash, receivables, and accounts payables approximated their fair values due to their short-term nature. The carrying value of borrowings under our revolving lines of credit approximated fair value based on its term and variable interest rate.

 i Impairment of Long-Lived Assets- During the three and six months ended July 30, 2022, we recorded impairment charges of $ i 1.8 million and $ i 2.9 million, respectively, in the Brand Portfolio segment resulting from subleases of abandoned leased spaces. During the three and six months ended July 31, 2021, we recorded an impairment charge of $ i  i 1.2 /  million in the U.S. Retail segment for abandoned equipment we replaced. / 

2.  i REVENUE

DISAGGREGATION OF NET SALES

Net Sales by Brand Categories-  i The following table presents net sales disaggregated by brand categories for each segment:
(in thousands)U.S. RetailCanada RetailBrand PortfolioEliminationsConsolidated
Three months ended July 30, 2022
Owned Brands:(1)
Direct-to-consumer$ i 147,877 $ i  $ i 7,793 $ $ i 155,670 
External customer wholesale and commission income i   i   i 39,179   i 39,179 
Intersegment wholesale and commission income   i 19,379 ( i 19,379) 
Total Owned Brands i 147,877  i   i 66,351 ( i 19,379) i 194,849 
National brands i 586,186  i   i    i 586,186 
Canada Retail(2)
 i   i 78,284  i    i 78,284 
Total net sales$ i 734,063 $ i 78,284 $ i 66,351 $( i 19,379)$ i 859,319 
Three months ended July 31, 2021
Owned Brands:(1)
Direct-to-consumer$ i 102,152 $ i  $ i 5,437 $— $ i 107,589 
External customer wholesale and commission income i   i   i 31,220 —  i 31,220 
Intersegment wholesale and commission income— —  i 13,872 ( i 13,872)— 
Total Owned Brands i 102,152  i   i 50,529 ( i 13,872) i 138,809 
National brands i 620,941  i   i  —  i 620,941 
Canada Retail(2)
 i   i 57,585  i  —  i 57,585 
Total net sales$ i 723,093 $ i 57,585 $ i 50,529 $( i 13,872)$ i 817,335 
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(in thousands)U.S. RetailCanada RetailBrand PortfolioEliminationsConsolidated
Six months ended July 30, 2022
Owned Brands:(1)
Direct-to-consumer$ i 287,032 $ i  $ i 14,320 $ $ i 301,352 
External customer wholesale and commission income i   i   i 104,135   i 104,135 
Intersegment wholesale and commission income   i 45,352 ( i 45,352) 
Total Owned Brands i 287,032  i   i 163,807 ( i 45,352) i 405,487 
National brands i 1,149,776  i   i    i 1,149,776 
Canada Retail(2)
 i   i 134,599  i    i 134,599 
Total net sales$ i 1,436,808 $ i 134,599 $ i 163,807 $( i 45,352)$ i 1,689,862 
Six months ended July 31, 2021
Owned Brands:(1)
Direct-to-consumer$ i 185,418 $ i  $ i 10,890 $— $ i 196,308 
External customer wholesale and commission income i   i   i 67,660 —  i 67,660 
Intersegment wholesale and commission income— —  i 29,406 ( i 29,406)— 
Total Owned Brands i 185,418  i   i 107,956 ( i 29,406) i 263,968 
National brands i 1,158,333  i   i  —  i 1,158,333 
Canada Retail(2)
 i   i 98,189  i  —  i 98,189 
Total net sales$ i 1,343,751 $ i 98,189 $ i 107,956 $( i 29,406)$ i 1,520,490 
(1)    Owned Brands refers to those brands we have rights to sell through ownership or license arrangements.
(2)    We currently do not report the Canada Retail segment net sales by brand categories.

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Net Sales by Product and Service Categories- The following table presents net sales disaggregated by product and service
category for each segment:
Three months endedSix months ended
(in thousands)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Net sales:
U.S. Retail segment:
Women's footwear$ i 475,079 $ i 467,518 $ i 944,210 $ i 872,818 
Men's footwear i 164,122  i 168,218  i 309,929  i 300,165 
Kids' footwear i 53,185  i 54,112  i 106,103  i 108,844 
Accessories and other i 41,677  i 33,245  i 76,566  i 61,924 
 i 734,063  i 723,093  i 1,436,808  i 1,343,751 
Canada Retail segment:
Women's footwear i 43,802  i 30,230  i 73,806  i 50,661 
Men's footwear i 21,462  i 15,805  i 35,890  i 25,333 
Kids' footwear i 9,592  i 9,554  i 19,409  i 19,067 
Accessories and other i 3,428  i 1,996  i 5,494  i 3,128 
 i 78,284  i 57,585  i 134,599  i 98,189 
Brand Portfolio segment:
Wholesale i 54,136  i 42,715  i 141,911  i 91,358 
First Cost commission income i 4,422  i 2,377  i 7,576  i 5,708 
Direct-to-consumer i 7,793  i 5,437  i 14,320  i 10,890 
 i 66,351  i 50,529  i 163,807  i 107,956 
Total segment net sales i 878,698  i 831,207  i 1,735,214  i 1,549,896 
Elimination of intersegment sales( i 19,379)( i 13,872)( i 45,352)( i 29,406)
Total net sales$ i 859,319 $ i 817,335 $ i 1,689,862 $ i 1,520,490 

DEFERRED REVENUE LIABILITIES

 i We record deferred revenue liabilities, included in accrued expenses on the condensed consolidated balance sheets, for remaining obligations we have to our customers.  i The following table presents the changes and total balances for gift cards and our loyalty programs:
Three months endedSix months ended
(in thousands)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Gift cards:
Beginning of period$ i 32,844 $ i 30,809 $ i 36,783 $ i 34,442 
Gift cards redeemed and breakage recognized to net sales( i 18,295)( i 19,210)( i 36,555)( i 36,380)
Gift cards issued i 15,569  i 17,092  i 29,890  i 30,629 
End of period$ i 30,118 $ i 28,691 $ i 30,118 $ i 28,691 
Loyalty programs:
Beginning of period$ i 16,243 $ i 12,955 $ i 15,736 $ i 11,379 
Loyalty certificates redeemed and expired and other adjustments recognized to net sales( i 8,179)( i 6,008)( i 16,060)( i 10,904)
Deferred revenue for loyalty points issued i 8,724  i 8,308  i 17,112  i 14,780 
End of period$ i 16,788 $ i 15,255 $ i 16,788 $ i 15,255 

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3.  i RELATED PARTY TRANSACTIONS

Schottenstein Affiliates

We have transactions with entities owned or controlled by Jay L. Schottenstein, the executive chairman of our Board of Directors, and members of his family ("Schottenstein Affiliates"). As of July 30, 2022, the Schottenstein Affiliates beneficially owned approximately  i 22% of the Company's outstanding common shares, representing approximately  i 58% of the combined voting power of the Company, consisting of, in the aggregate,  i 6.8 million Class A common shares and  i 7.7 million Class B common shares. The following summarizes the related party transactions with the Schottenstein Affiliates for the relevant periods:

Leases- We lease our fulfillment center and certain store locations owned by the Schottenstein Affiliates. During the three months ended July 30, 2022 and July 31, 2021, we recorded rent expense from leases with Schottenstein Affiliates of $ i 2.5 million and $ i 2.7 million, respectively. During the six months ended July 30, 2022 and July 31, 2021, we recorded rent expense from leases with Schottenstein Affiliates of $ i 5.0 million and $ i 5.4 million, respectively. As of July 30, 2022, January 29, 2022, and July 31, 2021, we had related party current operating lease liabilities of $ i 5.3 million, $ i 6.3 million, and $ i 6.4 million, respectively, and non-current operating lease liabilities of $ i 9.6 million, $ i 18.3 million, and $ i 21.3 million, respectively.

Other Purchases and Services- During the three months ended July 30, 2022 and July 31, 2021, we had other purchases and services we incurred from the Schottenstein Affiliates of $ i 1.4 million and $ i 1.1 million, respectively. For both the six months ended July 30, 2022 and July 31, 2021, we had other purchases and services we incurred from the Schottenstein Affiliates of $ i  i 2.5 /  million.

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

Equity Method Investments

ABG-Camuto- We have a  i 40% interest in our equity investment in ABG-Camuto. We have a licensing agreement with ABG-Camuto, pursuant to which we pay royalties on the net sales of the brands managed by ABG-Camuto, subject to guaranteed minimums. For both the three months ended July 30, 2022 and July 31, 2021, we recorded royalty expense for amounts paid to ABG-Camuto of $ i  i 4.6 /  million. For both the six months ended July 30, 2022 and July 31, 2021, we recorded royalty expense for amounts paid to ABG-Camuto of $ i 9.2 million. Amounts due to ABG-Camuto were immaterial for all periods presented.

Le Tigre- We have a  i 33.3% interest in our equity investment in Le Tigre. On July 1, 2022, we entered into a license agreement with Le Tigre whereby we pay royalties on our net sales from the Le Tigre brand, subject to guaranteed minimums. The license agreement provides for the exclusive right to design and produce Le Tigre branded footwear to be sold primarily through our DSW and The Shoe Company direct-to-consumer stores and e-commerce sites. Activity with Le Tigre during the six months ended July 30, 2022 was immaterial.

4.  i EARNINGS PER SHARE

 i Basic earnings per share is based on net income and the weighted average of Class A and Class B common shares outstanding. Diluted earnings per share reflects the potential dilution of common shares adjusted for outstanding stock options and restricted stock units ("RSUs") calculated using the treasury stock method.

 i 
The following is a reconciliation between basic and diluted weighted average shares outstanding, as used in the calculation of earnings per share:
Three months endedSix months ended
(in thousands)
July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Weighted average basic shares outstanding
 i 69,604  i 72,932  i 71,263  i 72,773 
Dilutive effect of stock-based compensation awards
 i 4,338  i 4,687  i 4,106  i 4,498 
Weighted average diluted shares outstanding
 i 73,942  i 77,619  i 75,369  i 77,271 
 / 
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For the three months ended July 30, 2022 and July 31, 2021, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings per share due to their anti-dilutive effect was  i 3.1 million and  i 2.9 million, respectively. For both the six months ended July 30, 2022 and July 31, 2021, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings per share due to their anti-dilutive effect was  i 3.0 million.

5.  i STOCK-BASED COMPENSATION

 i 
Stock-based compensation expense consisted of the following:
Three months endedSix months ended
(in thousands)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Stock options$ i  $ i 132 $ i 101 $ i 385 
Restricted and director stock units i 7,369  i 5,776  i 15,862  i 12,980 
$ i 7,369 $ i 5,908 $ i 15,963 $ i 13,365 
 / 

 i 
The following table summarizes the stock-based compensation award share activity for RSUs for the six months ended July 30, 2022:
(in thousands)Shares of Time-Based RSUsShares of Performance-Based RSUs
Outstanding - beginning of period i 6,058  i 744 
Granted i 1,915  i 614 
Vested( i 641)( i 174)
Forfeited( i 115) i  
Outstanding - end of period i 7,217  i 1,184 
 / 

6.  i SHAREHOLDERS' EQUITY

 i Shares- Our Class A common shares are listed for trading under the ticker symbol "DBI" on the New York Stock Exchange. There is currently no public market for the Company's Class B common shares, but the Class B common shares can be exchanged for the Company's Class A common shares at the election of the holder on a share for share basis. Holders of Class A common shares are entitled to  i one vote per share and holders of Class B common shares are entitled to  i eight votes per share on matters submitted to shareholders for approval.

 i 
The following table provides additional information for our common shares:
(in thousands)July 30, 2022January 29, 2022July 31, 2021
Class AClass BClass AClass BClass AClass B
Authorized shares i 250,000  i 100,000  i 250,000  i 100,000  i 250,000  i 100,000 
Issued shares i 88,397  i 7,733  i 87,793  i 7,733  i 87,405  i 7,733 
Outstanding shares i 56,803  i 7,733  i 65,624  i 7,733  i 65,236  i 7,733 
Treasury shares i 31,594  i   i 22,169  i   i 22,169  i  
 / 

We have authorized  i 100 million shares of  i no par value preferred shares, with  i no shares issued for any of the periods presented.

Dividends- On August 25, 2022, the Board of Directors declared a quarterly cash dividend payment of $ i 0.05 per share for both Class A and Class B common shares. The dividend will be paid on October 6, 2022 to shareholders of record at the close of business on September 22, 2022, and is expected to be recorded against retained earnings.

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Share Repurchases- On August 17, 2017, the Board of Directors authorized the repurchase of an additional $ i 500 million of Class A common shares under our share repurchase program, which was added to the $ i 33.5 million remaining from the previous authorization. During the six months ended July 30, 2022, we repurchased  i 9.4 million Class A common shares at an aggregate cost of $ i 128.5 million, with $ i 206.4 million of Class A common shares that remain authorized under the program as of July 30, 2022. The share repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common shares under the program. Shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions.

7.  i RECEIVABLES

 i 
Receivables, net, consisted of the following:
(in thousands)July 30, 2022January 29, 2022July 31, 2021
Customer accounts receivables:
Serviced by third-party provider with guaranteed payment$ i 31,172 $ i 27,827 $ i 27,638 
Serviced by third-party provider without guaranteed payment i 126  i 82  i 76 
Serviced in-house i 2,768  i 2,783  i 2,665 
Income tax receivable  i 163,825  i 162,240  i 158,890 
Other receivables i 8,076  i 8,026  i 11,295 
Total receivables i 205,967  i 200,958  i 200,564 
Allowance for doubtful accounts( i 1,087)( i 1,132)( i 1,193)
$ i 204,880 $ i 199,826 $ i 199,371 
 / 

8.  i ACCRUED EXPENSES

 i 
Accrued expenses consisted of the following:
(in thousands)July 30, 2022January 29, 2022July 31, 2021
Gift cards$ i 30,118 $ i 36,783 $ i 28,691 
Accrued compensation and related expenses i 45,687  i 41,603  i 49,037 
Accrued taxes i 30,027  i 28,327  i 35,030 
Loyalty programs deferred revenue i 16,788  i 15,736  i 15,255 
Sales returns, customer allowances and discounts i 21,353  i 20,671  i 21,307 
Other i 66,496  i 72,692  i 72,735 
$ i 210,469 $ i 215,812 $ i 222,055 
 / 

9.  i DEBT

 i 
Debt consisted of the following:
(in thousands)July 30, 2022January 29, 2022July 31, 2021
2020 ABL Revolver$ i  $ i  $ i 16,810 
2022 ABL Revolver i 387,441  i   i  
Term Loan i   i 231,250  i 237,500 
Total debt i 387,441  i 231,250  i 254,310 
Less unamortized Term Loan debt issuance costs i  ( i 5,714)( i 7,241)
Less current maturities of long-term debt i   i  ( i 62,500)
Long-term debt$ i 387,441 $ i 225,536 $ i 184,569 
 / 

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2022 ABL Revolver- On March 30, 2022, we replaced our previous senior secured asset-based revolving credit facility ("2020 ABL Revolver") with our current senior secured asset-based revolving credit facility ("2022 ABL Revolver"), which provides a revolving line of credit of up to $ i 550.0 million, including a Canadian sub-limit of up to $ i 55.0 million, a $ i 75.0 million sub-limit for the issuance of letters of credit, a $ i 55.0 million sub-limit for swing loan advances for U.S. borrowings, and a $ i 5.5 million sub-limit for swing loan advances for Canadian borrowings. Our 2022 ABL Revolver matures in March 2027 and is secured by a first priority lien on substantially all of our personal property assets, including credit card receivables and inventory. The 2022 ABL Revolver 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 July 30, 2022, the 2022 ABL Revolver had a borrowing base of $ i 550.0 million, with $ i 387.4 million in outstanding borrowings and $ i 4.9 million in letters of credit issued, resulting in $ i 157.7 million available for borrowings.

Borrowings and letters of credit issued under the 2022 ABL Revolver accrue interest, at our option, at a rate equal to: (A) a base rate per annum equal to the greatest of (i) the prime rate, (ii) the Fed Funds Rate (as defined and subject to a floor of  i 0%) plus  i 0.5%, and (iii) the one-month Adjusted Term SOFR (as defined) plus  i 1.0%; or (B) a one-month, three-month or six-month Adjusted Term SOFR per annum (subject to a floor of  i 0%), plus, in each instance, an applicable rate to be determined based on average availability, with an interest rate of  i 3.9% as of July 30, 2022. Commitment fees are based on the unused portion of the 2022 ABL Revolver. Interest expense related to the 2022 ABL Revolver includes interest on borrowings and letters of credit, commitment fees, and the amortization of debt issuance costs.

Debt Covenants- The 2022 ABL Revolver requires us to maintain a fixed charge coverage ratio covenant of not less than  i 1:1 when availability is less than the greater of $ i 41.3 million and  i 10.0% of the maximum borrowing amount. The 2022 ABL Revolver also contains customary covenants restricting our activities, including limitations on the 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. The 2022 ABL Revolver contains customary events of default, including failure to comply with certain financial and other covenants. Upon an event of default that is not cured or waived within the cure periods, in addition to other remedies that may be available to the lenders, the obligations may be accelerated, outstanding letters of credit may be required to be cash collateralized, and remedies may be exercised against the collateral. As of July 30, 2022, we were in compliance with all financial covenants.

Termination of Term Loan- On February 8, 2022, we settled in full the $ i 231.3 million principal amount outstanding on that date under our senior secured term loan agreement ("Term Loan"). In connection with this settlement, we incurred a $ i 12.7 million loss on extinguishment of debt, composed of a $ i 6.9 million prepayment premium and a $ i 5.7 million write-off of unamortized debt issuance costs.

10.  i COMMITMENTS AND CONTINGENCIES

Legal Proceedings- We are involved in various legal proceedings that are incidental to the conduct of our business. Although it is not possible to predict with certainty the eventual outcome of any litigation, we believe the amount of any potential liability with respect to current legal proceedings will not be material to our results of operations or financial condition. As additional information becomes available, we will assess any potential liability related to pending litigation and revise the estimates as needed.

Guarantee- We provide guarantees for lease obligations that are scheduled to expire in 2023 for locations that have been leased to third parties. If a third party does not pay the rent or vacates the premise, we may be required to make full rent payments to the landlord. As of July 30, 2022, the total future minimum lease payment requirements under these guarantees were approximately $ i 12.0 million.

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11.  i SEGMENT REPORTING
 i 
The following provides certain key financial data by segment reconciled to the condensed consolidated financial statements:
(in thousands)U.S. RetailCanada RetailBrand PortfolioEliminationsConsolidated
Three months ended July 30, 2022
Net sales:
External customer sales$ i 734,063 $ i 78,284 $ i 46,972 $ i  $ i 859,319 
Intersegment sales   i 19,379 ( i 19,379) 
Total net sales$ i 734,063 $ i 78,284 $ i 66,351 $( i 19,379)$ i 859,319 
Gross profit$ i 251,143 $ i 30,974 $ i 12,294 $ i 1,259 $ i 295,670 
Income from equity investments$ i  $ i  $ i 2,435 $ i  $ i 2,435 
Three months ended July 31, 2021
Net sales:
External customer sales$ i 723,093 $ i 57,585 $ i 36,657 $ i  $ i 817,335 
Intersegment sales— —  i 13,872 ( i 13,872)— 
Total net sales$ i 723,093 $ i 57,585 $ i 50,529 $( i 13,872)$ i 817,335 
Gross profit$ i 256,893 $ i 18,768 $ i 8,533 $ i 487 $ i 284,681 
Income from equity investment$ i  $ i  $ i 2,290 $ i  $ i 2,290 
Six months ended July 30, 2022
Net sales:
External customer sales$ i 1,436,808 $ i 134,599 $ i 118,455 $ i  $ i 1,689,862 
Intersegment sales   i 45,352 ( i 45,352) 
Total net sales$ i 1,436,808 $ i 134,599 $ i 163,807 $( i 45,352)$ i 1,689,862 
Gross profit$ i 484,210 $ i 49,847 $ i 36,136 $ i 1,222 $ i 571,415 
Income from equity investments$ i  $ i  $ i 4,380 $ i  $ i 4,380 
Six months ended July 31, 2021
Net sales:
External customer sales$ i 1,343,751 $ i 98,189 $ i 78,550 $ i  $ i 1,520,490 
Intersegment sales— —  i 29,406 ( i 29,406)— 
Total net sales$ i 1,343,751 $ i 98,189 $ i 107,956 $( i 29,406)$ i 1,520,490 
Gross profit$ i 450,006 $ i 29,603 $ i 20,459 $ i 724 $ i 500,792 
Income from equity investment $ i  $ i  $ i 3,998 $ i  $ i 3,998 
 / 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW AND TRENDS IN OUR BUSINESS FOR THE SECOND QUARTER OF 2022

For the second quarter of 2022, consolidated net sales increased 5.1% and comparable sales increased 6.2% over the same period last year with each of our three segments contributing to these increases. Net sales during the second quarter of 2022 from our Owned Brands increased 40.4% over the same period last year, with Owned Brands represented 22.7% of consolidated net sales as compared to 17.0% for the same period last year. This growth came despite volatile market conditions, including increased freight costs and supply chain disruptions. We continue to make progress on our initiatives centered on our three pillars - Customer, Brand, and Speed - as we work towards our long-term strategic plans.

IMPACT OF THE COVID-19 PANDEMIC ON OUR RESULTS OF OPERATIONS

The COVID-19 pandemic continues to impact the global economy and has created supply chain disruptions, inflationary pressures, higher freight and labor costs, and labor shortages. While we experienced continued improvement in our performance during the second quarter of 2022, we cannot reasonably estimate the extent to which our business will continue to be affected by the COVID-19 pandemic and to what extent the recent improved trends in our business will continue.

We continue to assess the likelihood of realizing the benefits of our deferred tax assets by evaluating historical and projected future operating results, the reversal of existing temporary differences, taxable income in permitted carry back years, and the availability of tax planning strategies. In evaluating future taxable income, significant weight is given to positive and negative evidence that is objectively verifiable. As a result of the losses incurred in 2020 due to the impacts of the COVID-19 pandemic, we were in a three-year cumulative loss position as of July 30, 2022, which was significant objective negative evidence in considering whether deferred tax assets are realizable. Such objective evidence limits the ability to consider other subjective evidence, such as the projection of future taxable income. As of July 30, 2022, a valuation allowance has been maintained as a reserve on substantially all of our net deferred tax assets due to the uncertainty of realization of our loss carry forwards and other deferred tax assets. Given the continued realization of income since 2020 and projected future income, sufficient positive evidence may become available for the release of all or a portion of the valuation allowance within the next twelve months. Such a release would result in a material non-cash income tax benefit in our consolidated statement of operations in the period of release and the recording of additional deferred tax assets on our consolidated balance sheet. However, the exact timing and amount of the valuation allowance releases are subject to change based on the level of profitability achieved in future periods.

FINANCIAL SUMMARY AND OTHER KEY METRICS
For the three months ended July 30, 2022:
Net sales increased to $859.3 million from $817.3 million for the three months ended July 31, 2021.
Gross profit as a percentage of net sales was 34.4% compared to 34.8% for the same period last year.
Net income was $46.2 million, or $0.62 per diluted share, which included after-tax charges of $2.0 million primarily related to impairment and restructuring charges, offset by the change in valuation allowance on deferred tax assets of $2.1 million. Net income for the three months ended July 31, 2021 was $42.9 million, or $0.55 per diluted share, which included after-tax charges of $6.0 million primarily related to target acquisition costs, restructuring charges, and impairment charges, partially offset by the change in valuation allowance on deferred tax assets of $5.4 million, or $0.01 per diluted share on a net basis.

Comparable Sales Performance Metric- The following table presents the change in comparable sales for each segment and in total:
Three months ended
July 30, 2022July 31, 2021
Change in comparable sales:
U.S. Retail segment2.7 %94.3 %
Canada Retail segment47.3 %14.6 %
Brand Portfolio segment - direct-to-consumer channel43.3 %10.6 %
Total6.2 %84.9 %

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We consider the change in comparable sales from the same previous year period, a primary metric commonly used throughout the retail industry, to be an important indicator of the performance of our retail and direct-to-consumer businesses. We include in our comparable sales metric stores in operation for at least 14 months at the beginning of the fiscal 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 stores temporarily closed as a result of the COVID-19 pandemic as management continues to believe that this metric is meaningful to monitor our performance. Comparable sales also include e-commerce sales. 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 for the Brand Portfolio segment include the direct-to-consumer e-commerce site www.vincecamuto.com. 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.

Number of Stores- As of July 30, 2022 and July 31, 2021, we had the following number of stores:
July 30, 2022July 31, 2021
U.S. Retail segment - DSW stores506 515 
Canada Retail segment:
The Shoe Company stores113 116 
DSW stores25 27 
138 143 
Total number of stores644 658 

RESULTS OF OPERATIONS

SECOND QUARTER OF 2022 COMPARED WITH SECOND QUARTER OF 2021

(amounts in thousands, except per share amounts)Three months ended
July 30, 2022July 31, 2021Change
Amount% of Net SalesAmount% of Net SalesAmount%
Net sales$859,319 100.0 %$817,335 100.0 %$41,984 5.1 %
Cost of sales(563,649)(65.6)(532,654)(65.2)(30,995)5.8 %
Gross profit295,670 34.4 284,681 34.8 10,989 3.9 %
Operating expenses(228,690)(26.6)(224,385)(27.5)(4,305)1.9 %
Income from equity investments2,435 0.3 2,290 0.3 145 6.3 %
Impairment charges(1,816)(0.2)(1,174)(0.1)(642)54.7 %
Operating profit67,599 7.9 61,412 7.5 6,187 10.1 %
Interest expense, net(2,752)(0.3)(8,072)(1.0)5,320 (65.9)%
Non-operating income (expenses), net37  (244)— 281 NM
Income before income taxes 64,884 7.6 53,096 6.5 11,788 22.2 %
Income tax provision(18,671)(2.2)(10,236)(1.3)(8,435)82.4 %
Net income$46,213 5.4 %$42,860 5.2 %$3,353 7.8 %
Basic and diluted earnings per share:
Basic earnings per share$0.66 $0.59 $0.07 11.9 %
Diluted earnings per share$0.62 $0.55 $0.07 12.7 %
Weighted average shares used in per share calculations:
Basic shares69,604 72,932 (3,328)(4.6)%
Diluted shares73,942 77,619 (3,677)(4.7)%
NM - Not meaningful

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Net Sales- The following summarizes net sales by segment:
Three months ended
(dollars in thousands)July 30, 2022July 31, 2021Change
Amount% of Segment Net SalesAmount% of Segment Net SalesAmount%Comparable Sales
Segment net sales:
U.S. Retail$734,063 83.5 %$723,093 87.0 %$10,970 1.5 %2.7 %
Canada Retail78,284 8.9 %57,585 6.9 %20,699 35.9 %47.3 %
Brand Portfolio66,351 7.6 %50,529 6.1 %15,822 31.3 %43.3 %
Total segment net sales878,698 100.0 %831,207 100.0 %47,491 5.7 %6.2 %
Elimination of intersegment net sales(19,379)(13,872)(5,507)39.7 %
Consolidated net sales$859,319 $817,335 $41,984 5.1 %

The improvement in sales during the three months ended July 30, 2022 over the same period last year was primarily due to the increase in comparable sales across all segments, with a significant increase from the Canada Retail segment as it was impacted during the three months ended July 31, 2021 by continued mandated closures and restrictions in certain key markets. The U.S. Retail segment's comparable sales benefited from higher comparable average unit retail prices. In addition, wholesale sales in the Brand Portfolio segment were higher in the second quarter of 2022 as compared to the same period last year due to increased orders as our retailer customers continue to recover. These increases were partially offset by the impact of stores closed since the end of the second quarter of 2021.

Gross Profit- The following summarizes gross profit by segment:
Three months ended
(dollars in thousands)
July 30, 2022July 31, 2021Change
Amount% of Segment Net SalesAmount% of Segment Net SalesAmount%Basis Points
Segment gross profit:
U.S. Retail$251,143 34.2 %$256,893 35.5 %$(5,750)(2.2)%(130)
Canada Retail30,974 39.6 %18,768 32.6 %12,206 65.0 %700 
Brand Portfolio12,294 18.5 %8,533 16.9 %3,761 44.1 %160 
Total segment gross profit294,411 33.5 %284,194 34.2 %10,217 3.6 %(70)
Net recognition of intersegment gross profit1,259 487 772 
Consolidated gross profit$295,670 34.4 %$284,681 34.8 %$10,989 3.9 %(40)

The increase in consolidated gross profit was primarily driven by increased sales during the second quarter of 2022 over the same period last year, partially offset by higher freight costs. The decrease in U.S. Retail segment gross profit was also impacted by moving our digital fulfillment activities from our Columbus location to our New Jersey location, which resulted in recognizing approximately $6.0 million of additional distribution costs, including accelerated depreciation. Consolidated gross profit as a percentage of consolidated net sales was down slightly due to higher freight costs impacting all of our segments, as well as the U.S. Retail segment with an increase in clearance sales and distribution costs, whereas the Canada Retail and Brand Portfolio segments increased due to being less promotional and improved leverage of occupancy costs and royalty expenses on higher sales volume.

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The net recognition of intersegment gross profit consisted of the following:
Three months ended
(in thousands)July 30, 2022July 31, 2021
Recognition (elimination) of intersegment activity:
Net sales recognized by Brand Portfolio segment$(19,379)$(13,872)
Cost of sales:
Cost of sales recognized by Brand Portfolio segment12,554 9,707 
Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period8,084 4,652 
$1,259 $487 

Operating Expenses- For the three months ended July 30, 2022, operating expenses increased by $4.3 million over the same period last year, primarily driven by an increase in store payroll and marketing expenses in line with the increase in net sales, partially offset by target acquisition costs recognized last year. Operating expenses as a percentage of sales improved to 26.6% compared to 27.5% in the same period last year due to the improvement in net sales year over year as we leveraged our fixed costs.

Interest Expense, net- For the three months ended July 30, 2022, interest expense, net, decreased by $5.3 million over the same period last year, primarily due to the termination of the Term Loan in the first quarter of 2022, which had a higher interest rate than the 2022 ABL Revolver.

Income Taxes- For the three months ended July 30, 2022 and July 31, 2021, our effective tax rate was 28.8% and 19.3%, respectively. The rate for three months ended July 30, 2022 was impacted by permanent tax adjustments, primarily non-deductible compensation. The rate for the three months ended July 31, 2021 was the result of maintaining a full valuation allowance on deferred tax assets.

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SIX MONTHS OF 2022 COMPARED WITH SIX MONTHS OF 2021

(amounts in thousands, except per share amounts)Six months ended
July 30, 2022July 31, 2021Change
Amount% of Net SalesAmount% of Net SalesAmount%
Net sales$1,689,862 100.0 %$1,520,490 100.0 %$169,372 11.1 %
Cost of sales(1,118,447)(66.2)(1,019,698)(67.1)(98,749)9.7 %
Gross profit571,415 33.8 500,792 32.9 70,623 14.1 %
Operating expenses(452,116)(26.8)(425,199)(28.0)(26,917)6.3 %
Income from equity investments4,380 0.3 3,998 0.3 382 9.6 %
Impairment charges(2,888)(0.2)(1,174)(0.1)(1,714)146.0 %
Operating profit120,791 7.1 78,417 5.1 42,374 54.0 %
Interest expense, net(5,704)(0.3)(16,886)(1.1)11,182 (66.2)%
Loss on extinguishment of debt and write-off of debt issuance costs(12,862)(0.7)— — (12,862)NM
Non-operating income, net43  562 — (519)(92.3)%
Income before income taxes 102,268 6.1 62,093 4.0 40,175 64.7 %
Income tax provision(29,873)(1.8)(2,207)(0.1)(27,666)1,253.6 %
Net income$72,395 4.3 %$59,886 3.9 %$12,509 20.9 %
Basic and diluted earnings per share:
Basic earnings per share$1.02 $0.82 $0.20 24.4 %
Diluted earnings per share$0.96 $0.78 $0.18 23.1 %
Weighted average shares used in per share calculations:
Basic shares71,263 72,773 (1,510)(2.1)%
Diluted shares75,369 77,271 (1,902)(2.5)%
NM - Not meaningful

Net Sales- The following summarizes net sales by segment:
Six months ended
(dollars in thousands)July 30, 2022July 31, 2021Change
Amount% of Segment Net SalesAmount% of Segment Net SalesAmount%Comparable Sales
Segment net sales:
U.S. Retail$1,436,808 82.8%$1,343,751 86.7%$93,057 6.9 %7.8 %
Canada Retail134,599 7.8%98,189 6.3%36,410 37.1 %44.8 %
Brand Portfolio163,807 9.4%107,956 7.0%55,851 51.7 %31.5 %
Total segment net sales1,735,214 100%1,549,896 100.0%185,318 12.0 %10.4 %
Elimination of intersegment net sales(45,352)(29,406)(15,946)54.2 %
Consolidated net sales$1,689,862 $1,520,490 $169,372 11.1 %

The improvement in sales during the six months ended July 30, 2022 over the same period last year was primarily due to the increase in comparable sales across all segments, primarily driven by the fact that during the six months ended July 31, 2021, the prolonged COVID-19 pandemic resulted in significantly reduced store traffic in the U.S. Retail and Canada Retail segments, with the Canada Retail segment also impacted by continued mandated closures and restrictions in certain key markets. In addition, wholesale sales in the Brand Portfolio segment were higher in the first half of 2022 as compared to the
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same period last year due to increased orders as our retailer customers continue to recover. These increases were partially offset by the impact of stores closed since the end of the second quarter of 2021.

Gross Profit- The following summarizes gross profit by segment:
Six months ended
(dollars in thousands)
July 30, 2022July 31, 2021Change
Amount% of Segment Net SalesAmount% of Segment Net SalesAmount%Basis Points
Segment gross profit:
U.S. Retail$484,210 33.7 %$450,006 33.5 %$34,204 7.6 %20 
Canada Retail49,847 37.0 %29,603 30.1 %20,244 68.4 %690 
Brand Portfolio36,136 22.1 %20,459 19.0 %15,677 76.6 %310 
Total segment gross profit570,193 32.9 %500,068 32.3 %70,125 14.0 %60 
Net recognition of intersegment gross profit1,222 724 498
Consolidated gross profit$571,415 33.8 %$500,792 32.9 %$70,623 14.1 %90 

The improvement in consolidated gross profit was primarily driven by increased sales during the six months ended July 30, 2022 over the same period last year and being less promotional, partially offset by higher freight costs and distribution costs. Gross profit as a percentage of net sales for the U.S. Retail and Canada Retail segments increased due to being less promotional and improved leverage on occupancy costs, partially offset by higher freight costs in both segments and higher distribution costs in the U.S. Retail segment. The higher distribution costs within the U.S. Retail segment were primarily driven by moving digital fulfillment activities from our Columbus location to our New Jersey location. The improvement in gross profit as a percentage of net sales for the Brand Portfolio segment was primarily driven by the leverage of royalty expenses on higher sales volume.

The net recognition of intersegment profit consisted of the following:
Six months ended
(in thousands)July 30, 2022July 31, 2021
Recognition (elimination) of intersegment activity:
Net sales recognized by Brand Portfolio segment$(45,352)$(29,406)
Cost of sales:
Cost of sales recognized by Brand Portfolio segment30,723 20,642 
Recognition of intersegment gross profit for inventory previously purchased that was subsequently sold to external customers during the current period15,851 9,488 
$1,222 $724 

Operating Expenses- For the six months ended July 30, 2022, operating expenses increased by $26.9 million over the same period last year, primarily driven by an increase in store payroll and marketing expenses in line with the increase in net sales. Operating expenses as a percentage of sales improved to 26.8% compared to 28.0% in the same period last year, due to the improvement in net sales year over year as we leveraged our fixed costs.

Interest Expense, net- For the six months ended July 30, 2022, interest expense, net, decreased by $11.2 million over the same period last year, primarily due to the termination of the Term Loan in the first quarter of 2022, which had a higher interest rate than the 2022 ABL Revolver.

Loss on extinguishment of debt and write-off of debt issuance costs- In connection with the settlement of our Term Loan on February 8, 2022, during the six months ended July 30, 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 2020 ABL Revolver during the six months ended July 30, 2022, we also wrote-off $0.2 million of debt issuance costs.

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Income Taxes- For the six months ended July 30, 2022 and July 31, 2021, our effective tax rate was 29.2% and 3.6%, respectively. The rate for the six months ended July 30, 2022 was impacted by permanent tax adjustments, primarily non-deductible compensation. The rate for the six months ended July 31, 2021 was the result of maintaining a full valuation allowance on deferred tax assets along with net discrete tax benefits, primarily as a result of adjustments to our estimated 2020 return reflecting implemented tax strategies.

SEASONALITY

Our business consists of two principal selling seasons; the spring season, which includes the first and second fiscal quarters, and the fall season, which includes the third and fourth fiscal quarters. Generally, net sales in the fall season have been slightly higher than the spring season. Our seasonal results of operations may fluctuate based on the change in weather conditions and our customers' interest in new seasonal styles. Due to the COVID-19 pandemic, we did not experience the typical seasonal trends during 2021 given the changes in customer behavior.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

Our primary ongoing operating cash flow requirements are for inventory purchases, payments on lease obligations and licensing royalty commitments, other working capital needs, and capital expenditures. Our working capital and inventory levels fluctuate seasonally. During the six months ended July 30, 2022, we repurchased 9.4 million Class A common shares at an aggregate cost of $128.5 million, with $206.4 million of Class A common shares that remain authorized under the program as of July 30, 2022. During the six months ended July 31, 2021, we did not repurchase any Class A common shares. We anticipate receiving approximately $160.0 million in the near future from the Internal Revenue Service as a result of the Coronavirus Aid, Relief, and Economic Security Act.

We are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business and withstand unanticipated business volatility, including any ongoing impacts of the COVID-19 pandemic. We believe that cash generated from our operations, together with our current levels of cash, as well as the use of our 2022 ABL Revolver, are sufficient to maintain our ongoing operations, support seasonal working capital requirements, fund capital expenditures, and repurchase common shares under our share repurchase program over the next 12 months and beyond.

The following table presents the key categories of our condensed consolidated statements of cash flows:
Six months ended
(in thousands)July 30, 2022July 31, 2021Change
Net cash provided by operating activities$10,864 $96,229 $(85,365)
Net cash used in investing activities(40,234)(13,189)(27,045)
Net cash provided by (used in) financing activities7,398 (94,955)102,353 
Effect of exchange rate changes on cash balances80 338 (258)
Net decrease in cash, cash equivalents and restricted cash$(21,892)$(11,577)$(10,315)

OPERATING CASH FLOWS

The decrease in net cash provided by operations was driven by higher spend on working capital as our business continues to recover from the impacts of the COVID-19 pandemic with increases in consolidated inventories, increases in receivables on wholesale sales, and timing of payments to vendors. This was partially offset by the increase in net income recognized in the six months ended July 30, 2022 over the same period last year, after adjusting for non-cash activity including the loss from extinguishment of debt and write-off of debt issuance costs, depreciation and amortization, and stock-based compensation expense.

INVESTING CASH FLOWS

For the six months ended July 30, 2022, net cash used in investing activities was primarily due to capital expenditures relating to infrastructure and information technology ("IT") projects and store improvements as well as our investment in Le Tigre. During the six months ended July 31, 2021, the net cash used in investing activities was due to capital expenditures relating to IT projects and store improvements.
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FINANCING CASH FLOWS

For the six months ended July 30, 2022, net cash provided by financing activities was due to net receipts of $387.4 million from our revolving lines of credit, partially offset by the payments of $238.2 million due to the settlement of the Term Loan, the repurchase of 9.4 million Class A common shares at an aggregate cost of $128.5 million, and the payment of dividends of $7.1 million. During the six months ended July 31, 2021, net cash used in financing activities was due to net payments of $83.2 million on our revolving lines of credit and payments on the Term Loan of $6.3 million.

DEBT

2022 ABL Revolver- On March 30, 2022, we replaced our 2020 ABL Revolver with our current 2022 ABL Revolver, which provides a revolving line of credit of up to $550.0 million, including a Canadian sub-limit of up to $55.0 million, a $75.0 million sub-limit for the issuance of letters of credit, a $55.0 million sub-limit for swing loan advances for U.S. borrowings, and a $5.5 million sub-limit for swing loan advances for Canadian borrowings. Our 2022 ABL Revolver matures in March 2027 and is secured by a first priority lien on substantially all of our personal property assets, including credit card receivables and inventory. The 2022 ABL Revolver 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 July 30, 2022, the 2022 ABL Revolver had a borrowing base of $550.0 million, with $387.4 million in outstanding borrowings and $4.9 million in letters of credit issued, resulting in $157.7 million available for borrowings.

Debt Covenants- The 2022 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 $41.3 million and 10.0% of the maximum borrowing amount. The 2022 ABL Revolver also contains customary covenants restricting our activities, including limitations on the 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 July 30, 2022, we were in compliance with all financial covenants.

Termination of Term Loan - On February 8, 2022, we settled in full the $231.3 million principal amount outstanding on that date under our Term Loan. In connection with this settlement, 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.

Refer to Note 9, Debt, of the Condensed Consolidated Financial Statements of this Form 10-Q for further information about our debt arrangements.

CAPITAL EXPENDITURE PLANS

We expect to spend approximately $65.0 million to $75.0 million for capital expenditures in 2022, of which we invested $27.2 million during the six months ended July 30, 2022. 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.

RECENT ACCOUNTING PRONOUNCEMENTS

There are no recent accounting pronouncements that are expected to have a material impact to our consolidated financial statements when adopted.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of commitments and contingencies at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting period. We base these estimates and judgments on factors we believe to be relevant, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The process of determining significant estimates is fact-specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial and valuation techniques. We constantly re-evaluate these significant factors and make adjustments where facts and circumstances dictate. While we believe that the factors considered provide a meaningful basis for the accounting policies applied in the preparation of the condensed consolidated financial statements, we cannot guarantee that our estimates and assumptions will be accurate. As the determination of these estimates requires the exercise of judgment, actual results may differ from those estimates, and such differences may be material to our condensed consolidated financial statements. There have been no material changes to the application of critical accounting policies and estimates disclosed in our 2021 Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have market risk exposure related to interest rates and foreign currency exchange rates. There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our 2021 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this Form 10-Q, that such disclosure controls and procedures were effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No change was made in our internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d -15(e), during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 10, Commitments and Contingencies - Legal Proceedings, of the Condensed Consolidated Financial Statements in this Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

As of the date of this filing, there have been no material changes to the risk factors as set forth in Part I, Item 1A., Risk Factors, in our 2021 Form 10-K.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

SHARE REPURCHASE PROGRAM

On August 17, 2017, the Board of Directors authorized the repurchase of an additional $500 million of Class A common shares under our share repurchase program, which was added to the $33.5 million remaining from the previous authorization. The
share repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase
any amount of our common shares under the program. Shares will be repurchased in the open market at times and in amounts
considered appropriate based on price and market conditions.

The following table sets forth the Class A common shares repurchased during the three months ended July 30, 2022:
(in thousands, except per share amounts)
(a) Total Number of Shares Purchased(1)
(b) Average Price Paid Per Share(2)
(c) Total Number of Shares Purchased as Part of Publicly Announced Programs(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
May 1, 2022 to May 28, 20221,829$13.56 1,829$287,386 
May 29, 2022 to July 2, 20221,558$13.92 1,543$265,894 
July 3, 2022 to July 30, 20224,405$13.50 4,397$206,437 
Total 7,792$13.62 7,769

(1)     The total number of shares repurchased includes the shares repurchased as part of publicly announced programs and 22,605 shares withheld in connection with tax payments due upon vesting of employee restricted stock awards.
(2)    The average price paid per share includes broker commissions paid.

DIVIDENDS

The payment of any future dividends is at the discretion of our Board of Directors and is based on our future earnings, cash flow, financial condition, capital requirements, changes in taxation laws, general economic condition and any other relevant factors. It is anticipated that dividends will be declared on a quarterly basis.

On August 25, 2022, the Board of Directors declared a quarterly cash dividend payment of $0.05 per share for both Class A and Class B common shares. The dividend will be paid on October 6, 2022 to shareholders of record at the close of business on September 22, 2022, and is expected to be recorded against retained earnings.

RESTRICTIONS

The 2022 ABL Revolver contains customary covenants restricting our activities, including limitations on the ability to pay dividends or repurchase stock. There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions based on availability.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Incorporated by Reference
Exhibit NumberExhibit DescriptionFormFile No.Date of FilingExhibit Number
Rule 13a-14(a)/15d-14(a) Certification - Principal Executive Officer.----
Rule 13a-14(a)/15d-14(a) Certification - Principal Financial Officer.----
Section 1350 Certification - Principal Executive Officer.----
Section 1350 Certification - Principal Financial Officer.----
101*The following materials from the Designer Brands Inc. Quarterly Report on Form 10-Q for the quarter ended July 30, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Shareholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed the Consolidated Financial Statements.----
104*Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.----

*    Filed herewith
**    Furnished herewith     

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DESIGNER BRANDS INC.

Date:August 31, 2022By: /s/ Jared Poff
Jared Poff
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and duly authorized officer)

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
10/6/22
9/22/22
Filed on:8/31/228-K
8/25/228-K
For Period end:7/30/22
7/3/22
7/2/22
7/1/224
5/29/22
5/28/22
5/1/22
4/30/2210-Q
3/30/228-K
3/21/2210-K
2/8/22
1/29/2210-K
7/31/2110-Q
5/1/2110-Q
1/30/2110-K
8/17/17
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